-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nzik1SVPPbSAoVjSsxmBY11IMXXe7bLapojgenO53gGKOa+/X+p6qRaZUdBZ3VYj z965lO/+hh2aQHDF+1N8WA== 0000950116-98-002486.txt : 19981228 0000950116-98-002486.hdr.sgml : 19981228 ACCESSION NUMBER: 0000950116-98-002486 CONFORMED SUBMISSION TYPE: SC 13E4 PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 19981223 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PEP BOYS MANNY MOE & JACK CENTRAL INDEX KEY: 0000077449 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO & HOME SUPPLY STORES [5531] IRS NUMBER: 230962915 STATE OF INCORPORATION: PA FISCAL YEAR END: 0201 FILING VALUES: FORM TYPE: SC 13E4 SEC ACT: SEC FILE NUMBER: 005-12733 FILM NUMBER: 98775001 BUSINESS ADDRESS: STREET 1: 3111 W ALLEGHENY AVE CITY: PHILADELPHIA STATE: PA ZIP: 19132 BUSINESS PHONE: 2152299000 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: PEP BOYS MANNY MOE & JACK CENTRAL INDEX KEY: 0000077449 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO & HOME SUPPLY STORES [5531] IRS NUMBER: 230962915 STATE OF INCORPORATION: PA FISCAL YEAR END: 0201 FILING VALUES: FORM TYPE: SC 13E4 BUSINESS ADDRESS: STREET 1: 3111 W ALLEGHENY AVE CITY: PHILADELPHIA STATE: PA ZIP: 19132 BUSINESS PHONE: 2152299000 SC 13E4 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ SCHEDULE 13E-4 ISSUER TENDER OFFER STATEMENT (PURSUANT TO SECTION 13(e)(1) OF THE SECURITIES EXCHANGE ACT OF 1934) ------------------------ THE PEP BOYS - MANNY, MOE & JACK (NAME OF ISSUER) THE PEP BOYS - MANNY, MOE & JACK (NAME OF PERSON(S) FILING STATEMENT) COMMON STOCK, PAR VALUE $1.00 PER SHARE (TITLE OF CLASS OF SECURITIES) 713278109 (CUSIP NUMBER OF CLASS OF SECURITIES) MITCHELL G. LEIBOVITZ CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND PRESIDENT THE PEP BOYS - MANNY, MOE & JACK 3111 WEST ALLEGHENY AVENUE PHILADELPHIA, PENNSYLVANIA 19132 (215) 229-9000 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT) ITEM 1. SECURITY AND ISSUER. (a) The issuer of the securities to which this Schedule 13E-4 relates is The Pep Boys - Manny, Moe & Jack, a Pennsylvania corporation (the "Company"), and the address of its principal executive office is 3111 West Allegheny Avenue, Philadelphia, Pennsylvania 19132. (b) This Schedule 13E-4 relates to the offer by the Company to purchase up to 10,000,000 shares (or such lesser number of shares as are validly tendered and not properly withdrawn) of its common stock, par value $1.00 per share ("Common Stock") (shares of Common Stock, together with associated common stock purchase rights issued pursuant to the Rights Agreement, dated as of December 5, 1997, between the Company and First Union National Bank, as Rights Agent, are hereinafter referred to as "Shares"), at prices not greater than $16.00 nor less than $13.50 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated December 23, 1998 (the "Offer to Purchase"), and in the related Letter of Transmittal, which, as amended or supplemented from time to time, together constitute the "Offer", copies of which are attached as Exhibit (a)(1) and (a)(2), respectively, to this Schedule 13E-4. The Offer is conditioned upon, among other things, the Company having obtained sufficient financing to fund the purchase of Shares tendered pursuant to the Offer and to pay all related fees and expenses. As of December 22, 1998, the Company had issued and outstanding 63,825,110 Shares. The Company has been advised that none of its directors or executive officers intends to tender any Shares pursuant to the Offer. The information set forth in "Introduction", "The Offer -- Section 1. Number of Shares; Proration" and "The Offer -- Section 11. Interests of Directors and Executive Officers; Transactions and Arrangements Concerning Shares" of the Offer to Purchase is incorporated herein by reference. (c) The information set forth in "Introduction" and "The Offer -- Section 8. Price Range of Shares; Dividends" of the Offer to Purchase is incorporated herein by reference. (d) Not applicable. ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a)-(b) The information set forth in "Introduction", "The Offer -- Section 2. Purpose of the Offer; Certain Effects of the Offer" and "The Offer -- Section 9. Source and Amount of Funds" of the Offer to Purchase is incorporated herein by reference. ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE. (a)-(j) The information set forth in "Introduction", "The Offer -- Section 2. Purpose of the Offer; Certain Effects of the Offer", "The Offer -- Section 9. Source and Amount of Funds", "The Offer -- Section 11. Interests of Directors and Executive Officers; Transactions and Arrangements Concerning Shares" and "The Offer -- Section 12. Effects of the Offer on the Market for Shares; Registration under the Exchange Act" of the Offer to Purchase is incorporated herein by reference. 2 ITEM 4. INTEREST IN SECURITIES OF THE ISSUER. The information set forth in "The Offer -- Section 11. Interests of Directors and Executive Officers; Transactions and Arrangements Concerning Shares" of the Offer to Purchase is incorporated herein by reference. ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE ISSUER'S SECURITIES. The information set forth in "Introduction", "The Offer -- Section 2. Purpose of the Offer; Certain Effects of the Offer" and "The Offer -- Section 11. Interests of Directors and Executive Officers; Transactions and Arrangements Concerning Shares" of the Offer to Purchase is incorporated herein by reference. ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. The information set forth in "Introduction" and "The Offer -- Section 16. Fees and Expenses" of the Offer to Purchase is incorporated herein by reference. ITEM 7. FINANCIAL INFORMATION. (a)-(b) The information set forth in "The Offer -- Section 10. Certain Information Concerning the Company" of the Offer to Purchase is incorporated herein by reference and the information set forth on: (i) pages 25 through 42 of the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1998, filed as Exhibit (g)(1) hereto, and (ii) pages 2 through 7 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 1998, filed as Exhibit (g)(2) hereto, in each case, is incorporated herein by reference. ITEM 8. ADDITIONAL INFORMATION. (a) Not applicable. (b) The information set forth in "The Offer -- Section 13. Certain Legal Matters; Regulatory Approvals" of the Offer to Purchase is incorporated herein by reference. (c) The information set forth in "The Offer -- Section 12. Effects of the Offer on the Market for Shares; Registration under the Exchange Act" of the Offer to Purchase is incorporated herein by reference. (d) Not Applicable. (e) The information set forth in the Offer to Purchase and Letter of Transmittal, copies of which are attached hereto as Exhibit (a)(1) and (a)(2), respectively, is incorporated herein by reference. 3 ITEM 9. MATERIAL TO BE FILED AS EXHIBITS. (a)(1) Form of Offer to Purchase dated December 23, 1998. (a)(2) Form of Letter of Transmittal (including Certification of Taxpayer Identification Number on Substitute Form W-9). (a)(3) Form of Notice of Guaranteed Delivery. (a)(4) Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(5) Form of Letter to Clients for Use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(6) Form of Letter to Optionees for Use with respect to The Pep Boys - Manny, Moe & Jack Flexitrust. (a)(7) Form of Press Release issued by the Company dated December 22, 1998. (a)(8) Form of Summary Advertisement dated December 23, 1998. (a)(9) Form of Letter to Shareholders of the Company dated December 23, 1998, from Mitchell G. Leibovitz, President and Chief Executive Officer. (a)(10) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (b)(1) Amended and Restated Credit Agreement, dated as of April 21, 1995, among the Company, the guarantors and banks registry thereto and The Chase Manhattan Bank, as agent. (b)(2) Amendment No. 1 to the Amended and Restated Credit Agreement, dated as of March 18, 1998. (b)(3) Amendment No. 2 to the Amended and Restated Credit Agreement, dated as of July 31, 1998. (b)(4) Amendment No. 3 to the Amended and Restated Credit Agreement, dated as of October 31, 1998. (c) Not applicable. (d) Not applicable. (e) Not applicable. (f) Not applicable. (g)(1) Pages 25 through 42 of the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1998. (g)(2) Pages 2 through 7 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 1998. 4 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Schedule 13E-4 is true, complete and correct. THE PEP BOYS - MANNY, MOE & JACK By: /s/ Mitchell G. Leibovitz ----------------------------------------- Mitchell G. Leibovitz Chairman of the Board, Chief Executive Officer and President Dated: December 23, 1998 5 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - ------- ----------- (a)(1) Form of Offer to Purchase dated December 23, 1998. (a)(2) Form of Letter of Transmittal (including Certification of Taxpayer Identification Number on Substitute Form W-9). (a)(3) Form of Notice of Guaranteed Delivery. (a)(4) Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(5) Form of Letter to Clients for Use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(6) Form of Letter to Optionees for Use with respect to The Pep Boys - Manny, Moe & Jack Flexitrust. (a)(7) Form of Press Release issued by the Company dated December 22, 1998. (a)(8) Form of Summary Advertisement dated December 23, 1998. (a)(9) Form of Letter to Shareholders of the Company dated December 23, 1998, from Mitchell G. Leibovitz, President and Chief Executive Officer. (a)(10) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (b)(1) Amended and Restated Credit Agreement, dated as of April 21, 1995, among the Company, the guarantors and banks registry thereto and The Chase Manhattan Bank, as agent. (b)(2) Amendment No. 1 to the Amended and Restated Credit Agreement, dated as of March 18, 1998. (b)(3) Amendment No. 2 to the Amended and Restated Credit Agreement, dated as of July 31, 1998. (b)(4) Amendment No. 3 to the Amended and Restated Credit Agreement, dated as of October 31, 1998. (c) Not applicable. (d) Not applicable. (e) Not applicable. (f) Not applicable. (g)(1) Pages 25 through 42 of the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1998. (g)(2) Pages 2 through 7 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 1998. EX-99 2 EXHIBIT 99.(A)(1) PEP BOYS [GRAPHIC OMITTED] THE PEP BOYS -- MANNY, MOE & JACK Offer To Purchase For Cash Up To 10,000,000 Shares Of Its Common Stock At A Purchase Price Not Greater Than $16.00 Nor Less Than $13.50 Per Share THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JANUARY 22, 1999, UNLESS THE OFFER IS EXTENDED. The Pep Boys -- Manny, Moe & Jack, a Pennsylvania corporation (the "Company"), hereby invites its shareholders to tender up to 10,000,000 shares of its common stock, par value $1.00 per share ("Common Stock") (shares of Common Stock, together with associated common stock purchase rights issued pursuant to the Rights Agreement, dated as of December 5, 1997, between the Company and First Union National Bank, as Rights Agent, are hereinafter referred to as "Shares"), to the Company at prices not greater than $16.00 nor less than $13.50 per Share, net to the seller in cash, without interest thereon, as specified by tendering shareholders, upon the terms and subject to the conditions set forth herein and in the related Letter of Transmittal (which, as amended or supplemented from time to time, together constitute the "Offer"). The Company will, upon the terms and subject to the conditions of the Offer, determine the lowest single per Share price (not greater than $16.00 nor less than $13.50 per Share), net to the seller in cash (the "Purchase Price"), that will allow it to purchase 10,000,000 Shares (or such lesser number of Shares as are validly tendered and not properly withdrawn) pursuant to the Offer. The Company will pay the Purchase Price for all Shares validly tendered at prices at or below the Purchase Price and not withdrawn, upon the terms and subject to the conditions of the Offer, including, among other things, the financing condition and the proration and conditional tender provisions referred to herein. Certificates representing Shares tendered at prices in excess of the Purchase Price and not properly withdrawn and Shares not purchased because of proration will be returned at the Company's expense. The Company reserves the right, in its sole discretion, to purchase more than 10,000,000 Shares pursuant to the Offer. See Section 15, "Extension of Offer; Termination; Amendment". THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING TENDERED. THE OFFER IS, HOWEVER, CONDITIONED UPON THE COMPANY HAVING OBTAINED SUFFICIENT FINANCING TO FUND THE PURCHASE OF SHARES TENDERED IN THE OFFER AND PAY ALL RELATED FEES AND EXPENSES. THE OFFER IS ALSO SUBJECT TO CERTAIN OTHER CONDITIONS. See Section 7, "Certain Conditions of The Offer". The Shares are listed and traded on the New York Stock Exchange, Inc. (the "NYSE") under the symbol "PBY". On December 22, 1998, the last full trading day on the NYSE prior to the commencement of the Offer, the closing per Share sales price as reported on the NYSE Composite Tape was $13.50. SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES. See Section 8, "Price Range of Shares; Dividends". THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE OFFER. HOWEVER, NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO SHAREHOLDERS AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING THEIR SHARES. EACH SHAREHOLDER MUST MAKE THE DECISION WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER AND THE PRICE OR PRICES AT WHICH SHARES SHOULD BE TENDERED. THE COMPANY HAS BEEN ADVISED THAT NONE OF ITS DIRECTORS OR EXECUTIVE OFFICERS INTENDS TO TENDER ANY SHARES PURSUANT TO THE OFFER. The Dealer Manager for the Offer is: [CREDIT SUISSE FIRST BOSTON LOGO] December 23, 1998 IMPORTANT Any shareholder wishing to tender all or any part of his or her Shares should either (a) complete and sign a Letter of Transmittal (or a manually signed facsimile thereof) in accordance with the instructions in the Letter of Transmittal and either mail or deliver it with any required signature guarantee and any other required documents to American Stock Transfer and Trust Company (the "Depositary"), and either mail or deliver the stock certificates for such tendered Shares to the Depositary (with all such other documents), (b) tender such Shares pursuant to the procedure for book-entry delivery set forth in Section 3, or (c) request a broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such shareholder. Shareholders having Shares registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact that broker, dealer, commercial bank, trust company or other nominee if they desire to tender their Shares. Any shareholder who desires to tender Shares and whose certificates for such Shares cannot be delivered to the Depositary or who cannot comply with the procedure for book-entry transfer or whose other required documents cannot be delivered to the Depositary, in any case, by the expiration of the Offer must tender such Shares pursuant to the guaranteed delivery procedure set forth in Section 3. TO EFFECT A VALID TENDER OF SHARES, SHAREHOLDERS MUST VALIDLY COMPLETE THE LETTER OF TRANSMITTAL, INCLUDING THE SECTION RELATING TO THE PRICE AT WHICH THEY ARE TENDERING SHARES. Additional copies of this Offer to Purchase, the Letter of Transmittal and other tender offer materials may be obtained from MacKenzie Partners, Inc., which is acting as Information Agent (the "Information Agent"), or from Credit Suisse First Boston Corporation, which is acting as Dealer Manager (the "Dealer Manager"), and will be furnished at the Company's expense. Questions and requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers set forth on the back cover of this Offer to Purchase. Shareholders may also contact their local broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Offer. THE COMPANY HAS NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON BEHALF OF THE COMPANY AS TO WHETHER SHAREHOLDERS SHOULD TENDER OR REFRAIN FROM TENDERING SHARES PURSUANT TO THE OFFER. THE COMPANY HAS NOT AUTHORIZED ANY PERSON TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED HEREIN OR IN THE RELATED LETTER OF TRANSMITTAL. IF GIVEN OR MADE, ANY SUCH RECOMMENDATION OR ANY SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. 2 TABLE OF CONTENTS PAGE ----- SUMMARY ............................................................. 4 INTRODUCTION ........................................................ 6 THE OFFER ........................................................... 9 1. NUMBER OF SHARES; PRORATION ..................................... 9 2. PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER .............. 11 3. PROCEDURES FOR TENDERING SHARES ................................. 14 4. WITHDRAWAL RIGHTS ............................................... 18 5. PURCHASE OF SHARES AND PAYMENT OF PURCHASE PRICE ................ 19 6. CONDITIONAL TENDER OF SHARES .................................... 20 7. CERTAIN CONDITIONS OF THE OFFER ................................. 20 8. PRICE RANGE OF SHARES; DIVIDENDS ................................ 22 9. SOURCE AND AMOUNT OF FUNDS ...................................... 22 10. CERTAIN INFORMATION CONCERNING THE COMPANY ..................... 23 11. INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS; TRANSACTIONS AND ARRANGEMENTS CONCERNING SHARES .............................. 25 12. EFFECTS OF THE OFFER ON THE MARKET FOR SHARES; REGISTRATION UNDER THE EXCHANGE ACT .......................................... 26 13. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS .................... 26 14. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES .......... 27 15. EXTENSION OF OFFER; TERMINATION; AMENDMENT ..................... 29 16. FEES AND EXPENSES .............................................. 30 17. MISCELLANEOUS .................................................. 30 3 SUMMARY This general summary is solely for the convenience of the Company's shareholders and is qualified in its entirety by reference to the full text and more specific details in this Offer to Purchase and the related Letter of Transmittal. Number of Shares to be Purchased ......... 10,000,000 Shares (or such lesser number of as are validly tendered pursuant to the Offer and not properly withdrawn). Purchase Price ........................... The Company will, upon the terms and subject to the conditions of the Offer, determine the lowest single per Share price (not greater than $16.00 nor less than $13.50 per Share) net to the seller in cash, without interest thereon, that will allow it to purchase 10,000,000 Shares (or such lesser number of Shares as are validly tendered and not properly withdrawn) pursuant to the Offer. The Company will pay the Purchase Price for all Shares validly tendered at prices at or below the Purchase Price and not properly withdrawn, upon the terms and subject to the conditions of the Offer. Each shareholder desiring to tender Shares must specify in the Letter of Transmittal the minimum price (not greater than $16.00 nor less than $13.50 per Share) at which such shareholder is willing to have his or her Shares purchased by the Company. Conditions to the Offer .................. The Offer is conditioned upon the Company's having obtained sufficient financing to fund the purchase of Shares tendered in the Offer and pay all related fees and expenses, as described in Section 2. The Offer is also subject to certain other conditions. See Section 7, "Certain Conditions of the Offer". How to Tender Shares ..................... See Section 3, "Procedures for Tendering Shares". Call the Information Agent, the Dealer Manager or your broker for assistance. Brokerage Commissions .................... None for registered shareholders who tender their Shares directly to the Depositary. Shareholders holding Shares through brokers or banks are urged to consult their brokers or banks to determine whether transaction costs are applicable if shareholders tender through the brokers or banks and not directly to the Depositary. Stock Transfer Tax ....................... None, if payment is made to the registered holder.
4 Expiration and Proration Dates ........... Friday, January 22, 1999 at 12:00 Midnight, New York City time, unless the Offer is extended by the Company (the "Expiration Date"). Proration ................................ In the event that proration of tendered Shares is required, proration for each shareholder tendering Shares, other than Odd Lot Holders (as defined below), shall be based on the ratio of the number of Shares tendered by such shareholder at or below the Purchase Price (and not properly withdrawn prior to the Expiration Date) to the total number of Shares tendered by all shareholders, other than Odd Lot Holders, at or below the Purchase Price (and not properly withdrawn prior to the Expiration Date). Odd Lots ................................. There will be no proration of Shares tendered by any shareholder owning beneficially fewer than 100 Shares in the aggregate as of the close of business on December 22, 1998 and as of the Expiration Date, who tenders all such Shares at or below the Purchase Price prior to the Expiration Date and who checks the "Odd Lots" box in the Letter of Transmittal, and, if applicable, on the Notice of Guaranteed Delivery (an "Odd Lot Holder"). See Section 1, "Number of Shares; Proration". Payment Date ............................. As soon as practicable after the Expiration Date. Position of the Company and its Directors. Neither the Company nor its Board of Directors makes any recommendation to any shareholder as to whether to tender or refrain from tendering Shares. Shareholders must make their own decisions whether to tender Shares and, if so, how many Shares to tender and the price or prices at which Shares should be tendered. The Company has been advised that none of its directors or executive officers intends to tender any Shares pursuant to the Offer. Withdrawal Rights ........................ Tendered Shares may be withdrawn at any time prior to the expiration of the Offer (12:00 Midnight, New York City time, on the Expiration Date) and, unless previously purchased, may also be withdrawn at any time after 12:00 Midnight, New York City time, on February 22, 1999. See Section 4, "Withdrawal Rights". Further Developments Regarding the Offer . Call the Information Agent, the Dealer Manager or your broker.
5 To the Holders of Shares of Common Stock of The Pep Boys -- Manny, Moe & Jack: INTRODUCTION The Pep Boys -- Manny, Moe & Jack, a Pennsylvania corporation (the "Company"), hereby invites its shareholders to tender up to 10,000,000 shares of its common stock, par value $1.00 per share ("Common Stock") (shares of Common Stock, together with associated common stock purchase rights issued pursuant to the Rights Agreement, dated as of December 5, 1997, between the Company and First Union National Bank, as Rights Agent, are hereinafter referred to as "Shares"), to the Company at prices not greater than $16.00 nor less than $13.50 per Share, net to the seller in cash, without interest thereon, as specified by tendering shareholders, upon the terms and subject to the conditions set forth herein and in the related Letter of Transmittal (which, as amended or supplemented from time to time, together constitute the "Offer"). The Company will, upon the terms and subject to the conditions of the Offer, determine the lowest single per Share price (not greater than $16.00 nor less than $13.50 per Share), net to the seller in cash (the "Purchase Price"), that will allow it to purchase 10,000,000 Shares (or such lesser number of Shares as are validly tendered and not properly withdrawn) pursuant to the Offer. The Company will pay the Purchase Price for all Shares validly tendered at prices at or below the Purchase Price and not properly withdrawn, upon the terms and subject to the conditions of the Offer, including the financing condition and the proration and conditional tender provisions referred to herein. Certificates representing Shares tendered at prices in excess of the Purchase Price and not properly withdrawn and Shares not purchased because of proration or conditional tender will be returned at the Company's expense. The Company reserves the right, in its sole discretion, to purchase more than 10,000,000 Shares pursuant to the Offer. See Section 15, "Extension of Offer; Termination; Amendment". The Company's obligation to purchase Shares pursuant to the Offer is conditioned upon, among other things, the Company's obtaining sufficient financing to fund the purchase of Shares tendered pursuant to the Offer and to pay all related fees and expenses. See Section 2, "Purpose of the Offer; Certain Effects of the Offer" and Section 7, "Certain Conditions of the Offer". As described in Section 2, the Company intends to undertake an issuance and sale (the "Financing") of senior notes of the Company (the "Senior Notes"). The Financing may be structured as a private placement, or as a public offering registered pursuant to the Securities Act of 1933, as amended (the "Securities Act"). The Financing is expected to be committed to immediately prior to the expiration of the Offer. See Section 2, "Purpose of the Offer; Certain Effects of the Offer". If the Financing has not been committed to on or prior to the initial Expiration Date, the Company intends to extend the Expiration Date from time to time for a period not to extend beyond February 22, 1999 until such Financing has been consummated and the other conditions to the Offer have been satisfied or waived. To the extent necessary or desirable, the Company, at its sole discretion, may supplement the proceeds of the Financing with cash on hand and/or borrowings under the Credit Agreement (as defined herein). As of October 31, 1998, the Company had $97 million in cash and cash equivalents and $200 million of availability under the Credit Agreement. THIS OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING TENDERED IN THE OFFER. THE OFFER IS, HOWEVER, SUBJECT TO OTHER CONDITIONS. SEE SECTION 7, "CERTAIN CONDITIONS OF THE OFFER". THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE OFFER. HOWEVER, NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO SHAREHOLDERS AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING THEIR SHARES. EACH SHAREHOLDER MUST MAKE THE DECISION WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER AND THE PRICE OR PRICES AT WHICH SHARES SHOULD BE TENDERED. THE COMPANY HAS BEEN ADVISED THAT NONE OF ITS DIRECTORS OR EXECUTIVE OFFICERS INTENDS TO TENDER ANY SHARES PURSUANT TO THE OFFER. 6 The Company's Board of Directors believes that the Offer is in the best interests of the Company. The Offer affords to those shareholders who desire liquidity an opportunity to sell all or a portion of their Shares without the usual transaction costs associated with open market sales. The Company believes that the Offer and the Financing will be accretive to earnings per share (on both a basic and diluted basis) in the Company's fiscal year ending January 29, 2000, but there can be no assurance to that effect. The Offer provides shareholders who are considering a sale of all or a portion of their Shares the opportunity to determine the price or prices (not greater than $16.00 nor less than $13.50 per Share) at which they are willing to sell their Shares and, if any such Shares are purchased pursuant to the Offer, to sell those Shares for cash to the Company. Shareholders who determine not to accept the Offer will increase their proportionate interest in the Company's equity, and thus in the Company's future earnings and assets, subject to the Company's right to issue additional Shares and other equity securities in the future. Upon the terms and subject to the conditions of the Offer, if, at the expiration of the Offer, more than 10,000,000 Shares (or such greater number of Shares as the Company may elect to purchase) are validly tendered at prices at or below the Purchase Price and not properly withdrawn, the Company will purchase Shares validly tendered and not properly withdrawn first from all Odd Lot Holders (as defined in Section 1) who validly tendered all their Shares at or below the Purchase Price and who so certify in the appropriate place on the Letter of Transmittal and, if applicable, on the Notice of Guaranteed Delivery, and then, after the purchase of all of the foregoing Shares, all Shares tendered at or below the Purchase Price and not properly withdrawn prior to the Expiration Date, on a pro rata basis (with appropriate adjustments to avoid purchase of fractional Shares). See Section 1, "Number of Shares; Proration". All certificates representing Shares not purchased pursuant to the Offer, including Shares tendered at prices greater than the Purchase Price and not properly withdrawn and Shares not purchased because of proration, will be returned at the Company's expense to the shareholders who tendered such Shares. The Purchase Price will be paid net to the tendering shareholder in cash for all Shares purchased. Tendering shareholders who have shares registered in their own name and who tender directly to the Depositary will not be obligated to pay brokerage commissions, solicitation fees or, subject to Instruction 7 of the Letter of Transmittal, stock transfer taxes on the purchase of Shares by the Company. Shareholders holding Shares through brokers or banks are urged to consult such brokers or banks to determine whether transaction costs are applicable if such Shareholders tender Shares through the brokers and banks and not directly to the Depositary. HOWEVER, ANY TENDERING SHAREHOLDER OR OTHER PAYEE WHO FAILS TO COMPLETE, SIGN AND RETURN TO THE DEPOSITARY THE SUBSTITUTE FORM W-9 THAT IS INCLUDED WITH THE LETTER OF TRANSMITTAL MAY BE SUBJECT TO REQUIRED UNITED STATES FEDERAL INCOME TAX BACKUP WITHHOLDING OF 31% OF THE GROSS PROCEEDS PAYABLE TO SUCH SHAREHOLDER OR OTHER PAYEE PURSUANT TO THE OFFER. SEE SECTION 3, "PROCEDURES FOR TENDERING SHARES". The Company will pay all fees and expenses of Credit Suisse First Boston Corporation ("Credit Suisse First Boston" or "CSFB"), who will act as dealer manager for the Offer (the "Dealer Manager"), American Stock Transfer and Trust Company, who will act as the depositary for the Offer (the "Depositary") and MacKenzie Partners, Inc., who will act as information agent for the Offer (the "Information Agent"), incurred in connection with the Offer. See Section 16, "Fees and Expenses". As of December 22, 1998, the Company had issued and outstanding 63,825,110 Shares and had reserved 10,263,790 Shares for issuance upon exercise of outstanding stock options and convertible debt securities. The 10,000,000 Shares that the Company is offering to purchase pursuant to the Offer represent approximately 15.7% of the issued and outstanding Shares. The Shares are listed and traded on the New York Stock Exchange, Inc. (the "NYSE") under the symbol "PBY". On December 22, 1998, the last full trading day on the NYSE prior to the commencement of the Offer, the closing per Share sales price as reported on the NYSE Composite Tape was $13.50. SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES. SEE SECTION 8, "PRICE RANGE OF SHARES; DIVIDENDS". 7 The Company maintains The Pep Boys -- Manny, Moe & Jack Flexitrust (the "Flexitrust") for the benefit of certain of its employee benefit plans. Holders of options to purchase Shares under such plans may instruct First Union National Bank, the trustee under the Flexitrust, to tender all or a portion of the Shares held in the Flexitrust by following the instructions set forth in Section 3, "Procedures for Tendering Shares". The Pep Boys -- Manny, Moe & Jack Dividend Reinvestment and Stock Purchase Plan (the "Dividend Reinvestment and Stock Purchase Plan") holds Shares for participants thereunder. Participants may instruct American Stock Transfer and Trust Company, the administrator of the Dividend Reinvestment Plan, to tender all or a portion of the Shares attributable to a participant's individual account by following the instructions set forth in Section 3, "Procedures for Tendering Shares". The decision as whether to tender Shares attributable to the accounts of participants in each of The Pep Boys -- Manny, Moe & Jack Savings Plan and The Pep Boys -- Manny, Moe & Jack Savings Plan -- Puerto Rico and the determination as to the price at which such Shares will be tendered, if any, will be made by the trustee of the applicable plan upon the direction of the administrative committee of such plan. 8 THE OFFER 1. NUMBER OF SHARES; PRORATION. Upon the terms and subject to the conditions of the Offer, the Company will purchase 10,000,000 Shares or such lesser number of Shares as are validly tendered (and not properly withdrawn in accordance with Section 4) prior to the Expiration Date (as defined below) at prices not greater than $16.00 nor less than $13.50 per Share. The term "Expiration Date" means 12:00 Midnight, New York City time, on Friday, January 22, 1999, unless and until the Company, in its sole discretion, shall have extended the period of time during which the Offer will remain open, in which event the term "Expiration Date" shall refer to the latest time and date at which the Offer, as so extended by the Company, shall expire. See Section 15, "Extension of Offer; Termination; Amendment", for a description of the Company's right to extend, delay, terminate or amend the Offer. The Company reserves the right, in its sole discretion, to purchase more than 10,000,000 Shares pursuant to the Offer. In accordance with applicable regulations of the Securities and Exchange Commission (the "Commission"), the Company may purchase pursuant to the Offer an additional amount of Shares not to exceed 2% of the outstanding Shares without amending or extending the Offer. See Section 15, "Extension of Offer; Termination; Amendment". In the event of an over-subscription of the Offer as described below, Shares tendered at or below the Purchase Price prior to the Expiration Date will be eligible for proration, except for Odd Lots (as defined below), as explained below. The proration period also expires on the Expiration Date. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE COMPANY'S HAVING OBTAINED SUFFICIENT FINANCING TO FUND THE PURCHASE OF SHARES TENDERED IN THE OFFER AND TO PAY ALL RELATED FEES AND EXPENSES. THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING TENDERED IN THE OFFER. THE OFFER IS, HOWEVER, SUBJECT TO OTHER CONDITIONS. SEE SECTION 7, "CERTAIN CONDITIONS OF THE OFFER". In accordance with Instruction 5 of the Letter of Transmittal, shareholders desiring to tender Shares must specify the price or prices (not greater than $16.00 nor less than $13.50 per Share) at which they are willing to sell their Shares to the Company. As promptly as practicable following the Expiration Date, the Company will, in its sole discretion, determine the Purchase Price that will allow it to purchase 10,000,000 Shares (or such lesser number of Shares as are validly tendered and not properly withdrawn) pursuant to the Offer. The Company will pay the Purchase Price, even if such Shares were tendered below the Purchase Price, for all Shares validly tendered prior to the Expiration Date at or below the Purchase Price and not properly withdrawn, upon the terms and subject to the conditions of the Offer, including the financing condition and the proration and conditional tender provisions referred to herein. All Shares tendered and not purchased pursuant to the Offer, including Shares tendered at prices in excess of the Purchase Price and not properly withdrawn and Shares not purchased because of proration or conditional tender, will be returned to the tendering shareholders at the Company's expense as promptly as practicable following the Expiration Date. The Company reserves the right, in its sole discretion, to purchase more than 10,000,000 Shares pursuant to the Offer. See Section 15, "Extension of Offer; Termination; Amendment". Priority of Purchases. Upon the terms and subject to the conditions of the Offer, if more than 10,000,000 Shares (or such greater number of Shares as the Company may elect to purchase pursuant to the Offer) have been validly tendered at prices at or below the Purchase Price and not properly withdrawn, the Company will purchase Shares validly tendered and not properly withdrawn on the basis set forth below: (i) all Shares tendered and not withdrawn prior to the Expiration Date by any Odd Lot Holder (as defined below) who: (a) tenders all Shares beneficially owned by such Odd Lot Holder at a price at or below the Purchase Price (tenders of fewer than all Shares owned by such shareholder will not qualify for this preference); and 9 (b) completes the box captioned "Odd Lots" on the Letter of Transmittal and, if applicable, on the Notice of Guaranteed Delivery; (ii) after purchase of all of the foregoing Shares, all Shares conditionally tendered in accordance with Section 6 for which the condition was satisfied, and all Shares tendered unconditionally at prices at or below the Purchase Price and not withdrawn prior to the Expiration Date, on a pro rata basis (with appropriate adjustments to avoid purchases of fractional Shares) as described below; and (iii) if necessary, Shares conditionally tendered for which the condition was not satisfied, at or below the Purchase Price and not withdrawn prior to the Expiration Date, selected by random lot in accordance with Section 6. Odd Lots. For purposes of the Offer, the term "Odd Lots" shall mean all Shares validly tendered prior to the Expiration Date at prices at or below the Purchase Price and not properly withdrawn by any person who owned beneficially as of the close of business on December 22, 1998, and continues to own beneficially as of the Expiration Date, an aggregate of fewer than 100 Shares (and so certified in the appropriate place on the Letter of Transmittal and, if applicable, on the Notice of Guaranteed Delivery) (an "Odd Lot Holder"). As set forth above, Odd Lots will be accepted for payment before proration, if any, of the purchase of other tendered Shares. In order to qualify for this preference, an Odd Lot Holder must tender all such Shares in accordance with the procedures described in Section 3. This preference is not available to partial tenders or to beneficial holders of an aggregate of 100 or more Shares, even if such holders have separate accounts or certificates representing fewer than 100 Shares. By accepting the Offer, an Odd Lot Holder who has Shares registered in his or her name and who tenders directly to the Depositary would not only avoid the payment of brokerage commissions but also would avoid any applicable odd lot discounts in a sale of such holder's Shares. Any Odd Lot Holder wishing to tender all of such shareholder's Shares should complete the box captioned "Odd Lots" on the Letter of Transmittal and, if applicable, on the Notice of Guaranteed Delivery. The Company also reserves the right, but will not be obligated, to purchase all Shares validly tendered and not properly withdrawn by any shareholder who tendered all Shares owned beneficially at or below the Purchase Price and who, as a result of proration, would then own, beneficially an aggregate of fewer than 100 Shares. If the Company exercises this right, it will increase the number of Shares that it is offering to purchase by the number of Shares purchased through the exercise of such right. Proration. In the event that proration of tendered Shares is required, the Company will determine the proration factor as soon as practicable following the Expiration Date. Proration for each shareholder tendering Shares, other than Odd Lot Holders, shall be based on the ratio of the number of Shares tendered by such shareholder at or below the Purchase Price (and not withdrawn) to the total number of Shares tendered by all shareholders, other than Odd Lot Holders, at or below the Purchase Price (and not withdrawn), subject to the conditional tender provisions in Section 6. Because of the difficulty in determining the number of Shares validly tendered (including Shares tendered by guaranteed delivery procedures, as described in Section 3) and not properly withdrawn, and because of the odd lot procedure, the Company does not expect that it will be able to announce the final proration factor or commence payment for any Shares purchased pursuant to the Offer until approximately seven NYSE trading days after the Expiration Date. The preliminary results of any proration will be announced by press release as promptly as practicable after the Expiration Date. Shareholders may obtain such preliminary information from the Information Agent and may be able to obtain such information from their brokers. The Letter of Transmittal affords each tendering shareholder the opportunity to designate the order of priority in which Shares tendered are to be purchased in the event of proration. The order of purchase may have an effect on the United States federal income tax classification of any gain or loss on the Shares purchased. In addition, the number of Shares that the Company will purchase from a shareholder may affect the United States federal income tax consequences to the shareholder of such purchase and therefore may be relevant to a shareholder's decision whether to tender Shares and whether to tender Shares on the condition that a specified minimum number, if any, is purchased. See Section 6, "Conditional Tender of Shares" and Section 14, "Certain United States Federal Income Tax Consequences". 10 This Offer to Purchase and the related Letter of Transmittal was mailed to record holders of Shares on December 23, 1998 and will be furnished to brokers, banks and similar persons whose names, or the names of whose nominees, appear on the Company's shareholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Shares. 2. PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER. THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS DUE TO FACTORS BEYOND THE CONTROL OF THE COMPANY, INCLUDING THE STRENGTH OF THE NATIONAL AND REGIONAL ECONOMIES AND CONSUMERS' ABILITY TO SPEND, THE HEALTH OF VARIOUS SEGMENTS OF THE MARKET THAT THE COMPANY SERVES, THE WEATHER IN GEOGRAPHICAL REGIONS WITH A HIGH CONCENTRATION OF THE COMPANY'S STORES, COMPETITIVE PRICING, LOCATION AND NUMBER OF COMPETITORS' STORES, PRODUCT COSTS, THE ABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL, THE ABILITY TO ACQUIRE REAL ESTATE, FACILITIES AND EQUIPMENT, THE ABILITY TO ESTABLISH A SUCCESSFUL COMMERCIAL DELIVERY PROGRAM AND THE ABILITY TO CONTINUE TO REDUCE INVENTORY LEVELS. FURTHER FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THE MATTERS DISCUSSED BELOW AS WELL AS THE FACTORS DESCRIBED IN THE COMPANY'S FILINGS WITH THE COMMISSION. The Offer The Offer provides shareholders who are considering a sale of all or a portion of their Shares with the opportunity to determine the price or prices (not greater than $16.00 nor less than $13.50 per Share) at which they are willing to sell their Shares and, subject to the terms and conditions of the Offer, to sell those Shares for cash without the usual transaction costs associated with market sales. In addition, shareholders owning fewer than 100 Shares whose Shares are registered in their own name and who tender directly to the Depositary and whose Shares are purchased pursuant to the Offer not only will avoid the payment of brokerage commissions but also will avoid any applicable odd lot discounts payable on a sale of their Shares. The Offer also allows shareholders to sell a portion of their Shares while retaining a continuing equity interest in the Company. The Company's Board of Directors believes that the Offer is in the best interests of the Company. The Offer affords to those shareholders who desire liquidity an opportunity to sell all or a portion of their Shares without the usual transaction costs associated with open market sales. The Company believes that the Offer and the Financing will be accretive to earnings per share (on both a basic and a diluted basis) in the Company's fiscal year ending January 29, 2000, but there can be no assurance to that effect. Shareholders who determine not to accept the Offer will increase their proportionate interest in the Company's equity, and thus in the Company's future earnings and assets, subject to the Company's right to issue additional Shares and other equity securities in the future. In April 1998, the Company engaged CSFB as its financial advisor to assist the Company in reviewing its business operations, financial condition and prospects, including, strategic alternatives. The Company in recent years has been negatively impacted by difficult conditions in the "do-it-yourself" customer segment of the automotive aftermarket. In response to these conditions, the Company has adopted strategic initiatives which it believes may mitigate the negative impact on the Company. For example, in October 1998, in order to decrease its exposure to the "do-it-yourself" segment, the Company closed 109 of its non-service/non-tire format Pep Boys Express stores and sold the real estate assets related to 100 of such stores. This initiative will allow the Company to place a greater focus on its more profitable Supercenter format stores. The Company also completed the introduction of its 11 commercial parts delivery program in July 1998, which is designed to target the "buy-for-resale" customer segment. In addition, the Company has decreased its rate of new store expansion, which will result in significantly lower capital expenditures than in past years. As a result of these initiatives, the Company believes that it is in a better position to achieve an operational turnaround. There are, however, many uncertainties associated with realizing such a turnaround, and no assurances can be given that the Company's efforts will succeed. The Board of Directors has determined that the Company's financial condition and outlook and current market conditions, including recent trading prices of the Shares, make this an attractive time to repurchase a significant portion of the outstanding Shares. In the view of the Board of Directors, the Offer represents an attractive investment for the Company and use of the Company's cash generation abilities that should benefit the Company and its shareholders over the long term. In deciding to approve the Offer, the Board of Directors took into account the expected financial impact of the Offer, including the increased interest expense and financial and operating constraints associated with the financing required to fund the Offer. The Company's credit ratings may decrease as a result of the Offer and the related financing. The Company believes that its cash, short-term investments and access to credit facilities following the completion of the Offer, together with its anticipated cash flow from operations, are adequate for its needs in the foreseeable future. The magnitude of the purchase of Shares in the Offer is substantial. The Board of Directors took into account that, if the Offer were fully subscribed and the purchase of Shares were made at the maximum per Share price, the Offer would have the effect of reducing the outstanding Shares by approximately 15.7% at an aggregate cost of approximately $163.2 million and reducing the Company's stockholders' equity from $837.3 million at October 31, 1998 to $676.2 million, on a pro forma basis. This expenditure by the Company will be financed as described in Section 2. From time to time, the Company has had discussions with, and has been approached by, third parties expressing varying degrees of interest in a possible acquisition of, investment in or a combination with the Company. These discussions were preliminary in nature and did not result in any proposals being recommended to the Board of Directors. In reviewing the Offer, the Board of Directors reviewed the Company's strategic business plans and was made aware of such discussions. Shares that the Company acquires pursuant to the Offer will become authorized Shares held in treasury and will be available for reissuance by the Company without further shareholder action (except as may be required by applicable law or the rules of any securities exchange on which the Shares are listed). Subject to applicable state laws and NYSE rules, such Shares could be issued without shareholder approval for, among other things, acquisitions, the raising of additional capital for use in the Company's business, repayment in shares of certain outstanding indebtedness, share dividends or in connection with stock option plans and other plans, or a combination thereof. The Company may in the future purchase additional Shares on the open market, in private transactions, through tender offers or otherwise. Any such purchases may be on the same terms as, or on terms that are more or less favorable to shareholders than, the terms of the Offer. However, Rule 13e-4 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), generally prohibits the Company and its affiliates from purchasing any Shares, other than pursuant to the Offer, until at least ten business days after the expiration or termination of the Offer. Any possible future purchases by the Company will depend on several factors including, without limitation, the ability of the Company to make such purchases under its financing agreements in effect at the time, the market price of the Shares, the results of the Offer, the Company's business and financial position and general economic and market conditions. The Financing The amount required to fund the purchase of Shares tendered in the Offer (assuming a purchase price of $16.00 per Share) and to pay related fees and expenses of such transactions is estimated to be approximately $163.2 million. 12 The Company intends to finance the purchase of Shares tendered pursuant to the Offer, and to pay related fees and expenses, principally by the proceeds of the Financing. The Financing is expected to be committed to immediately prior to the expiration of the Offer. To the extent necessary or desirable, the Company may supplement the proceeds of the Financing with cash on hand and/or with borrowings under the Amended and Restated Credit Agreement, dated as of April 21, 1995, as amended from time to time (the "Credit Agreement"), among the Company, the guarantors and banks signatory thereto and The Chase Manhattan Bank , as agent. As of October 31, 1998, the Company had $97 million in cash and cash equivalents and $200 million of availability under the Credit Agreement. The Company anticipates that the Senior Notes and such borrowings, if any, would be repaid with internally generated funds and from other sources, which may include the proceeds of future refinancings. The Offer is conditioned upon the closing of the Financing and upon the Company's obtaining waivers under or amendments to certain of its existing credit facilities to permit the Offer and the Financing. If the Financing has not been committed to, or such waivers or amendments have not been obtained, on or prior to the initial Expiration Date, the Company intends to extend the Expiration Date from time to time for a period not to extend beyond February 22, 1999 until the Financing has been consummated and the other conditions to the Offer have been satisfied or waived. Senior Notes. The Company intends to issue and sell Senior Notes to finance the Offer, which may be structured as a private placement or as a public offering registered pursuant to the Securities Act. The interest rate on the Senior Notes, and the other terms of the Senior Notes, will depend upon the credit rating of the Company's debt securities and the prevailing interest rates and market conditions at the time the Senior Notes are issued. Such credit ratings may decrease as a result of the Offer and the Financing. The Senior Notes will contain affirmative and negative covenants that are customary for similar financings of companies with similar credit ratings as the Company's. The Senior Notes will also provide for customary events of default. No assurances can be given that the sale of the Senior Notes will be consummated. Credit Agreement. The following is a summary of the principal terms of the Credit Agreement. This summary is qualified in its entirety by reference to the Credit Agreement, which is filed as Exhibit (b)(1) to the Company's Issuer Tender Offer Statement on Schedule 13E-4 and is incorporated herein by reference. The Credit Agreement provides for revolving loans up to the aggregate principal amount of $200 million. At the Company's option, the amounts borrowed pursuant to the Credit Agreement bear interest at (i) the higher of the agent bank's prime commercial lending rate or the federal funds rate plus 0.25%, (ii) LIBOR plus a margin of up to 0.63% or (iii) a negotiated rate based upon market conditions. The Company pays to each bank a quarterly commitment fee on the daily average unused amount of such bank's commitment ranging from 0% to 0.05% and to the agent a quarterly facility fee on account of each bank based on the daily average amount of such bank's commitment ranging from 0.18% to 0.30%, based on the Company's Debt to Capital Ratio (as defined in the Credit Agreement). At October 31, 1998, no loans were outstanding under the Credit Agreement. The Credit Agreement is guaranteed by the wholly owned subsidiaries of the Company. The Company may borrow, repay and reborrow under the Credit Agreement the amount of the aggregate commitments of the banks, subject to certain restrictions. The Credit Agreement contains representations and warranties, covenants (including financial covenants), events of default and other provisions customary for such financings. Certain financial covenants are required to be amended to permit the Offer and the Financing, in connection with which the provisions and amount of commitments may change. THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE OFFER. HOWEVER, NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO SHAREHOLDERS AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING THEIR SHARES. EACH SHAREHOLDER MUST MAKE THE DECISION WHETHER TO TENDER SHARES 13 AND, IF SO, HOW MANY SHARES TO TENDER AND THE PRICE OR PRICES AT WHICH SHARES SHOULD BE TENDERED. THE COMPANY HAS BEEN ADVISED THAT NONE OF ITS DIRECTORS OR EXECUTIVE OFFICERS INTENDS TO TENDER ANY SHARES PURSUANT TO THE OFFER. Except as disclosed in this Offer to Purchase, the Company currently has no plans or proposals which relate to or would result in: (a) the acquisition by any person of additional securities of the Company or the disposition of securities of the Company; (b) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Company or any of its subsidiaries; (c) a sale or transfer of a material amount of assets of the Company or any of its subsidiaries; (d) any change in the present Board of Directors or management of the Company; (e) any material change in the present dividend rate or policy, or indebtedness or capitalization of the Company; (f) any other material change in the Company's corporate structure or business; (g) any change in the Company's charter or bylaws or other actions which may impede the acquisition of control of the Company by any person; (h) a class of equity security of the Company being delisted from a national securities exchange or ceasing to be authorized for quotation in an inter-dealer quotation system of a registered national securities association; (i) a class of equity security of the Company becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Exchange Act; or (j) the suspension of the Company's obligation to file reports pursuant to Section 15(d) of the Exchange Act. 3. PROCEDURES FOR TENDERING SHARES. Proper Tender of Shares. For Shares to be validly tendered pursuant to the Offer, (a) the certificates for such Shares (or confirmation of receipt of such Shares pursuant to the procedures for book-entry transfer set forth below), together with a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof) including any required signature guarantees (or an Agent's Message (as defined below) in the case of a book-entry transfer) and any other documents required by the Letter of Transmittal, must be received prior to 12:00 Midnight, New York City time, on the Expiration Date by the Depositary at its address set forth on the back cover of this Offer to Purchase, or (b) the tendering shareholder must comply with the guaranteed delivery procedure set forth below. IN ACCORDANCE WITH INSTRUCTION 5 OF THE LETTER OF TRANSMITTAL, SHAREHOLDERS DESIRING TO TENDER SHARES PURSUANT TO THE OFFER MUST PROPERLY INDICATE IN THE SECTION CAPTIONED "PRICE (IN DOLLARS) PER SHARE AT WHICH SHARES ARE BEING TENDERED" ON THE LETTER OF TRANSMITTAL THE PRICE (IN INCREMENTS OF $.125) AT WHICH THEIR SHARES ARE BEING TENDERED. Shareholders who desire to tender Shares at more than one price must complete a separate Letter of Transmittal for each price at which Shares are tendered, provided that the same Shares cannot be tendered (unless properly withdrawn previously in accordance with the terms of the Offer) at more than one price. IN ORDER TO VALIDLY TENDER SHARES, ONE AND ONLY ONE PRICE BOX MUST BE CHECKED IN THE APPROPRIATE SECTION ON EACH LETTER OF TRANSMITTAL. In addition, Odd Lot Holders who tender all such Shares must complete the box captioned "Odd Lots" on the Letter of Transmittal and, if applicable, on the Notice of Guaranteed Delivery, in order to qualify for the preferential treatment available to Odd Lot Holders as set forth in Section 1. Signature Guarantees and Method of Delivery. No signature guarantee is required if (a) the Letter of Transmittal is signed by the registered holder(s) of the Shares (which term, for purposes of this Section 3, shall include any participant in The Depository Trust Company (the "Book-Entry Transfer Facility") whose name appears on a security position listing as the owner of the Shares) tendered therewith and such holder(s) have not completed either the box entitled "Special Delivery Instructions" or the box entitled "Special Payment Instructions" on the Letter of Transmittal, or (b) Shares are tendered for the account of a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of the Securities Transfer Agents Medallion Program or a bank, broker, dealer, credit union, savings association or other entity which is an "eligible guarantor institution," as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (each such entity being hereinafter referred to as an "Eligible Institution"). See Instruction 1 of the Letter of 14 Transmittal. In all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. If a certificate for Shares is registered in the name of a person other than the person executing a Letter of Transmittal, or if payment is to be made, or Shares not purchased or tendered are to be issued, to a person other than the registered holder, then the certificate must be endorsed or accompanied by an appropriate stock power, in either case, signed exactly as the name of the registered holder appears on the certificate or stock power and guaranteed by an Eligible Institution. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of certificates for such Shares (or a timely confirmation of a book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility as described above), a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof) and any other documents required by the Letter of Transmittal. THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES FOR SHARES, THE LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS, IS AT THE ELECTION AND RISK OF THE TENDERING SHAREHOLDER, IF DELIVERY IS BY MAIL, THEN REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. Book-Entry Delivery. The Depositary will establish an account with respect to the Shares for purposes of the Offer at the Book-Entry Transfer Facility within two business days after the date of this Offer to Purchase, and any financial institution that is a participant in the Book-Entry Transfer Facility's system may make book-entry delivery of the Shares by causing such Facility to transfer Shares into the Depositary's account in accordance with the Book-Entry Transfer Facility's procedures for transfer. Although delivery of Shares may be effected through a book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility, either: (a) a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof) with any required signature guarantees, or an Agent's Message, and any other required documents must, in any case, be transmitted to and received by the Depositary at its address set forth on the back cover of this Offer to Purchase prior to the Expiration Date, or (b) the guaranteed delivery procedure described below must be followed. The confirmation of a book-entry transfer of Shares into the Depositary's account at the Book-Entry Transfer Facility as described above is referred to herein as "confirmation of a book-entry transfer". DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. The term "Agent's Message" means a message transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a confirmation of a book-entry transfer which states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that the Company may enforce such agreement against the participant. Guaranteed Delivery. Shareholders wishing to tender all or any part of their Shares but whose Share certificates are not immediately available, who cannot deliver their Shares and all other required documents to the Depositary or who cannot complete the procedure for delivery by book-entry transfer prior to the Expiration Date must tender their Shares pursuant to the guaranteed delivery procedure set forth in this Section 3. Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by the Company (with any required signature guarantees) must be received by the Depositary prior to the Expiration Date; and (iii) the certificates for all physically delivered Shares in proper form for transfer by delivery, or a confirmation of a book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility of all Shares delivered electronically, in each case together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof), or an Agent's Message, and any other documents required by this Letter of Transmittal, must be received by the Depositary within three NYSE trading days after the date the Depositary receives such Notice of Guaranteed Delivery. 15 United States Federal Income Tax Backup Withholding. Under the United States federal income tax backup withholding rules, unless an exemption applies under the applicable law and regulations, 31% of the gross proceeds payable to a shareholder or other payee pursuant to the Offer must be withheld and remitted to the United States Treasury, unless the shareholder or other payee provides its taxpayer identification number (employer identification number or social security number) to the Depositary and certifies that such number is correct. Therefore, each tendering shareholder must complete and sign the Substitute Form W-9 included as part of the Letter of Transmittal so as to provide the information and certification necessary to avoid backup withholding, unless such shareholder otherwise establishes to the satisfaction of the Depositary that it is not subject to backup withholding. Certain shareholders (including, among others, all corporations and certain foreign shareholders) are not subject to these backup withholding requirements. To prevent possible erroneous backup withholding, an exempt holder must enter its correct taxpayer identification number in Part 1 of Substitute Form W-9, write "Exempt" in Part 2 of such form, and sign and date the form. See the Guidelines for Certification of Taxpayer Identification Number of Substitute Form W-9 enclosed with Letter of Transmittal for additional instructions. In order for a foreign shareholder to qualify as an exempt recipient, a foreign shareholder must submit an Internal Revenue Service ("IRS") Form W-8 or a Substitute Form W-8, signed under penalties of perjury, attesting to that shareholder's exempt status. Such statements may be obtained from the Depositary. See Instruction 11 of the Letter of Transmittal. Shareholders are urged to consult their own tax advisors regarding the application of United States federal income tax withholding. TO PREVENT UNITED STATES FEDERAL INCOME TAX BACKUP WITHHOLDING EQUAL TO 31% OF THE GROSS PAYMENTS MADE TO SHAREHOLDERS FOR SHARES PURCHASED PURSUANT TO THE OFFER, EACH SHAREHOLDER WHO DOES NOT OTHERWISE ESTABLISH AN EXEMPTION FROM SUCH WITHHOLDING MUST PROVIDE THE DEPOSITARY WITH THE SHAREHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND PROVIDE CERTAIN OTHER INFORMATION BY COMPLETING THE SUBSTITUTE FORM W-9 INCLUDED WITH THE LETTER OF TRANSMITTAL. For a discussion of certain United States federal income tax consequences to tendering shareholders, see Section 14, "Certain United States Federal Income Tax Consequences". Withholding For Foreign Shareholders. Even if a foreign shareholder has provided the required certification to avoid backup withholding, the Depositary will withhold United States federal income taxes equal to 30% of the gross payments payable to a foreign shareholder or its agent unless (a) the Depositary determines that a reduced rate of withholding is available pursuant to a tax treaty or that an exemption from withholding is applicable because such gross proceeds are effectively connected with the conduct of a trade or business within the United States or (b) the foreign shareholder establishes to the satisfaction of the Company and the Depositary that the sale of Shares by such foreign shareholder pursuant to the Offer will qualify as a "sale or exchange," rather than as a distribution taxable as a dividend, for United States federal income tax purposes (see Section 14, "Certain United States Federal Income Tax Consequences"). For this purpose, a foreign shareholder is any shareholder that is not: (i) a citizen or resident of the United States; (ii) a corporation, partnership, or other entity created or organized in or under the laws of the United States, any State or any political subdivision thereof; (iii) an estate the income of which is subject to United States federal income taxation regardless of the source of such income; or (iv) a trust the administration of which a court within the United States is able to exercise primary supervision and all substantial decisions of which one or more United States persons have the authority to control. In order to obtain a reduced rate of withholding pursuant to a tax treaty, a foreign shareholder must deliver to the Depositary before the payment a properly completed and executed IRS Form 1001. In order to obtain an exemption from withholding on the grounds that the gross proceeds paid pursuant to the Offer are effectively connected with the conduct of a trade or business within the United States, a foreign shareholder must deliver to the Depositary a properly completed and executed IRS Form 4224. The Depositary will determine a shareholder's status as a foreign shareholder and eligibility for a reduced rate of, or exemption from, withholding by reference to any outstanding certificates or statements concerning eligibility for a reduced rate of, or 16 exemption from, withholding (e.g., IRS Form 1001 or IRS Form 4224) unless facts and circumstances indicate that such reliance is not warranted. A foreign shareholder may be eligible to obtain a refund of all or a portion of any tax withheld if such shareholder meets the "complete redemption," "substantially disproportionate" or "not essentially equivalent to a dividend" test described in Section 14 or is otherwise able to establish that no tax or a reduced amount of tax is due. Each foreign shareholder is urged to consult its tax advisor regarding the application of United States federal income tax withholding, including eligibility for a withholding tax reduction or exemption, and the refund procedure. See Instruction 12 of the Letter of Transmittal. Flexitrust. As of December 22, 1998, the Flexitrust held 2,232,500 Shares. Pursuant to the terms of the Flexitrust, each holder of a then outstanding and unexercised option under any of the Company's stock option plans (each, an "Optionee") will receive a copy of the tender offer materials. Each Optionee will also receive an instruction form upon which such Optionee may instruct First Union National Bank, the trustee under the Flexitrust (the "Flexitrust Trustee"), with respect to the tendering of Shares held in the Flexitrust pursuant to the Offer. The Flexitrust Trustee will tender that number of Shares held in the Flexitrust equal to the total number of Shares held in the Flexitrust multiplied by a fraction, the numerator of which is the number of Optionees who affirmatively direct the Flexitrust Trustee to tender, and the denominator of which is the total number of Optionees (including Optionees who provide no instructions). The price at which such Shares are tendered will also be prorated by the Flexitrust Trustee, based upon the prices indicated by the Optionees. Dividend Reinvestment and Stock Purchase Plan. As of December 22, 1998, the Dividend Reinvestment and Stock Purchase Plan held 147,684 shares, all of which were attributable to the individual accounts of the participants thereunder ("DRIP Participants"). Such Shares will be tendered (or not tendered) by American Stock Transfer and Trust Company, as administrator of the Dividend Reinvestment and Stock Purchase Plan (in such capacity, the "Administrator"), in accordance with the instructions of DRIP Participants provided to the Administrator. Shares for which the Administrator has not received timely instructions from the DRIP Participants will not be tendered. The Administrator will make available to the DRIP Participants all documents furnished to shareholders generally in connection with the Offer. Because the Depositary also acts as the Administrator, DRIP Participants may use the Letter of Transmittal to instruct the Administrator regarding the Offer by completing the section entitled "Dividend Reinvestment and Stock Purchase Plan Shares." Each DRIP Participant may direct that all, some or none of the Shares attributable to such DRIP Participant's account under the Dividend Reinvestment and Stock Purchase Plan (including fractional Shares, if any) be tendered and the price at which such Shares are to be tendered. If a DRIP Participant tenders all Shares owned by such DRIP Participant, and all such Shares are purchased by the Company, such DRIP Participant's participation in the Dividend Reinvestment and Stock Purchase Plan shall terminate and any accrued and unpaid dividends to which such person is entitled shall be paid in cash. DRIP Participants are urged to read the Letter of Transmittal and related materials carefully. Savings Plans. The decision as whether to tender Shares attributable to the accounts of participants in each of The Pep Boys -- Manny, Moe & Jack Savings Plan and The Pep Boys -- Manny, Moe & Jack Savings Plan - Puerto Rico and the determination as to the price at which such Shares will be tendered, if any, will be made by the trustee of the applicable plan upon the direction of the administrative committee of such plan. Determination of Validity; Rejection of Shares; Waiver of Defects; No Obligation to Give Notice of Defects. All questions as to the number of Shares to be accepted, the price to be paid for Shares to be accepted and the validity, form, eligibility (including time of receipt) and acceptance of any tender of Shares will be determined by the Company, in its sole discretion, and its determination shall be final and binding on all parties. The Company reserves the absolute right to reject any or all tenders of any Shares that it determines are not in appropriate form or the acceptance for payment of or payments for which may be unlawful. The Company also reserves the absolute right to waive any of the conditions of the Offer or any defect or irregularity in any tender with respect to any particular Shares or any particular shareholder. No tender of Shares will be deemed to have been properly made until all 17 defects or irregularities have been cured by the tendering shareholder or waived by the Company. None of the Company, the Dealer Manager, the Depositary, the Information Agent or any other person shall be obligated to give notice of any defects or irregularities in tenders, nor shall any of them incur any liability for failure to give any such notice. Tendering Shareholder's Representation and Warranty; Company's Acceptance Constitutes an Agreement. A tender of Shares pursuant to any of the procedures described above will constitute the tendering shareholder's acceptance of the terms and conditions of the Offer, as well as the tendering shareholder's representation and warranty to the Company that (a) such shareholder has a net long position in the Shares being tendered within the meaning of Rule 14e-4 promulgated by the Commission under the Exchange Act, and (b) the tender of such Shares complies with Rule 14e-4. It is a violation of Rule 14e-4 for a person, directly or indirectly, to tender Shares for such person's own account unless, at the time of tender and at the end of the proration period or period during which Shares are accepted by lot (including any extensions thereof), the person so tendering (i) has a net long position equal to or greater than the amount of (x) Shares tendered or (y) other securities convertible into or exchangeable or exercisable for the Shares tendered and will acquire such Shares for tender by conversion, exchange or exercise, and (ii) will deliver or cause to be delivered such Shares in accordance with the terms of the Offer. Rule 14e-4 provides a similar restriction applicable to the tender orguarantee of a tender on behalf of another person. The Company's acceptance for payment of Shares tendered pursuant to the Offer will constitute a binding agreement between the tendering shareholder and the Company upon the terms and conditions of the Offer. CERTIFICATES FOR SHARES, TOGETHER WITH A PROPERLY COMPLETED LETTER OF TRANSMITTAL AND ANY OTHER DOCUMENTS REQUIRED BY THE LETTER OF TRANSMITTAL, MUST BE DELIVERED TO THE DEPOSITARY AND NOT TO THE COMPANY OR THE DEALER MANAGER. ANY SUCH DOCUMENTS DELIVERED TO THE COMPANY OR THE DEALER MANAGER WILL NOT BE FORWARDED TO THE DEPOSITARY AND THEREFORE WILL NOT BE DEEMED TO BE VALIDLY TENDERED. 4. WITHDRAWAL RIGHTS. Except as otherwise provided in this Section 4, tenders of Shares pursuant to the Offer are irrevocable. Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date and, unless theretofore accepted for payment by the Company pursuant to the Offer, may also be withdrawn at any time after 12:00 Midnight, New York City time, on February 22, 1999. For a withdrawal to be effective, a notice of withdrawal must be in written, telegraphic or facsimile transmission form and must be received in a timely manner by the Depositary at its address set forth on the back cover of this Offer to Purchase. Any such notice of withdrawal must specify the name of the tendering shareholder, the name of the registered holder (if different from that of the person who tendered such Shares), the number of Shares tendered and the number of Shares to be withdrawn. If the certificates for Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the release of such certificates, the tendering shareholder must also submit the serial numbers shown on the particular certificates for Shares to be withdrawn and the signature on the notice of withdrawal must be guaranteed by an Eligible Institution (except in the case of Shares tendered by an Eligible Institution). If Shares have been tendered pursuant to the procedure for book-entry transfer set forth in Section 3, the notice of withdrawal also must specify the name and the number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares and otherwise comply with the procedures of such facility. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by the Company, in its sole discretion, which determination shall be final and binding. None of the Company, the Dealer Manager, the Depositary, the Information Agent or any other person shall be obligated to give notice of any defects or irregularities in any notice of withdrawal nor shall any of them incur liability for failure to give any such notice. Withdrawals may not be rescinded and any Shares withdrawn will thereafter be deemed not tendered for purposes of the Offer unless such withdrawn Shares are validly re-tendered prior to the Expiration Date by again following one of the procedures described in Section 3. 18 If the Company extends the Offer, is delayed in its purchase of Shares or is unable to purchase Shares pursuant to the Offer for any reason, then, without prejudice to the Company's rights under the Offer, the Depositary may, subject to applicable law, retain tendered Shares on behalf of the Company, and such Shares may not be withdrawn except to the extent tendering shareholders are entitled to withdrawal rights as described in this Section 4. 5. PURCHASE OF SHARES AND PAYMENT OF PURCHASE PRICE. Upon the terms and subject to the conditions of the Offer, as promptly as practicable following the Expiration Date, the Company will: (i) determine the lowest single Purchase Price that will allow it to purchase 10,000,000 Shares (or such lesser number of Shares as are validly tendered and not properly withdrawn prior to the Expiration Date), taking into account the number of Shares so tendered and the prices specified by tendering shareholders; and (ii) accept for payment and pay for (and thereby purchase) Shares validly tendered at prices at or below the Purchase Price and not properly withdrawn prior to the Expiration Date. For purposes of the Offer, the Company will be deemed to have accepted for payment (and therefore purchased) Shares that are validly tendered at or below the Purchase Price and not properly withdrawn (subject to the proration and conditional tender provisions of the Offer) only when, as and if it gives oral or written notice to the Depositary of its acceptance of such Shares for payment pursuant to the Offer. In accordance with applicable regulations of the Commission, the Company may purchase pursuant to the Offer an additional amount of Shares not to exceed 2% of the outstanding Shares without amending or extending the Offer. If (i) the Company increases or decreases the price to be paid for the Shares, the Company increases the number of Shares being sought and such increase in the number of Shares being sought exceeds 2% of the outstanding Shares, or the Company decreases the number of Shares being sought; and (ii) the Offering is scheduled to expire at any time earlier than the expiration of a period ending on the tenth business day from, and including, the date that notice of such increase or decrease is first published, sent or given in the manner specified in Section 15, the Offer will be extended until the expiration of such period of ten business days. Upon the terms and subject to the conditions of the Offer, the Company will purchase and pay a single per Share Purchase Price for all of the Shares accepted for payment pursuant to the Offer as soon as practicable after the Expiration Date. In all cases, payment for Shares validly tendered and accepted for payment pursuant to the Offer will be made promptly (subject to possible delay in the event of proration) but only after timely receipt by the Depositary of certificates for Shares (or of a timely confirmation of a book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility), a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof), or an Agent's Message, and any other required documents. The Company will pay for Shares purchased pursuant to the Offer by depositing the aggregate Purchase Price therefor with the Depositary, which will act as agent for tendering shareholders for the purpose of receiving payment from the Company and transmitting payment to the tendering shareholders. In the event of proration, the Company will determine the proration factor and pay for those tendered Shares accepted for payment as soon as practicable after the Expiration Date; however, the Company does not expect to be able to announce the final results of any proration and commence payment for Shares purchased until approximately seven NYSE trading days after the Expiration Date. Certificates for all Shares tendered and not purchased, including all Shares tendered at prices in excess of the Purchase Price and Shares not purchased due to proration or conditional tender, will be returned (or, in the case of Shares tendered by book-entry transfer, such Shares will be credited to the account maintained with the Book-Entry Transfer Facility by the participant therein who so delivered such Shares) to the tendering shareholder as promptly as practicable after the Expiration Date without expense to the tendering shareholders. Under no circumstances will interest on the Purchase Price be paid by the Company by reason of any delay in making payment. In addition, if certain events occur, the Company may not be obligated to purchase Shares pursuant to the Offer. See Section 7, "Certain Conditions of the Offer". 19 The Company will pay or cause to be paid all stock transfer taxes, if any, payable on the transfer to it of Shares purchased pursuant to the Offer. If, however, payment of the Purchase Price is to be made to, or (in the circumstances permitted by the Offer) if unpurchased Shares are to be registered in the name of, any person other than the registered holder(s), or if tendered certificates are registered in the name of any person other than the person(s) signing the Letter of Transmittal, the amount of all stock transfer taxes, if any (whether imposed on the registered holder(s) or such other person or otherwise), payable on account of the transfer to such person will be deducted from the Purchase Price unless satisfactory evidence of the payment of the stock transfer taxes, or exemption therefrom, is submitted. See Instruction 7 of the Letter of Transmittal. ANY TENDERING SHAREHOLDER OR OTHER PAYEE WHO FAILS TO COMPLETE FULLY, SIGN AND RETURN TO THE DEPOSITARY THE SUBSTITUTE FORM W-9 INCLUDED WITH THE LETTER OF TRANSMITTAL MAY BE SUBJECT TO REQUIRED UNITED STATES FEDERAL INCOME TAX BACKUP WITHHOLDING OF 31% OF THE GROSS PROCEEDS PAID TO SUCH SHAREHOLDER OR OTHER PAYEE PURSUANT TO THE OFFER. SEE SECTION 3, "PROCEDURES FOR TENDERING SHARES" AND SECTION 14, "CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES" REGARDING UNITED STATES FEDERAL INCOME TAX CONSEQUENCES FOR FOREIGN SHAREHOLDERS. 6. CONDITIONAL TENDER OF SHARES. Under certain circumstances set forth in Section 1, the Company may prorate the number of Shares purchased pursuant to the Offer. As discussed in Section 14, the number of Shares to be purchased from a particular shareholder might affect the tax consequences to such shareholder of such purchase and such shareholder's decision whether to tender. Accordingly, a shareholder may tender Shares subject to the condition that a specified minimum number, if any, must be purchased, and any shareholder wishing to make such a conditional tender should so indicate in the box captioned "Conditional Tender" on the Letter of Transmittal and, if applicable, on the Notice of Guaranteed Delivery. IT IS THE TENDERING SHAREHOLDER'S RESPONSIBILITY TO CALCULATE SUCH MINIMUM NUMBER OF SHARES AND EACH SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR. If the effect of accepting tenders on a pro rata basis is to reduce the number of Shares to be purchased from any shareholder below the minimum number so specified, such tender will automatically be deemed withdrawn, except as provided in the next paragraph, and Shares tendered by such shareholder will be returned as soon as practicable after the Expiration Date. However, if so many conditional tenders would be deemed withdrawn that the total number of Shares to be purchased falls below 10,000,000 Shares, then, to the extent feasible, the Company will select enough of such conditional tenders, which would otherwise have been deemed withdrawn, to purchase such desired number of Shares. In selecting among such conditional tenders, the Company will select by random lot and will limit its purchase in each case to the designated minimum number of Shares to be purchased. Conditional tenders will be selected by lot only from shareholders who tender all of their Shares. IN THE EVENT OF PRORATION, ANY SHARES TENDERED PURSUANT TO A CONDITIONAL TENDER FOR WHICH THE MINIMUM REQUIREMENTS ARE NOT SATISFIED MAY NOT BE ACCEPTED AND WILL THEREBY BE DEEMED WITHDRAWN. 7. CERTAIN CONDITIONS OF THE OFFER. The Offer is conditioned upon the consummation of the Financing and the Company's having obtained waivers under or amendments to certain of its existing credit facilities to permit the Offer and the Financing. See Section 2, "Purpose of the Offer; Certain Effects of the Offer". In addition, notwithstanding any other provision of the Offer, the Company shall not be required to accept for payment, purchase or pay for any Shares tendered, and may terminate or amend the Offer or may postpone the acceptance for payment of, or the purchase of and the payment for Shares tendered, subject to Rule 13e-4(f) under the Exchange Act, if at any time on or after December 23, 1998 and prior to the time of 20 payment for any such Shares (whether any Shares have theretofore been accepted for payment, purchased or paid for pursuant to the Offer) any of the following events shall have occurred (or shall have been determined by the Company to have occurred) that, in the Company's judgment (regardless of the circumstances giving rise thereto, including any action or omission to act by the Company), makes it inadvisable to proceed with the Offer or with such acceptance for payment or payment: (a) there shall have been threatened, instituted or pending any action or proceeding by any government or governmental, regulatory or administrative agency, authority or tribunal or any other person, domestic or foreign, before any court, authority, agency or tribunal that directly or indirectly: (i) challenges the making of the Offer, the acquisition of some or all of the Shares pursuant to the Offer or otherwise relates in any manner to the Offer; or (ii) in the Company's sole judgment, could materially adversely affect the business, condition (financial or other), income, operations or prospects of the Company and its subsidiaries, or otherwise materially impair in any way the contemplated future conduct of the business of the Company or any of its subsidiaries or materially impair the contemplated benefits of the Offer to the Company; (b) there shall have been any action threatened, pending or taken, or approval withheld, or any statute, rule, regulation, judgment, order or injunction threatened, proposed, sought, promulgated, enacted, entered, amended, enforced or deemed to be applicable to the Offer or the Company or any of its subsidiaries, by any court or any authority, agency or tribunal that, in the Company's sole judgment, would or might directly or indirectly: (i) make the acceptance for payment of, or payment for, some or all of the Shares illegal or otherwise restrict or prohibit consummation of the Offer or otherwise relates in any manner to the Offer; (ii) delay or restrict the ability of the Company, or render the Company unable, to accept for payment or pay for some or all of the Shares; (iii) materially impair the contemplated benefits of the Offer to the Company; or (iv) materially adversely affect the business, condition (financial or other), income, operations or prospects of the Company and its subsidiaries, taken as a whole, or otherwise materially impair in any way the contemplated future conduct of the business of the Company or any of its subsidiaries; (c) there shall have occurred: (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market; (ii) the declaration of any banking moratorium or any suspension of payments in respect of banks in the United States (whether or not mandatory); (iii) the commencement of a war, armed hostilities or other international or national crisis directly or indirectly involving the United States; (iv) any limitation (whether or not mandatory) by any governmental, regulatory or administrative agency or authority on, or any event that, in the Company's sole judgment, might affect, the extension of credit by banks or other lending institutions in the United States; (v) any significant decrease in the market price of the Shares or in the market prices of equity securities generally or any change in the general political, market, economic or financial conditions in the United States or abroad that could, in the sole judgment of the Company, have a material adverse effect on the business, condition (financial or otherwise), income, operations or prospects of the Company and its subsidiaries, taken as a whole, or on the trading in the Shares or on the proposed financing for the Offer; (vi) in the case of any of the foregoing existing at the time of the commencement of the Offer, a material acceleration or worsening thereof; or (vii) any decline in either the Dow Jones Industrial Average or the Standard and Poor's Index of 500 Industrial Companies by an amount in excess of 10% measured from the close of business on December 22, 1998; (d) a tender or exchange offer with respect to some or all of the Shares (other than the Offer), or a merger or acquisition proposal for the Company, shall have been proposed, announced or made by another person or shall have been publicly disclosed, or any person or group shall have filed a Notification and Report Form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 reflecting an intent to acquire the Company or any of the Shares, or the Company shall have learned that any person or "group" (within the meaning of Section 13(d)(3) of the Exchange Act) shall have acquired or proposed to acquire beneficial ownership of more than 5% of the outstanding Shares, or any new group shall have been formed that beneficially owns more than 5% of the outstanding Shares; or 21 (e) any change or changes shall have occurred, be pending or threatened or be proposed, which have affected or could affect the business, scope, condition (financial or otherwise), assets, income, level of indebtedness, operations, prospects, stock ownership or capital structure of the Company or its subsidiaries which, in the Company's sole judgment, is or may be material to the Company or its subsidiaries. The foregoing conditions are for the sole benefit of the Company and may be asserted by the Company regardless of the circumstances (including any action or inaction by the Company) giving rise to any such condition, and may be waived by the Company, in whole or in part, at any time and from time to time in its sole discretion. The Company's failure at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. Any determination by the Company concerning the events described above will be final and binding on all parties. 8. PRICE RANGE OF SHARES; DIVIDENDS. The Shares are listed and traded on the NYSE. The following table sets forth, for the periods indicated, the high and low closing per Share sales prices as reported on the NYSE Composite Tape:
High Low Dividends ------------ ----------- ------------ FISCAL 1996: 1st Quarter ..................................... $34 7/8 $27 7/8 $0.0525 2nd Quarter ..................................... 35 1/2 28 0.0525 3rd Quarter ..................................... 38 1/4 30 3/4 0.0525 4th Quarter ..................................... 38 27 7/8 0.0525 FISCAL 1997: 1st Quarter ..................................... 35 29 3/8 0.0600 2nd Quarter ..................................... 35 5/8 30 0.0600 3rd Quarter ..................................... 34 7/8 23 5/8 0.0600 4th Quarter ..................................... 26 3/16 21 9/16 0.0600 FISCAL 1998: ..................................... 1st Quarter ..................................... 26 11/16 21 5/16 0.0650 2nd Quarter ..................................... 23 3/4 16 3/4 0.0650 3rd Quarter ..................................... 17 7/8 12 3/8 0.0650 4th Quarter (through December 22, 1998) ......... 17 12 7/8 0.0650
On December 22, 1998, the last full trading day on the NYSE prior to the commencement of the Offer, the closing per Share sales price as reported on the NYSE Composite Tape was $13.50. SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES. The record date for the fourth quarter 1998 dividend of $0.065 per Share is January 11, 1999. Any person who owns Shares on the close of business on such date will be entitled to receive such dividend even if such Shares have been previously tendered pursuant to the Offer. 9. SOURCE AND AMOUNT OF FUNDS. Assuming that the Company purchases 10,000,000 Shares pursuant to the Offer at a purchase price of $16.00 per Share, the Company expects the maximum amount required to finance the Offer and the payment of related fees and expenses will be approximately $163.2 million. The Company 22 expects to finance such transactions as described in Section 2. The Offer is conditioned upon, among other things, the Financing and the Company's having obtained waivers under or amendments to certain of its existing credit facilities to permit the Offer and the Financing. 10. CERTAIN INFORMATION CONCERNING THE COMPANY. The Company is a leading automotive aftermarket retail and service chain. The Company is engaged principally in the retail sale of automotive parts and accessories, automotive maintenance and service and the installation of parts. As of December 22, 1998, the Company operated 635 stores located in 37 states, the District of Columbia and Puerto Rico, of which 344 stores are owned and 291 stores are leased. The Company was incorporated under the laws of the Commonwealth of Pennsylvania in 1925. Its executive offices are located at 3111 West Allegheny Avenue, Philadelphia, Pennsylvania 19132, telephone (215) 229-9000. Summary Historical Consolidated Financial Information Set forth below is certain summary historical consolidated financial information of the Company and its subsidiaries. The historical financial information has been derived from the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended January 31, 1998 and from the unaudited consolidated financial statements included in the Company's Quarterly Reports on Form 10-Q for the 39-week periods ended October 31, 1998 and November 1, 1997, respectively, which have been prepared on a basis substantially consistent with the audited financial statements, and reflect, in the opinion of management, all adjustments necessary to a fair presentation of the financial position and results of operations for such periods. The results for the 39 weeks ended October 31, 1998 are not necessarily indicative of the results for the full year. The information presented below should be read in conjunction with the Company's consolidated financial statements and notes thereto. More comprehensive financial information is included in such financial statements, and the financial information which follows is qualified in its entirety by reference to such financial statements, related notes and the audit report contained therein, copies of which may be obtained as set forth below under the caption "-- Additional Information".
39 Weeks Ended Fiscal Year Ended --------------------------------- -------------------------------- January 31, February 1, October 31, November 1, 1998(2) 1997 1998(1) 1997 (Fiscal 1997) (Fiscal 1996) --------------- --------------- --------------- -------------- (in thousands except share and per share data) Statement of Earnings Data Total Revenues $1,835,492 $1,554,140 $2,056,520 $1,828,539 Net Earnings 23,841 77,354 49,611 100,824 Basic Earnings per Share 0.39 1.27 0.81 1.67 Diluted Earnings per Share 0.39 1.22 0.80 1.62 Ratio of Earnings to Fixed Charges(3) 1.7x 4.0x 2.3x 4.7x Balance Sheet Data Cash and Cash Equivalents $ 97,470 $ 3,587 $ 10,811 $ 2,589 Total Assets 2,055,463 2,009,189 2,161,360 1,818,365 Working Capital 272,808 197,613 151,340 70,691 Total Debt 776,428 746,095 693,798 518,799 Stockholders' Equity 837,347 850,195 822,635 778,091 Book Value per Share(4) 13.12 13.39 12.92 12.33 (footnotes appear on following page)
23 - ------------ (1) Financial data for the thirty-nine weeks ended October 31, 1998 includes charges ($16,160 after-tax or $0.26 per share--basic and diluted) related to the closure of 109 Pep Boys Express stores and sale of real estate relating to 100 such stores. (2) Financial data for fiscal 1997 includes charges ($18,418 after-tax or $0.30 per share--basic and diluted) associated with closing nine stores, certain store format changes, equipment write-offs, costs associated with reducing the store expansion program and other related expenses. (3) Computed by dividing earnings by fixed charges. "Earnings" consist of earnings before income taxes and cumulative effect of change in accounting principle plus fixed charges (exclusive of capitalized interest costs). "Fixed charges" consist of interest costs (including capitalized interest costs) plus one-third of rental expense (which amount is considered representative of the interest factor in rental expense). (4) Book value per Share is calculated as total stockholders' equity divided by the number of Shares outstanding at the end of the period. Summary Unaudited Consolidated Pro Forma Financial Information The following summary unaudited consolidated pro forma financial information gives effect to the purchase of Shares pursuant to the Offer, the Financing and the payment of related fees and expenses, based on the assumptions described in the Notes to Summary Unaudited Consolidated Pro Forma Financial Information below, as if such transactions had occurred on the first day of each of the periods presented, with respect to statement of earnings data, and on October 31, 1998 and January 31, 1998, with respect to balance sheet data. The summary unaudited consolidated pro forma financial information should be read in conjunction with the Summary Historical Consolidated Financial Information set forth above and does not purport to be indicative of the results that would actually have been obtained, or results that may be obtained in the future, or the financial condition that would have resulted, if the purchase of the Shares pursuant to the Offer, the Financing and the payment of related fees and expenses had been completed at the dates indicated.
39 Weeks Ended Fiscal Year Ended October 31, 1998(1) January 31, 1998(2) ----------------------------------------------- ------------------------------------------------- Pro Forma(3)(4) Pro Forma(3)(4) $13.50 $16.00 $13.50 $16.00 Historical Per Share Per Share Historical Per Share Per Share --------------- --------------- ------------- --------------- --------------- --------------- (in thousands except share and per share data) (in thousands except share and per share data) Statement of Earnings Data Total Revenues $ 1,835,492 $ 1,835,492 $ 1,835,492 $ 2,056,520 $ 2,056,520 $ 2,056,520 Net Earnings 23,841 18,494 17,714 49,611 42,506 41,438 Basic Earnings per Share 0.39 0.36 0.34 0.81 0.83 0.81 Diluted Earnings per Share 0.39 0.36 0.34 0.80 0.82 0.80 Ratio of Earnings to Fixed Charges(5) 1.7x 1.3x 1.3x 2.3x 1.8x 1.7x Balance Sheet Data Cash and Cash Equivalents $ 97,470 $ 84,303 $ 59,303 $ 10,811 $ 10,811 $ 10,811 Total Assets 2,055,463 2,044,313 2,019,313 2,161,360 2,161,360 2,161,360 Working Capital 272,808 259,641 234,641 151,340 151,340 151,340 Total Debt 776,428 901,428 901,428 693,798 831,650 856,650 Stockholders' Equity 837,347 701,197 676,197 822,635 686,485 661,485 Book Value per Share(6) 13.12 13.03 12.56 12.92 12.79 12.33
- ------------ (1) Financial data for the thirty-nine weeks ended October 31, 1998 includes charges ($16,160 after-tax or $0.26 per share--basic and diluted) related to the closure of 109 Pep Boys Express stores and sale of real estate assets relating to 100 such stores. (2) Financial data for fiscal 1997 includes charges ($18,418 after-tax or $0.30 per share--basic and diluted) associated with closing nine stores, certain store format changes, equipment write-offs, costs associated with reducing the store expansion program and other related expenses. 24 (3) The pro forma information assumes 10,000,000 Shares to be purchased at $13.50 per Share and $16.00 per Share. For the thirty-nine weeks ended October 31, 1998, the purchase is assumed to be financed through the proceeds of an issuance of $125,000 aggregate principal amount of Senior Notes and the balance from available cash. For the fiscal year ended January 31, 1998, the purchase is assumed to be financed through the proceeds of an issuance of $125,000 aggregate principal amount of Senior Notes and the balance from borrowings under the Credit Agreement. Interest per annum on the Senior Notes and under the Credit Agreement is assumed to be 7.5% and 6.5%, respectively. Assuming the purchase of 10,000,000 Shares at $16.00 per Share, each 1/4% increase or decrease in the cost of financing would impact net earnings and basic and diluted earnings per share for the thirty-nine weeks ended October 31, 1998 by $196 and $.004, respectively, and for the fiscal year ended January 31, 1998 by $268 and $.005, respectively. (4) The pro forma information assumes expenses directly related to the Offer and related financing expenses of approximately $3.2 million and $2.9 million in the aggregate for the thirty-nine weeks ended October 31, 1998 and the fiscal year ended January 31, 1998, respectively. (5) Computed by dividing earnings by fixed charges. "Earnings" consist of earnings before income taxes and cumulative effect of change in accounting principle plus fixed charges (exclusive of capitalized interest costs). "Fixed charges" consist of interest costs (including capitalized interest costs) plus one-third of rental expense (which amount is considered representative of the interest factor in rental expense). (6) Book value per Share is calculated as total stockholders' equity divided by the number of Shares outstanding at the end of the period. Additional Information The Company is subject to the informational filing requirements of the Exchange Act and, in accordance therewith, is obligated to file reports and other information with the Commission relating to its business, financial condition and other matters. Information, as of particular dates, concerning the Company's directors and officers, their remuneration, options granted to them, the principal holders of the Company's securities and any material interest of such persons in transactions with the Company is required to be disclosed in proxy statements distributed to the Company's shareholders and filed with the Commission. Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Room 2120, Washington, D.C. 20549, at its regional offices located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and 7 World Trade Center, New York, New York 10048. Copies of such material may also be obtained by mail, upon payment of the Commission's customary charges, from the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains a Web site on the World Wide Web at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. 11. INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS; TRANSACTIONS AND ARRANGEMENTS CONCERNING SHARES. As of December 22, 1998, the Company had issued and outstanding 63,825,110 Shares and had reserved for issuance upon exercise of outstanding stock options and convertible debt securities 10,263,790 Shares. The 10,000,000 Shares that the Company is offering to purchase represent approximately 15.7% of the Shares then issued and outstanding. As of December 22, 1998, the Company's directors and executive officers as a group (11 persons) beneficially owned an aggregate of 6,275,431 Shares representing approximately 9.6% of the issued and outstanding Shares, assuming the exercise of options exercisable within 60 days. Each of the Company's directors and executive officers has advised the Company that he does not intend to tender any Shares pursuant to the Offer. If the Company purchases 10,000,000 Shares pursuant to the Offer, the Company's executive officers and directors as a group would own beneficially approximately 11.4% of the issued and outstanding Shares immediately after the Offer, assuming exercise of options exercisable within 60 days. 25 Neither the Company, nor any subsidiary of the Company nor, to the best of the Company's knowledge, any of the Company's directors or executive officers, nor any affiliates of any of the foregoing, had any transactions involving the Shares during the 40 business days prior to the date hereof. Except for outstanding options to purchase Shares granted from time to time to certain employees (including executive officers) of the Company pursuant to the Company's stock option plans and except as otherwise described herein, neither the Company nor, to the best of the Company's knowledge, any of its affiliates, directors or executive officers, is a party to any contract, arrangement, understanding or relationship with any other person relating, directly or indirectly, to the Offer with respect to any securities of the Company including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any such securities, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies, consents or authorizations. 12. EFFECTS OF THE OFFER ON THE MARKET FOR SHARES; REGISTRATION UNDER THE EXCHANGE ACT. The Company's purchase of Shares pursuant to the Offer will reduce the number of Shares that might otherwise be traded publicly and may reduce the number of shareholders. However, there will be a sufficient number of Shares outstanding and publicly traded following consummation of the Offer to ensure a continued trading market for the Shares and the continued listing of the Company's securities on the NYSE. The Shares are currently "margin securities" under the rules of the Federal Reserve Board. This has the effect, among other things, of allowing brokers to extend credit to their customers using such Shares as collateral. The Company believes that, following the purchase of Shares pursuant to the Offer, Shares will continue to be "margin securities" for purposes of the Federal Reserve Board's margin regulations. Shares the Company acquires pursuant to the Offer will be retained as treasury stock by the Company (unless and until the Company determines to retire such Shares) and will be available for the Company to issue without further shareholder action (except as required by applicable law or, if retired, the rules of any securities exchange on which Shares are listed). Subject to applicable state laws and NYSE rules, such Shares could be issued without shareholder approval for, among other things, acquisitions, the raising of additional capital for use in the Company's business, repayment in shares of certain outstanding indebtedness, share dividends or in connection with stock option plans and other plans, or a combination thereof. The Company has no current plans for issuance of the Shares repurchased pursuant to the Offer. The Shares are registered under the Exchange Act, which requires, among other things, that the Company furnish certain information to its shareholders and the Commission and comply with the Commission's proxy rules in connection with meetings of the Company's shareholders. The Company believes that its purchase of Shares pursuant to the Offer will not result in the Shares becoming eligible for deregistration under the Exchange Act. 13. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS. The Company is not aware of any license or regulatory permit that appears to be material to the Company's business that might be adversely affected by the Company's acquisition of Shares as contemplated herein or of any approval or other action by any government or governmental, administrative or regulatory authority or agency, domestic or foreign, that would be required for the acquisition or ownership of Shares by the Company as contemplated herein. Should any such approval or other action be required, the Company presently contemplates that such approval or other action will be sought. The Company is unable to predict whether it may determine that it is required to delay the acceptance for payment of or payment for Shares tendered pursuant to the Offering pending the outcome of any such matter. There can be no assurance that any such approval or other action, if needed, 26 would be obtained or would be obtained without substantial conditions or that the failure to obtain any such approval or other action might not result in adverse consequences to the Company's business. The Company's obligations under the Offer to accept for payment and pay for Shares is subject to certain conditions. See Section 7, "Certain Conditions of the Offer". 14. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES. The following summary describes certain United States federal income tax consequences relevant to the Offer. The discussion contained in this summary is based upon the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), existing and proposed United States Treasury regulations promulgated thereunder, administrative pronouncements and judicial decisions, changes to which could materially affect the tax consequences described herein and could be made on a retroactive basis. This summary discusses only Shares held as capital assets, within the meaning of Section 1221 of the Code, and does not address all of the tax consequences that may be relevant to particular shareholders in light of their personal circumstances, or to certain types of shareholders (such as certain financial institutions, dealers in securities or commodities, insurance companies, tax-exempt organizations or persons who hold Shares as a position in a "straddle" or as part of a "hedging" or "conversion" or "constructive sale" transaction for United States federal income tax purposes). In particular, the discussion of the consequences of an exchange of Shares for cash pursuant to the Offer applies only to a United States shareholder (herein, a "Holder"). For purposes of this summary, a "United States shareholder" is a beneficial owner of the Shares who is (i) a citizen or resident of the United States, (ii) a corporation, partnership or other entity created or organized in or under the laws of the United States, any State or any political subdivision thereof, (iii) an estate the income of which is subject to United States federal income taxation regardless of source, or (iv) a trust the administration of which a court within the United States is able to exercise primary supervision and all substantial decisions of which one or more United States persons have the authority to control. This discussion does not address the tax consequences to foreign shareholders who will be subject to United States federal income tax on a net basis on the proceeds of their exchange of Shares pursuant to the Offer because such income is effectively connected with the conduct of a trade or business within the United States. Such shareholders are generally subject to tax in a manner similar to United States shareholders; however, certain special rules apply. Foreign shareholders who are not subject to United States federal income tax on a net basis should see Section 3, "Procedures for Tendering Shares" for a discussion of the applicable United States withholding tax rules and the potential for obtaining a refund of all or a portion of the tax withheld. ANY SUCH SHAREHOLDER IS STRONGLY ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR. This summary may not be applicable with respect to Shares acquired as compensation (including Shares acquired upon the exercise of options or which were or are subject to forfeiture restrictions). This summary also does not address the state, local or foreign tax consequences of participating in the Offer. EACH HOLDER OF SHARES SHOULD CONSULT SUCH HOLDER'S TAX ADVISOR AS TO THE PARTICULAR CONSEQUENCES TO HIM OR HER OF PARTICIPATION IN THE OFFER. Consequences to Tendering Holders of Exchange of Shares for Cash Pursuant to the Offer. An exchange of Shares for cash pursuant to the Offer by a Holder will be a taxable transaction for United States federal income tax purposes. As a consequence of the exchange, the Holder will, depending on such Holder's particular circumstances, be treated either as recognizing gain or loss from the disposition of the Shares or as receiving a dividend distribution from the Company. Under Section 302 of the Code, a Holder will recognize gain or loss on an exchange of Shares for cash if the exchange (i) results in a "complete termination" of all such Holder's equity interest in the Company, (ii) results in a "substantially disproportionate" redemption with respect to such Holder or (iii) is "not essentially equivalent to a dividend" with respect to the Holder. In applying each of the Section 302 tests, a Holder is in general deemed to own constructively the Shares actually owned by certain related individuals and entitles. 27 A Holder that exchanges all Shares actually or constructively owned by such Holder for cash pursuant to the Offer will be regarded as having completely terminated such Holder's equity interest in the Company. An exchange of Shares for cash will be a "substantially disproportionate" redemption with respect to a Holder if the percentage of the then outstanding Shares owned by such Holder immediately after the exchange is less than 80% of the percentage of the Shares owned by such Holder immediately before the exchange. If an exchange of Shares for cash fails to satisfy the "substantially disproportionate" test, the Holder may nonetheless satisfy the "not essentially equivalent to a dividend" test. A Holder who wishes to satisfy the "not essentially equivalent to a dividend" test is urged to consult such Holder's tax advisor because this test will be met only if the reduction in such Holder's proportionate interest in the Company constitutes a "meaningful reduction" given such Holder's particular facts and circumstances. The IRS has indicated in published rulings that any reduction in the percentage interest of a shareholder whose relative stock interest in a publicly held corporation is minimal (an interest of less than 1% should satisfy this requirement) and who exercises no control over corporate affairs should constitute such a "meaningful reduction". If a Holder sells Shares to persons other than the Company at or about the time such Holder also sells Shares to the Company pursuant to the Offer, and the various sales effected by the Holder are part of an overall plan to reduce or terminate such Holder's proportionate interest in the Company, then the sales to persons other than the Company may, for United States federal income tax purposes, be integrated with the Holder's sale of Shares pursuant to the Offer and, if integrated, may be taken into account in determining whether the Holder satisfies any of the three tests described above. A Holder should consult his tax advisor regarding the treatment of other exchanges of Shares for cash which may be integrated with such Holder's sale of Shares to the Company pursuant to the Offer. If a Holder is treated as recognizing gain or loss from the disposition of Shares for cash, such gain or loss will be equal to the difference between the amount of cash received and such Holder's tax basis in the Shares exchanged therefor. Any such gain or loss will be capital gain or loss and will be long- term capital gain or loss if the Holder's holding period of the Shares exceeds one year as of the date of the exchange. Any long-term capital gain recognized by Holders that are individuals, estates or trusts will be taxable at a maximum rate of 20%. However, any short-term capital gain recognized by Holders that are individuals, estates or trusts and any long-term or short-term capital gain recognized by Holders that are corporations will be taxable at regular income tax rates. If a Holder is not treated under the Section 302 tests as recognizing gain or loss on an exchange of Shares for cash, the entire amount of cash received by such Holder in such exchange will be treated as a dividend to the extent of the Company's current earnings and profits for its base year, and accumulated earnings and profits, as determined for United States federal income tax purposes. Such a dividend will be includible in the Holder's gross income as ordinary income in its entirety, without reduction for the Holder's tax basis of the Shares exchanged, and no loss will be recognized. The Holder's tax basis in the Shares exchanged, however, will be added to such Holder's tax basis in the remaining Shares that it owns. To the extent that cash received in exchange for Shares is treated as a dividend to a corporate Holder, (i) it will be eligible for a dividends-received deduction (subject to applicable limitations) and (ii) it will be subject to the "extraordinary dividend" provisions of the Code. A corporate Holder should consult its tax advisor concerning the availability of the dividends-received deduction and the application of the "extraordinary dividend" provisions of the Code. The Company cannot predict whether or the extent to which the Offer will be oversubscribed. If the Offer is oversubscribed, proration of tenders pursuant to the Offer will cause the Company to accept fewer Shares than are tendered. Therefore, a Holder can be given no assurance that a sufficient number of such Holder's Shares will be purchased pursuant to the Offer to ensure that such purchase will be treated as a sale or exchange, rather than as a dividend, for United States federal income tax purposes pursuant to the rules discussed above. However, see Section 6, "Conditional Tender of Shares" regarding a shareholder's right to tender Shares subject to the condition that a specified minimum number of such Shares must be purchased (if any are purchased). 28 Consequences to Shareholders who do not Tender Pursuant to the Offer. Shareholders who do not accept the Company's Offer to tender their Shares will not incur any tax liability as a result of the consummation of the Offer. See Section 3, "Procedures for Tendering Shares" with respect to the application of United States federal income tax withholding to payments made to foreign shareholders and backup withholding. THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. EACH SHAREHOLDER IS URGED TO CONSULT SUCH HOLDER'S OWN TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE OFFER, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS. 15. EXTENSION OF OFFER; TERMINATION; AMENDMENT. The Company expressly reserves the right, in its sole discretion, at any time and from time to time, and regardless of whether or not any of the events set forth in Section 7 shall have occurred or shall be deemed by the Company to have occurred, to extend the period of time during which the Offer is open and thereby delay acceptance for payment of, and payment for, any Shares by giving oral or written notice of such extension to the Depositary and making a public announcement thereof. The Company also expressly reserves the right, in its sole discretion, to terminate the Offer and not accept for payment or pay for any Shares not theretofore accepted for payment or paid for or, subject to applicable law, to postpone payment for Shares upon the occurrence of any of the conditions specified in Section 7 hereof by giving oral or written notice of such termination or postponement to the Depositary and making a public announcement thereof. The Company's reservation of the right to delay payment for Shares which it has accepted for payment is limited by Rule 13e-4(f)(5) promulgated under the Exchange Act, which requires that the Company must pay the consideration offered or return the Shares tendered promptly after termination or withdrawal of a tender offer. Subject to compliance with applicable law, the Company further reserves the right, in its sole discretion, and regardless of whether any of the events set forth in Section 7 shall have occurred or shall be deemed by the Company to have occurred, to amend the Offer in any respect (including, without limitation, by decreasing or increasing the consideration offered in the Offer to holders of Shares or by decreasing or increasing the number of Shares being sought in the Offer). Amendments to the Offer may be made at any time and from time to time effected by public announcement thereof, such announcement, in the case of an extension, to be issued no later than 9:00 A.M., New York City time, on the next business day after the last previously scheduled or announced Expiration Date. Any public announcement made pursuant to the Offer will be disseminated promptly to shareholders in a manner reasonably designated to inform shareholders of such change. Without limiting the manner in which the Company may choose to make a public announcement, except as required by applicable law, the Company shall have no obligation to publish, advertise or otherwise communicate any such public announcement other than by making a release to the Dow Jones News Service. If the Company materially changes the terms of the Offer or the information concerning the Offer, or if it waives a material condition of the Offer, the Company will disseminate additional information and extend the Offer to the extent required by Rules 13e-4(d)(2), 13e-4(e)(2) and 14e-4(f)(1) promulgated under the Exchange Act. These rules require that the minimum period during which an offer must remain open following material changes in the terms of the Offer or information concerning the Offer (other than a change in price or a change in percentage of securities sought) will depend on the facts and circumstances, including the relative materiality of such terms or information. If: (i) the Company increases or decreases the price to be paid for Shares, the number of Shares being sought in the Offer or the Dealer Manager's soliciting fees and, in the event of an increase in the number of Shares being sought, such increase exceeds 2% of the outstanding Shares; and (ii) the Offer ends on the tenth business day from, and including, the date that such notice of an increase or decrease is first published, sent or given in the manner specified in this Section 15, the Offer will then be extended until the expiration of such period of ten business days. 29 16. FEES AND EXPENSES. CSFB is acting as Dealer Manager in connection with the Offer, for which services CSFB will receive customary compensation. The Company also has agreed to reimburse CSFB for its out-of-pocket expenses, including the fees and expenses of legal counsel and other advisors, incurred in connection with its engagement, and to indemnify CSFB and certain related persons against certain liabilities and expenses in connection with its engagement, including certain liabilities under the federal securities laws. In the ordinary course of business, CSFB and its affiliates may actively trade the debt and equity securities of the Company for their own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities. The Company has retained American Stock Transfer and Trust Company to act as Depositary and MacKenzie Partners, Inc. to act as Information Agent in connection with the Offer. The Information Agent may contact shareholders by mail, telephone, telegraph and personal interviews and may request brokers, dealers and other nominee shareholders to forward materials relating to the Offer to beneficial owners. The Depositary and the Information Agent will each receive reasonable and customary compensation for their respective services as Depositary and Information Agent, will be reimbursed by the Company for certain reasonable out-of-pocket expenses and will be indemnified against certain liabilities in connection with the Offer, including certain liabilities under the federal securities laws. No fees or commissions will be payable to brokers, dealers or other persons (other than to the Dealer Manager, the Depositary or the Information Agent as described above) for soliciting tenders of Shares pursuant to the Offer. The Company, however, upon request, will reimburse brokers, dealers and commercial banks for customary mailing and handling expenses incurred by such persons in forwarding the Offer and related materials to the beneficial owners of Shares held by any such person as a nominee or in a fiduciary capacity. No broker, dealer, commercial bank or trust company has been authorized to act as the agent of the Company for purposes of the Offer (except for the Dealer Manager). The Company will pay or cause to be paid all stock transfer taxes, if any, on its purchase of Shares except as otherwise provided in Instruction 7 in the Letter of Transmittal. 17. MISCELLANEOUS. The Company is not aware of any jurisdiction where the making of the Offer is not in compliance with applicable law. If the Company becomes aware of any jurisdiction where the making of the Offer is not in compliance with any valid applicable law, the Company will make a good faith effort to comply with such law. If, after such good faith effort, the Company cannot comply with such law, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares residing in such jurisdiction. In any jurisdiction the securities or blue sky laws of which require the Offer to be made by a licensed broker or dealer, the Offer is being made on the Company's behalf by the Dealer Manager or one or more registered brokers or dealers licenses under the laws of such jurisdiction. Pursuant to Rule 13e-4 of the General Rules and Regulations under the Exchange Act, the Company has filed with the Commission an Issuer Tender Offer Statement on Schedule 13E-4 which contains additional information with respect to the Offer. Such Schedule 13E-4, including the exhibits and any amendments thereto, may be examined, and copies may be obtained, at the same places and in the same manner as is set forth in Section 10 with respect to information concerning the Company. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION ON BEHALF OF THE COMPANY OR THE DEALER MANAGER IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED IN THIS OFFER TO PURCHASE OR IN THE RELATED LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE DEALER MANAGER. THE PEP BOYS -- MANNY, MOE & JACK December 23, 1998 30 Manually signed facsimile copies of the Letter of Transmittal will be accepted from Eligible Institutions. The Letter of Transmittal and certificates for Shares and any other required documents should be sent or delivered by each shareholder or his or her broker, dealer, commercial bank, trust company or other nominee to the Depositary at one of its addresses set forth below. The Depositary for the Offer is: AMERICAN STOCK TRANSFER AND TRUST COMPANY By Mail: By Hand: By Overnight Delivery: By Facsimile: American Stock Transfer and American Stock Transfer and American Stock Transfer and American Stock Transfer and Trust Company Trust Company Trust Company Trust Company 40 Wall Street 40 Wall Street 40 Wall Street (for Eligible Institutions New York, New York 46th Floor 46th Floor only) 10005 New York, New York New York, New York (718) 234-5001 10005 10005 Confirm by Telephone: (718) 921-8200
Any questions or requests for assistance or additional copies of the Offer to Purchase, the Letter of Transmittal or other tender offer materials may be directed to the Information Agent or the Dealer Manager as set forth below. Shareholders may also contact their local broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the Offer is: [MACKENZIE PARTNERS LOGO] 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (Call Collect) or Call Toll Free: (800) 322-2885 The Dealer Manager for the Offer is: Credit Suisse First Boston Corporation Eleven Madison Avenue New York, New York 10010-3629 Call Toll Free: (800) 881-8320 EX-99.(A)(2) 3 EXHIBIT 99.(A)(2) LETTER OF TRANSMITTAL To Tender Shares of Common Stock of THE PEP BOYS -- MANNY, MOE & JACK Pursuant to the Offer to Purchase Dated December 23, 1998 - -------------------------------------------------------------------------------- THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JANUARY 22, 1999, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- The Depositary for the Offer is: American Stock Transfer and Trust Company By Mail: By Hand: 40 Wall Street 40 Wall Street New York, New York 10005 46th Floor New York, New York 10005 By Overnight Delivery: 40 Wall Street 46th Floor New York, New York 10005 By Facsimile Transmission: Confirm Receipt of Facsimile by Telephone: for Eligible Institutions only) (718) 921-8200 (718) 234-5001 PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING THE ACCOMPANYING INSTRUCTIONS, CAREFULLY BEFORE CHECKING ANY BOX BELOW.
- ---------------------------------------------------------------------------------------------- DESCRIPTION OF SHARES TENDERED (See Instructions 3 and 4) - ---------------------------------------------------------------------------------------------- NAMES(S) AND ADDRESSES OF REGISTERED HOLDER(S) (Please fill in exactly as name(s) appear(s) SHARES TENDERED on Share certificate(s) (Attach Additional Signed List, if Necessary) - ---------------------------------------------------------------------------------------------- Total Number of Shares Share Represented Number of Certificate by Share Shares Numbers(1) Certificate(s) Tendered(2) --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- Total Shares ---------------------------------------------
- -------------------------------------------------------------------------------- Indicate in this box the order (by certificate number) in which Shares are to be purchased in the event of pro ration.(3) (Attach additional signed list if necessary.) See Instruction 15. 1st: 2nd: 3rd: 4th: 5th: - -------------------------------------------------------------------------------- / / Check here if any of the Share certificates that you own have been lost, stolen or destroyed. See Instruction 16. Number of Shares represented by lost, stolen or destroyed Share certificates: __________ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) Need not be completed by shareholders tendering Shares by book-entry transfer. (2) Unless otherwise indicated, it will be assumed that all Shares represented by each Share certificate delivered to the Depositary are being tendered hereby. See Instruction 4. (3) If you do not designate an order, then in the event less than all Shares tendered are purchased due to proration, Shares will be selected for purchase by the Depositary. See Instruction 15. - -------------------------------------------------------------------------------- NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL CAREFULLY. DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. DELIVERIES TO THE COMPANY OR THE DEALER MANAGER WILL NOT BE FORWARDED TO THE DEPOSITARY AND THEREFORE WILL NOT CONSTITUTE VALID DELIVERY. DELIVERIES TO THE BOOK-ENTRY TRANSFER FACILITY WILL NOT CONSTITUTE VALID DELIVERY TO THE DEPOSITARY. This Letter of Transmittal is to be used only if certificates are to be forwarded herewith or if delivery of Shares (as defined below) is to be made by book-entry transfer to the Depositary's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in Section 3 of the Offer to Purchase (as defined below). Shareholders whose Share certificates are not immediately available, who cannot deliver certificates and any other documents required to the Depositary by the Expiration Date (as defined in the Offer to Purchase), or who cannot complete the procedure for book-entry transfer prior to the Expiration Date, must tender their Shares using the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. See Instruction 2. (BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY) / / CHECK HERE IF TENDERED SHARES ARE ENCLOSED HEREWITH. - -------------------------------------------------------------------------------- / / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution:___________________________________ Account No.______________________________________________________ Transaction Code No._____________________________________________ / / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s)__________________________________ Date of Execution of Notice of Guaranteed Delivery_______________ Name of Institution that Guaranteed Delivery_____________________ If delivery is by book-entry transfer: Name of Tendering Institution:___________________________________ Account No.______________________________________________________ Transaction Code No._____________________________________________ - -------------------------------------------------------------------------------- Ladies and Gentlemen: The undersigned hereby tenders to The Pep Boys -- Manny, Moe & Jack, a Pennsylvania corporation (the "Company"), the above-described shares of its common stock, par value $1.00 per share ("Common Stock") (shares of Common Stock, together with associated common stock purchase rights issued pursuant to the Rights Agreement, dated as of December 5, 1997, between the Company and First Union National Bank, as Rights Agent, are referred to herein as "Shares"), at the price per Share indicated in this Letter of Transmittal, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated December 23, 1998 (the "Offer to Purchase"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which, as amended or supplemented from time to time, together constitute the "Offer"). Subject to, and effective upon, acceptance for payment of and payment for the Shares tendered herewith in accordance with the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the undersigned hereby sells, assigns and transfers to or upon the order of the Company all right, title and interest in and to all the Shares that are being tendered hereby or orders the registration of such Shares tendered by book-entry transfer that are purchased pursuant to the Offer to or upon the order of the Company and hereby irrevocably constitutes and appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to: (i) deliver certificates for such Shares, or transfer ownership of such Shares on the account books maintained by the Book-Entry Transfer Facility, together, in any such case, with all accompanying evidences of transfer and authenticity, to or upon the order of the Company upon receipt by the Depositary, as the undersigned's agent, of the Purchase Price (as defined below) with respect to such Shares; (ii) present certificates for such Shares for cancellation and transfer on the books of the Company; and (iii) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares, all in accordance with the terms of the Offer. The undersigned hereby represents and warrants to the Company that the undersigned has full power and authority to tender, sell, assign and transfer the Shares tendered hereby and that, when and to the extent the same are accepted for payment by the Company, the Company will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to the sale or transfer thereof, and the same will not be subject to any adverse claims. The undersigned will, upon request, execute and deliver any additional documents deemed by the Depositary or the Company to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby. The undersigned represents and warrants to the Company that the undersigned has read and agrees to all of the terms of the Offer. All authority herein conferred or agreed to be conferred shall not be affected by and shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Except as stated in the Offer, this tender is irrevocable. The undersigned understands that tenders of Shares pursuant to any one of the procedures described in Section 3 of the Offer to Purchase and in the Instructions of this Letter of Transmittal will constitute the undersigned's acceptance of the terms and conditions of the Offer, as well as the undersigned's representation and warranty to the Company that: (i) the undersigned has a net long position in the Shares or equivalent securities being tendered within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"); and (ii) the tender of such Shares complies with Rule 14e-4 of the Exchange Act. The Company's acceptance for payment of Shares tendered pursuant to the Offer will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Offer. The names and addresses of the registered holders should be printed, if they are not already printed above, exactly as they appear on the certificates representing Shares tendered hereby. The certificate numbers, the number of Shares represented by such certificates, the number of Shares that the undersigned wishes to tender and the purchase price at which such Shares are being tendered should be indicated in the appropriate boxes on this Letter of Transmittal. The undersigned understands that the Company will, upon the terms and subject to the conditions of the Offer, determine the lowest single per Share price (not greater than $16.00 nor less than $13.50 per Share), net to the seller in cash, without interest thereon (the "Purchase Price"), that will allow it to purchase 10,000,000 Shares (or such lesser number of Shares as are validly tendered and not withdrawn) pursuant to the Offer. The undersigned understands that the Company will pay the Purchase Price for all Shares validly tendered at prices at or below the Purchase Price and not withdrawn, upon the terms and subject to the conditions of the Offer, including the financing condition described in Section 2 of the Offer to Purchase and the proration and conditional tender provisions. Certificates representing Shares tendered at prices greater than the Purchase Price and not withdrawn and Shares not purchased because of proration or conditional tender will be returned at the Company's expense. See Section 1 of the Offer to Purchase. The undersigned recognizes that, under certain circumstances set forth in the Offer to Purchase, the Company may terminate or amend the Offer or may postpone the acceptance for payment of, or the payment for, Shares tendered or may not be required to purchase any of the Shares tendered hereby or may accept for payment fewer than all of the Shares tendered hereby. Unless otherwise indicated herein under "Special Payment Instructions", please issue the check for the Purchase Price of any Shares purchased, and/or return any Shares not tendered or not purchased, in the name(s) of the undersigned (and, in the case of Shares tendered by book-entry transfer, by credit to the account at the Book-Entry Transfer Facility). Similarly, unless otherwise indicated under "Special Delivery Instructions", please mail the check for the Purchase Price of any Shares purchased and/or any certificates for Shares not tendered or not purchased (and accompanying documents, as appropriate) to the undersigned at the address shown below the undersigned's signature(s). In the event that both "Special Payment Instructions" and "Special Delivery Instructions" are completed, please issue the check for the Purchase Price of any Shares purchased and/or return any Shares not tendered or not purchased in the name(s) of, and mail such check and/or any certificates to, the person(s) so indicated. The undersigned recognizes that the Company has no obligation, pursuant to the "Special Payment Instructions", to transfer any Shares from the name of the registered holder(s) thereof if the Company does not accept for payment any of the Shares so tendered. The undersigned understands that acceptance of Shares by the Company for payment will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Offer. NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY. PRICE (IN DOLLARS) PER SHARE AT WHICH SHARES ARE BEING TENDERED. (See Instruction 5) IF SHARES ARE BEING TENDERED AT MORE THAN ONE PRICE, A SEPARATE LETTER OF TRANSMITTAL FOR EACH PRICE SPECIFIED MUST BE USED. - -------------------------------------------------------------------------------- CHECK ONLY ONE BOX. IF MORE THAN ONE BOX IS CHECKED, OR IF NO BOX IS CHECKED (EXCEPT AS PROVIDED IN THE ODD LOTS BOX AND INSTRUCTIONS BELOW), THERE IS NO VALID TENDER OF SHARES. - -------------------------------------------------------------------------------- / / $13.500 / / $14.250 / / $15.000 / / $15.625 / / $13.625 / / $14.375 / / $15.125 / / $15.750 / / $13.750 / / $14.500 / / $15.250 / / $15.875 / / $13.875 / / $14.625 / / $15.375 / / $16.000 / / $14.000 / / $14.750 / / $15.500 / / $14.125 / / $14.875 - -------------------------------------------------------------------------------- ODD LOTS (See Instruction 9) This section is to be completed ONLY if Shares are being tendered by or on behalf of a person who owns beneficially as of the close of business on December 22, 1998, and who continues to own beneficially as of the Expiration Date, an aggregate of fewer than 100 Shares. The undersigned either (check one box): / / owned beneficially as of the close of business on December 22, 1998, and continues to own beneficially as of the Expiration Date, an aggregate of fewer than 100 Shares, all of which are being tendered, or / / is a broker, dealer, commercial bank, trust company or other nominee that (i) is tendering, for the beneficial owners thereof, Shares with respect to which it is the record owner, and (ii) believes, based upon representations made to it by each such beneficial owner, that such beneficial owner owned beneficially as of the close of business on December 22, 1998, and continues to own beneficially as of the Expiration Date, an aggregate of fewer than 100 Shares and is tendering all of such Shares. If you do not wish to specify a purchase price, check the following box, in which case you will be deemed to have tendered at the Purchase Price determined by the Company in accordance with the terms of the Offer (persons checking this box need not indicate the price per Share in the box entitled "Price (In Dollars) Per Share At Which Shares are Being Tendered" in this Letter of Transmittal). / / ODD LOT SHARES CANNOT BE CONDITIONALLY TENDERED - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CONDITIONAL TENDERS (See Instruction 10) / / Check here if tender of Shares is conditional on the Company purchasing all or a minimum number of the tendered Shares and complete the following: Minimum Number of Shares to be Sold:______________________ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SPECIAL PAYMENT INSTRUCTIONS (See Instructions 1, 6, 7 and 8) To be completed ONLY if the check for the aggregate Purchase Price of Shares purchased and/or certificates for Shares not tendered or not purchased are to be issued in the name of someone other than the undersigned. Issue / / check and/or / / certificate(s) to: Name:___________________________________________________________________________ (Please Print Address:________________________________________________________________________ ________________________________________________________________________________ (Include Zip Code) Book-Entry Facility Account No. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SPECIAL DELIVERY INSTRUCTIONS (See Instructions 6 and 8) To be completed ONLY if the check for the Purchase Price of Shares purchased and/or certificates for Shares not tendered or not purchased are to be mailed to someone other than undersigned or to the undersigned at an address other than that shown below the under signed's signature(s). Issue / / check and/or / / certificate(s) to: Name:___________________________________________________________________________ (Please Print Address:________________________________________________________________________ ________________________________________________________________________________ (Include Zip Code) ________________________________________________________________________________ (Tax Identification or Social Security No.) Book-Entry Facility Account No. - -------------------------------------------------------------------------------- DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN SHARES (See Instruction 17) To be completed ONLY if Shares held in The Pep Boys -- Manny, Moe & Jack Dividend Reinvestment and Stock Purchase Plan are to be tendered. / / By checking this box, the undersigned represents that the undersigned is a participant in The Pep Boys -- Manny, Moe & Jack Dividend Reinvestment and Stock Purchase Plan and hereby instructs the Depositary to tender on behalf of the undersigned the following number of Shares (including fractional Shares, if any) credited to The Pep Boys -- Manny, Moe & Jack Dividend Reinvestment and Stock Purchase Plan account of the undersigned at the Purchase Price per Share indicated above under the item PRICE (IN DOLLARS) PER SHARE AT WHICH SHARES ARE BEING TENDERED: ___________________Shares(1) (1) The undersigned understands and agrees that all Shares held in The Pep Boys -- Manny, Moe & Jack Dividend Reinvestment and Stock Purchase Plan account(s) of the undersigned will be tendered if the above box is checked and the above space is left blank. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PLEASE SIGN HERE (to be completed by all shareholders) Signature(s) of Owner(s) Dated: _________________________,199__ Name(s)______________________________________________________________________ (Please Print) Capacity (Full (Title)______________________________________________________________________ Address______________________________________________________________________ _____________________________________________________________________________ (Include Zip Code) Area Code and Telephone No. _____________________________________________________________________________ (Must be signed by registered holder(s) exactly as name(s) appear(s) on Share certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please set forth full title and see Instruction 6.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GUARANTEE OF SIGNATURE(S) (See Instructions 1 and 6) Firm Name:___________________________________________________________________ (Please Print) Authorized Signature:________________________________________________________ Title:_______________________________________________________________________ Address:_____________________________________________________________________ _____________________________________________________________________________ (Include Zip Code) Area Code and Telephone Number:______________________________________________ Dated:______________________, 199___ - -------------------------------------------------------------------------------- INSTRUCTIONS Forming Part of the Terms and Conditions of the Offer 1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by a firm that is a recognized member of an Eligible Institution (as defined below), unless: (i) this Letter of Transmittal is signed by the registered holder(s) of the Shares (which term, for purposes of this document, shall include any participant in a Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Shares) tendered herewith and such holder(s) have not completed the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on this Letter of Transmittal; or (ii) such Shares are tendered for the account of a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of the Securities Transfer Agents Medallion Program or a bank, broker, dealer, credit union, savings association or other entity which is an "eligible guarantor institution," as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (each such entity, an "Eligible Institution"). See Instruction 6. 2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARE CERTIFICATES; GUARANTEED DELIVERY PROCEDURES. This Letter of Transmittal is to be used either if Share certificates are to be forwarded herewith or if delivery of Shares is to be made by book-entry transfer pursuant to the procedures set forth in Section 3 of the Offer to Purchase. Certificates for all physically delivered Shares, or a confirmation of a book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility of all Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof), or an Agent's Message (as defined below), and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of its addresses set forth on the front page of this Letter of Transmittal prior to the Expiration Date. If certificates are forwarded to the Depositary in multiple deliveries, a properly completed and duly executed Letter of Transmittal must accompany each such delivery. The term "Agent's Message" means a message transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming part of a confirmation of a book-entry transfer which states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares that such participant has received and agrees to be bound by the terms of this Letter of Transmittal and that the Company may enforce such agreement against the participant. Shareholders whose Share certificates are not immediately available, who cannot deliver their Shares and all other required documents to the Depositary or who cannot complete the procedure for delivery by book-entry transfer prior to the Expiration Date must tender their Shares pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by the Company (with any required signature guarantees) must be received by the Depositary prior to the Expiration Date; and (iii) the certificates for all physically delivered Shares in proper form for transfer by delivery, or a confirmation of a book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility of all Shares delivered electronically, in each case together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof), or an Agent's Message, and any other documents required by this Letter of Transmittal, must be received by the Depositary within three New York Stock Exchange trading days after the date the Depositary receives such Notice of Guaranteed Delivery, all as provided in Section 3 of the Offer to Purchase. The method of delivery of all documents, including Share certificates, the Letter of Transmittal and any other required documents, is at the election and risk of the tendering shareholder, and the delivery will be deemed made only when actually received by the Depositary. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to ensure timely delivery. The Company will not accept any alternative, conditional or contingent tenders, nor will it purchase any fractional Shares, except as expressly provided in the Offer to Purchase. By executing this Letter of Transmittal (or facsimile thereof), the tendering shareholder waives any right to receive any notice of the acceptance for payment of the Shares. 3. INADEQUATE SPACE. If the space provided herein is inadequate, the certificate numbers and/or the number of Shares should be listed on a separate signed schedule and attached to this Letter of Transmittal. 4. PARTIAL TENDERS (NOT APPLICABLE TO SHAREHOLDERS WHO TENDER BY BOOK-ENTRY TRANSFER). If fewer than all the Shares represented by any certificate delivered to the Depositary are to be tendered, fill in the number of Shares that are to be tendered in the box entitled "Number of Shares Tendered." In such case, a new certificate for the remainder of the Shares represented by the old certificate will be sent to the person(s) signing this Letter of Transmittal, unless otherwise provided in the "Special Payment Instructions" or "Special Delivery Instructions" boxes on this Letter of Transmittal, as promptly as practicable following the expiration or termination of the Offer. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. INDICATION OF PRICE AT WHICH SHARES ARE BEING TENDERED. For Shares to be validly tendered, the shareholder must check the box indicating the price per Share at which such shareholder is tendering Shares under "Price (In Dollars) Per Share At Which Shares Are Being Tendered" in this Letter of Transmittal, except that Odd Lot Owners (as defined in Section 1 of the Offer to Purchase) may check the box above in the section entitled "Odd Lots" indicating that such shareholder is tendering all Shares at the Purchase Price determined by the Company. Only one box may be checked. If more than one box is checked or (other than as described above for Odd Lot Owners) if no box is checked, there is not valid tender of shares. A shareholder wishing to tender portions of such shareholder's Share holdings at different prices must complete a separate Letter of Transmittal for each price at which such shareholder wishes to tender each such portion of such shareholder's Shares. The same Shares cannot be tendered (unless previously validly withdrawn as provided in Section 4 of the Offer to Purchase) at more than one price. 6. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signatures(s) must correspond with the name(s) as written on the face of the certificates without alteration, enlargement or any change whatsoever. If any of the Shares tendered hereby are held of record by two or more persons, all such persons must sign this Letter of Transmittal. If any of the Shares tendered hereby are registered in different names on different certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal (or facsimiles thereof) as there are different registrations of certificates. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, no endorsements of certificates or separate stock powers are required unless payment of the purchase price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder(s), in which case the certificate(s) evidencing the Shares tendered hereby must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on such certificates. Signatures on any such certificates or stock powers must be guaranteed by an Eligible Institution. See Instruction 1. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Shares tendered hereby, certificates evidencing the Shares tendered hereby must be endorsed or accompanied by appropriate stock powers, in either case, signed exactly as the name(s) of the registered holder(s) appear(s) on such certificate(s). Signature(s) on any such certificates or stock powers must be guaranteed by an Eligible Institution. See Instruction 1. If this Letter of Transmittal or any certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to the Company of the authority of such person so to act must be submitted. 7. STOCK TRANSFER TAXES. The Company will pay or cause to be paid any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the aggregate Purchase Price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder(s), or if tendered Shares are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s), such other person or otherwise) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. See Section 5 of the Offer to Purchase. Except as provided in this Instruction 7, it will not be necessary to affix transfer tax stamps to the certificates representing Shares tendered hereby. 8. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the Purchase Price of any Shares tendered hereby is to be issued in the name of, and/or any Shares not tendered or not purchased are to be returned to, a person other than the person(s) signing this Letter of Transmittal, or if the check and/or any certificates for Shares not tendered or not purchased are to be mailed to someone other than the person(s) signing this Letter of Transmittal or to an address other than that shown above in the box captioned "Description of Shares Tendered", then the boxes captioned "Special Payment Instructions" and/or "Special Delivery Instructions" on this Letter of Transmittal should be completed. Shareholders tendering Shares by book-entry transfer will have any Shares not accepted for payment returned by crediting the account maintained by such shareholder at the Book-Entry Transfer Facility from which such transfer was made. 9. ODD LOTS. As described in Section 1 of the Offer to Purchase, if fewer than all Shares validly tendered at or below the Purchase Price and not properly withdrawn prior to the Expiration Date are to be purchased, the Shares purchased first will consist of all Shares tendered by any shareholder who owned beneficially, as of the close of business on December 22, 1998, and continues to own beneficially as of the Expiration Date, an aggregate of fewer than 100 Shares and who validly tendered all such Shares at or below the Purchase Price (including by not designating a purchase price as described above). Partial tenders of Shares will not qualify for this preference and this preference will not be available unless the box captioned "Odd Lots" in this Letter of Transmittal and the Notice of Guaranteed Delivery, if any, is completed. 10. CONDITIONAL TENDERS. As described in Sections 1 and 6 of the Offer to Purchase, shareholders may condition their tender on all or a minimum number of their tendered Shares being purchased ("Conditional Tenders"). If the Company is to purchase less than all Shares tendered before the Expiration Date and not withdrawn, the Depositary will perform a preliminary proration, and any Shares tendered at or below the Purchase Price pursuant to a Conditional Tender for which the condition was not satisfied shall be deemed withdrawn, subject to reinstatement if such Conditionally Tendered Shares are subsequently selected by random lot for purchase subject to Sections 1 and 6 of the Offer to Purchase. Conditional Tenders will be selected by lot only from shareholders who tender all of their Shares. All tendered Shares shall be deemed unconditionally tendered unless the "Conditional Tender" box is completed. The Conditional Tender alternative is made available so that a shareholder may assure that the purchase of Shares from the shareholder pursuant to the Offer will be treated as a sale of such Shares by the shareholder, rather than the payment of a dividend to the shareholder, for federal income tax purposes. Odd Lot Shares, which will not be subject to proration, cannot be conditionally tendered. It is the tendering shareholder's responsibility to calculate the minimum number of Shares that must be purchased from the shareholder in order for the shareholder to qualify for sale (rather than dividend) treatment, and each shareholder is urged to consult his or her own tax advisor. In the event of proration, any Shares tendered pursuant to a conditional tender for which the minimum requirements are not satisfied may not be accepted and thereby deemed withdrawn. 11. SUBSTITUTE FORM W-9 AND FORM W-8. Under the United States federal income tax backup withholding rules, unless an exemption applies under the applicable law and regulations, 31% of the gross proceeds payable to a shareholder or other payee pursuant to the Offer must be withheld and remitted to the United States Treasury, unless the shareholder or other payee provides such person's taxpayer identification number (employer identification number or social security number) to the Depositary and certifies that such number is correct. Therefore, each tendering shareholder must complete and sign the Substitute Form W-9 included as part of this Letter of Transmittal so as to provide the information and certification necessary to avoid backup withholding, unless such shareholder otherwise establishes to the satisfaction of the Depositary that it is not subject to backup withholding. Certain shareholders (including, among others, all corporations and certain foreign shareholders) are not subject to these backup withholding requirements. To prevent possible erroneous backup withholding, an exempt holder must enter its correct taxpayer identification number in Part 1 of Substitute Form W-9, write "Exempt" in Part 2 of such form, and sign and date the form. See the enclosed Guidelines for Certification of Taxpayer Identification Number or Substitute Form W-9 for additional instructions. In order for a foreign shareholder to qualify as an exempt recipient, a foreign shareholder must submit an Internal Revenue Service ("IRS") Form W-8 or a Substitute Form W-8, signed under penalties of perjury, attesting to that shareholder's exempt status. Form W-8 may be obtained from the Depositary. 12. WITHHOLDING ON FOREIGN SHAREHOLDERS. Even if a foreign shareholder has provided the required certification to avoid backup withholding, the Depositary will withhold United States federal income taxes equal to 30% of the gross payments payable to a foreign shareholder or its agent unless (a) the Depositary determines that a reduced rate of withholding is available pursuant to a tax treaty or that an exemption from withholding is applicable because such gross proceeds are effectively connected with the conduct of a trade or business in the United States or (b) the foreign shareholder establishes to the satisfaction of the Company and the Depositary that the sale of Shares by such foreign shareholder pursuant to the Offer will qualify as a "sale or exchange," rather than as a distribution taxable as a dividend, for United States federal income tax purposes (see Section 14 of the Offer to Purchase). For this purpose, a foreign shareholder is any shareholder that is not: (i) a citizen or resident of the United States; (ii) a corporation, partnership or other entity created or organized in or under the laws of the United States, any State or any political subdivision thereof; (iii) an estate, the income of which is subject to United States federal income taxation regardless of the source of such income; or (iv) a trust the administration of which a court within the United States is able to exercise primary supervision and all substantial decisions of which one or more United States persons have the authority to control. In order to obtain a reduced rate of withholding pursuant to a tax treaty, a foreign shareholder must deliver to the Depositary a properly completed IRS Form 1001. In order to obtain an exemption from withholding on the grounds that the gross proceeds paid pursuant to the Offer are effectively connected with the conduct of a trade or business within the United States, a foreign shareholder must deliver to the Depositary a properly completed IRS Form 4224. The Depositary will determine a shareholder's status as a foreign shareholder and eligibility for a reduced rate of, or an exemption from, withholding by reference to outstanding certificates or statements concerning eligibility for a reduced rate of, or exemption from, withholding (e.g., IRS Form 1001 or IRS Form 4224) unless facts and circumstances indicate that such reliance is not warranted. A foreign shareholder may be eligible to obtain a refund of all or a portion of any tax withheld if such shareholder meets the "complete redemption," "substantially disproportionate" or "not essentially equivalent to a dividend" test described in Section 14 of the Offer to Purchase or is otherwise able to establish that no tax or a reduced amount of tax is due. Each foreign shareholder is urged to consult its tax advisor regarding the application of United States federal income tax withholding, including eligibility for a withholding tax reduction or exemption and refund procedure. 13. QUESTIONS AND REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance may be directed to, or additional copies of the Offer to Purchase, the Notice of Guaranteed Delivery and this Letter of Transmittal may be obtained from, the Information Agent or the Dealer Manager at their respective addresses and telephone numbers set forth at the end of this Letter of Transmittal. Such materials may alternatively be obtained from your broker, dealer, commercial bank or trust company. 14. IRREGULARITIES. All questions as to the number of Shares to be accepted, the price to be paid therefor and the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by the Company, in its sole discretion, which determination shall be final and binding on all parties. The Company reserves the absolute right to reject any or all tenders it determines not to be in proper form or the acceptance of or payment for which may, in the opinion of the Company's counsel, be unlawful. The Company also reserves the absolute right to waive any of the conditions of the Offer and any defect or irregularity in the tender of any particular Shares or any particular shareholder. No tender of Shares will be deemed to be validly made until all defects or irregularities have been cured or waived. None of the Company, the Dealer Manager, the Depositary, the Information Agent or any other person is or will be obligated to give notice of any defects or irregularities in tenders, and none of them will incur any liability for failure to give any such notice. 15. ORDER OF PURCHASE IN EVENT OF PRORATION. As described in Section 1 of the Offer to Purchase, shareholders may designate the order in which their Shares are to be purchased in the event of proration. The order of purchase may have an effect on the United States federal income tax classification of any gain or loss on the Shares purchased. See Sections 1 and 14 of the Offer to Purchase. 16. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. If any Share certificate(s) have been lost, destroyed or stolen, the shareholder should promptly notify the Depositary by checking the box provided in the box captioned "Description of Shares Tendered" and indicating the number of Shares so lost, destroyed or stolen. The shareholder will then be instructed by the Depositary as to the steps that must be taken in order to replace such Share certificate(s). This Letter of Transmittal and related documents cannot be processed until the procedure for replacing lost, destroyed or stolen Share certificate(s) has been followed. To expedite replacement, call from outside New York toll free: (800)937-5449, or from inside New York: (718) 921-8200. 17. THE PEP BOYS -- MANNY, MOE & JACK DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN. If a shareholder desires to tender Shares (including fractional Shares, if any) credited to the shareholder's account under The Pep Boys -- Manny, Moe & Jack Dividend Reinvestment and Stock Purchase Plan, the box captioned "Dividend Reinvestment and Stock Purchase Plan Shares" should be completed. A participant in The Pep Boys -- Manny, Moe & Jack Dividend Reinvestment and Stock Purchase Plan may complete such box on only one Letter of Transmittal submitted by such participant. If a participant submits more than one Letter of Transmittal and completes such box on more than one Letter of Transmittal, the participant will be deemed to have elected to tender all Shares (including fractional Shares, if any) credited to the shareholder's account under The Pep Boys -- Manny, Moe & Jack Dividend Reinvestment and Stock Purchase Plan at the lowest price specified in such Letters of Transmittal. If a shareholder tenders Shares held in The Pep Boys -- Manny, Moe & Jack Dividend Reinvestment and Stock Purchase Plan, all such Shares held in such shareholder's account(s), including fractional Shares, will be tendered, unless otherwise specified above under the box captioned "Dividend Reinvestment and Stock Purchase Plan Shares". In the event that the box captioned "Dividend Reinvestment and Stock Purchase Plan Shares" is not completed, no Shares held in the tendering shareholder's account will be tendered. If a participant in The Pep Boys -- Manny, Moe & Jack Dividend Reinvestment and Stock Purchase Plan tenders all Shares owned by such participant, and all such Shares are purchased by the Company, such participant's participation in The Pep Boys -- Manny, Moe & Jack Dividend Reinvestment and Stock Purchase Plan shall terminate and any accrued and unpaid dividends to which such participant is entitled shall be paid in cash. IMPORTANT: This Letter of Transmittal (or a facsimile thereof) together with Share certificates or an Agent's Message together with confirmation of book-entry transfer and all other required documents must be received by the Depositary, or the Notice of Guaranteed Delivery must be received by the Depositary, prior to the Expiration Date. Shareholders are encouraged to return a completed substitute Form W-9 with their Letter of Transmittal. TO BE COMPLETED BY ALL TENDERING REGISTERED HOLDERS OF SECURITIES Payer's Name: AMERICAN STOCK TRANSFER AND TRUST COMPANY
- ---------------------------------------------------------------------------------------------------------------------- SUBSTITUTE FORM W-9 Part 1: PLEASE PROVIDE YOUR TIN _____________________________________ IN THE APPROPRIATE BOX AT RIGHT Social Security Number AND CERTIFY BY SIGNING AND DAT- ING BELOW. or Employer DEPARTMENT OF THE _______________________________________ Identification Number TREASURY INTERNAL NAME (if a joint account or you changed ______________________________________ REVENUE SERVICE your name, see Guidelines) Part-2--For Payees exempt from _______________________________________ backup withholding, see the Important CHECK APPROPRIATE BOX: Tax Information above and Guidelines / / Individual/Sole Proprietor for Certification of Taxpayer- / / Corporation / / Partnership Identification Number on Substitute / / Other Form W-9 enclosed herewith and com- plete as instructed herein. _______________________________________ BUSINESS NAME, if different from above (See Guidelines): Payer's Request for Taxpayer Identification ________________________________________ Number ("TIN") ADDRESS and Certification ________________________________________ CITY STATE ZIP CODE
- -------------------------------------------------------------------------------- Part 3--CERTIFICATION--Under penalties of perjury, I certify that (i) the number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me and (ii) I am not subject to backup withholding because: (a) I am exempt from backup withholding; or (b) I have not been notified by the IRS that I am subject to backup withholding as a result of a failure to report all interest or dividends; or (c) the IRS has notified me that I am no longer subject to backup withholding. SIGNATURE__________________________ DATE____________ CERTIFICATION INSTRUCTIONS--You must cross out Item (ii) above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. If you are exempt from backup withholding, check the box in Part 5 below. - -------------------------------------------------------------------------------- Part 4--AWAITING TIN / / Part 5--EXEMPT TIN / / - -------------------------------------------------------------------------------- NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY CASH PAYMENTS. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 4 OF THE SUBSTITUTE FORM W-9. - -------------------------------------------------------------------------------- CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and that I mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office (or I intend to mail or deliver an application in the near future). I understand that if I do not provide a taxpayer identification number to the payer within 60 days, the payer is required to withhold 31% of all reportable payments made to me thereafter until I provide a number. ___________________________________________________________________________ Signature Date - -------------------------------------------------------------------------------- The Information Agent for the Offer is: [MACKENZIE PARTNERS LOGO] 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (Call Collect) or Call Toll Free: (800) 322-2885 The Dealer Manager for the Offer is: Credit Suisse First Boston Corporation Eleven Madison Avenue New York, New York 10010-3629 Call Toll Free: (800) 881-8320 EX-99.(A)(3) 4 EXHIBIT 99.(A)(3) Notice of Guaranteed Delivery for Tender of Shares of Common Stock of THE PEP BOYS -- MANNY, MOE & JACK This form, or a form substantially equivalent to this form, must be used to accept the Offer (as defined below) if certificates for the shares of common stock, par value $1.00 per share ("Common Stock") of The Pep Boys -- Manny, Moe & Jack, a Pennsylvania corporation (the "Company"), are not immediately available, if the procedure for book-entry transfer cannot be completed on a timely basis, or if time will not permit all other documents required by the Letter of Transmittal to be delivered to the Depositary (as defined below) prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase defined below). Such form may be delivered by hand or transmitted by mail or overnight courier, or (for Eligible Institutions only) by facsimile transmission, to the Depositary. See Section 3 of the Offer to Purchase. The Depositary for the Offer is: American Stock Transfer and Trust Company By Mail: By Hand: 40 Wall Street 40 Wall Street New York, New York 10005 46th Floor New York, New York 10005 By Overnight Delivery: 40 Wall Street 46th Floor New York, New York 10005 By Facsimile Transmission: Confirm Receipt of Facsimile by Telephone: (for Eligible Institutions only) (718) 921-8200 (718) 234-5001 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. DELIVERIES TO THE COMPANY WILL NOT BE FORWARDED TO THE DEPOSITARY AND THEREFORE WILL NOT CONSTITUTE A VALID DELIVERY. DELIVERIES TO THE BOOK-ENTRY TRANSFER FACILITY WILL NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY. This form is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an "Eligible Institution" (as defined below) under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. The Eligible Institution which completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal or an Agent's Message and certificates for Shares to the Depositary within the time shown herein. Failure to do so could result in a financial loss to such Eligible Institution. Ladies and Gentlemen: The undersigned hereby tenders to the Company, upon the terms and subject to the conditions set forth in the Offer to Purchase dated December 23, 1998 (the "Offer to Purchase"), and the related Letter of Transmittal (which, as amended or supplemented from time to time, together constitute the "Offer"), receipt of which is hereby acknowledged, the number of shares of Common Stock (together with associated common stock purchase rights issued pursuant to the Rights Agreement, dated as of December 5, 1997, between the Company and First Union National Bank, as Rights Agent, "Shares"), of the Company listed below, pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. -------------------------------- Number of Shares -------------------------------- Certificate Nos.: (if available) -------------------------------- Name(s) -------------------------------- Address -------------------------------- Area Code/Telephone Number -------------------------------- Signature(s) Dated: ---------------------------------------- If shares will be tendered by book-entry transfer: -------------------------------- Name of Tendering Institution -------------------------------- Account No. at The Depository Trust Company 2 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of the Securities Transfer Agents Medallion Program or a bank, broker, dealer, credit union, savings association or other entity which is an "eligible guarantor institution," as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (each of the foregoing constituting an "Eligible Institution"), guarantees the delivery to the Depositary of the Shares tendered hereby, in proper form for transfer, or a confirmation that the Shares tendered hereby have been delivered pursuant to the procedure for book-entry transfer set forth in the Offer to Purchase into the Depositary's account at the Book-Entry Transfer Facility, together with a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof) and any other required documents, all within three (3) New York Stock Exchange, Inc. trading days of the date hereof. Name of Firm ----------------------------------- Address ----------------------------------- ----------------------------------- City, State, Zip Code Area Code and Telephone Number ---------------- --------------------------------- Authorized Signature --------------------------------- Name (Please Print) Title --------------------------------- Dated: --------------------------------- 3 DO NOT SEND SHARE CERTIFICATES WITH THIS FORM. YOUR SHARE CERTIFICATES MUST BE SENT WITH THE LETTER OF TRANSMITTAL. PRICE (IN DOLLARS) PER SHARE AT WHICH SHARES ARE BEING TENDERED. IF SHARES ARE BEING TENDERED AT MORE THAN ONE PRICE, A SEPARATE NOTICE OF GUARANTEED DELIVERY FOR EACH PRICE SPECIFIED MUST BE USED. - -------------------------------------------------------------------------------- CHECK ONLY ONE BOX. IF MORE THAN ONE BOX IS CHECKED, OR IF NO BOX IS CHECKED (EXCEPT AS PROVIDED IN THE ODD LOTS BOX AND INSTRUCTIONS BELOW), THERE IS NO VALID TENDER OF SHARES. - -------------------------------------------------------------------------------- / / $13.500 / / $14.375 / / $15.250 / / $13.625 / / $14.500 / / $15.375 / / $13.750 / / $14.625 / / $15.500 / / $13.875 / / $14.750 / / $15.625 / / $14.000 / / $14.875 / / $15.750 / / $14.125 / / $15.000 / / $15.875 / / $14.250 / / $15.125 / / $16.000 - -------------------------------------------------------------------------------- ODD LOTS This section is to be completed ONLY if Shares are being tendered by or on behalf of a person who owns beneficially as of the close of business on December 22, 1998, and who continues to own beneficially as of the Expiration Date, an aggregate of fewer than 100 Shares. The undersigned either (check one box): / / owned beneficially as of the close of business on December 22, 1998, and continues to own beneficially as of the Expiration Date, an aggregate of fewer than 100 Shares, all of which are being tendered, or / / is a broker, dealer, commercial bank, trust company or other nominee that (i) is tendering, for the beneficial owners thereof, Shares with respect to which it is the record owner, and (ii) believes, based upon representations made to it by each such beneficial owner, that such beneficial owner owned beneficially as of the close of business on December 22, 1998, and continues to own beneficially as of the Expiration Date, an aggregate of fewer than 100 Shares and is tendering all of such Shares. If you do not wish to specify a purchase price, check the following box, in which case you will be deemed to have tendered at the Purchase Price determined by the Company in accordance with the terms of the Offer (persons checking this box need not indicate the price per Share in the box entitled "Price (In Dollars) Per Share At Which Shares are Being Tendered" in this Notice of Guaranteed Delivery)./ / ODD LOT SHARES CANNOT BE CONDITIONALLY TENDERED - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CONDITIONAL TENDERS / / Check here if tender of Shares is conditional on the Company purchasing all or a minimum number of the tendered Shares and complete the following: Minimum Number of Shares to be Sold: ------------------------- - -------------------------------------------------------------------------------- 4 EX-99.(A)(4) 5 EXHIBIT 99.(A)(4) CREDIT SUISSE FIRST BOSTON CORPORATION [CREDIT SUISSE FIRST BOSTON LOGO] Eleven Madison Avenue Telephone: 212 325 2000 New York, NY 10010-3629 THE PEP BOYS -- MANNY, MOE & JACK Offer To Purchase For Cash Up To 10,000,000 Shares Of Its Common Stock At a Purchase Price Not Greater Than $16.00 Nor Less Than $13.50 Per Share - -------------------------------------------------------------------------------- THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JANUARY 22, 1999, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- December 23, 1998 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: In our capacity as Dealer Manager, we are enclosing the material listed below relating to the offer of The Pep Boys -- Manny, Moe & Jack, a Pennsylvania corporation (the "Company"), to purchase up to 10,000,000 shares of its common stock, par value $1.00 per share (together with associated common stock purchase rights issued pursuant to the Rights Agreement, dated as of December 5, 1997, between the Company and First Union National Bank, as Rights Agent, "Shares"), at prices not greater than $16.00 nor less than $13.50 per Share, net to the seller in cash, without interest thereon, specified by tendering shareholders, upon the terms and subject to the conditions set forth in the Offer to Purchase dated December 23, 1998 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, as amended or supplemented from time to time, together constitute the "Offer"). The Company will, upon the terms and subject to the conditions of the Offer, determine the lowest single per Share price (not greater than $16.00 nor less than $13.50 per Share), net to the seller in cash (the "Purchase Price"), that will allow it to purchase 10,000,000 Shares (or such lesser number of Shares as are validly tendered and not properly withdrawn) pursuant to the Offer. The Company will pay the Purchase Price for all Shares validly tendered at prices at or below the Purchase Price and not properly withdrawn, upon the terms and subject to the conditions of the Offer, including the financing condition and proration and conditional tender provisions referred to below. Certificates representing Shares tendered at prices in excess of the Purchase Price and not properly withdrawn and Shares not purchased because of proration will be returned at the Company's expense. The Company reserves the right, in its sole discretion, to purchase more than 10,000,000 Shares pursuant to the Offer. THIS OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING TENDERED. THE OFFER IS CONDITIONED UPON THE COMPANY'S HAVING OBTAINED SUFFICIENT FINANCING TO FUND THE PURCHASE OF SHARES TENDERED IN THE OFFER AND PAY ALL RELATED FEES AND EXPENSES. THE OFFER IS ALSO SUBJECT TO CERTAIN OTHER CONDITIONS. SEE SECTION 6 OF THE OFFER TO PURCHASE. We are asking you to contact your clients for whom you hold Shares registered in your name (or in the name of your nominee) or who hold Shares registered in their own names. Please bring the Offer to their attention as promptly as possible. For your information and for forwarding to your clients for whom you hold Shares registered in your name or in the name of your nominee, we are enclosing the following documents: 1. The Offer to Purchase, dated December 23, 1998. 2. The Letter of Transmittal for your use and for the information of your clients. Facsimile copies of the Letter of Transmittal may be used to tender Shares. 3. A letter to shareholders of the Company from Mitchell G. Leibovitz, Chairman of the Board and Chief Executive Officer. 4. The Notice of Guaranteed Delivery to be used to accept the Offer if the Shares and all other required documents cannot be delivered to the Depositary by the Expiration Date (each as defined in the Offer to Purchase). 5. A letter that may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominee, with space for obtaining such clients' instructions with regard to the Offer. 6. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 providing information relating to United States federal income tax backup withholding. 7. A return envelope addressed to American Stock Transfer and Trust Company, the Depositary. YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JANUARY 22, 1999, UNLESS THE OFFER IS EXTENDED. The Company will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of Shares pursuant to the Offer (other than fees paid to the Dealer Manager). The Company will, upon request, reimburse you for reasonable and customary handling and mailing expenses incurred by you in forwarding materials relating to the Offer to your customers. The Company will pay all stock transfer taxes applicable to its purchase of Shares pursuant to the Offer, subject to Instruction 7 of the Letter of Transmittal. In order to take advantage of the Offer, a duly executed and properly completed Letter of Transmittal and any other required documents should be sent to the Depositary with either certificate(s) representing the tendered Shares or confirmation of their book-entry transfer, all in accordance with the instructions set forth in the Letter of Transmittal and the Offer to Purchase. As described in the Offer to Purchase, if more than 10,000,000 Shares (or such greater number of Shares as the Company may elect to purchase pursuant to the Offer) have been validly tendered at prices at or below the Purchase Price and not properly withdrawn prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase), the Company will purchase Shares validly tendered and not properly withdrawn on the following basis: (i) all Shares tendered and not withdrawn prior to the Expiration Date by any shareholder who owned beneficially as of the close of business on December 22, 1998, and who continues to own beneficially as of the Expiration Date, an aggregate of fewer than 100 Shares and who validly tenders all of such Shares at or below the Purchase Price (partial tenders will not qualify for this preference) and completes the box captioned "Odd Lots" on the Letter of Transmittal and, if applicable, on the Notice of Guaranteed Delivery; and (ii) after purchase of all the foregoing Shares, all Shares conditionally tendered in accordance with Section 6 of the Offer to Purchase, for which the condition was satisfied, and all other Shares tendered unconditionally, at prices at or below the Purchase Price and not withdrawn prior to the Expiration Date, on a pro rata basis (with appropriate adjustments to avoid purchase of fractional Shares); and (iii) if necessary, Shares conditionally tendered for which the condition was not satisfied, at or below the Purchase Price and not withdrawn prior to the Expiration Date, selected by random lot in accordance with Section 6 of the Offer to Purchase. THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE OFFER. HOWEVER, NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO SHAREHOLDERS AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING THEIR SHARES. EACH SHAREHOLDER MUST MAKE THE DECISION WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER AND THE PRICE OR PRICES AT WHICH SHARES SHOULD BE TENDERED. THE COMPANY HAS BEEN ADVISED THAT NONE OF ITS DIRECTORS OR EXECUTIVE OFFICERS INTENDS TO TENDER ANY SHARES PURSUANT TO THE OFFER. 2 Any questions or requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers set forth on the back cover of the enclosed Offer to Purchase. Additional copies of the enclosed materials may be requested from the Information Agent or the Dealer Manager. Very truly yours, CREDIT SUISSE FIRST BOSTON CORPORATION NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON AS THE AGENT OF THE COMPANY, THE DEALER MANAGER, THE INFORMATION AGENT OR THE DEPOSITARY, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN. 3 EX-99.(A)(5) 6 EXHIBIT 99.(A)(5) THE PEP BOYS -- MANNY, MOE & JACK Offer to Purchase for Cash up to 10,000,000 Shares of its Common Stock At a Purchase Price Not Greater Than $16.00 Nor Less Than $13.50 Per Share - -------------------------------------------------------------------------------- THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JANUARY 22, 1999, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- December 23, 1998 To Our Clients: Enclosed for your consideration are the Offer to Purchase dated December 23, 1998 (the "Offer to Purchase"), and the related Letter of Transmittal (which, as amended or supplemented from time to time, together constitute the "Offer") setting forth an offer by The Pep Boys -- Manny, Moe & Jack, a Pennsylvania corporation (the "Company"), to purchase up to 10,000,000 shares of its common stock, par value $1.00 per share (together with associated common stock purchase rights issued pursuant to the Rights Agreement, dated as of December 5, 1997, between the Company and First Union National Bank, as Rights Agent, "Shares"), at prices not greater than $16.00 nor less than $13.50 per Share, net to the seller in cash, without interest thereon, specified by tendering shareholders, upon the terms and subject to the conditions of the Offer. Also enclosed herewith is certain other material related to the Offer. The Company will, upon the terms and subject to the conditions of the Offer, determine the lowest single per Share price (not greater than $16.00 nor less than $13.50 per Share), net to the seller in cash, without interest thereon (the "Purchase Price"), that will allow it to purchase 10,000,000 Shares (or such lesser number of Shares as are validly tendered and not properly withdrawn) pursuant to the Offer. The Company will pay the Purchase Price for all Shares validly tendered at prices at or below the Purchase Price and not properly withdrawn, upon the terms and subject to the conditions of the Offer, including the financing condition and proration and conditional tender provisions referred to below. Certificates representing Shares tendered at prices in excess of the Purchase Price and not properly withdrawn and Shares not purchased because of proration will be returned at the Company's expense. The Company reserves the right, in its sole discretion, to purchase more than 10,000,000 Shares pursuant to the Offer. See Section 1 of the Offer to Purchase. We are the holder of record of Shares held for your account. As such, a tender of such Shares can be made only by us as the holder of record and pursuant to your instructions. The Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender Shares held by us for your account. We request instructions as to whether you wish us to tender any or all of the Shares held by us for your account, upon the terms and subject to the conditions set forth in the Offer to Purchase and the Letter of Transmittal. Your attention is invited to the following: 1. You may tender Shares at prices (in increments of $.125), which cannot be greater than $16.00 nor less than $13.50 per Share, as indicated in the attached Instruction Form, net to you in cash, without interest thereon. 2. The Offer is for a maximum of 10,000,000 Shares, constituting approximately 15.7% of the total Shares outstanding as of December 22, 1998. The Offer is conditioned upon the Company's having obtained sufficient financing to fund the Offer and pay all related taxes, fees and expenses. The Offer is subject to certain other conditions set forth in Section 7 of the Offer to Purchase. 3. The Offer, proration period and withdrawal rights will expire at 12:00 Midnight, New York City time, on Friday, January 22, 1999, unless the Offer is extended. Your instructions to us should be forwarded to us in ample time to permit us to submit a tender on your behalf. 4. As described in the Offer to Purchase, if at the expiration of the Offer, more than 10,000,000 Shares (or such greater number of Shares as the Company may elect to purchase pursuant to the Offer) have been validly tendered at prices at or below the Purchase Price and not properly withdrawn, the Company will purchase Shares in the following order of priority: (i) all Shares validly tendered at or below the Purchase Price and not withdrawn prior to the Expiration Date by any shareholder who owned beneficially as of the close of business on December 22, 1998, and who continues to own beneficially as of the Expiration Date, an aggregate of fewer than 100 Shares and who validly tenders all of such Shares (partial tenders will not qualify for this preference) and completes the box captioned "Odd Lots" in the Letter of Transmittal and, if applicable, the Notice of Guaranteed Delivery; (ii) after purchase of all the foregoing Shares, all Shares conditionally tendered in accordance with Section 6 of the Offer to Purchase, for which the condition was satisfied, and all other shares tendered unconditionally, at prices or below the Purchase Price and not withdrawn prior to the Expiration Date, on a pro rata basis (with appropriate adjustments to avoid purchase of fractional Shares); and (iii) if necessary, Shares conditionally tendered for which the condition was not satisfied, at or below the Purchase Price and not withdrawn prior to the Expiration Date, selected by random lot in accordance with Section 6 of the Offer to Purchase. See Section 1 of the Offer to Purchase for a discussion of proration. 5. Tendering shareholders will not be obligated to pay any brokerage commissions or solicitation fees on the Company's purchase of Shares in the Offer to the Dealer Manager, the Information Agent or the Depositary (each as defined in the Offer to Purchase). Any stock transfer taxes applicable to the purchase of Shares by the Company pursuant to the Offer will be paid by the Company, except as otherwise provided in Instruction 7 of the Letter of Transmittal. 6. If you wish to tender portions of your Shares at different prices, you must complete a separate Instruction Form for each price at which you wish to tender each portion of your Shares. We must submit separate Letters of Transmittal on your behalf for each price you will accept. 7. If you owned beneficially as of the close of business on December 22, 1998, and continue to own beneficially as of the Expiration Date, an aggregate of fewer than 100 Shares and you instruct us to tender at or below the Purchase Price on your behalf all such Shares prior to the Expiration Date and check the box captioned "Odd Lots" in the Instruction Form, all such Shares will be accepted for purchase before proration, if any, of the other tendered Shares. THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE OFFER. HOWEVER, NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO SHAREHOLDERS AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING THEIR SHARES. EACH SHAREHOLDER MUST MAKE THE DECISION WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER AND THE PRICE OR PRICES AT WHICH SHARES SHOULD BE TENDERED. THE COMPANY HAS BEEN ADVISED THAT NONE OF ITS DIRECTORS OR EXECUTIVE OFFICERS INTENDS TO TENDER ANY SHARES PURSUANT TO THE OFFER. If you wish to have us tender any or all of your Shares held by us for your account upon the terms and subject to the conditions set forth in the Offer to Purchase, please so instruct us by completing, executing and returning to us the attached Instruction Form. An envelope to return your instructions to us is enclosed. If you authorize tender of your Shares, all such Shares will be tendered unless otherwise specified on the Instruction Form. Your instructions should be forwarded to us in ample time to permit us to submit a tender on your behalf by the expiration date of the Offer. The Offer is being made to all holders of Shares. The Company is not aware of any jurisdiction where the making of the Offer is not in compliance with applicable law. If the Company becomes aware of any jurisdiction where the making of the Offer is not in compliance with any valid applicable law, the 2 Company will make a good faith effort to comply with such law. If, after such good faith effort, the Company cannot comply with such law, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares residing in such jurisdiction. In any jurisdiction the securities or blue sky laws of which require the Offer to be made by a licensed broker or dealer, the Offer is being made on the Company's behalf by the Dealer Manager, or one or more registered brokers or dealers licensed under the laws of such jurisdiction. 3 INSTRUCTION FORM With Respect To Offer To Purchase For Cash Up To 10,000,000 Shares Of Common Stock Of THE PEP BOYS -- MANNY, MOE & JACK At A Purchase Price Not Greater Than $16.00 Nor Less Than $13.50 Per Share The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase dated December 23, 1998, and the related Letter of Transmittal (which, as amended or supplemented from time to time, together constitute the "Offer"), in connection with the Offer by The Pep Boys -- Manny, Moe & Jack (the "Company") to purchase up to 10,000,000 shares of its common stock, par value $1.00 per share (together with associated common stock purchase rights issued pursuant to the Rights Agreement, dated as of December 5, 1997, between the Company and First Union National Bank, as Rights Agent, "Shares"), at prices not greater than $16.00 nor less than $13.50 per Share, net to the undersigned in cash, without interest thereon, specified by the undersigned, upon the terms and subject to the terms and conditions of the Offer. This will instruct you to tender to the Company the number of Shares indicated below (or, if no number is indicated below, all Shares) that are held by you for the account of the undersigned, at the price per Share indicated below, upon the terms and subject to the conditions of the Offer. - -------------------------------------------------------------------------------- SHARES TENDERED / / By checking this box, the undersigned hereby instructs us to tender the following number of Shares held by us for the account of the undersigned, at the Purchase Price per Share indicated in the box entitled "Price (In Dollars) Per Share At Which Shares Are Being Tendered": ____________ Shares* ------------ * The undersigned understands and agrees that all Shares held by us for the account of the undersigned will be tendered if the above box is checked and the space above is left blank. - -------------------------------------------------------------------------------- 4 PRICE (IN DOLLARS) PER SHARE AT WHICH SHARES ARE BEING TENDERED. IF SHARES ARE BEING TENDERED AT MORE THAN ONE PRICE, A SEPARATE INSTRUCTION FORM FOR EACH PRICE SPECIFIED MUST BE USED. - -------------------------------------------------------------------------------- CHECK ONLY ONE BOX. IF MORE THAN ONE BOX IS CHECKED, OR IF NO BOX IS CHECKED (EXCEPT AS PROVIDED IN THE ODD LOTS BOX AND INSTRUCTIONS BELOW), THERE IS NO VALID TENDER OF SHARES. - -------------------------------------------------------------------------------- / /$13.500 / /$14.125 / /$14.750 / /$15.375 / /$16.00 / /$13.625 / /$14.250 / /$14.875 / /$15.500 / /$13.750 / /$14.375 / /$15.000 / /$15.625 / /$13.875 / /$14.500 / /$15.125 / /$15.750 / /$14.000 / /$14.625 / /$15.250 / /$15.875 - -------------------------------------------------------------------------------- ODD LOTS / / By checking this box, the undersigned represents that the undersigned owned beneficially, as of the close of business on December 22, 1998 and continues to own beneficially as of the Expiration Date, an aggregate of fewer than 100 Shares and is tendering all of such Shares. If you do not wish to specify a purchase price, check the following box, in which case you will be deemed to have tendered at the Purchase Price determined by the Company in accordance with the terms of the Offer (persons checking this box need not indicate the price per Share in the box entitled "Price (In Dollars) Per Share At Which Shares Are Being Tendered" above). / / - -------------------------------------------------------------------------------- THE METHOD OF DELIVERY OF THIS DOCUMENT IS AT THE ELECTION AND RISK OF THE TENDERING SHAREHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY. - -------------------------------------------------------------------------------- SIGN HERE: ---------------------------------------- Signature(s) Date: ---------------------------- Name ----------------------------------- Address -------------------------------- ---------------------------------------- ---------------------------------------- Social Security or Taxpayer ID No. - -------------------------------------------------------------------------------- 5 EX-99.(A)(6) 7 EXHIBIT 99.(A)(6) [PEP BOYS LOGO] Dear Stock Option Holder: Many of you may recall that stock option holders are entitled to vote on the proposals at our annual shareholders' meetings. In addition, as stock option holders, you also have certain rights to respond to tender offers for the Company's common stock. On December 6, 1993, the Company established a flexible employee trust (the "Flexitrust") which holds shares of Pep Boys common stock. The shares will be used to finance various existing employee compensation and benefit plans, including healthcare programs, savings and retirement plans and other benefit obligations. The Flexitrust will sell the repurchased stock to fund future employee benefit obligations at current stock prices. As of December 22, 1998, there were 2,232,500 shares held in the trust. As you may have heard, the Company has launched an issuer tender offer in which the Company has offered to purchase from shareholders approximately 15.7% of its outstanding common stock, as described in the enclosed materials. Each active employee who has outstanding stock options is entitled to direct the trustee of the Flexitrust as to how to respond to the Company's tender offer. Shares held in the Flexitrust will be sold into the tender offer in proportion to the instructions received from all option holders. By filling in the blanks in the attached Instruction Form and returning it to the trustee, you will be notifying the trustee as to whether the shares held in the Flexitrust should be sold into the tender offer and, if so, at what price. It is important for you to review these materials, fill in the blanks in the Instruction Form and mail your response in the envelope provided so that it is received by the trustee by January 18, 1999 (or, in the event the Offer is extended, four business days prior to the scheduled expiration date of the tender offer). Your prompt attention to this matter is greatly appreciated. Thank you, Frederick A. Stampone Secretary THE PEP BOYS - MANNY, MOE & JACK Offer to Purchase for Cash up to 10,000,000 Shares of its Common Stock at a Purchase Price not Greater than $16.00 nor less than $13.50 per Share - -------------------------------------------------------------------------------- THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JANUARY 22, 1999, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- December 23, 1998 To All Pep Boys Stock Option Holders: Enclosed for your consideration are the Offer to Purchase dated December 23, 1998 (the "Offer to Purchase"), and the related Letter of Transmittal (which, as amended or supplemented from time to time, together constitute the "Offer"), setting forth an offer by The Pep Boys - Manny, Moe & Jack, a Pennsylvania corporation (the "Company"), to purchase up to 10,000,000 shares of its common stock, par value $1.00 per share (together with associated common stock purchase rights issued pursuant to the Rights Agreement, dated as of December 5, 1997, between the Company and First Union National Bank, as Rights Agent, the "Shares"), at prices not greater than $16.00 nor less than $13.50 per Share, net to the seller in cash, without interest thereon, specified by tendering shareholders, upon the terms and subject to the conditions of the Offer. Also enclosed herewith is certain other material related to the Offer. The Company will, upon the terms and subject to the conditions of the Offer, determine the lowest single per Share price (not greater than $16.00 nor less than $13.50 per Share), net to the seller in cash (the "Purchase Price"), that will allow it to purchase 10,000,000 Shares (or such lesser number of Shares as are validly tendered and not withdrawn) pursuant to the Offer. The Company will pay the Purchase Price for all Shares validly tendered at prices at or below the Purchase Price and not withdrawn, upon the terms and subject to the conditions of the Offer, including the financing condition and proration and conditional tender provisions referred to below. Certificates representing Shares tendered at prices in excess of the Purchase Price and not withdrawn and Shares not purchased because of proration will be returned at the Company's expense. The Company reserves the right, in its sole discretion, to purchase more than 10,000,000 Shares pursuant to the Offer. See Section 1 of the Offer to Purchase. THIS OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING TENDERED. THE OFFER IS CONDITIONED UPON THE COMPANY'S HAVING OBTAINED SUFFICIENT FINANCING TO FUND THE PURCHASE OF SHARES TENDERED IN THE OFFER AND PAY ALL RELATED FEES AND EXPENSES. THE OFFER IS ALSO SUBJECT TO CERTAIN OTHER CONDITIONS. SEE SECTION 7 OF THE OFFER TO PURCHASE. FIRST UNION NATIONAL BANK (THE "TRUSTEE") IS THE HOLDER OF RECORD OF SHARES HELD IN THE PEP BOYS - MANNY, MOE & JACK FLEXITRUST (THE "FLEXITRUST"). AS SUCH, A TENDER OF SUCH SHARES CAN BE MADE ONLY BY THE TRUSTEE AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY THE TRUSTEE. The Trustee requires instructions as to whether you wish the Trustee to tender the Shares held by the Flexitrust and, if so, at what price, upon the terms and subject to the conditions set forth in the Offer to Purchase and the Letter of Transmittal. Your attention is invited to the following: 1. You may instruct the Trustee to tender Shares at a price (in increments of $.125), which cannot be greater than $16.00 nor less than $13.50 per Share, as indicated in the attached Instruction Form, net to the Flexitrust in cash. 2. The Offer is for a maximum of 10,000,000 Shares, constituting approximately 0% of the total Shares outstanding as of December 22, 1998. The Offer is conditioned upon the Company's having obtained sufficient financing to fund the Offer and pay all related fees and expenses. The Offer is subject to certain other conditions set forth in Section 7 of the Offer to Purchase. 3. The Offer, proration period and withdrawal rights will expire at 12:00 Midnight, New York City time, on Friday, January 22, 1999, unless the Offer is extended. Your instructions must be received by the Trustee by January 18, 1999 (or, in the event the Offer is extended, four business days prior to the scheduled expiration date) to permit the Trustee to submit a tender on the Flexitrust's behalf. 4. As described in the Offer to Purchase, if at the expiration of the Offer, more than 10,000,000 Shares (or such greater number of Shares as the Company may elect to purchase pursuant to the Offer) have been validly tendered at prices at or below the Purchase Price and not withdrawn, the Company will purchase Shares in the following order of priority: (i) all Shares validly tendered at or below the Purchase Price and not withdrawn prior to the Expiration Date by any shareholder who owned beneficially as of the close of business on December 22, 1998, and who continues to own beneficially as of the Expiration Date, an aggregate of fewer than 100 Shares and who validly tenders all of such Shares (partial tenders will not qualify for this preference) and completes the box captioned "Odd Lots" in the Letter of Transmittal and, if applicable, the Notice of Guaranteed Delivery; (ii) after purchase of all the foregoing Shares, all Shares conditionally tendered in accordance with Section 6 of the Offer to Purchase, for which the condition was satisfied, and all other shares tendered unconditionally, at prices or below the Purchase Price and not withdrawn prior to the Expiration Date, on a pro rata basis (with appropriate adjustments to avoid purchase of fractional shares); and (iii) if necessary, Shares conditionally tendered for which the condition was not satisfied, at or below the Purchase Price and not withdrawn prior to the Expiration Date, selected by random lot in accordance with Section 6 of the Offer to Purchase. See Section 1 of the Offer to Purchase for a discussion of proration. However, neither the "Odd Lot" purchase rule nor the conditional tender feature applies to Shares held by the Flexitrust. 5. Tendering shareholders will not be obligated to pay any brokerage commissions or solicitation fees on the Company's purchase of Shares in the Offer if payment is made to the registered holder. THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE OFFER. HOWEVER, NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO SHAREHOLDERS, OR TO OPTION HOLDERS WITH RESPECT TO THE SHARES HELD IN THE FLEXITRUST, AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING SHARES. EACH SHAREHOLDER, OR OPTION HOLDER WITH RESPECT TO SHARES HELD IN THE FLEXITRUST, MUST MAKE THE DECISION WHETHER TO TENDER SHARES AND THE PRICE OR PRICES AT WHICH SHARES SHOULD BE TENDERED. THE COMPANY HAS BEEN ADVISED THAT NONE OF ITS DIRECTORS OR EXECUTIVE OFFICERS INTENDS TO TENDER ANY SHARES PURSUANT TO THE OFFER. If you wish to have the Trustee tender the Shares held in the Flexitrust upon the terms and subject to the conditions set forth in the Offer to Purchase, please so instruct the Trustee by completing, executing and returning to the Trustee the instructions below. An envelope to return your instructions to the Trustee is enclosed. You will have only one vote as to whether the Trustee should tender the Shares held in the Flexitrust. You will also have one vote as to what price the Trustee should sell the Shares into the Offer. The Trustee will tender that number of Shares held in the Flexitrust equal to the total number of such Shares multiplied by a fraction, the numerator of which is the number of Company Option Holders who affirmatively direct the Trustee to tender, and the denominator of which is the total 2 number of Company Option Holders (including Option Holders who provide no instructions). With respect to the Shares to be tendered by the Trustee, the Trustee will select the prices at which the Shares will be tendered in proportion to the pricing instructions received from the Option Holders. YOUR INSTRUCTIONS MUST BE FORWARDED TO THE TRUSTEE IN AMPLE TIME TO PERMIT THE TRUSTEE TO SUBMIT A TENDER ON BEHALF OF THE FLEXITRUST BY THE EXPIRATION DATE OF THE OFFER. In any jurisdiction the securities or blue sky laws of which require the Offer to be made by a licensed broker or dealer, the Offer is being made on the Company's behalf by Credit Suisse First Boston Corporation, the Dealer Manager, or one or more registered brokers or dealers licensed under the laws of such jurisdiction. 3 INSTRUCTION FORM WITH RESPECT TO OFFER TO PURCHASE FOR CASH UP TO 10,000,000 SHARES OF COMMON STOCK OF THE PEP BOYS - MANNY, MOE & JACK AT A PURCHASE PRICE NOT GREATER THAN $16.00 NOR LESS THAN $13.50 PER SHARE The undersigned acknowledge(s) receipt of the enclosed Offer to Purchase dated December 23, 1998, and the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"), in connection with the Offer by The Pep Boys - Manny, Moe & Jack (the "Company") to purchase up to 10,000,000 shares of its common stock, par value $1.00 per share (together with associated common stock purchase rights issued pursuant to the Rights Agreement, dated as of December 5, 1997, between the Company and First Union National Bank, as Rights Agent, the "Shares"), at prices not greater than $16.00 nor less than $13.50 per Share, net to The Pep Boys - Manny, Moe & Jack Flexitrust (the "Flexitrust"), net to the seller in cash, without interest thereon, upon the terms and subject to the terms and conditions of the Offer. This will instruct the Trustee as to whether or not to tender to the Company the Shares held in the Flexitrust at the price per Share indicated below, upon the terms and subject to the conditions of the Offer. / / By checking this box, the undersigned instructs the Trustee to tender the Shares held in the Flexitrust. / / By checking this box, the undersigned instructs the Trustee NOT to tender the Shares held in the Flexitrust. 4 PRICE (IN DOLLARS) PER SHARE AT WHICH SHARES ARE BEING TENDERED. - -------------------------------------------------------------------------------- CHECK ONLY ONE BOX. IF MORE THAN ONE BOX IS CHECKED, OR IF NO BOX IS CHECKED (EXCEPT AS PROVIDED IN THE ODD LOTS BOX AND INSTRUCTIONS BELOW), THERE IS NO VALID INSTRUCTION GIVEN. - -------------------------------------------------------------------------------- / / $13.500 / / $14.125 / / $14.750 / / $15.375 / / $16.000 / / $13.625 / / $14.250 / / $14.875 / / $15.500 / / $13.750 / / $14.375 / / $15.000 / / $15.625 / / $13.875 / / $14.500 / / $15.125 / / $15.750 / / $14.000 / / $14.625 / / $15.250 / / $15.875 THE METHOD OF DELIVERY OF THIS DOCUMENT IS AT THE ELECTION AND RISK OF THE OPTION HOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY. SIGN HERE: Date:--------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Signature(s) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Name(s) Address - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Include Zip Code) Area Code and Telephone No. - -------------------------------------------------------------------------------- Taxpayer Identification or Social Security No. - -------------------------------------------------------------------------------- 5 EX-99.(A)(7) 8 EXHIBIT 99.(A)(7) [PEP BOYS LOGO] - -------------------------------------------------------------------------------- Press Release New York Stock Exchange "PBY" For Immediate Release - -------------------------------------------------------------------------------- December 22, 1998 Pep Boys to Commence Tender Offer For Up To 10,000,000 Shares Of Its Common Stock The Pep Boys -- Manny, Moe & Jack (NYSE: "PBY") announced today that it will commence a "Dutch Auction" issuer tender offer to purchase for cash up to 10,000,000 shares of its issued and outstanding common stock, par value $1.00 per share. The tender offer will begin Wednesday, December 23, 1998, and will expire, unless extended, at 12:00 midnight, New York City time, on Friday, January 22, 1999. Terms of the tender offer, which are described more fully in the Offer to Purchase and the Letter of Transmittal, invite the Company's shareholders to tender up to 10,000,000 shares of the Company's common stock to the Company at prices not greater than $16.00 nor less than $13.50 per share, as specified by the tendering shareholders. The offer is subject to certain conditions, including the Company's having obtained sufficient financing to fund the purchase of shares tendered in the offer and pay all related fees and expenses. The Company will determine the lowest single per share price (not greater than $16.00 nor less than $13.50 per share) net to the seller in cash that will allow it to purchase 10,000,000 shares (or such lesser number of shares as are validly tendered and not withdrawn) pursuant to the offer. Such lowest single per share price will be the purchase price the Company will pay for all shares validly tendered at prices at or below such purchase price and not withdrawn. If more than 10,000,000 shares are tendered, there will be a proration. Shares tendered at prices in excess of the purchase price and shares not purchased because of proration will be returned at the Company's expense. The Company reserves the right, in its sole discretion, to purchase more than 10,000,000 shares pursuant to the offer. The Offer to Purchase, the Letter of Transmittal and related documents will be mailed to shareholders of record of the Company's common stock and will also be made available for distribution to beneficial owners of such common stock. Neither the Company nor its Board of Directors makes any recommendation to shareholders as to whether to tender or refrain from tendering their shares. On December 22, 1998, the closing price of the Company's common stock was $13.50 per share. Credit Suisse First Boston Corporation will serve as the dealer manager for the tender offer. MacKenzie Partners, Inc. will serve as the information agent. Any questions or requests for copies of tender offer materials may be directed to Credit Suisse First Boston Corporation at 800-881-8320 or Mackenzie Partners, Inc. at 800-322-2885. - -------------------------------------------------------------------------------- Contact: Nancy R. Kyle, Director of Investor Relations 3111 West Allegheny Avenue, Philadelphia, PA 19132 Phone: 215-430-9720 Fax: 215-223-5267 E-mail address: Nancy-Kyle@pepboys.com Internet: http://www.pepboys.com EX-99.(A)(8) 9 EXHIBIT 99.(A)(8) This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares. The Offer is made solely by the Offer to Purchase dated December 23, 1998 and the related Letter of Transmittal and any amendments or supplements thereto, and is being made to all holders of Shares. Capitalized terms not defined in this announcement have the respective meanings ascribed to such terms in the Offer to Purchase. The Offer is not being made to, nor will the Company accept tenders from or on behalf of, holders of Shares in any jurisdiction in which the making of the Offer or its acceptance would not be in compliance with the laws of such jurisdiction. In jurisdictions whose laws require that the Offer be made by a licensed broker or dealer, the Offer shall be deemed to be made on the Company's behalf by Credit Suisse First Boston Corporation ("Credit Suisse First Boston") or by one or more registered brokers or dealers licensed under to laws of such jurisdiction. Notice of Offer to Purchase for Cash by [PEP BOYS LOGO] Up To 10,000,000 Shares Of Its Common Stock At A Purchase Price Not Greater Than $16.00 Nor Less Than $13.50 Per Share The Pep Boys - Manny, Moe & Jack, a Pennsylvania corporation (the "Company"), invites its shareholders to tender up to 10,000,000 shares of its common stock, par value $1.00 per share (together with the associated common stock purchase rights issued pursuant to the Rights Agreement, dated as of December 5, 1997, between the Company and First Union National Bank, as Rights Agent, the "Shares"), to the Company at prices not greater than $16.00 nor less than $13.50 per Share, net to the seller in cash, without interest, as specified by tendering shareholders, upon the terms and subject to the conditions set forth in the Offer to Purchase dated December 23, 1998 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, as amended or supplemented from time to time, together constitute the "Offer"). - -------------------------------------------------------------------------------- THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JANUARY 22, 1999, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- The Offer is not conditioned upon any minimum number of Shares being tendered. The Offer is, however, subject to certain other conditions, including the Company's having obtained sufficient financing to fund the purchase of Shares tendered in the Offer and pay all related fees and expenses, The Board of Directors of the Company has approved the Offer. However, neither the Company nor its Board of Directors makes any recommendation to shareholders as to whether to tender or refrain from tendering their Shares. Each shareholder must make the decision whether to tender Shares and, if so, how many Shares to tender and the price or prices at which Shares should be tendered. The Company has been advised that none of its directors or executive officers intends to tender any Shares pursuant to the Offer. The Company will, upon the terms and subject to the conditions of the Offer, determine the lowest single per Share price (not greater than $16.00 nor less than $13.50 per share), net to the seller in cash (the "Purchase Price"), that will allow it to purchase 10,000,000 Shares (or such lesser number of Shares as are validly tendered and not properly withdrawn) pursuant to the Offer. All Shares validly tendered at prices at or below the Purchase Price and not properly withdrawn will be purchased at the Purchase Price, upon the terms and subject to the conditions of the Offer, including the financing condition and proration and conditional tender provisions described in the Offer to Purchase. The term "Expiration Date" means 12:00 Midnight, New York City time, on Friday, January 22, 1999, unless and until the Company in its sole discretion shall have extended the period of time during which the Offer is open, in which event the term "Expiration Date" shall refer to the latest time and date at which the Offer, as so extended by the Company, shall expire. The Company reserves the right, in its sole discretion, to purchase more than 10,000,000 Shares pursuant to the Offer. For purposes of the Offer, the Company will be deemed to have accepted for payment (and therefore purchased), subject to the proration and conditional tender provisions of the Offer, Shares that are validly tendered at or below the Purchase Price and not properly withdrawn only when, as and if the Company gives oral or written notice to American Stock Transfer and Trust Company (in such capacity, the "Depositary") of its acceptance of such Shares for payment pursuant to the Offer. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made promptly (subject to possible delay in the event of proration) but only after timely receipt by the Depositary of certificates for such Shares (or a timely confirmation of a book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility), a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof) or an Agent's Message (as defined in Section 3 of the Offer to Purchase) and any other required documents. The Board of Directors has determined that the Company's financial condition and outlook and current market conditions, including recent trading prices of the Shares, makes this an attractive time to repurchase a significant portion of the outstanding Shares. In the view of the Board of Directors, the Offer represents an attractive investment for the Company and use of the Company's cash generation abilities that should benefit the Company and its shareholders over the long term. Accordingly, the Company is providing shareholders with the opportunity to determine the price (not greater than $16.00 nor less $13.50 per Share) at which they are willing to sell their Shares, subject to the terms and conditions of the Offer, and without the usual transaction costs associated with open market sales. The Offer also allows shareholders to sell a portion of their Shares while retaining a continuing equity position in the Company if they so desire. Upon the terms and subject to the conditions of the Offer, if at the expiration of the Offer, more than 10,000,000 Shares (or such greater number of Shares as the Company may elect to purchase pursuant to the Offer) have been validly tendered at prices at or below the Purchase Price and not properly withdrawn, the Company will purchase Shares validly tendered and not properly withdrawn on the following basis: (i) all Shares tendered and not properly withdrawn prior to the Expiration Date by any Odd Lot Holder who: (a) tenders all Shares beneficially owned by such Odd Lot Holder at a price at or below the Purchase Price (tenders of fewer than all Shares owned by such shareholder will not qualify for this preference); and (b) completes the box captioned "Odd Lots" on the Letter of Transmittal and, if applicable, on the Notice of Guaranteed Delivery; (ii) after purchase of all of the foregoing Shares, all Shares conditionally tendered, for which the condition was satisfied, and all Shares tendered unconditionally at prices at or below the Purchase Price and not properly withdrawn prior to the Expiration Date, on a pro rata basis (with appropriate adjustments to avoid purchases of fractional Shares); and (iii) if necessary, Shares conditionally tendered for which the condition was not satisfied, at or below the Purchase Price and not properly withdrawn prior to the Expiration Date, selected by random lot. The Company expressly reserves the right at any time or from time to time, in its sole discretion, to extend the period of time during which the Offer is open by giving notice of such extension to the Depositary and making a public announcement thereof. Subject to certain conditions set forth in the Offer to Purchase, the Company also expressly reserves the right, in its sole discretion, to terminate the Offer and not accept for payment or pay for any Shares not theretofore accepted for payment or paid for or, subject to applicable law, to postpone payment for Shares upon certain conditions specified in the Offer to Purchase. Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date and, unless accepted for payment by the Company as provided in the Offer to Purchase, may also be withdrawn after 12:00 Midnight, New York City time, on Monday, February 22, 1999. For a withdrawal to be effective, the Depositary must receive a notice of withdrawal in written or facsimile transmission form in a timely manner at one of its addresses set forth on the back cover of the Offer to Purchase. Such notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the name of the registered holder (if different from that of the person who tendered the Shares), the number of Shares tendered and the number of Shares to be withdrawn. If the certificates for Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the release of such certificates, the tendering shareholder must also submit the serial numbers shown on the particular certificates evidencing the Shares and the signature on the notice of withdrawal must be guaranteed by an Eligible Institution (except in the case of Shares tendered by an Eligible Institution). If Shares have been tendered pursuant to the procedure for book-entry transfer, the notice of withdrawal must specify the name and the number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares and otherwise comply with the procedures of such facility. The information required to be disclosed by Rule 13e-4(d)(1) under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated by reference herein. These materials are being mailed to record holders of Shares whose names appear on the Company's shareholder list and will be furnished to brokers, banks and similar persons whose names, or the names of whose nominees, appear on the Company's shareholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for transmittal to beneficial owners of Shares. The Offer to Purchase and the Letter of Transmittal contain important information which should be read carefully before shareholders decide whether to accept or reject the Offer and, if accepted, at which price or prices to tender their Shares. Questions and requests for assistance may be directed to the Information Agent or the Dealer Manager as set forth below. Additional copies of the Offer to Purchase, the Letter of Transmittal and other tender offer materials may be obtained from the Information Agent or the Dealer Manager and will be furnished at the Company's expense. The Company will not pay any fees or commissions to any broker or dealer or any other person (other than the Information Agent and the Dealer Manager) for soliciting tenders of Shares pursuant to the Offer. The Information Agent for the Offer is: [MACKENZIE PARTNERS LOGO] 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (Call Collect) or Call Toll Free (800) 322-2885 The Dealer Manager for the Offer is: [CREDIT SUISSE FIRST BOSTON LOGO] Eleven Madison Avenue New York, New York 10010-3629 Call Toll Free (800) 881-8320 December 23,1998 EX-99.(A)(9) 10 EXHIBIT 99.(A)(9) [PEP BOYS LOGO] Mitchell G. Leibovitz Chairman of the Board Chief Executive Officer December 23, 1998 Dear Shareholder: The Pep Boys -- Manny, Moe & Jack (the "Company") is offering to purchase up to 10,000,000 shares of its common stock at a price not greater than $16.00 nor less than $13.50 per share (the "Offer"). The Company is conducting the Offer through a procedure commonly referred to as a "Dutch Auction." This procedure allows you to select the price within the specified price range at which you are willing to sell all or a portion of your shares to the Company. The Offer is explained in detail in the enclosed Offer to Purchase and Letter of Transmittal. If you wish to tender your shares, instructions on how to tender shares are provided in the enclosed materials. I encourage you to read these materials carefully before making any decision with respect to the Offer. Neither the Company nor its Board of Directors makes any recommendation to any shareholder whether to tender any or all shares. Please note that the Offer is scheduled to expire at 12:00 Midnight, New York City time, on Friday, January 22, 1999, unless extended by the Company. Questions regarding the Offer should be directed to MacKenzie Partners, Inc., the Information Agent for the Offer, at (800) 322-2885 or Credit Suisse First Boston Corporation, the Dealer Manager for the Offer, at (800) 881-8320. Sincerely, /s/ Mitchell G. Leibovitz ------------------------------------------------- Mitchell G. Leibovitz Chairman of the Board and Chief Executive Officer 3111 West Allegheny Avenue o Philadelphia, Pennsylvania 19132 o (215) 227-9215 EX-99.10 11 EXHIBIT A(10) GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Guidelines for Determining the Proper Name and Identification Number to Give the Payor.--The taxpayer identification number for an individual is the individual's social security number. Social security numbers have nine digits separated by two hyphens: i.e., 000-00-0000. The taxpayer identification number for an entity is the entity's employer identification number. Employer identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the payor.
- ---------------------------------------------------------- --------------------------------------------------------- For this type of account: Give the Name and Taxpayer Identification number of -- - ---------------------------------------------------------- --------------------------------------------------------- 1. An individual's account The individual 2. Two or more individuals (joint account) The actual owner of the account or, if combined funds, any one of the individuals(1) 3. Husband and wife (joint account) The actual owner of the account or, if joint funds, either person(1) 4. Custodian account of a minor (Uniform Gift to The minor(2) Minors Act) 5. Adult and minor (joint account) The adult or, if the minor is the only contributor, the minor(1) 6. Account in the name of guardian or committee The ward, minor, or incompetent person(3) for a designated ward, minor, or incompetent person 7. a. The usual revocable savings trust account The grantor-trustee(1) (grantor is also trustee) b. So-called trust account that is not a legal The actual owner(1) or valid trust under State law 8. Sole proprietorship account The owner(4) 9. A valid trust, estate or pension trust The legal entity (Do not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporate account The corporation 11. Association, club, religious, charitable, The organization educational or other tax-exempt organization account 12. Partnership account The partnership 13. A broker or registered nominee The broker or nominee 14. Account with the Department of Agriculture in the The public entity name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments - ---------------------------------------------------------- ---------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) Show the name of the owner. (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Obtaining a Number If you do not have a taxpayer identification number or you do not know your number, obtain Form SS-5, Application for a Social Security Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service (the "IRS") and apply for a number. To complete the Substitute Form W-9, if you do not have a taxpayer identification number, write "Applied For" in the space for the taxpayer identification number in Part 1, sign and date the Form, and give it to the requester. Generally, you will then have 60 days to obtain a taxpayer identification number and furnish it to the requester. If the requester does not receive your taxpayer identification number within 60 days, backup withholding, if applicable, will begin and will continue until you furnish your taxpayer identification number to the requester. Payees Exempt from Backup Withholding Payees specifically exempted from backup withholding on ALL broker transactions and interest and dividend payments include the following: o A corporation. o A financial institution. o An organization exempt from tax under section 501(a) of the Internal Revenue Code of 1986, as amended (the "Code"), or an individual retirement plan or a custodial account under Section 403(b)(7). o The United States or any agency or instrumentality thereof. o A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. o A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. o An international organization or any agency or instrumentality thereof. o A dealer in securities or commodities required to register in the U.S. or a possession of the U.S. o A real estate investment trust. o A common trust fund operated by a bank under section 584(a) of the Code. o An entity registered at all times under the Investment Company Act of 1940. o A foreign central bank of issue. Payments of dividends and patronage dividends not generally subject to backup withholding including the following: o Payments to non-resident aliens subject to withholding under section 1441. o Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one non-resident alien partner. o Payments of patronage dividends not paid in money. o Payments made by certain foreign organizations. o Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: o Payments of interest on obligations issued by individuals. o Payments of tax-exempt interest (including exempt-interest dividends under section 852 of the Code). o Payments described in Code section 6049(b)(5) to non-resident aliens. o Payments on tax-free covenant bonds under section 1451 of the Code. o Payments made by certain foreign organizations. o Payments made to a nominee. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. ENTER YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER. Privacy Act Notice.--Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. Penalties (1) Penalty for Failure to Furnish Taxpayer Identification Number.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) Civil Penalty for False Information With Respect to Withholding.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (3) Criminal Penalty for Falsifying Information.--Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. EX-99.11 12 EXHIBIT B(1) *********************************************************** THE PEP BOYS - MANNY, MOE & JACK - ------------------ AMENDED AND RESTATED CREDIT AGREEMENT Dated as of April 21, 1995 - ------------------ THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION) as Agent *********************************************************** AMENDED AND RESTATED CREDIT AGREEMENT dated as of April 21, 1995 between: THE PEP BOYS - MANNY, MOE & JACK, a corporation duly organized and validly existing under the laws of the State of Pennsylvania (the "Company"); each of the guarantors that is a signatory hereto (individually, a "Guarantor" and collectively, the "Guarantors"); each of the banks that is a signatory hereto (such banks, except the Terminating Banks, individually, a "Bank" and, collectively, the "Banks"); and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as agent for the Banks (in such capacity, together with its successors in such capacity, the "Agent"). R E C I T A L S WHEREAS, the Company and the Guarantors are party to that certain Credit Agreement dated as of June 16, 1989 with the Agent and the banks signatory thereto, as amended (the "Existing Credit Agreement"); WHEREAS, the Company has requested that the Existing Credit Agreement be amended to, among other things, extend the Commitment Termination Date, increase the aggregate amount of the Commitments, terminate the Commitments of the Terminating Banks and add First Fidelity Bank, N.A., NatWest Bank, N.A., PNC Bank, N.A.,Union Bank and Credit Suisse as Banks party to this Agreement; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants contained herein, the Company, the Agent, the Guarantors, the Banks and the Terminating Banks agree that the Existing Credit Agreement is hereby amended and restated as follows: Section 1. Definitions and Accounting Matters. 1.01 Certain Defined Terms. As used herein, the following terms shall have the following meanings (all terms defined in this Section 1.01 or in other provisions of this Agreement in the singular to have the same meanings when used in the plural and vice versa): "Acquisition" shall mean the purchase of (i) all or substantially all of the assets of any Person or (ii) the stock or other ownership interest in any Person such that, by such purchase, (x) such Person becomes an Affiliate of the Company or any Subsidiary thereof or (y) the aggregate stock or other ownership interest in such Person increases, through such purchases or by aggregating such purchase with previous purchases during any relevant period, to at least 5% of the outstanding stock or other ownership interest of such Person. "Affiliate" shall mean, as to any Person, any other Person which directly or indirectly controls, or is under common control with, or is controlled by, such Person. As used in this definition, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise), provided that, in any event, any Person which owns directly or indirectly 5% or more of the securities having ordinary voting power for the election of directors or other governing body of a corporation or 5% or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to control such corporation or other Person. Notwithstanding the foregoing, no individual shall be deemed to be an Affiliate of a corporation solely by reason of his or her being an officer or director of such corporation and a Person and its Subsidiaries shall not be deemed to be Affiliates of each other. "Applicable Lending Office" shall mean, for each Bank and for each type of Loan, the Lending Office of such Bank (or of an affiliate of such Bank) designated for such type of Loan on the signature pages hereof or such other office of such Bank (or of an affiliate of such Bank) as such Bank may from time to time specify to the Agent and the Company as the office by which its Loans of such type are to be made and maintained. "Applicable Margin" shall mean with respect to a Eurodollar Loan, a rate per annum determined in accordance with the Pricing Schedule. "Base Rate" shall mean, with respect to any Base Rate Loan, for any day, the higher of (a) the Federal Funds Rate for such day plus 1/4 of 1% per annum or (b) the Prime Rate for such day. Each change in any interest rate provided for herein based upon the Base Rate resulting from a change in the Base Rate shall take effect at the time of such change in the Base Rate. "Base Rate Loans" shall mean Syndicated Loans which bear interest at rates based upon the Base Rate. "Business Day" shall mean any day on which commercial banks are not authorized or required to close in New York City and, if such day relates to the giving of notices or quotes in connection with a LIBOR Auction or to a borrowing of, a payment or prepayment of principal of or interest on, or the Interest Period for, a Eurodollar Loan or a LIBOR Market Loan or a notice by the Company with respect to any such borrowing, payment, prepayment or Interest Period, which is also a day on which dealings in Dollar deposits are carried out in the London interbank market. "Capital Lease Obligations" shall mean, as to any Person, the obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real and/or personal property which obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP (including State of Financial Accounting Standards No. 13 of the Financial Accounting Standards Board) and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP (including such Statement No. 13). "Chase" shall mean The Chase Manhattan Bank (National Association). "Closing Date" shall mean the date this Agreement has been executed by the Company and the Guarantors. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Commitment" shall mean, as to each Bank, the obligation of such Bank to make Syndicated Loans pursuant to Section 2.01 hereof in an aggregate amount at any one time outstanding up to but not exceeding the amount set opposite such Bank's name on the signature pages hereof under the caption "Commitment" (as the same may be reduced at any time or from time to time pursuant to Section 2.04 hereof). "Commitment Termination Date" shall mean the Quarterly Date falling on or nearest to the later of April 21, 2000 and the date to which the initial Commitment Termination Date is extended pursuant to Section 2.10 hereof. "Consolidated Subsidiary" shall mean, as to any Person, each Subsidiary of such Person (whether now existing or hereafter created or acquired) the financial statements of which shall be (or should have been) consolidated with the financial statements of such Person in accordance with GAAP. "Debt to Capital Ratio" shall mean, at any time, the ratio of (a) Senior Funded Debt at such time to (b) Senior Funded Debt, plus Tangible Net Worth at such time. "Default" shall mean an Event of Default or an event which with notice or lapse of time or both would become an Event of Default. "Dollars" and "$" shall mean lawful money of the United States of America. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" shall mean any corporation or trade or business which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Company or is under common control (within the meaning of Section 414(c) of the Code) with the Company. "Eurodollar Loans" shall mean Syndicated Loans the interest rates on which are determined on the basis of the rate referred to in the definition of "Fixed Base Rate" in this Section 1.01. "Event of Default" shall have the meaning assigned to such term in Section 10 hereof. "Federal Funds Rate" shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (i) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate charged to Chase on such day on such transactions as determined by the Agent. "Fixed Base Rate" shall mean, with respect to any Fixed Rate Loan, the arithmetic mean, as determined by the Agent, of the rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) quoted by each Reference Bank at approximately 11:00 a.m. London time (or as soon thereafter as practicable) on the date two Business Days prior to the first day of the Interest Period for such Loan for the offering by such Reference Bank to leading banks in the London interbank market of Dollar deposits having a term comparable to such Interest Period and in an amount comparable to the principal amount of the Eurodollar Loan or LIBOR Market Loan to be made by such Reference Bank for such Interest Period. If any Reference Bank is not participating in any Fixed Rate Loan, the Fixed Base Rate for such Loan shall be determined by reference to the amount of the Loan which such Reference Bank would have made had it been participating in such Loan; provided that in the case of any LIBOR Market Loan, the Fixed Base Rate for such Loan shall be determined with reference to deposits of $25,000,000. If any Reference Bank does not timely furnish such information for determination of any Fixed Base Rate, the Agent shall determine such Fixed Base Rate on the basis of information timely furnished by the remaining Reference Banks. "Fixed Rate" shall mean, for any Fixed Rate Loan, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Agent to be equal to the Fixed Base Rate for such Loan for the Interest Period for such Loan divided by 1 minus the Reserve Requirement for such Loan for such Interest Period. "Fixed Rate Loans" shall mean Eurodollar Loans and, for the purposes of the definition of "Fixed Base Rate" herein and Section 5 hereof, LIBOR Market Loans. "GAAP" shall mean generally accepted accounting principles applied on a basis consistent with those which, in accordance with the last sentence of Section 1.02(a) hereof, are to be used in making the calculations for purposes of determining compliance with the terms of this Agreement. "Guarantee" shall mean a guarantee, an endorsement, a contingent agreement to purchase or to furnish funds for the payment or maintenance of, or otherwise to be or become contingently liable under or with respect to, the Indebtedness, other obligations, net worth, working capital or earnings of any Person, or a guarantee of the payment of dividends or other distributions upon the stock of any corporation, or an agreement to purchase, sell or lease (as lessee or lessor) property, products, materials, supplies or services primarily for the purpose of enabling a debtor to make payment of his, her or its obligations or an agreement to assure a creditor against loss, and including without limitation, causing a bank to open a letter of credit for the benefit of another Person, but excluding endorsements for collection or deposits in the ordinary course of business. The terms "Guarantee" and "Guaranteed" used as a verb shall have a correlative meaning. "Guarantor" shall have the meaning assigned to it in the preamble of this Agreement. "Indebtedness" shall mean, as to any Person: (a) indebtedness created, issued or incurred by such Person for borrowed money (whether by loan or the issuance and sale of debt securities); (b) obligations of such Person to pay the deferred purchase or acquisition price of property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable are payable within 90 days of the date the respective goods are delivered or respective services rendered; (c) Indebtedness of others secured by a Lien on the property of such Person, whether or not the respective indebtedness so secured has been assumed by such Person; (d) obligations of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for the account of such Person; (e) Capital Lease Obligations of such Person; and (f) Indebtedness of others Guaranteed by such Person. "Interest Expense" shall mean, for any period, the sum of the following: (a) all interest in respect of Indebtedness accrued or capitalized during such period (whether or not actually paid during such period) plus (b) the net amounts payable (or minus the net amounts receivable) under interest rate protection agreements accrued during such period (whether or not actually paid or received during such period). "Interest Period" shall mean: (a) With respect to any Eurodollar Loan, the period commencing on the date such Eurodollar Loan is made and ending on the numerically corresponding day in the first, second, third or sixth calendar month thereafter, as the Company may select as provided in Section 2.02 hereof, except that each Interest Period which commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month; (b) With respect to any Base Rate Loan, the period commencing on the date such Base Rate Loan is made and ending on the date 30 days thereafter; (c) With respect to any Set Rate Loan, the period commencing on the date such Set Rate Loan is made and ending on any Business Day up to 180 days thereafter, as the Company may select as provided in Section 2.03(b) hereof; and (d) With respect to any LIBOR Market Loan, the period commencing on the date such LIBOR Market Loan is made and ending on the numerically corresponding day in the first, second, third or sixth calendar month thereafter, as the Company may select as provided in Section 2.03(b) hereof, except that each Interest Period which commences on the last Business Day of a calendar month (or any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month. Notwithstanding the foregoing: (i) no Interest Period may commence before and end after the Commitment Termination Date; (ii) each Interest Period which would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day (or, in the case of an Interest Period for Eurodollar Loans or LIBOR Market Loans, if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day); and (iii) notwithstanding clause (i) above, no Interest Period for any Fixed Rate Loans or LIBOR Market Loans shall have a duration of less than one month and, if the Interest Period for any Fixed Rate Loans would otherwise be a shorter period, such Loans shall not be available hereunder. "Leverage Ratio" shall mean, at any time, the ratio of Total Liabilities to Tangible Net Worth of the Company and its Consolidated Subsidiaries at such time. "LIBO Rate" shall mean, for any LIBOR Market Loan, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Agent to be equal to the rate of interest specified in the definition of "Fixed Base Rate" in this Section 1.01 for the Interest Period for such Loan divided by 1 minus the Reserve Requirement for such Loan for such Interest Period. "LIBOR Auction" shall mean a solicitation of Money Market Quotes setting forth Money Market Margins based on the LIBO Rate pursuant to Section 2.03 hereof. "LIBOR Market Loans" shall mean Money Market Loans the interest rates on which are determined on the basis of LIBO Rates pursuant to a LIBOR Auction. "Lien" shall mean, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For purposes of this Agreement, the Company or any of its Subsidiaries shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "Loans" shall mean Money Market Loans and Syndicated Loans. "Majority Banks" shall mean Banks having at least 66-2/3% of the aggregate amount of the Commitments; provided that, if the Commitments shall have terminated, Majority Banks shall mean Banks holding at least 66-2/3% of the aggregate unpaid principal amount of the Loans. "Margin Stock" shall mean margin stock within the meaning of Regulations U and X. "Money Market Borrowing" shall have the meaning assigned to such term in Section 2.03(b) hereof. "Money Market Loans" shall mean the loans provided for by Section 2.03 hereof. "Money Market Margin" shall have the meaning assigned to such term in Section 2.03(c)(ii)(C) hereof. "Money Market Quotes" shall mean the quotes requested pursuant to a Money Market Quote Request. "Money Market Quote Request" shall have the meaning assigned to such term in Section 2.03(b) hereof. "Money Market Rate" shall have the meaning assigned to such term in Section 2.03(c)(ii)(D) hereof. "Multiemployer Plan" shall mean a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been made by the Company or any ERISA Affiliate and which is covered by Title IV of ERISA. "Net Earnings" shall mean, for any period, the net earnings of the Company and its Consolidated Subsidiaries determined in accordance with GAAP for such period; provided that, if for any fiscal quarterly period such net earnings shall be negative (i.e., a loss), "Net Earnings" for such period shall be deemed to be zero. "Net Operating Profit" shall mean, for any period for the Company and its Consolidated Subsidiaries, (i) net sales minus (ii) total costs and expenses (excluding costs of income taxes and Interest Expense), in each case determined in accordance with GAAP for such period. "NOP/Interest Charges Ratio" shall mean, as at any date of determination thereof, the ratio of (i) Net Operating Profit for the period of four consecutive fiscal quarters of the Company ending on or most recently ended prior to such date of determination to (ii) Interest Expense for such period. "Notes" shall mean the promissory notes provided for by Section 2.08 hereof. "Obligor" shall mean collectively the Company, the Guarantors and any Subsidiary of the Company which pursuant to Section 9.13 hereof shall hereafter become a Guarantor. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Person" shall mean any individual, corporation, company, voluntary association, partnership, joint venture, trust, unincorporated organization or government (or any agency, instrumentality or political subdivision thereof). "Plan" shall mean an employee benefit or other plan established or maintained by the Company or any ERISA Affiliate and which is covered by Title IV of ERISA, other than a Multiemployer Plan. "Post-Default Rate" shall mean, in respect of any principal of any Loan or any other amount payable by the Company under this Agreement or any Note that is not paid when due (whether at stated maturity, by acceleration or otherwise), a rate per annum during the period from and including the due date to but excluding the date on which such amount is paid in full equal to 2% above the Base Rate as in effect from time to time (provided that, if the amount so in default is principal of a Fixed Rate Loan or a Money Market Loan and the due date thereof is a day other than the last day of the Interest Period therefor, the "Post-Default Rate" for such principal shall be, for the period from and including the due date to but excluding the last day of the Interest Period therefor, 2% above the interest rate for such Loan as provided in Section 3.02 hereof and, thereafter, the rate provided for above in this definition). "Pricing Schedule" shall mean the Schedule attached hereto identified as such. "Prime Rate" shall mean the rate of interest from time to time announced by Chase at the Principal Office as its prime commercial lending rate. "Principal Office" shall mean the principal office of the Agent and Chase, presently located at 1 Chase Manhattan Plaza, New York, New York 10081. "Quarterly Dates" shall mean the last Business Day of each March, June, September and December in each year, the first of which shall be the first such day after the date of this Agreement. "Reference Banks" shall mean Chase, CoreStates Bank and Bank of America National Trust and Savings Association (or their Applicable Lending Offices, as the case may be). "Regulations D, U and X" shall mean, respectively, Regulations D, U and X of the Board of Governors of the Federal Reserve System (or any successor), as the same may be amended or supplemented from time to time. "Regulatory Change" shall mean, with respect to any Bank, any change after the date of this Agreement in United States Federal, state or foreign law or regulations (including, without limitation, Regulation D) or the adoption or making after such date of any interpretation, directive or request applying to a class of banks including such Bank of or under any United States Federal, state or foreign law or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "Reserve Requirement" shall mean, for any Interest Period for any Fixed Rate Loan or LIBOR Market Loan, the average maximum rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained during such Interest Period under Regulation D by member banks of the Federal Reserve System in New York City with deposits exceeding one billion Dollars against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall include any other reserves required to be maintained by such member banks by reason of any Regulatory Change against (i) any category of liabilities which includes deposits by reference to which the Fixed Base Rate for Eurodollar Loans or LIBOR Market Loans (as the case may be) is to be determined as provided in the definition of "Fixed Base Rate" or "LIBO Rate" in this Section 1.01 or (ii) any category of extensions of credit or other assets which includes either type of Fixed Rate Loan or LIBOR Market Loan. "Senior Funded Debt" shall mean , as to any Person, Indebtedness of such Person described in clause (a) of the definition of "Indebtedness", which is not subordinated by its terms to the payment of any other Indebtedness of such Person. "Set Rate Auction" shall mean a solicitation of Money Market Quotes setting forth Money Market Rates pursuant to Section 2.03 hereof. "Set Rate Loans" shall mean Money Market Loans the interest rates on which are determined on the basis of Money Market Rates pursuant to a Set Rate Auction. "Subsidiary" shall mean, as to any Person, any corporation of which at least a majority of the outstanding shares of stock having by the terms thereof ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries. "Wholly- Owned Subsidiary" shall mean any such corporation of which all of such shares, other than directors' qualifying shares, are so owned or controlled. "Syndicated Loans" shall mean the loans provided for by Section 2.01 hereof. "Syndicated Notes" shall mean the promissory notes provided for by Section 2.08(a) hereof. "Tangible Net Worth" shall mean, as at any date of determination thereof, the sum of the following for any Person and its Consolidated Subsidiaries determined (without duplication) in accordance with GAAP: (a) the amount of capital stock, plus (b) the amount of surplus and retained earnings (or, in the case of a surplus or retained earnings deficit, minus the amount of such deficit), minus (c) the sum of the following: cost of treasury shares and the book value of all assets of such Person and its Consolidated Subsidiaries which should be classified as intangibles (without duplication of deductions in respect of items already deducted in arriving at surplus and retained earnings) but in any event including good-will, research and development costs, trade-marks, trade names, copyrights, patents and franchises, all reserves and any write-up in the book value of assets resulting from a revaluation thereof subsequent to January 28, 1989. "Terminating Banks" shall mean The Fuji Bank, Ltd., First Interstate Bank of Arizona, N.A. and Bank of America National Trust and Savings Association. "Total Liabilities" shall mean, as at any date of determination thereof, the sum, for the Company and its Consolidated Subsidiaries determined (without duplication) in accordance with GAAP, of all Indebtedness of the Company and its Consolidated Subsidiaries (including subordinated Indebtedness) and all other liabilities of the Company and its Subsidiaries which should be classified as liabilities on a balance sheet of the Company and its Consolidated Subsidiaries prepared in accordance with GAAP and in any event including all reserves (other than general contingency reserves) and all deferred taxes and other deferred items. 1.02 Accounting Terms and Determinations. (a) Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Banks hereunder shall (unless otherwise disclosed to the Bank in writing at the time of delivery thereof in the manner described in subsection (b) below) be prepared, in accordance with generally accepted accounting principles applied on a basis consistent with those used in the preparation of the latest financial statements furnished to the Bank hereunder after the date hereof. All calculations made for the purposes of determining compliance with the terms of this Agreement shall (except as otherwise expressly provided herein) be made by application of generally accepted accounting principles applied on a basis consistent with those used in the preparation of the annual or quarterly financial statements furnished to the Banks pursuant to Section 9.01 hereof unless (i) the Company shall have objected to determining such compliance on such basis at the time of delivery of such financial statements or (ii) the Majority Banks shall so object in writing within 30 days after delivery of such financial statements, in either of which events such calculations shall be made on a basis consistent with those used in the preparation of the latest financial statements as to which such objection shall not have been made (which, if objection is made in respect of the first financial statements delivered under Section 9.01 hereof, shall mean the financial statements referred to in Section 8.02 hereof) (b) The Company shall deliver to the Banks at the same time as the delivery of any annual or quarterly financial statement under Section 9.01 hereof a description in reasonable detail of any material variation between the application of accounting principles employed in the preparation of such statement and the application of accounting principles employed in the preparation of the next preceding annual or quarterly financial statements as to which no objection has been made in accordance with the last sentence of subsection (a) above, and reasonable estimates of the difference between such statements arising as a consequence thereof. (c) To enable the ready and consistent determination of compliance with the covenants set forth in Section 9 hereof, the Company will not change the last day of its fiscal year from the Saturday in each year falling closest to January 31 of such year (the "Fiscal Date"), or the last day of the first three fiscal quarters in each of its fiscal years from the thirteenth Saturday of the year following the Fiscal Date, the twenty-sixth Saturday of the year following the Fiscal Date and the thirty-ninth Saturday of the year following the Fiscal Date, respectively. Section 2. Commitments. 2.01 Syndicated Loans. Each Bank severally agrees, on the terms of this Agreement, to make loans to the Company in Dollars during the period from and including the date hereof to but not including the Commitment Termination Date in an aggregate principal amount at any one time outstanding up to but not exceeding the amount of such Bank's Commitment as then in effect. Subject to the terms of this Agreement, during such period the Company may borrow, repay and reborrow the amount of the Commitments; provided that the aggregate principal amount of all Money Market Loans, together with the aggregate principal amount of all Syndicated Loans, at any one time outstanding shall not exceed the aggregate amount of the Commitments at such time; and provided, further, that there may be no more than fifteen different Interest Periods for both Syndicated Loans and Money Market Loans outstanding at the same time (for which purpose each Interest Period described in a different lettered clause of the definition of the term "Interest Period" shall be deemed to be a different Interest Period even if it is coterminous with another Interest Period). The Syndicated Loans may be Base Rate Loans or Eurodollar Loans (each a "type" of Syndicated Loan). 2.02 Borrowings of Syndicated Loans. The Company shall give the Agent (which shall promptly notify the Banks) notice of each borrowing hereunder of Syndicated Loans, which notice shall be irrevocable and effective only upon receipt by the Agent, shall specify with respect to the Syndicated Loans to be borrowed (i) the aggregate amount (which shall be at least $10,000,000, and incremental multiples of $1,000,000, in the case of Eurodollar Loans and at least $250,000 and incremental multiples of $100,000 in the case of Base Rate Loans), (ii) the type and date (which shall be a Business Day) and (iii) (in the case of Fixed Rate Loans) the duration of the Interest Period therefor and shall be given not later than 10:30 a.m. New York time (in the case of Base Rate Loans) and 11:00 a.m. New York time (in the case of all Eurodollar Loans) on the day which is not less than the number of Business Days prior to the date of such borrowing specified below opposite the type of such Loans: Type Number of Business Days Base Rate Loans same day Eurodollar Loans 3 Not later than 1:00 p.m. New York time on the date specified for each borrowing of Syndicated Loans hereunder, each Bank shall make available the amount of the Syndicated Loan to be made by it on such date to the Agent, at account number NYAO-DI-900-9-000002 maintained by the Agent with Chase at the Principal Office, in immediately available funds, for account of the Company. The amount so received by the Agent shall, subject to the terms and conditions of this Agreement, be made available to the Company by depositing the same, in immediately available funds, in an account of the Company maintained with Chase at the Principal Office designated by the Company. 2.03 Money Market Loans. (a) In addition to borrowings of Syndicated Loans, the Company may, prior to the Commitment Termination Date and as set forth in this Section 2.03, request the Banks to make offers to make Money Market Loans to the Company in Dollars. The Banks may, but shall have no obligation to, make such offers and the Company may, but shall have no obligation to, accept any such offers in the manner set forth in this Section 2.03. Money Market Loans may be LIBOR Market Loans or Set Rate Loans (each a "type" of Money Market Loan), provided that: (i) there may be no more than fifteen different Interest Periods for both Syndicated Loans and Money Market Loans outstanding at the same time (for which purpose each Interest Period described in a different lettered clause of the definition of the term "Interest Period" shall be deemed to be a different Interest Period even if it is coterminous with another Interest Period); and (ii) the aggregate principal amount of all Money Market Loans, together with the aggregate principal amount of all Syndicated Loans, at any one time outstanding shall not exceed the aggregate amount of the Commitments at such time. (b) When the Company wishes to request offers to make Money Market Loans, it shall give the Agent (which shall promptly notify the Banks) notice (a "Money Market Quote Request") so as to be received no later than 11:00 a.m. New York time on (x) the fifth Business Day prior to the date of borrowing proposed therein, in the case of a LIBOR Auction or (y) the Business Day next preceding the date of borrowing proposed therein, in the case of a Set Rate Auction (or, in any such case, such other time and date as the Company and the Agent, with the consent of the Majority Banks, may agree). The Company may request offers to make Money Market Loans for up to three different Interest Periods in a single notice (for which purpose each Interest Period in a different lettered clause of the definition of the term "Interest Period" shall be deemed to be a different Interest Period even if it is coterminous with another Interest Period); provided that the request for each separate Interest Period shall be deemed to be a separate Money Market Quote Request for a separate borrowing ("Money Market Borrowing"). Each such notice shall be substantially in the form of Exhibit C hereto and shall specify as to each Money Market Borrowing: (i) the proposed date of such borrowing, which shall be a Business Day; (ii) the aggregate amount of such Money Market Borrowing, which shall be at least $10,000,000 (or in larger multiples of $1,000,000) but shall not cause the limits specified in Section 2.03(a) hereof to be violated; (iii) the duration of the Interest Period applicable thereto; (iv) whether the Money Market Quotes requested are to set forth a Money Market Margin or a Money Market Rate; and (v) if the Money Market Quotes requested are to set forth a Money Market Rate, the date on which the Money Market Quotes are to be submitted if it is before the proposed date of borrowing (the date of which such Money Market Quotes are to be submitted is called the "Quotation Date"). Except as otherwise provided in this Section 2.03(b), no Money Market Quote Request shall be given within five Business Days (or such other number of days as the Company and the Agent, with the consent of the Majority Banks, may agree) of any other Money Market Quote Request. (c) (i) Each Bank (or its Applicable Lending Office) may submit one or more Money Market Quotes, each containing an offer to make a Money Market Loan in response to any Money Market Quote Request; provided that, if the Company's request under Section 2.03(b) hereof specified more than one Interest Period, such Bank (or its Applicable Lending Office) may make a single submission containing one or more Money Market Quotes for each such Interest Period. Each Money Market Quote must be submitted to the Agent not later than (x) 2:00 p.m. New York time on the fourth Business Day prior to the proposed date of borrowing, in the case of a LIBOR Auction or (y) 10:00 a.m. New York time on the Quotation Date, in the case of a Set Rate Auction (or, in any such case, such other time and date as the Company and the Agent, with the consent of the Majority Banks, may agree); provided that any Money Market Quote submitted by Chase (or its Applicable Lending Office) may be submitted, and may only be submitted, if Chase (or such Applicable Lending Office) notifies the Company of the terms of the offer contained therein not later than (x) 1:00 p.m. New York time on the fourth Business Day prior to the proposed date of borrowing, in the case of a LIBOR Auction or (y) 9:45 a.m. New York time on the Quotation Date, in the case of a Set Rate Auction. Subject to Sections 5.02(b), 5.03, 7.02 and 10 hereof, any Money Market Quote so made shall be irrevocable except with the written consent of the Agent given on the instructions of the Company. (ii) Each Money Market Quote shall be substantially in the form of Exhibit D hereto and shall specify: (A) the proposed date of borrowing and the Interest Period therefor; (B) the principal amount of the Money Market Loan for which each such offer is being made, which principal amount shall be at least $5,000,000 or a larger multiple of $1,000,000; provided that the aggregate principal amount of all Money Market Loans for which a Bank submits Money Market Quotes (x) may be greater or less than the Commitment of such Bank but (y) may not exceed the principal amount of the Money Market Borrowing for which offers were requested; (C) in the case of a LIBOR Auction, the margin above or below the applicable LIBO Rate (the "Money Market Margin") offered for each such Money Market Loan, expressed as a percentage (rounded upwards, if necessary, to the nearest 1/10,000th of 1%) to be added to or subtracted from the applicable LIBO Rate; (D) in the case of a Set Rate Auction, the rate of interest per annum (rounded upwards, if necessary, to the nearest 1/10,000th of 1%) offered for each such Money Market Loans (the "Money Market Rate"); and (E) the identity of the quoting Bank. Unless otherwise agreed by the Agent and the Company, no Money Market Quote shall contain qualifying, conditional or similar language or propose terms other than or in addition to those set forth in the applicable Money Market Quote Request and, in particular, no Money Market Quote may be conditioned upon acceptance by the Company of all (or some specified minimum) of the principal amount of the Money Market Loan for which such Money Market Quote is being made. (d) The Agent shall (x) in the case of a Set Rate Auction, as promptly as practicable after the Money Market Quote is submitted (but in any event not later than 10:15 a.m. New York time) or (y) in the case of a LIBOR Auction, by 4:00 p.m. New York time on the day a Money Market Quote is submitted, notify the Company of the terms (i) of any Money Market Quote submitted by a Bank that is in accordance with Section 2.03(c) hereof and (ii) of any Money Market Quote that amends, modifies or is otherwise inconsistent with a previous Money Market Quote submitted by such Bank with respect to the same Money Market Quote Request. Any such subsequent Money Market Quote Request shall be disregarded by the Agent unless such subsequent Money Market Quote is submitted solely to correct a manifest error in such former Money Market Quote. The Agent's notice to the Company shall specify (A) the aggregate principal amount of the Money Market Borrowing for which offers have been received and (B) the respective principal amounts and Money Market Margins or Money Market Rates, as the case may be, so offered by each Bank (identifying the Bank that made each Money Market Quote). (e) Not later than 11:00 a.m. New York time on (x) the third Business Day prior to the proposed date of borrowing, in the case of a LIBOR Auction or (y) the Quotation Date, in the case of a Set Rate Auction (or, in any such case, such other time and date as the Company and the Agent, with the consent of the Majority Banks, may agree), the Company shall notify the Agent of its acceptance or nonacceptance of the offers so notified to it pursuant to Section 2.03(d) hereof (and the failure of the Company to give such notice by such time shall constitute non-acceptance) and the Agent shall promptly notify each affected Bank. In the case of acceptance, such notice shall specify the aggregate principal amount of offers for each Interest Period that are accepted. The Company may accept any Money Market Quote in whole or in part (provided that any Money Market Quote accepted in part shall be at least $5,000,000 or in larger multiples of $1,000,000); provided that: (i) the aggregate principal amount of each Money Market Borrowing may not exceed the applicable amount set forth in the related Money Market Quote Request; (ii) the aggregate principal amount of each Money Market Borrowing shall be at least $10,000,000 (or in larger multiples of $1,000,000) but shall not cause the limits specified in Section 2.03(a) hereof to be violated; (iii) acceptance of offers may be made only in ascending order of Money Market Margins or Money Market Rates, as the case may be; and (iv) the Company may not accept any offer where the Agent has advised the Company that such offer fails to comply with Section 2.03(c)(ii) hereof or otherwise fails to comply with the requirements of this Agreement (including, without limitation, Section 2.03(a) hereof). If offers are made by two or more Banks with the same Money Market Margins or Money Market Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which offers are accepted for the related Interest Period, the principal amount of Money Market Loans in respect of which such offers are accepted shall be allocated by the Company among such Banks as nearly as possible (in multiples of $1,000,000) in proportion to the aggregate principal amount of such offers. Determinations by the Company of the amounts of Money Market Loans shall be conclusive in the absence of manifest error. (f) Any Bank whose offer to make any Money Market Loan has been accepted shall, not later than 1:00 p.m. New York time on the date specified for the making of such Loan, make the amount of such Loan available to the Agent at account number NYAO-DI-900-9-000002 maintained by the Agent with Chase at the Principal Office in immediately available funds, for account of the Company. The amount so received by the Agent shall, subject to the terms and conditions of this Agreement, be made available to the Company on such date by depositing the same, in immediately available funds, in an account of the Company maintained with Chase at the Principal Office designated by the Company. (g) Except for the purpose and to the extent expressly stated in Section 2.05(a) hereof, the amount of any Money Market Loan made by any Bank shall not constitute a utilization of such Bank's Commitment and except for the purpose and to the extent expressly stated in Section 4.05(b) hereof, the amount of any payment made on account of any Money Market Loan made by any Bank shall be for account of such Bank. 2.04 Changes of Commitments. (a) The aggregate amount of the Commitments shall be automatically reduced to zero on the Commitment Termination Date. (b) The Company shall have the right to terminate or reduce the aggregate unused amount of the Commitments at any time or from time to time upon not less than three Business Days' prior notice to the Agent (which shall promptly notify the Banks) of each such termination or reduction, which notice shall specify the effective date thereof and the amount of any such reduction (which shall be at least $10,000,000 or any larger multiple of $1,000,000) and shall be irrevocable and effective only upon receipt by the Agent. (c) The Commitments once terminated or reduced may not be reinstated. 2.05 Commitment Fee and Facility Fee. (a) The Company shall pay to the Agent for account of each Bank a commitment fee on the daily average unused amount of such Bank's Commitment (solely for which purpose the amount of any Money Market Borrowing shall be deemed to be a pro rata (based on the Commitments) utilization of each Bank's Commitment) for the period from and including the date of this Agreement to but not including the earlier of the date such Commitment is terminated or the Commitment Termination Date, at a rate per annum in accordance with the Pricing Schedule. (b) The Company shall pay to the Agent for account of each Bank a facility fee on the daily average (whether used or unused) amount of such Bank's Commitment for the period from and including the date of this Agreement to but not including the earlier of the date the Commitments are terminated or the Commitment Termination Date, at a rate per annum in accordance with the Pricing Schedule. (c) Accrued commitment fee and facility fee shall be payable on each Quarterly Date and on the earlier of the date the Commitments are terminated or the Commitment Termination Date. 2.06 Lending Offices. The Loans of each type made by each Bank shall be made and maintained at such Bank's Applicable Lending Office for Loans of such type. 2.07 Several Obligations; Remedies Independent. The failure of any Bank to make any Loan to be made by it on the date specified therefor shall not relieve any other Bank of its obligation to make its Loan on such date, but neither any Bank nor the Agent shall be responsible for the failure of any other Bank to make a Loan to be made by such other Bank. The amounts payable by the Company at any time hereunder and under the Notes to each Bank shall be a separate and independent debt and each Bank shall be entitled to protect and enforce its rights arising out of this Agreement and the Notes and it shall not be necessary for any other Bank or the Agent to consent to, or be joined as an additional party in, any proceedings for such purposes. 2.08 Notes. (a) The Syndicated Loans made by each Bank shall be evidenced by a single promissory note of the Company in substantially in the form of Exhibit A-1 hereto, dated the date of the delivery of such Note to the Agent under this Agreement, payable to such Bank in a principal amount equal to the amount of its Commitment as originally in effect and otherwise duly completed. The date, amount, type, interest rate and maturity date of each Syndicated Loan made by each Bank to the Company, and each payment made on account of the principal thereof, shall be recorded by such Bank on its books and, prior to any transfer of such Note held by it, endorsed by such Bank on the schedule attached to such Note or any continuation thereof. (b) The Money Market Loans made by any Bank shall be evidenced by a single promissory note of the Company in substantially the form of Exhibit A- 2 hereto, dated the date of the delivery of such Note to the Agent under this Agreement, payable to such Bank and otherwise duly completed. The date, amount, type, interest rate and maturity date of each Money Market Loan made by each Bank to the Company, and each payment made on account of the principal thereof, shall be recorded by such Bank on its books and, prior to any transfer of such Note held by it, endorsed by such Bank on the schedule attached to such Note or any continuation thereof. (c) No Bank shall be entitled to have its Note subdivided, by exchange for promissory notes of lesser denominations or otherwise, except in connection with a permitted assignment of all or any portion of such Bank's Commitment, Loans and Notes pursuant to Section 12.06(b) hereof. 2.09 Prepayments. (a) The Company may prepay Base Rate Loans upon not less than three Business Days' prior notice to the Agent (which shall promptly notify the Banks), which notice shall specify the prepayment date (which shall be a Business Day) and the amount of the prepayment (which shall be at least (x) $10,000,000 and in larger multiples of $1,000,000 or (y) the outstanding principal amount of the Loan) and shall be irrevocable and effective only upon receipt by the Agent, provided that interest on the principal prepaid, accrued to the prepayment date, shall be paid on the prepayment date. The Company may not prepay any Fixed Rate Loans or Money Market Loans (provided that this sentence shall not affect the Company's obligation to prepay Loans pursuant to paragraph (b) of this Section 2.09 or the obligations of the Company pursuant to Section 10 hereof). (b) If, after giving effect to any termination or reduction of the Commitments pursuant to Section 2.04 hereof, the outstanding aggregate principal amount of the Loans exceeds the aggregate amount of the Commitments, the Company shall pay or prepay the Loans on the date of such termination or reduction in an aggregate principal amount equal to the excess, together with interest thereon accrued to the date of such payment or prepayment and any amounts payable hereunder to Section 5.05 hereof in connection therewith. 2.10 Extension of Commitment Termination Date. (a) At least 60 days but not more than 90 days prior to each anniversary date of the Closing Date, the Company and the Guarantors may request, by written notice to the Agent in the form of Exhibit E hereto, that the Commitment Termination Date be extended for an additional year from the then current Commitment Termination Date. The Agent shall promptly notify the Banks of such request for an extension and each Bank shall notify the Agent of its decision to consent or not to consent to the request within 30 days from the date of its receipt of the Agent's notice. The Agent shall promptly notify the Company of the decisions of the Banks. (b) If the Agent and all the Banks consent to the request, the Commitment Termination Date shall thereupon be extended for an additional year from the then current Commitment Termination Date; provided that if any Bank shall not consent to the requested extension (each such Bank a "Non- Consenting Bank"), the Company may, with the consent of the Agent, designate another bank (including a Bank) (each such bank a "Replacement Bank") to replace, and assume the Commitment of, such Non-Consenting Bank. Each Non- Consenting Bank shall thereupon assign all its Commitment and interests hereunder pursuant to the procedure set forth in Section 12.06 hereof to the Replacement Bank designated by the Company for such Non-Consenting Bank. If the Company has replaced each Non-Consenting Bank with a Replacement Bank, then the Commitment Termination Date shall thereupon be extended as requested by the Company and consented to by the Banks (other than the Non-Consenting Banks) pursuant to Section 2.10(a) hereof. 2.11 Terminating Banks. The parties hereto hereby agree that, simultaneously with the execution and delivery hereof, the Company shall pay to each Terminating Bank all amounts then due and unpaid to such Terminating Bank under the Existing Credit Agreement and the respective Commitment of each Terminating Bank under the Existing Credit Agreement shall thereupon be terminated and the Terminating Banks shall cease to be parties to this Agreement. The parties hereto hereby further agree that First Fidelity Bank, N.A., NatWest Bank, N.A., Union Bank, Credit Suisse and PNC Bank, N.A. shall each become party to this Agreement, each as a "Bank", with a respective Commitment as set forth opposite its name on the signature pages hereof under the caption, "Commitment". Section 3. Payments of Principal and Interest. 3.01 Repayment of Loans. The Company will pay to the Agent for account of each Bank the principal of each Loan made by such Bank, and each Loan shall mature, on the last day of the Interest Period therefor. 3.02 Interest. The Company will pay to the Agent for account of each Bank interest on the unpaid principal amount of each Loan made by such Bank for the period from and including the date of such Loan to but excluding the date such Loan shall be paid in full, at the following rates per annum: (a) if such Loan is a Base Rate Loan, the Base Rate (as in effect from time to time); (b) if such Loan is a Fixed Rate Loan, the Fixed Rate for such Loan for the Interest Period therefor plus the Applicable Margin; (c) if such Loan is a LIBOR Market Loan, the LIBO Rate for such Loan for the Interest Period therefor plus (or minus) the Money Market Margin quoted by the Bank making such Loan in accordance with Section 2.03 hereof; and (d) if such Loan is a Set Rate Loan, the Money Market Rate for such Loan for the Interest Period therefor quoted by the Bank making such Loan in accordance with Section 2.03 hereof. Notwithstanding the foregoing, the Company will pay to the Agent for account of each Bank interest at the applicable Post-Default Rate on any principal of any Loan made by such Bank, and (to the fullest extent permitted by law) on any other amount payable by the Company hereunder or under the Note held by such Bank to or for account of such Bank, which shall not be paid in full when due (whether at stated maturity, by acceleration or otherwise), for the period from and including the due date thereof to but excluding the date the same is paid in full. Accrued interest on each Loan shall be payable on the last day of the Interest Period therefor and, if such Interest Period is longer than three months, at three-month intervals following the first day of such Interest Period, except that interest payable at the Post-Default Rate shall be payable from time to time on demand and interest on any Eurodollar Loan that is converted into a Base Rate Loan (pursuant to Section 5.04 hereof) shall be payable on the date of conversion (but only to the extent so converted). Promptly after the determination of any interest rate provided for herein or any change therein, the Agent shall give notice to the Banks to which such interest is payable and the Company. Section 4. Payments; Pro Rata Treatment; Computations; Etc. 4.01 Payments. (a) Except to the extent otherwise provided herein, all payments of principal, interest and other amounts to be made by the Company under this Agreement and the Notes shall be made in Dollars, in immediately available funds, without deduction, set-off or counterclaim, to the Agent at account number NYAO-DI-900-9-000002 maintained by the Agent with Chase at the Principal Office, not later than 1:00 p.m. New York time on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day), provided that, if a new Loan is to be made by any Bank on a date the Company is to repay any principal of an outstanding Loan of such Bank, such Bank shall apply the proceeds of such new Loan to the payment of the principal to be repaid and only an amount equal to the excess of the principal to be borrowed over the principal to be repaid shall be made available by such Bank to the Agent as provided in Section 2.02 hereof or paid by the Company to the Agent pursuant to this Section 4.01, as the case may be. (b) Any Bank for whose account any such payment is to be made, may (but shall not be obligated to) debit the amount of any such payment which is not made by such time to any ordinary deposit account of the Company with such Bank (with notice to the Company). (c) The Company shall, at the time of making each payment under this Agreement or any Note, specify to the Agent the Loans or other amounts payable by the Company hereunder to which such payment is to be applied (and in the event that it fails to so specify, or if an Event of Default has occurred and is continuing, the Agent may distribute such payment to the Banks in such manner as it or the Majority Banks may determine to be appropriate, subject to Section 4.02 hereof). (d) Each payment received by the Agent under this Agreement or any Note for account of a Bank shall be paid promptly to such Bank, in immediately available funds, for account of such Bank's Applicable Lending Office for the Loan in respect of which such payment is made. (e) If the due date of any payment under this Agreement or any Note would otherwise fall on a day which is not a Business Day such date shall be extended to the next succeeding Business Day and interest shall be payable for any principal so extended for the period of such extension. 4.02 Pro Rata Treatment. Except to the extent otherwise provided herein: (a) each borrowing from the Banks under Section 2.01 hereof shall be made from the Banks, each payment of commitment fee and facility fee under Section 2.05 hereof shall be made for account of the Banks, and each termination or reduction of the amount of the Commitments under Section 2.04 hereof shall be applied to the Commitments of the Banks, pro rata according to the amounts of their respective Commitments; (b) each payment of principal of Syndicated Loans by the Company shall be made for account of the Banks pro rata in accordance with the respective unpaid principal amounts of the Syndicated Loans held by the Banks; and (c) each payment of interest on Syndicated Loans by the Company shall be made for account of the Banks pro rata in accordance with the amounts of interest on Syndicated Loans due and payable to the respective Banks. 4.03 Computations. Interest on Money Market Loans, Fixed Rate Loans, commitment fee and facility fee shall be computed on the basis of a year of 360 days and actual days elapsed (including the first day but excluding the last day) occurring in the period for which payable and interest on Base Rate Loans shall be computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed (including the first day but excluding the last day) occurring in the period for which payable. 4.04 Non-Receipt of Funds by the Agent. Unless the Agent shall have been notified by a Bank or the Company (the "Payor") prior to the date on which the Payor is to make payment to the Agent of (in the case of a Bank) the proceeds of a Loan to be made by it hereunder or (in the case of the Company) a payment to the Agent for account of one or more of the Banks hereunder (such payment being herein called the "Required Payment"), which notice shall be effective upon receipt, that the Payor does not intend to make the Required Payment to the Agent, the Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient(s) on such date and, if the Payor has not in fact made the Required Payment to the Agent, the recipient(s) of such payment shall, on demand, repay to the Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to the Federal Funds Rate for such day and, if such recipient(s) shall fail promptly to make such payment, the Agent shall be entitled to recover such amount, on demand, from the Payor, together with interest as aforesaid. 4.05 Sharing of Payments, Etc. (a) The Company agrees that, in addition to (and without limitation of) any right of set-off, bankers' lien or counterclaim a Bank may otherwise have, each Bank shall be entitled, at its option, to offset balances held by it for account of the Company at any of its offices, in Dollars or in any other currency, against any principal of or interest on any of such Bank's Loans, or any other amount payable to such Bank hereunder, upon the occurrence of an Event of Default (regardless of whether such balances are then due to the Company), in which case it shall promptly notify the Company and the Agent thereof, provided that such Bank's failure to give such notice shall not affect the validity thereof. (b) If any Bank shall obtain payment of any principal of or interest on any Loan made by it to the Company under this Agreement through the exercise of any right of set-off, banker's lien or counterclaim or similar right or otherwise, and, as a result of such payment, such Bank shall have received a greater percentage of the principal or interest then due hereunder by the Company to such Bank in respect of Loans than the percentage received by any other Banks, it shall promptly purchase from such other Banks participations in (or, if and to the extent specified by such Bank, direct interests in) the Loans made by such other Banks (or in interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all the Banks shall share the benefit of such excess payment (net of any expenses which may be incurred by such Bank in obtaining or preserving such excess payment) pro rata in accordance with the unpaid principal and/or interest on the Loans held by each of the Banks. To such end all the Banks shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. (c) The Company agrees that any Bank so purchasing a participation (or direct interest) in the Loans made by other Banks (or in interest due thereon, as the case may be) may exercise all rights of set-off, bankers' lien, counterclaim or similar rights with respect to such participation as fully as if such Bank were a direct holder of Loans in the amount of such participation. (d) Nothing contained herein shall require any Bank to exercise any such right or shall affect the right of any Bank to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of the Company. (e) If, under any applicable bankruptcy, insolvency or other similar law, any Bank receives a secured claim in lieu of a set-off to which this Section 4.05 applies, such Bank shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Banks entitled under this Section 4.05 to share in the benefits of any recovery on such secured claim. Section 5. Yield Protection and Illegality. Section 5.01 Additional Costs. (a) The Company shall pay directly to each Bank from time to time such amounts as such Bank may determine to be necessary to compensate it for any costs which such Bank determines are attributable to its making or maintaining of any Fixed Rate Loans or its obligation to make any Fixed Rate Loans hereunder, or any reduction in any amount receivable by such Bank hereunder in respect of any of such Loans or such obligation (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), resulting from any Regulatory Change which: (i) changes the basis of taxation of any amounts payable to such Bank under this Agreement or its Notes in respect of any of such Loans (other than taxes imposed on or measured by the overall net income of such Bank or of its Applicable Lending Office for any of such Loans by the jurisdiction in which such Bank has its principal office or such Applicable Lending Office); or (ii) imposes or modifies any reserve, special deposit or similar requirements (other than the Reserve Requirement utilized in the determination of the Fixed Rate or LIBO Rate for such Loan) relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Bank (including any of such Loans or any deposits referred to in the definition of "Fixed Base Rate" in Section 1.01 hereof), or any commitment of such Bank (including the Commitment of such Bank hereunder); or (iii) imposes any other condition affecting this Agreement or its Note (or any of such extensions of credit or liabilities) or Commitment. If any Bank requests compensation from the Company under this Section 5.01(a), the Company may, by notice to such Bank (with a copy to the Agent), suspend the obligation of such Bank to make additional Loans of the type with respect to which such compensation is requested until the Regulatory Change giving rise to such request ceases to be in effect (in which case the provisions of Section 5.04 hereof shall be applicable). (b) Without limiting the effect of the provisions of Section 5.01(a) hereof, in the event that, by reason of any Regulatory Change, any Bank either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Bank which includes deposits by reference to which the interest rate on Eurodollar Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of such Bank which includes Eurodollar Loans or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets which it may hold, then, if such Bank so elects by notice to the Company (with a copy to the Agent), the obligation of such Bank to make additional Loans of such type hereunder shall be suspended until such Regulatory Change ceases to be in effect (in which case the provisions of Section 5.04 hereof shall be applicable). (c) Without limiting the effect of the foregoing provisions of this Section 5.01 (but without duplication), the Company shall pay directly to each Bank from time to time on request such amounts as such Bank may determine to be necessary to compensate such Bank for any costs which it determines are attributable to the maintenance by such Bank (or any Applicable Lending Office), pursuant to any law or regulation or any interpretation, directive or request (whether or not having the force of law) of any court or governmental or monetary authority following any Regulatory Change, or pursuant to any risk-based capital guideline or other requirement (whether or not having the force of law and whether or not the failure to comply therewith would be unlawful) heretofore or hereafter issued by any government or governmental or supervisory authority, including any implementing at the national level the Basle Accord (including without limitation, the Final Risk-Based Capital Guidelines of the Board of Governors of the Federal Reserve System (12 CFR Part 208, Appendix A; 12 CFR Part 225, Appendix A) and the Final Risk-Based Capital Guidelines of the Office of the Comptroller of the Currency (12 CFR Part 3, Appendix A), of capital in respect of its Commitment or Loans (such compensation to include, without limitation, an amount equal to any reduction of the rate of return on assets or equity of such Bank (or any Applicable Lending Office) to a level below that which such Bank (or any Applicable Lending Office) could have achieved but for such law, regulation, interpretation, directive or request). For the purposes of this Section 5.01(c), "Basle Accord" shall mean the proposals for a risk-based capital framework described by the Basle Committee on Banking Regulations and Supervisory Practices in its paper entitled "International Convergence of Capital Measurement and Capital Standards" dated July 1988, as amended, modified and supplemented and in effect from time to time. (d) Each Bank will notify the Company of any event occurring after the date of this Agreement that will entitle such Bank to compensation under paragraph (a) or (c) of this Section 5.01 as promptly as practicable, but in any event within 45 days, after such Bank obtains actual knowledge thereof; provided, however, that if any Bank fails to give such notice within 45 days after it obtains actual knowledge of such an event, such Bank shall, with respect to compensation payable pursuant to this Section 5.01 in respect of any costs resulting from such event, only be entitled to payment under this Section 5.01 for costs incurred from and after the date 45 days prior to the date that such Bank does give such notice; and provided, further, that each Bank will designate a different Applicable Lending Office for the Loans of such Bank affected by such event if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole opinion of such Bank, be disadvantageous to such Bank, except that such Bank shall have no obligation to designate an Applicable Lending Office located in the United States of America. Each Bank will furnish to the Company a certificate setting forth the basis and amount of each request by such Bank for compensation under paragraph (a) or (c) of this Section 5.01. Determinations and allocations by any Bank for purposes of this Section 5.01(a) or (b) hereof, or of the effect of capital maintained pursuant to Section 5.01(c) hereof, on its costs or rate of return of maintaining Loans or its obligation to make Loans, or on amounts receivable by it in respect of Loans, and of the amounts required to compensate such Bank under this Section 5.01, shall be conclusive, provided that such determinations and allocations are made on a reasonable basis. 5.02 Limitation on Types of Loans. Anything herein to the contrary notwithstanding, if, on or prior to the determination of any Fixed Base Rate for any Interest Period: (a) the Agent determines (which determination shall be conclusive) that quotations of interest rates for the relevant deposits referred to in the definition of "Fixed Base Rate" in Section 1.01 hereof are not being provided in the relevant amounts or for the relevant maturities for purposes of determining rates of interest for any type of Fixed Rate Loans as provided herein; or (b) the Majority Banks determine (or any Bank that has outstanding a Money Market Quote with respect to a LIBOR Market Loan determines), which determination shall be conclusive, and notify (or notifies, as the case may be) the Agent that the relevant rates of interest referred to in the definition of "Fixed Base Rate" in Section 1.01 hereof upon the basis of which the rate of interest for Eurodollar Loans (or LIBOR Market Loans, as the case may be) for such Interest Period is to be determined are not likely adequate to cover the cost to such Banks (or to such quoting Bank) of making or maintaining such type of Loans; then the Agent shall give the Company and each Bank prompt notice thereof, and so long as such condition remains in effect, the Banks (or such quoting Bank) shall be under no obligation to make additional Loans of such type. 5.03 Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Bank or its Applicable Lending Office to honor its obligation to make or maintain Eurodollar Loans or LIBOR Market Loans hereunder, then such Bank shall promptly notify the Company thereof (with a copy to the Agent) and such Bank's obligation to make Eurodollar Loans shall be suspended until such time as such Bank may again make and maintain Eurodollar Loans (in which case the provisions of Section 5.04 hereof shall be applicable), and such Bank shall no longer be obligated to make any LIBOR Market Loan that it has offered to make. 5.04 Treatment of Affected Loans. If the obligation of any Bank to make either type of Fixed Rate Loans shall be suspended pursuant to Section 5.01 or 5.03 hereof (Loans of such type being herein called "Affected Loans" and such type being herein called the "Affected Type"), all Loans (other than Money Market Loans) which would otherwise be made by such Bank as Loans of the Affected Type shall be made instead as Base Rate Loans and, if an event referred to in Section 5.01(b) or 5.03 hereof has occurred and such Bank so requests by notice to the Company with a copy to the Agent, all Affected Loans of such Bank then outstanding shall be automatically converted into Base Rate Loans on the date specified by such Bank in such notice and, to the extent that Affected Loans are so made (or converted), all payments of principal which would otherwise be applied to such Bank's Affected Loans shall be applied instead to such Loans. 5.05 Compensation. The Company shall pay to the Agent for account of each Bank, upon the request of such Bank through the Agent, such amount or amounts as shall be sufficient (in the reasonable opinion of such Bank) to compensate it for any loss, cost or expense which such Bank determines is attributable to: (a) any payment or conversion of a Fixed Rate Loan or a Set Rate Loan made by such Bank for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 10 hereof) on a date other than the last day of the Interest Period for such Loan; or (b) any failure by the Company for any reason (including, without limitation, the failure of any of the conditions precedent specified in Section 7 hereof to be satisfied) to borrow a Fixed Rate Loan or a Set Rate Loan (with respect to which, in the case of a Money Market Loan, the Company has accepted a Money Market Quote) from such Bank on the date for such borrowing specified in the relevant notice of borrowing given pursuant to Section 2.02 or 2.03(b) hereof. Without limiting the effect of the preceding sentence, such compensation shall include an amount equal to the excess, if any, of (i) the amount of interest which otherwise would have accrued on the principal amount so paid or converted or not borrowed for the period from the date of such payment, conversion or failure to borrow to the last day of the Interest Period for such Loan (or, in the case of a failure to borrow, the Interest Period for such Loan which would have commenced on the date specified for such borrowing) at the applicable rate of interest for such Loan provided for herein over (ii) the interest component of the amount such Bank would have bid in the London interbank market (if such Loan is a Eurodollar Loan or a LIBOR Market Loan) or the United States secondary certificate of deposit market (if such Loan is a Set Rate Loan) for Dollar deposits of leading banks in amounts comparable to such principal amount and with maturities comparable to such period (as reasonably determined by such Bank). Section 6. Guarantee. 6.01 Guarantee. Each Guarantor hereby jointly and severally guarantees to each Bank and the Agent and their respective successors and assigns the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the principal of and interest on the Loans made by the Banks to, and the Note held by each Bank of, the Company and all other amounts from time to time owing to the Banks or the Agent by the Company under this Agreement and under the Notes, in each case strictly in accordance with the terms hereof and thereof (such obligations being herein collectively called the "Guaranteed Obligations"). Each Guarantor hereby further jointly and severally agrees that if the Company shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise) any of the Guaranteed Obligations, such Guarantor will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal. 6.02 Obligations Unconditional. The obligations of each Guarantor under Section 6.01 hereof are absolute and unconditional, joint and several, irrespective of the value, genuineness, validity, regularity or enforceability of the obligations of the Company under this Agreement, the Notes or any other agreement or instrument referred to herein or therein, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 6.02 that the obligations of each Guarantor hereunder shall be absolute and unconditional, joint and several, under any and all circumstances. Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not affect the liability of any Guarantor hereunder: (i) at any time or from time to time, without notice to such Guarantor, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived; (ii) any of the acts mentioned in any of the provisions of this Agreement or the Notes or any other agreement or instrument referred to herein or therein shall be done or omitted; (iii) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be modified, supplemented or amended in this respect, or any right under this Agreement or the Notes or any other agreement or instrument referred to herein or therein shall be waived or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with; or (iv) any lien or security interest granted to, or in favor of, the Agent or any Bank or Banks as security for any of the Guaranteed Obligations shall fail to be perfected. Each Guarantor hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Agent or any Bank exhaust any right, power or remedy or proceed against the Company under this Agreement or the Notes or any other agreement or instrument referred to herein or therein, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations. 6.03 Reinstatement. The obligations of each Guarantor under this Section 6 shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of the Company in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise and the Guarantors jointly and severally agree that they will indemnify the Agent and each Bank on demand for all reasonable costs and expenses (including, without limitation, fees of counsel) incurred by the Agent or such Bank in connection with such rescission or restoration. 6.04 Subrogation. The Guarantors hereby agree that until the payment and satisfaction in full of all Guaranteed Obligations and the expiration and termination of the Commitments of the Banks under this Agreement they shall not exercise any right or remedy arising by reason of any performance by them of their guarantee in Section 6.01 hereof, whether by subrogation or otherwise, against the Company or any other guarantor of any of the Guaranteed Obligations or any security for any of the Guaranteed Obligations. 6.05 Remedies. The Guarantors jointly and severally agree that, as between the Guarantors and the Banks, the obligations of the Company under this Agreement and the Notes may be declared to be forthwith due and payable as provided in Section 10 hereof (and shall be deemed to have become automatically due and payable in the circumstances provided in said Section 10) for purposes of Section 6.01 hereof notwithstanding any stay, injunction or other prohibition preventing such declaration (or such obligations from becoming automatically due and payable) as against the Company and that, in the event of such declaration (or such obligations being deemed to have become automatically due and payable), such obligations (whether or not due and payable by the Company) shall forthwith become due and payable by such Guarantor for purposes of said Section 6.01. Section 6.06 Continuing Guarantee. The guarantee in this Section 6 is a continuing guarantee, and shall apply to all Guaranteed Obligations whenever arising. Section 6.07 Rights of Contribution. The Guarantors hereby agree, as between themselves, that if any Guarantor (an "Excess Funding Guarantor") shall pay Guaranteed Obligations in excess of the Excess Funding Guarantor's Pro Rata Share (as hereinafter defined) of such Guaranteed Obligations, the other Guarantors shall, on demand (but subject to the next sentence hereof), pay to the Excess Funding Guarantor an amount equal to their respective relative Pro Rata Shares of such Excess Funding Guarantor's payment. The payment obligation of any Guarantor to any Excess Funding Guarantor under this Section 6.07 shall be subordinate and subject in right of payment to the prior payment in full of the obligations of such Guarantor under the other provisions of this Section 6 and such Excess Funding Guarantor shall not exercise any right or remedy with respect to such excess until payment and satisfaction in full of all of such obligations. For the purposes hereof, "Pro Rata Share" shall mean, for any Guarantor, a percentage equal to the percentage that such Guarantor's Tangible Net Worth as at January 28, 1995 is of the aggregate Tangible Net Worth of all of the Guarantors as at such date. Section 7. Conditions Precedent. 7.01 Conditions to Effectiveness. The effectiveness of this Agreement is subject to the receipt by the Agent of the following documents, each of which shall be satisfactory to the Agent in form and substance: (a) Corporate Action. A certificate of each Obligor dated the Closing Date attesting to all corporate action taken by each Obligor approving this Agreement and, in the case of the Company, the Notes and borrowings hereunder (including, without limitation, a certificate setting forth the resolutions of the Board of Directors of each Obligor adopted in respect of the transactions contemplated hereby). (b) Incumbency. A certificate of each Obligor dated the Closing Date in respect of each of the officers (i) who is authorized to sign on its behalf this Agreement or the Notes, as the case may be, and (ii) who will, until replaced by another officer or officers duly authorized for that purpose, act as its representative for the purposes of signing documents and giving notices and other communications in connection with this Agreement and the transactions contemplated hereby (and the Agent and each Bank may conclusively rely on such certificate until it receives notice in writing from the Company to the contrary). (c) Officer's Certificate. A certificate of a senior officer of the Company to the effect set forth in the first sentence of Section 7.02 hereof. (d) Opinion of Counsel to the Obligors. An opinion of Willkie Farr & Gallagher, counsel to the Obligors, substantially in the form of Exhibit B hereto. (e) Notes. The Notes, duly completed and executed. (f) Other Documents. Such other documents relating to the transactions contemplated hereby as the Agent or any Bank or special New York counsel to the Banks may reasonably request. 7.02 Initial and Subsequent Loans. The obligation of any Bank to make any Loan (including any Money Market Loan and such Bank's initial Syndicated Loan) to the Company upon the occasion of each borrowing hereunder is subject to the further conditions precedent that, both immediately prior to such Loan and also after giving effect thereto: (a) no Event of Default and, if such borrowing is a Money Market Loan or will increase the outstanding principal amount of the Syndicated Loans, no Default shall have occurred and be continuing; and (b) the representations and warranties made by the Company in Section 8 hereof (other than, if such borrowing is not a Money Market Loan and will not increase the outstanding amount of the Syndicated Loans, the last sentence of Section 8.02 hereof and Section 8.03 hereof) shall be true and correct in all material respects on and as of the date of the making of such Loan with the same force and effect as if made on and as of such date. Each notice of borrowing by the Company hereunder shall constitute a certification by the Company to the effect set forth in the preceding sentence (both as of the date of such notice and, unless the Company otherwise notifies the Agent prior to the date of such borrowing, as of the date of such borrowing). Section 8. Representations and Warranties. The Company represents and warrants to the Banks that: 8.01 Corporate Existence. Each of the Company and its Subsidiaries: (a) is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorporation; (b) has all requisite corporate power, and has all material governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify would have a material adverse effect on the consolidated financial condition, operations, business or prospects taken as a whole of the Company and its Consolidated Subsidiaries. 8.02 Financial Condition. The consolidated balance sheet of the Company and its Consolidated Subsidiaries as at January 28, 1995 and the related consolidated statements of income, stockholders' equity and cash flows of the Company and its Consolidated Subsidiaries for the fiscal year ended on said date, with the opinion thereon of Deloitte & Touche LLP., heretofore furnished to each of the Banks, are complete and correct and fairly present the consolidated financial condition of the Company and its Consolidated Subsidiaries as at said date and the consolidated results of their operations for the fiscal year ended on said date, all in accordance with generally accepted accounting principles and practices applied on a consistent basis. Neither the Company nor any of its Subsidiaries had on said date any material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in said balance sheet as at said date. Since January 28, 1995, there has been no material adverse change in the consolidated financial condition, operations, business or prospects taken as a whole of the Company and its Consolidated Subsidiaries from that set forth in said financial statements as at said date. 8.03 Litigation. Except as disclosed to the Banks in writing prior to the date of this Agreement, there are no legal or arbitral proceedings or any proceedings by or before any governmental or regulatory authority or agency, now pending or (to the knowledge of the Company) threatened against the Company or any of its Subsidiaries which, if adversely determined, could reasonably be expected to have a material adverse effect on the consolidated financial condition, operations, business or prospects taken as a whole of the Company and its Consolidated Subsidiaries. 8.04 No Breach. None of the execution and delivery of this Agreement and the Notes, the consummation of the transactions herein contemplated and compliance with the terms and provisions hereof will conflict with or result in a breach of, or require any consent under, the charter or by-laws of any Obligor, or any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any agreement or instrument to which any Obligor is a party or by which any of them is bound or to which any of them is subject, or constitute a default under any such agreement or instrument, or result in the creation or imposition of any Lien upon any of the revenues or assets of any of them pursuant to the terms of any such agreement or instrument, except in each case for such conflicts, breaches, consents, defaults or Liens which would not have a material adverse effect on the consolidated financial condition, operations, business or prospects taken as a whole of the Company and its Consolidated Subsidiaries. 8.05 Corporate Action. Each Obligor has all necessary corporate power and authority to execute, deliver and perform its obligations under this Agreement and, in the case of the Company, the Notes; the execution delivery and performance by each Obligor of this Agreement and, in the case of the Company, the Notes have been duly authorized by all necessary corporate action on its part; and this Agreement has been duly and validly executed and delivered by each Obligor and constitutes, and each of the Notes when executed and delivered for value by the Company will constitute, its legal, valid and binding obligation, enforceable against such Obligor in accordance with its terms. 8.06 Approvals. No authorizations, approvals or consents of, and no filings or registrations with, any governmental or regulatory authority or agency are necessary for the execution, deliver or performance by any Obligor of this Agreement or, in the case of the Company, the Notes or for the validity or enforceability thereof. 8.07 Use of Loans. Neither the Company nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying Margin Stock and no part of the proceeds of any Loan hereunder will be used to buy or carry any margin Stock. 8.08 ERISA. The Company and the ERISA Affiliates have fulfilled their respective obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and are in compliance in all material respects with the presently applicable provisions of ERISA and the Code, and have not incurred any liability to the PBGC or any Plan or Multiemployer Plan (other than to make contributions in the ordinary course of business). 8.09 Taxes. United States Federal income tax returns of the Company and its Subsidiaries have been closed through the fiscal year of the Company ended February 2, 1991. The Company and its Subsidiaries have filed all United States Federal income tax returns and all other material tax returns which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Company or any of its Subsidiaries, except for taxes contested in good faith by appropriate proceedings. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of taxes and other governmental charges are, in the opinion of the Company, adequate. 8.10 Investment Company Act. The Company is not an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 8.11 Credit Agreements and Liens. Schedule I hereto is a complete and correct list, as of the date of this Agreement, of each credit agreement, loan agreement, indenture, purchase agreement, guarantee or other arrangement providing for or otherwise relating to any Indebtedness or any extension of credit (or commitment for any extension of credit) to, or guarantee by, the Company or any of its Subsidiaries the aggregate principal or face amount of which equals or exceeds (or may equal or exceed) $500,000 and (i) the aggregate principal or face amount outstanding or which may become outstanding under each such arrangement and (ii) the asset(s), if any, securing such Indebtedness or extensions of credit, is correctly described in said Schedule I. The aggregate carrying value (computed in accordance with GAAP) of the assets of the Company and its Subsidiaries subject to a Lien on the date hereof does not exceed $25,000,000. 8.12 Subsidiaries. Set forth in Schedule II hereto is a complete and correct list, as of the date of this Agreement, of all Subsidiaries of the Company (and this respective jurisdiction or incorporation of each such Subsidiary) and the percentage of ownership by the Company (or any Subsidiary thereof) of each of the same. Except as disclosed in said Schedule II, the Company owns, free and clear of Liens, all outstanding shares of such Subsidiaries (and each such Subsidiary owns, free and clear of Liens, all outstanding shares of its Subsidiaries) and all such shares are validly issued, fully paid and non-assessable. Each Subsidiary of the Company is a Guarantor. Section 9. Covenants of the Company. The Company agrees that, so long as any of the Commitments are in effect and until payment in full of all Loans hereunder, all interest thereon and all other amounts payable by the Company hereunder: 9.01 Financial Statements. The Company shall deliver to each of the Banks: (a) as soon as available and in any event within 60 days after the end of each of the first three quarterly fiscal periods of each fiscal year of the Company, consolidated statements of income, stockholders' equity and cash flows of the Company and its Consolidated Subsidiaries for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related consolidated balance as at the end of such period, setting forth in comparative form the corresponding consolidated figures for the corresponding period in the preceding fiscal year, accompanied by a certificate of a senior financial officer of the Company, which certificate shall state that said financial statements fairly present the consolidated financial condition and results of operations of the Company and its Consolidated Subsidiaries in accordance with generally accepted accounting principles, consistently applied, as at the end of, and for, such period (subject to normal year-end audit adjustments); (b) as soon as available and in any event within 120 days after the end of each fiscal year of the Company, consolidated statements of income, stockholders' equity and cash flows of the Company and its Consolidated Subsidiaries for such year and the related consolidated balance sheet as at the end of such year, setting forth in comparative form the corresponding consolidated figures for the preceding fiscal year, and accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of the Company and its Consolidated Subsidiaries as at the end of, and for, such fiscal year, and a certificate of such accountants stating that, in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, of any Default; (c) promptly upon their becoming publicly available, copies of all registration statements and regular periodic reports, if any, which the Company shall have filed with the Securities and Exchange Commission (or any governmental agency substituted therefor) or any national securities exchange; (d) promptly upon the mailing thereof to the shareholders of the Company generally, copies of all financial statements, reports and proxy statements so mailed; (e) as soon as possible, and in any event within ten days after the Company knows or has reason to know that any of the events or conditions specified below with respect to any Plan or Multiemployer Plan have occurred or exist, a statement signed by a senior financial officer of the Company setting forth details respecting such event or condition and the action, if any, which the Company or its ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given to PBGC by the Company or an ERISA Affiliate with respect to such event or condition): (i) any reportable event, as defined in Section 4043(b) of ERISA and the regulations issued thereunder, with respect to a Plan, as to which PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event (provided that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA shall be a reportable event regardless of the issuance of any waivers in accordance with Section 412(d) of the Code); (ii) the filing under Section 4041 of ERISA of a notice of intent to terminate any Plan or the termination of any Plan; (iii) the institution by PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan; (iv) the complete or partial withdrawal by the Company or any ERISA Affiliate under Section 4201 or 4204 of ERISA from a Multiemployer Plan, or the receipt by the Company or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA; and (v) the institution of a proceeding by a fiduciary of any Multiemployer Plan against the Company or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed within 30 days; (f) promptly after the Company knows or has reason to know that any Default has occurred, a notice of such Default describing the same in reasonable detail and, together with such notice or as soon thereafter as possible, a description of the action that the Company has taken and proposes to take with respect thereto; and (g) from time to time such other information regarding the business, affairs or financial condition of the Company or any of its Subsidiaries (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA) as any Bank or the Agent may reasonably request. The Company will furnish to each Bank, at the time it furnishes each set of financial statements pursuant to paragraph (a) or (b) above, a certificate of a senior financial officer of the Company (i) to the effect that no Default has occurred and is continuing (or, if any Default has occurred and is continuing, describing the same in reasonable detail and describing the action that the Company has taken and proposes to take with respect thereto) and (ii) setting forth in reasonable detail the computations necessary to determine whether the Company is in compliance with Sections 9.07 through and including 9.10 hereof as of the end of the respective quarterly fiscal periods or fiscal year. 9.02 Litigation. The Company will promptly give to each Bank notice of all legal or arbitral proceedings, and of all proceedings by or before any governmental or regulatory authority or agency, and any material development in respect of such legal or other proceedings, affecting the Company or any of its Subsidiaries, except proceedings which, if adversely determined, would not have a material adverse effect on the consolidated financial condition, operations, business or prospects taken as a whole of the Company and its Consolidated Subsidiaries. 9.03 Corporate Existence, Etc. The Company will, and will cause each of its Subsidiaries to: preserve and maintain its corporate existence and all of its material rights, privileges and franchises (provided that nothing in this Section 9.03 shall prohibit any transaction expressly permitted under Section 9.05 hereof); comply with the requirements of all applicable laws, rules, regulations and orders of governmental or regulatory authorities if failure to comply with such requirements would materially and adversely affect the consolidated financial condition, operations, business or prospects taken as a whole of the Company and its Consolidated Subsidiaries; pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained; maintain all of its properties used or useful in its business in good working order and condition, ordinary wear and tear excepted; and permit representatives of any Bank or the Agent, subject to at least two Business Days' advance notice (which notice shall not be required at any time a Default shall be continuing) and during normal business hours, to examine, copy and make extracts from its books and records, to inspect its properties, and to discuss its business and affairs with its officers, all to the extent reasonably requested by such Bank or the Agent (as the case may be). 9.04 Insurance. The Company will, and will cause each of its Subsidiaries to, keep insured by financially sound and reputable insurers all property of a character usually insured by corporations engaged in the same or similar business similarly situated against loss or damage of the kinds and in the amounts customarily insured against by such corporations and carry such other insurance as is usually carried by such corporations; provided that the Company and any of its Subsidiaries may self-insure to the extent determined by management to be consistent with prudent business practice. 9.05 Prohibition of Fundamental Changes. The Company will not, nor will it permit any of its Subsidiaries to, enter into any transaction of merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution). The Company will not, and will not permit any of its Subsidiaries to, make any Acquisition (in one transaction or a series of related transactions) in excess of $50,000,000. The Company will not, and will not permit any of its Subsidiaries to, convey, sell, lease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or a substantial part of its business or assets, whether now owned or hereafter acquired (including, without limitation, receivables and leasehold interests, but excluding (i) any inventory or other assets (including real property) sold or disposed of in the ordinary course of business and (ii) obsolete or worn-out property, tools or equipment no longer used or useful in its business). Notwithstanding the foregoing provisions of this Section 9.05: (a) any Subsidiary of the Company may be merged or consolidated with or into: (i) the Company if the Company shall be the continuing or surviving corporation or (ii) any other such Subsidiary; provided that if any such transaction shall be between a Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall be the continuing or surviving corporation; and (b) any such Subsidiary may sell, lease, transfer or otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Company or a Wholly-Owned Subsidiary of the Company. 9.06 Limitation on Liens. The Company will not, nor will it permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except: (a) Liens imposed by any governmental authority for taxes, assessments or charges not yet due or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Company or any of its Subsidiaries, as the case may be, in accordance with GAAP; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceedings; (c) pledges or deposits under worker's compensation, unemployment insurance and other social security legislation; (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) Liens on assets of corporations which become Subsidiaries of the Company after the date of this Agreement, provided that such Liens are in existence at the time the respective corporations become Subsidiaries of the Company and were not created in anticipation thereof; (f) Liens upon real property, fixtures and equipment (excluding equipment that constitutes inventory) acquired after the date hereof (by purchase, construction or otherwise) by the Company or any of its Subsidiaries; (g) Liens upon the assets of the Company and its Subsidiaries in existence on the date hereof; and (h) any extension, renewal or replacement of the foregoing, provided, however, that the Liens permitted hereunder shall not be spread to cover any additional Indebtedness or property (other than a substitution of like property). 9.07 Leverage Ratio. The Company will not permit the Leverage Ratio to exceed 1.5 to 1.0. 9.08 Tangible Net Worth. The Company will not permit its Tangible Net Worth to be on any date of determination thereof less than the sum of (x) $520,000,000 plus (y) 25% of the aggregate amount of Net Earnings for each quarterly period occurring during the period commencing January 29,1 995 and ending on the date that is the last day of the Company's fiscal quarter next preceding such date of determination. 9.09 Current Ratio. The Company will not permit the ratio of consolidated current assets of the Company and its Consolidated Subsidiaries to consolidated current liabilities of the Company and its Consolidated Subsidiaries to be at any time less than 1 to 1. For purposes hereof, the terms "current assets" and "current liabilities" shall have the respective meanings assigned to them by GAAP. 9.10 NOP/Interest Charges Ratio. The Company will not at any time permit the NOP/Interest Charges Ratio to be less than 2.5 to 1.0. 9.11 Lines of Business. Neither the Company nor any of its Subsidiaries shall engage in any substantial extent in any line or lines of business activity other than the business of owning and operating retail stores. 9.12 Use of Proceeds. The Company will use the proceeds of the Loans hereunder solely to refinance certain of the Indebtedness described in Schedule I hereof and to finance the expansion of the Company's stores and for general working capital purposes (in compliance with all applicable legal and regulatory requirements); provided, that neither the Agent nor any Bank shall have any responsibility as to the use of any of such proceeds. 9.13 Additional Guarantors. The Company will take such action, and will cause each of its Subsidiaries to take such action, from time to time as shall be necessary to ensure that all such Subsidiaries are Guarantors and, thereby, "Obligors" hereunder. Without limiting the generality of the foregoing, in the event that the Company or any of its Subsidiaries shall form any new Subsidiary, which is a "Material Subsidiary" (as defined below), after the date hereof, the Company or the respective Subsidiary will cause such new Subsidiary to become a "Guarantor" (and, thereby, an "Obligor") hereunder pursuant to a written instrument in form and substance satisfactory to each Bank and the Agent, and to deliver such proof of corporate action, incumbency of officers, opinions of counsel and other documents as is comparable to those delivered by each Obligor pursuant to Section 7.01 hereof upon the making of the initial Loan hereunder or as any Bank or the Agent shall have reasonably requested. For the purposes of this Section 9.13, "Material Subsidiary" shall mean any Subsidiary of the Company (a) whose assets equal 10% or more of the total assets of the Company and its consolidated Subsidiaries, or (b) whose revenues equal 10% or more of the total revenues of the Company and its consolidated Subsidiaries; in each case, as of the end of the most recently completed fiscal year of the Company. Section 10. Events of Default. If one or more of the following events (herein called "Events of Default") shall occur and be continuing: (a) The Company shall default in the payment when due of any principal of any Loan; or the Company shall default in the payment when due of any interest or any other amount payable by it hereunder and such default shall continue for a period of two Business Days; or (b) The Company or any of its Subsidiaries shall default in the payment when due of any principal of or interest on any of its other Indebtedness aggregating $5,000,000 or more; or any event specified in any note, agreement, indenture or other document evidencing or relating to any such Indebtedness shall occur if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, such Indebtedness to become due, or to be required to be prepaid in full (whether by redemption, purchase or otherwise), prior to its stated maturity; or (c) Any representation, warranty or certification made or deemed made herein (or in any modification or supplement hereto) by the Company, or any certificate furnished to any Bank or the Agent pursuant to the provisions hereof (or thereof), shall prove to have been false or misleading as of the time made or furnished in any material respect; or (d) The Company shall default in the performance of any of its obligations under Section 9.01(f), or any of Sections 9.03 through and including 9.12 hereof; or the Company shall default in the performance of any of its other obligations in this Agreement and such default shall continue unremedied for a period of thirty days after notice thereof to the Company by the Agent or any Bank (through the Agent); or (e) The Company or any of its Subsidiaries shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due; or (f) The Company or any of its Subsidiaries shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Bankruptcy Code (as now or hereafter in effect), (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Bankruptcy Code, or (vi) take any corporation action for the purpose of effecting any of the foregoing; or (g) A proceeding or case shall be commenced, without the application or consent of the Company or any of its Subsidiaries, in any court of competent jurisdiction, seeking (i) its liquidation, reorganization, dissolution or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of the Company or such Subsidiary or of all or any substantial part of its assets, or (iii) similar relief in respect of the Company or such Subsidiary under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 or more days; or an order for relief against the Company or such Subsidiary shall be entered in an involuntary case under the Bankruptcy Code; or (h) A final judgment or judgments for the payment of money in excess of $1,000,000 in the aggregate shall be rendered by a court or courts against the Company and/or any of its Subsidiaries and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof and the Company or the relevant Subsidiary shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; or (i) An event or condition specified in Section 9.01(e) hereof shall occur or exist with respect to any Plan or Multiemployer Plan and, as a result of such event or condition, together with all other such events or conditions, the Company or any ERISA Affiliate shall incur or in the opinion of the Majority Bank shall be reasonably likely to incur a liability to a Plan, a Multiemployer Plan or PBGC (or any combination of the foregoing) which is, in the determination of the Majority Banks, material in relation to the consolidated financial condition, operations, business or prospects taken as a whole of the Company and its Consolidated Subsidiaries; or (j) During any period of 12 consecutive calendar months, individuals who were directors of the Company on the first day of such period shall no longer (other than by reason of death) constitute a majority of the board of directors of the Company; THEREUPON: (i) in the case of an Event of Default other than one referred to in clause (f) or (g) of this Section 10 with respect to the Company, the Agent may and, upon request of the Majority Banks, shall, by notice to the Company, cancel the Commitments and/or declare the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Company hereunder and under the Notes (including, without limitation, any amounts payable under Section 5.05 hereof) to be forthwith due and payable, whereupon such amounts shall be immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Company; and (ii) in the case of the occurrence of an Event of Default referred to in clause (f) or (g) of this Section 10 with respect to the Company, the Commitments shall automatically be canceled and the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Company hereunder and under the Notes (including, without limitation, any amounts payable under Section 5.05 hereof) shall automatically become immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Company. Section 11. The Agent. 11.01 Appointment, Powers and Immunities. Each Bank hereby irrevocably appoints and authorizes the Agent to act as its agent hereunder with such powers as are specifically delegated to the Agent by the terms of this Agreement, together with such other powers as are reasonably incidental thereto. The Agent (which term as used in this sentence and in Section 11.05 and the first sentence of Section 11.06 hereof shall include reference to its affiliates and its own and its affiliates' officers, directors, employees and agents): (a) shall have no duties or responsibilities except those expressly set forth in this Agreement, and shall not by reason of this Agreement be a trustee for any Bank; (b) shall not be responsible to the Banks for any recitals, statements, representations or warranties contained in this Agreement, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, any Note or any other document referred to or provided for herein or for any failure by the Company or any other Person to perform any of its obligations hereunder or thereunder; (c) except as otherwise expressly set forth herein, shall not be required to initiate or conduct any litigation or collection proceedings hereunder; and (d) shall not be responsible for any action taken or omitted to be taken by it hereunder or under any other document or instrument referred to or provided for herein or in connection herewith, except for its own gross negligence or willful misconduct. The Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. The Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof shall have been filed with the Agent, together with the written consent of the Company to such assignment or transfer. 11.02 Reliance by Agent. The Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telex, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Agent. As to any matters not expressly provided for by this Agreement, the Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder in accordance with instructions signed by the Majority Banks, and such instructions of the Majority Banks and any action taken or failure to act pursuant thereto shall be binding on all of the Banks. 11.03 Defaults. The Agent shall not be deemed to have knowledge or notice of the occurrence of a Default (other than the non-payment of principal of or interest on Loans or of commitment fees) unless the Agent has received notice from a Bank or the Company specifying such Default and stating that such notice is a "Notice of Default". In the event that the Agent receives such a notice of the occurrence of a Default, the Agent shall give prompt notice thereof to the Bank (and shall give each Bank prompt notice of each such non-payment). The Agent shall (subject to Section 11.07 hereof) take such action with respect to such Default as shall be directed by the Majority Banks, provided that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interest of the Banks. 11.04 Rights as a Bank. With respect to its Commitment and the Loans made by it, Chase (and any successor acting as Agent) in its capacity as a Bank hereunder shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not acting as the Agent, and the term "Bank" or "Banks" shall, unless the context otherwise indicates, include the Agent in its individual capacity. Chase (and any successor acting as Agent) and its affiliates may (without having to account therefor to any Bank) accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with the Company (and any of its Subsidiaries or Affiliates) as if it were not acting as the Agent, and Chase and its Subsidiaries or Affiliates may accept fees and other consideration from the Company for services in connection with this Agreement or otherwise without having to account for the same to the Banks. 11.05 Indemnification. The Banks agree to indemnify the Agent (to the extent not reimbursed under Section 12.03 hereof, but without limiting the obligations of the Company under said Section 12.03), ratably in accordance with their respective Commitments, for any and all liabilities obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement or any other documents contemplated by or referred to herein or the transactions contemplated hereby (including, without limitation, the costs and expenses which the Company is obligated to pay under Section 12.03 hereof but excluding, unless a Default has occurred and is continuing, normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or of any such other documents, provided that no Bank shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the party to be indemnified. 11.06 Non-Reliance on Agent and other Banks. Each Bank agrees that it has, independently and without reliance on the Agent or other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Company and its Subsidiaries and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement. The Agent shall not be required to keep itself informed as to the performance or observance by the Company of this Agreement or any other document referred to or provided for herein or to inspect the properties or books of the Company or any of its Subsidiaries. Except for notices, reports and other documents and information expressly required to be furnished to the Banks by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the affairs, financial condition or business of the Company or any of its Subsidiaries (or any of their affiliates) which may come into the possession of the Agent or any of its affiliates. 11.07 Failure to Act. Except for action expressly required of the Agent hereunder, the Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall receive further assurances to its satisfaction from the Banks of their indemnification obligations under Section 11.05 hereof against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. 11.08 Resignation or Removal of Agent. Subject to the appointment and acceptance of a successor Agent as provided below, the Agent may resign at any time by giving notice thereof to the Banks and the Company, and the Agent may be removed at any time without cause by the Majority Banks. Upon any such resignation or removal, the Majority Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Majority Banks and shall have accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation or the Majority Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a bank with a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Section 11 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Agent. Section 12. Miscellaneous. 12.01 Waiver. No failure on the part of the Agent or any Bank to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement or any Note shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement or any Note preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. 12.02 Notices. All notices and other communications provided for herein (including, without limitation, any modifications of, or waivers or consents under, this Agreement) shall be given or made by telex, telecopy, telegraph, cable or in writing (or, with respect to notices given pursuant to Section 2.03 hereof, by telephone, confirmed in writing by telex by the close of business on the day the notice is given) and telexed, telecopied, telegraphed, cabled, mailed or delivered (or telephoned, as the case may be) to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof; or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telex or telecopier, delivered to the telegraph or cable office of personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. 12.03 Expenses, Etc. The Company agrees to pay or reimburse each of the Banks and the Agent for paying: (a) all reasonable out-of-pocket costs and expenses for the Agent (including, without limitation, the reasonable fees and expenses of external counsel to the Agent and costs allocated by the Agent's internal legal department (which, for the purposes of this Section 12.03(a), shall constitute out-of-pocket expenses), in connection with (i) the negotiation, preparation, execution and delivery of this Agreement and the Notes and the making of the Loans hereunder and (ii) any amendment, modification or waiver of any of the terms of this Agreement or any of the Notes; (b) all reasonable costs and expenses of the Banks and the Agent (including reasonable counsels' fees and costs allocated by their respective internal legal departments) in connection with any Default and any enforcement or collection proceedings resulting therefrom; and (c) all transfer, stamp, documentary or other similar taxes, assessments or charges levied by any governmental or revenue authority in respect of this Agreement, any of the Notes or any other document referred to herein. 12.04 Amendments, Etc. Except as otherwise expressly provided in this Agreement, any provision of this Agreement may be amended or modified only by an instrument in writing signed by the Company, the Guarantors, the Agent and the Majority Banks, or by the Company, the Guarantors and the Agent acting with the consent of the Majority Banks, and any provision of this Agreement may be waived by the Majority Banks or by the Agent acting with the consent of the Majority Banks; provided that no amendment, modification or waiver shall, unless by an instrument signed by all of the Banks or by the Agent acting with the consent of all of the Banks: (i) increase or extend the term, or extend the time or waive any requirement for the reduction or termination, of the Commitments, (ii) extend any date fixed for the payment of principal of or interest on any Loan, (iii) reduce the amount of any payment of principal thereof or the rate at which interest is payable thereon or any fee is payable hereunder, (iv) alter the terms of this Section 12.04, (v) amend the definition of the term "Majority Banks", (vi) waive any of the conditions precedent set forth in Section 7 hereof or (vii) alter the form of Exhibit E hereto; and provided, further, that any amendment of Section 11 hereof, or which increases the obligations of the Agent hereunder, shall require the consent of the Agent. 12.05 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 12.06 Assignments and Participations. (a) The Company may not assign its rights or obligations hereunder or under the Notes without the prior consent of all of the Banks and the Agent. (b) Except as otherwise provided in Section 2.10(b) hereof, no Bank may assign any of its Loans, its Notes or its Commitment without the prior consent of the Company and the Agent; provided that: (i) without the consent of the Company or the Agent, any Bank may assign to another Bank all or (subject to the further clauses below) any portion of its Commitment; (ii) any such partial assignment shall be in multiples of $5,000,000; and (iii) such assigning Bank shall also simultaneously assign to such assignee Bank the same proportion of each of its Loans then outstanding (together with the same proportion of its Notes then outstanding). Upon written notice to the Company and the Agent of an assignment permitted by the preceding sentence (which notice shall identify the assignee Bank, the amount of the assigning Bank's Commitment and Loans assigned in detail reasonably satisfactory to the Agent) and upon the effectiveness of any assignment consented to by the Company and the Agent, the assignee shall have, to the extent of such assignment (unless otherwise provided in such assignment with the consent of the Company and the Agent), the obligations, rights and benefits of a Bank hereunder holding the Commitment and Loans (or portions thereof) assigned to it (in addition to the Commitment and Loans, if any, theretofore held by such assignee) and the assigning Bank shall, to the extent of such assignment, be released from the Commitment (or portions thereof) so assigned. (c) A Bank may sell or agree to sell to one or more other Persons a participation in all or any part of any Loan held by it or Loans made or to be made by it, in which event each such participant shall be entitled to the rights and benefits of the provisions of Section 9.01(g) hereof with respect to its participation in such Loan as if (and the Company shall be directly obligated to such participant under such provisions as if) such participant were a "Bank" for purposes of said Section, but shall not have any other rights or benefits under this Agreement or any Note (the participant's rights against such Bank in respect of such participation to be those set forth in the agreement (the "Participation Agreement") executed by such Bank in favor of the participant). All amounts payable by the Company to any Bank under Section 5 hereof shall be determined as if such Bank had not sold or agreed to sell any participations in such Loan and as if such Bank were funding all of such Loan in the same way that it is funding the portion of such Loan in which no participations have been sold. In no event shall a Bank that sells a participation be obligated to the participant under the Participation Agreement to take or refrain from taking any action hereunder or under such Bank's Note except that such Bank may agree in the Participation Agreement that it will not, without the consent of the participant, agree to (i) the increase or extension of the term, or the extension of the time or waiver of any requirement for the reduction or termination, of such Bank's Commitment, (ii) the extension of any date fixed for the payment of principal of or interest on the related Loan or Loans or any portion of any fees payable to the participant, (iii) the reduction of any payment of principal thereof, or (iv) the reduction of the rate at which either interest is payable thereon or (if the participant is entitled to any part thereof) commitment fee is payable hereunder to a level below the rate at which the participant is entitled to receive interest or commitment fee (as the case may be) in respect of such participation. (d) A Bank may furnish any information concerning the Company or any of its Subsidiaries in the possession of such Bank from time to time to assignee and participants (including prospective assignees and participants), subject, however, to the provisions of Section 12.11 hereof. (e) In addition to the assignments and participations permitted under this Section 12.06, any Bank may assign and pledge all or any portion of its Loans and Notes to (i) any affiliate of such Bank or (ii) any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Bank from its obligations hereunder. 12.07 Survival. The obligations of the Company under Section 5.01, 5.05 and 12.03 hereof shall survive the repayment of the Loans and the termination of the Commitments. 12.08 Captions. The table of contents and captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. 12.09 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. 12.10 Governing Law; Submission to Jurisdiction; Wavier of Jury Trial. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. EACH OBLIGOR HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OBLIGOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OBLIGOR, THE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 12.11 Confidentiality. Each Bank and the Agent agrees (on behalf of itself and each of its affiliates, directors, officers, employees and representatives) to use reasonable precautions to keep confidential, in accordance with their customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices, any non-public information supplied to it by the Company pursuant to this Agreement which is identified by the Company as being confidential at the time the same is delivered to the Banks or the Agent, provided that nothing herein shall limit the disclosure of any such information (i) to the extent required by statute, rule, regulation or judicial process, (ii) to counsel for any of the Banks or the Agent, (iii) to bank examiners, auditors or accountants, (iv) to the Agent or any other Bank (or an Affiliate of such Bank), (v) in connection with any litigation to which any one or more of the Banks is a party or (vi) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant (or prospective assignee or participant) first executes and delivers to the respective Bank a Confidentiality Agreement in substantially the form of Exhibit F hereto; and provided finally that in no event shall any Bank or the Agent be obligated or required to return any materials furnished by the Company. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. THE PEP BOYS - MANNY, MOE & JACK By /s/ Michael J. Holden ---------------------------------- Title: Senior Vice President and Chief Financial Officer Address for Notices: 3111 W. Allegheny Avenue Philadelphia, Pennsylvania 19132 Telecopier No.:(215) 227-8078 Telephone No.:(215) 227-9202 Attention:Michael J. Holden Senior Vice President and Chief Financial Officer With a copy to: Willkie Farr & Gallagher One Citicorp Center 153 East 53d Street New York, New York 10022-4677 Attention: Daniel D. Rubino, Esq. THE PEP BOYS - MANNY, MOE & JACK OF CALIFORNIA, as a Guarantor By /s/ Michael J. Holden ---------------------------------- Title: Senior Vice President and Chief Financial Officer Address for Notices: 1122 W. Washington Boulevard Los Angeles, California 90015 Telecopier No.:(215) 227-8078 Telephone No.:(215) 227-9202 Attention:Michael J. Holden Senior Vice President and Chief Financial Officer PBY CORPORATION, as a Guarantor By /s/ Michael J. Holden ---------------------------------- Title: Senior Vice President and Chief Financial Officer Address for Notices: 1105 North Market Street, Suite 1300 Wilmington, Delaware 19899 Telecopier No.: (215) 227-8078 Telephone No.: (215) 227-9202 Attention:Michael J. Holden Senior Vice President and Chief Financial Officer THE PEP BOYS - MANNY, MOE & JACK OF DELAWARE, INC., as a Guarantor By /s/ Michael J. Holden ---------------------------------- Title: Senior Vice President and Chief Financial Officer Address for Notices: 3111 West Allegheny Avenue Philadelphia, Pennsylvania 19132 Telecopier No.: (215) 227-8078 Telephone No.: (215) 227-9202 Attention:Michael J. Holden Senior Vice President Chief Financial Officer THE PEP BOYS - MANNY, MOE & JACK OF PUERTO RICO, INC., as a Guarantor By /s/ Michael J. Holden ---------------------------------- Title: Senior Vice President and Chief Financial Officer Address for Notices: 3111 West Allegheny Avenue Philadelphia, Pennsylvania 19132 Telecopier No.: (215) 227-8078 Telephone No.: (215) 227-9202 Attention:Michael J. Holden Senior Vice President and Chief Financial Officer COLCHESTER INSURANCE COMPANY, as a Guarantor By /s/ Michael J. Holden ---------------------------------- Title: Senior Vice President and Chief Financial Officer Address for Notices: 7 Burlington Square Burlington, Vermont 05401 Telecopier No.: (215) 227-8078 Telephone No.: (215) 227-9202 Attention:Michael J. Holden Senior Vice President and Chief Financial Officer CARRUS SUPPLY CORPORATION, as a Guarantor By /s/ Michael J. Holden ---------------------------------- Title: Senior Vice President and Chief Financial Officer Address for Notices: 32 Loockerman Square, Suite L-100 Dover, Delaware 19901 Telecopier No.: (215) 227-8078 Telephone No.: (215) 227-9202 Attention:Michael J. Holden Senior Vice President and Chief Financial Officer Commitment THE CHASE MANHATTAN BANK $25,000,000 (NATIONAL ASSOCIATION) By /s/ Charles F. Wallach ---------------------------------- Title: Vice President Lending Office for All Loans: The Chase Manhattan Bank (National Association) 1 Chase Manhattan Plaza New York, New York 10081 Address for Notices: The Chase Manhattan Bank (National Association) c/o Chase National Corporate Services Heights Plaza 777 Terrace Avenue - 3rd Floor Hasbrouck Heights, New Jersey 07604 Telecopier No.: (201) 288-8231 Telephone No.: (201) 393-7286 Attention: Stephen Van Besien Vice President Commitment CORESTATES BANK, as successor in $25,000,000 interest to Philadelphia National Bank By /s/ [ILLEGIBLE] ---------------------------------- Title: Vice President Lending Office for All Loans: CoreStates Bank Eastern Corporate 1339 Chestnut Street F.C. 1-8-3-16 P.O. Box 7618 Philadelphia, PA 19101-7618 Address for Notices for Business/Credit Matters: CoreStates Bank 1339 Chestnut Street F.C. 1-8-3-16 P.O. Box 7618 Philadelphia, PA 19101-7618 Telecopier No.:(215) 973-6745 Telephone No.:(215) 973-3858 Attention:Randy Southern Vice President Address for Notices for Administrative/Operations Matters: CoreStates Bank 1339 Chestnut Street F.C. 1-8-3-16 P.O. Box 7618 Philadelphia, PA 19101-7618 Telecopier No.:(215) 973-2045 Telephone No.:(215) 973-4448 Attention:Sharon Burgess BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Terminating Bank By_____________________________________ Title: Commitment BANK OF AMERICA ILLINOIS, as successor in $25,000,000 interest to Continental Bank By /s/ [ILLEGIBLE] ---------------------------------- Title: Managing Director Lending Office for Syndicated Loans: Bank of America Illinois c/o 333 S. Beaudry Avenue, Dept. #5583 Los Angeles, CA 90017 Lending Office for Money Market Loans: Bank of America N.T. % S.A. 555 California Street, 10th Fl. San Francisco, CA 94104 Address for Notices for Business/Credit Matters (not funding requests): Bank of America Illinois c/o 555 S. Flower Street, Dept. #5618, 11th Fl. Los Angeles, CA 90017 Telecopier No.: (213) 228-2756 Telephone No.: (213) 228-2666 Attention:Yvonne C. Dennis Address for Notices for Administrative/Operations Matters, including Fund Requests : Bank of America Illinois c/o 333 S. Beaudry Avenue, Dept. #5583 Los Angeles, CA 90017 Telecopier No.: (213) 345-6550 Telephone No.: (213) 345-6312 Attention:Jackie Holland FIRST INTERSTATE BANK OF ARIZONA, N.A., as a Terminating Bank By /s/ [ILLEGIBLE] ---------------------------------- Title: Vice President Commitment NATIONSBANK, N.A. (CAROLINAS) $25,000,000 By /s/ [ILLEGIBLE] ---------------------------------- Title: Vice President Lending Office for All Loans: NationsBank , N.A. (Carolinas) 100 North Tyron Street, 8th Floor NC1-007-8-04 Charlotte, North Carolina 28255 Address for Notices: NationsBank , N.A. (Carolinas) 100 North Tyron Street, 8th Floor NC1-007-8-04 Charlotte, North Carolina 28255 Telecopier No.:(704) 386-3271 Telephone No.:(704) 386-1265 Attention:Greg Seaton Senior Vice President Commitment TRUST COMPANY BANK, ATLANTA $15,000,000 By /s/ Elizabeth A. Muse ---------------------------------- Title: Assistant Vice President Lending Office for All Loans: Trust Company Bank, Atlanta 25 Park Place Atlanta, Georgia 30303 Address for Notices for Business/Credit Matters: Trust Company Bank, Atlanta 25 Park Place Atlanta, Georgia 30303 Telecopier No.:(404 ) 588-8833 Telephone No.:(404) 588-7546 Attention:Elizabeth A. Muse Assistant Vice President Address for Notices for Administrative/Operations Matters: Trust Company Bank, Atlanta 25 Park Place Atlanta, Georgia 30303 Telecopier No.: (404) 588-8833 Telephone No.: (404) 588-8341 Attention:Sharon Judge THE FUJI BANK, LTD., as a Terminating Bank By /s/ Gina Kearns ---------------------------------- Title: Vice President and Manager Commitment FIRST FIDELITY BANK, N.A. $15,000,000 By /s/ T. Woodward ---------------------------------- Title: Vice President Lending Office for All Loans: First Fidelity Bank, N.A. Borad & Chestnut Streets, 6th Fl. Philadelphia, PA 19609 Address for Notices for Business/Credit Matters: First Fidelity Bank, N.A. 123 South Broad Street Philadelphia, Pennsylvania 19109 Telecopier No.: (215) 985-8793 Telephone No.: (215) 985-8133 Attention:Thomas C. Woodward Vice President Address for Notices for Administrative/Operations Matters: First Fidelity Bank, N.A. 123 South Broad Street, Suite 630 Philadelphia, PA 19109 Telecopier No.: (215) 985-8793 Telephone No.: (215) 985-3011 Attention:Anita L. Munce Commitment PNC BANK, N.A. $25,000,000 By /s/ Robert Q. Reilly ---------------------------------- Title: Vice President Lending Office for All Loans: PNC Bank, N.A. 100 S. Broad Street Philadelphia, PA 19110 Address for Notices for Business/Credit Matters: PNC Bank, N.A. 100 S. Broad Street Philadelphia, PA 19110 Telecopier No.: (215) 585-6037 Telephone No.:(215) 585-7484 Attention:Robert Q. Reilly Vice President Address for Notices for Administrative/Operations Matters: PNC Bank, N.A. 100 S. Broad Street Philadelphia, PA 19110 Telecopier No.: (215) 585-6037 Telephone No.:(215) 585-5286 Attention:Joyce Sanders Commitment NATWEST BANK, N.A., formerly known as $25,000,000 National Westminster Bank By /s/ [ILLEGIBLE] ---------------------------------- Title: Vice President Lending Office for All Loans: 10 Exchange Place Jersey City, NJ 07302 Address for Notices for Business/Credit Matters: NatWest Bank, N.A. One Presidential Boulevard, Suite 229 Bala Cynwyd, Pennsylvania 19004 Telecopier No.:(610) 660-9976 Telephone No.:(610) 660-9337 Attention:William K. Lacy Vice President Address for Notices for Administrative/Operations Matters: Natwest Bank, N.A. 22 Route 70 West Cherry Hill, NJ 08002 Telecopier No.: (609) 795-4847 Telephone No.: (609) 795-3209 Attention:Monica Szczepankiewicz Commitment UNION BANK $10,000,000 By /s/ Cecilia M. Valente ---------------------------------- Title: Vice President Lending Office for All Loans: Union Bank 250 California Street, 11th Fl. San Francisco, California 94104 Address for Notices for Business/Credit Matters: Union Bank 350 California Streeet, 11th Floor San Francisco, California 94104 Telecopier No.: (415) 705-7092 Telephone No.: (415) 705-7042 Attention:Cecilia M. Valente, Vice President With a copy to: Union Bank 445 South Figueroa Street, 16th Floor Los Angeles, California 90071 Telecopier No.:(213) 236-7636 Telephone No.:(213) 236-6604 Attention:Ann Yasuda, Vice President Address for Notices for Administrative/Operations Matters: Union Bank 350 California Street, 10th Fl. San Francisco, California 94104 Telecopier No.: (415) 705-7111 Telephone No.: (415) 705-7325 Attention:Mark McElwain Commitment CREDIT SUISSE $10,000,000 By /s/ Dawn E. Rubinstein ---------------------------------- Title: Associate By /s/ Thomas G. Muoio ---------------------------------- Title: Associate Lending Office for All Loans: Credit Suisse 12 East 49th Street New York, New York 10017 Address for Notices for Business/Credit Matters: Credit Suisse 12 East 49th Street New York, New York 10017 Telecopy No.: (212) 238-5389 Telephone No.: (212) 238-5359 Attention:Andres E. Shkane Vice President Address for Notices for Administrative/Operations Matters: Credit Suisse 12 East 49th Street New York, New York 10017 Telecopier No.: (212) 238-5389 Telephone No.: (212) 238-5362 Attention:Yvette McQueen THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as Agent By_____________________________________ Title: Address for Notices to Chase as Agent: The Chase Manhattan Bank (National Association) 4 Chase Metrotech Centerc, 13th Fl. Brooklyn, New York 11245 Telecopier No.:(718) 242-6909 Telephone No.:(718) 242-7944 Attention:New York Agency Office Laura Rebecca PRICING SCHEDULE Each of the "Applicable Margin", "Commitment Fee Rate" and "Facility Fee Rate" means, for any day, the per annum rates set forth below in the column under such term and in the row corresponding to the "Debt to Capital Ratio" that exists on such day. Debt to Capital Applicable Commitment Facility Ratio Eurodollar Fee Rate Fee Rate Loans - --------------- ---------- ---------- -------- <0.30 0.125% 0.000% 0.125% >0.30 but 0.225% 0.000% 0.125% LTE 0.35 <0.35 but 0.325% 0.025% 0.125% LTE 0.40 >0.40 but 0.400% 0.050% 0.150% LTE 0.45 >.045 0.625% 0.050% 0.200% SCHEDULE II SUBSIDIARIES OF THE PEP BOYS - MANNY, MOE & JACK MARCH, 30, 1995
NAME WHERE % OF SHARES INCORPORATED WHERE INCORPORATED ------------ ------------ ------------------------- OWNED BY COMPANY THE PEP BOYS-MANNY, MOE & CALIFORNIA 100% JACK OF CALIFORNIA 1122 W. WASHINGTON BLVD. LOS ANGELES, CA 90015 PEP BOYS - MANNY, MOE & JACK DELAWARE 100% OF DELAWARE, INC. 3111 WEST ALLEGHENY AVENUE PHILADELPHIA, PA 19132 PEP BOYS - MANNY, MOE & JACK DELAWARE 100% OF PUERTO RICO, INC. 3111 WEST ALLEGHENY AVENUE PHILADELPHIA, PA 19132 COLCHESTER INSURANCE COMPANY VERMONT 100% 7 BURLINGTON SQUARE BURLINGTON, VT 05401 PBY CORPORATION DELAWARE 100% SUITE 1300 1105 NORTH MARKET STREET WILMINGTON, DE 19899 MMJ CORPORATION DELAWARE 100% 32 LOOCKERMAN SQUARE SUITE L-100 DOVER, DE 19901 CARRUS SUPPLY CORPORATION DELAWARE 100% 32 LOOCKERMAN SQUARE SUITE L-100 DOVER, DE 19901
Exhibit A-1 [Form of Note for Syndicated Loans] PROMISSORY NOTE $_____________ April 21, 1995 New York, New York FOR VALUE RECEIVED, THE PEP BOYS - MANNY, MOE & JACK, a Pennsylvania corporation (the "Company"), hereby promises to pay to ____________________________ (the "Bank"), for account of its respective Applicable Lending Offices provided for by the Credit Agreement referred to below, at the principal office of The Chase Manhattan Bank (National Association) at 1 Chase Manhattan Plaza, New York, New York 10081, the principal sum of ____________ Dollars (or such lesser amount as shall equal the aggregate unpaid principal under the Credit Agreement), in lawful money of the United States of America and in immediately available funds, on the dates and in the principal amounts provided in the Credit Agreement, and to pay interest on the unpaid principal amount of each such Syndicated Loan, at such office, in like money and funds, for the period commencing on the date of such Syndicated Loan until such Syndicated Loan shall be paid in full, at the rates per annum and on the dates provided in the Credit Agreement. The date, amount, type, interest rate and maturity date of each Syndicated Loan made by the Bank to the Company, and each payment made on account of the principal thereof, shall be recorded by the Bank on its books and, prior to any transfer of this Note, endorsed by the Bank on the schedule attached hereto or any continuation thereof. This Note is one of the Notes referred to in the Amended and Restated Credit Agreement (as modified and supplemented and in effect from time to time, the "Credit Agreement") dated as of April 21, 1995 between the Company, the Guarantors named therein, the banks named therein (including the Bank) and The Chase Manhattan Bank (National Association), as Agent, and evidences Syndicated Loans made by the Bank thereunder. Capitalized terms used in this Note have the respective meanings assigned to them in the Credit Agreement. The Credit Agreement provides for the acceleration of the maturity of this Note upon the occurrence of certain events and for prepayments of Loans upon the terms and conditions specified therein. Except as permitted by Section 12.06(b) of the Credit Agreement, this Note may not be assigned by the Bank to any other Person. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. THE PEP BOYS - MANNY, MOE & JACK By______________________________________ Title: SCHEDULE OF LOANS This Note evidences Loans made under the within-described Credit Agreement to the Company, on the dates, in the principal amounts, of the types, bearing interest at the rates and maturing on the dates set forth below, subject to the payments and prepayments of principal set forth below: EXHIBIT A-2 [Form of Note for Money Market Loans] PROMISSORY NOTE April 21, 1995 New York, New York FOR VALUE RECEIVED, THE PEP BOYS - MANNY, MOE & JACK, a Pennsylvania corporation (the "Company"), hereby promises to pay to ____________________________ (the "Bank"), for account of its respective Applicable Lending Offices provided for by the Credit Agreement referred to below, at the principal office of The Chase Manhattan Bank (National Association) at 1 Chase Manhattan Plaza, New York, New York 10081, the aggregate unpaid principal amount of the Money Market Loans made by the Bank to the Company under the Credit Agreement, in lawful money of the United States of America and in immediately available funds, on the dates and in the principal amounts provided in the Credit Agreement, and to pay interest on the unpaid principal amount of each such Money Market Loan, at such office, in like money and funds, for the period commencing on the date of such Money Market Loan until such Money Market Loan shall be paid in full, at the rates per annum and on the dates provided in the Credit Agreement. The date, amount, type, interest rate and maturity date of each Money Market Loan made by the Bank to the Company, and each payment made on account of the principal thereof, shall be recorded by the Bank on its books and, prior to any transfer of this Note, endorsed by the Bank on the schedule attached hereto or any continuation thereof. This Note is one of the Notes referred to in the Amended and Restated Credit Agreement (as modified and supplemented and in effect from time to time, the "Credit Agreement") dated as of April 21, 1995 between the Company, the Guarantors named therein, the banks named therein (including the Bank) and The Chase Manhattan Bank (National Association), as Agent, and evidences Money Market Loans made by the Bank thereunder. Capitalized terms used in this Note have the respective meanings assigned to them in the Credit Agreement. The Credit Agreement provides for the acceleration of the maturity of this Note upon the occurrence of certain events and for prepayments of Loans upon the terms and conditions specified therein. Except as permitted by Section 12.06(b) of the Credit Agreement, this Note may not be assigned by the Bank to any other Person. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. THE PEP BOYS - MANNY, MOE & JACK By___________________________________ Title: SCHEDULE OF LOANS This Note evidences Loans made under the within-described Credit Agreement to the Company, on the dates, in the principal amounts, of the types, bearing interest at the rates and maturing on the dates set forth below, subject to the payments and prepayments of principal set forth below: Exhibit A FOREIGN QUALIFICATIONS The Pep Boys - Manny, Moe & Jack Alabama Kentucky Ohio Arkansas Louisiana Oklahoma Colorado Maryland Pennsylvania Delaware Massachusetts Rhode Island District of Columbia Missouri South Carolina Florida New Jersey Tennessee Georgia New York Texas Indiana North Carolina Virginia The Pep Boys - Manny, Moe & Jack of California Arizona Kansas Utah California Nevada New Mexico Illinois Texas The Pep Boys - Manny, Moe & Jack of Delaware, Inc. [to come based on asset transfers] Exhibit B THE PEP BOYS - MANNY, MOE & JACK Secretary's Certificate I, Frederick A. Stampone, Secretary of The Pep Boys - Manny, Moe & Jack, a Pennsylvania corporation (the "Company"), DO HEREBY CERTIFY that set forth below is a complete and accurate list of the jurisdictions in which the property owned, leased or operated or the business conducted by the Company or any of its subsidiaries is material to the Company and its subsidiaries, taken as a whole: The Pep Boys - Manny, Moe & Jack Alabama Kentucky Ohio Arkansas Louisiana Oklahoma Colorado Maryland Pennsylvania Delaware Massachusetts Rhode Island District of Columbia Missouri South Carolina Florida New Jersey Tennessee Georgia New York Texas Indiana North Carolina Virginia The Pep Boys - Manny, Moe & Jack of California Arizona Kansas Utah California Nevada New Mexico Illinois Texas The Pep Boys - Manny, Moe & Jack of Delaware, Inc. [to come based on asset transfers] IN WITNESS WHEREOF, I have executed this certificate as of this ___ day of April, 1995. THE PEP BOYS - MANNY, MOE & JACK BY: Name: Frederick A. Stampone Title: Secretary EXHIBIT C [Form of Money Market Quote Request] [Date] To: The Chase Manhattan Bank, N.A., as Agent From: The Pep Boys - Manny, Moe & Jack Re: Money Market Quote Request Pursuant to Section 2.03 of the Amended and Restated Credit Agreement (the "Credit Agreement") dated as of April 21, 1995 between The Pep Boys - Manny, Moe & Jack, the Guarantors named therein, the Banks named therein and The Chase Manhattan Bank, N.A., Agent, we hereby give notice that we request Money Market Quotes for the following proposed Money Market Borrowing(s): Borrowing Quotation Interest Date Date 1/ Amount 2/ Type 3/ Period 4/ Terms used herein have the meanings assigned to them in the Credit Agreement. The Pep Boys - Manny, Moe & Jack By______________________________ Title: - -------------- *All numbered footnotes appear on the last page of this Exhibit.______________ 1/ For use if a Money Market Rate in a Set Rate Auction is requested to be submitted before the Borrowing Date. 2/ Each amount must be $10,000,000 or a larger multiple of $1,000,000. 3/ Insert either "Margin" (in the case of LIBOR Market Loans) or "Rate" (in the case of Set Rate Loans). 4/ 1, 2, 3 or 6 months, in the case of a LIBOR Market Loan or, in the case of a Set Rate Loan, a period of up to 180 days after the making of such Set Rate Loan and ending on a Business Day. EXHIBIT D [Form of Money Market Quote] The Chase Manhattan Bank, N.A., as Agent 90 William Street -- 16th Floor New York, New York 10081 Attention: Re: Money Market Quote to The Pep Boys - Manny, Moe & Jack (the "Borrower") This Money Market Quote is given in accordance with Section 2.03(c) of the Amended and Restated Credit Agreement (the "Credit Agreement") dated as of April 21, 1995 between The Pep Boys - Manny, Moe & Jack, the Guarantors named therein, the Banks named therein and The Chase Manhattan Bank, N.A., as Agent. Terms defined in the Credit Agreement are used herein as defined therein. In response to the Borrower's invitation dated _________, 19__, we hereby make the following Money Market Quote(s) on the following terms: 1. Quoting Bank: 2. Person to contact at Quoting Bank: 3. We hereby offer to make Money Market Loan(s) in the following principal amounts, for the following Interest Periods and at the following rates: Borrowing Quotation Interest Date Date 1/ Amount 2/ Type 3/ Period 4/ Rate 5/ - --------------- *All number footnotes appear on the last page of this Exhibit. We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the Credit Agreement, irrevocably obligate(s) us to make the Money Market Loan(s) for which any offer(s) [is] [are] accepted, in whole or in part (subject to the third sentence of Section 2.03(e) of the Credit Agreement). Very truly yours, [Name of Bank] Dated: By:_____________________________ Authorized Officer - ----------------- 1/ As specified in the related Money Market Quote Request 2/ The principal amount bid for each Interest Period may not exceed the principal amount requested. Bids must be made for at least $5,000,000 or a larger multiple of $1,000,000. 3/ Indicate "Margin" (in the case of LIBOR Market Loans) or "Rate" (in the case of Set Rate Loans). 4/ 1, 2, 3 or 6 months in the case of a LIBOR Market Loan or, in the case of a Set Rate Loan, a period of up to 180 days after the making of such Set Rate Loan and ending on a Business Day, as specified in the related Money Market Quote Request. 5/ For a LIBOR Market Loan, specify margin over or under the London interbank offered rate determined for the applicable Interest Period. Specify percentage (rounded to the nearest 1/10,000 of 1%) and specify whether "PLUS" or "MINUS". For a Set Rate Loan, specify rate of interest per annum (rounded to the nearest 1/10,000 of 1%). EXHIBIT E [Form of Request for Extension of Commitment Termination Date] [Date] To the Banks Party to the credit Agreement Referred to Below We hereby request an extension of the Commitment Termination Date currently specified in the definition of "Commitment Termination Date" in Section 1.01 of the Amended and Restated Credit Agreement dated as of April 21, 1995 (as amended) between the undersigned, the Guarantors party thereto (the "Guarantors"), the banks party thereto (the "Banks") and The Chase Manhattan Bank (National Association) to April 21, 199_ (the "New Commitment Termination Date"). Upon the Agent's receipt of a counterpart of this letter by each Bank and each Guarantor indicating its consent to this request, the "Commitment Termination Date" specified in the definition thereof in Section 1.01 of such Credit Agreement shall be the New Commitment Termination Date. THE PEP BOYS - MANNY, MOE & JACK By______________________________ Title: [GUARANTOR A] By______________________________ Title: Consented: [BANK A] By_________________________________ Title: THE CHASE MANHATTAN BANK, as Agent By__________________________________ Title: EXHIBIT F [Form of Confidentiality Agreement] [Date] CONFIDENTIALITY AGREEMENT [Insert Name and Address of Prospective Participant or Assignee] Re: Amended and Restated Credit Agreement dated as of April 21, 1995 between The Pep Boys - Manny, Moe & Jack, the Guarantors party thereto, the banks party thereto, and The Chase Manhattan Bank (National Association), as Agent. Dear__________: As a Bank party to the above-referenced Amended and Restated Credit Agreement (the "Credit Agreement"), we have agreed with The Pep Boys - Manny, Moe & Jack (the "Company") pursuant to Section 12.11 of the Credit Agreement to use reasonable precautions to keep confidential, except as otherwise provided therein, all non-public information identified by the Company as being confidential at the time same is delivered to us pursuant to the Credit Agreement. As provided in said Section 12.11, we are permitted to provide you, as a prospective [holder of a participation in the Loans (as defined in the Credit Agreement)] [assignee Bank], with certain of such non-public information subject to the execution and delivery by you, prior to receiving such non-public information, of a Confidentiality Agreement in this form. Such information will not be made available to you until your execution and return to us of this Confidentiality Agreement. Accordingly, in consideration of the foregoing, you agree (on behalf of yourself and each of your affiliates, directors, officers, employees and representatives) that (A) such information will not be used by you except in connection with the proposed [participation] [assignment] mentioned above and (B) you shall use reasonable precautions, in accordance with your customary procedures for handling confidential information and in accordance with safe and sound banking practices, to keep such information confidential, provided that nothing herein shall limit the disclosure of any such information (i) to the extent required by statute, rule, regulation or judicial process, (ii) to your counsel or to counsel for any of the Banks or the Agent, (iii) to bank examiners, auditors or accountants, (iv) to the Agent or any other Bank, (v) in connection with any litigation to which you or any one or more of the Banks is a party; provided, further, that in no event shall you be obligated to return any materials furnished to you pursuant to this Confidentiality Agreement. Would you please indicate your agreement to the foregoing by signing at the place provided below the enclosed copy of this Confidentiality Agreement. Very truly yours, [Insert Name of Bank] By:________________________ Title: The foregoing is agreed to as of the date of this letter. [Insert name of prospective participant or assignee] By:_______________________ EX-99.12 13 EXHIBIT B(2) AMENDMENT NO. 1 AMENDMENT NO. 1 dated as of March 18, 1998 to the AMENDED AND RESTATED CREDIT AGREEMENT dated as of April 2, 1995 among THE PEP BOYS - MANNY, MOE & JACK., the Banks signatory thereto and THE CHASE MANHATTAN BANK (successor in interest to The Chase Manhattan Bank (National Association)), as Agent. W I T N E S S E T H: WHEREAS, the Company, the Banks and the Agent are parties to the Amended and Restated Credit Agreement referred to above (as heretofore amended, the "Credit Agreement") pursuant to which the Banks have agreed to extend credit to the Company as provided therein; WHEREAS, the Company has requested the Banks and the Agent to amend the Credit Agreement as herein after set forth; WHEREAS, the Majority Banks and the Agent are agreeable to such amendment on the terms and conditions set forth below; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein it is hereby agreed as follows: 1. Definitions. All terms defined in the Credit Agreement shall be used herein as defined in the Credit Agreement unless otherwise defined herein or the context otherwise requires. 2. Amendments to the Agreement. (a) Section 1.01 of the Credit Agreement is hereby amended by restating the definition of "Debt to Capital Ratio" in its entirety to read as follows: "`Debt to Capital Ratio' shall mean, at any time, the ratio of (a) all Indebtedness (whether senior or subordinated) of the Company described in clause (a) of the definition of "Indebtedness" at such time to (b) all Indebtedness (whether senior or subordinated) of the Company described in clause (a) of the definition of "Indebtedness," plus Tangible Net Worth, at such time." (b) Section 1.01 of the Credit Agreement is hereby further amended by deleting the definition of "Senior Funded Debt" in its entirety. (c) Section 9.07 of the Agreement is hereby amended by restating it in its entirety to read as follows: "9.07 Leverage Ratio. The Company will not at any time permit the Leverage Ratio to exceed (a) 1.75 to 1.0 for the period from January 31, 1998 through August 1, 1998, (b) 1.65 to 1.0 for the period from August 2, 1998 through January 30, 1999, and (c) 1.6 to 1.0 thereafter." (d) Section 9.10 of the Agreement is hereby amended by restating it in its entirety to read as follows: "9.10 NOP/Interest Charges Ratio. The Company will not at any time permit the NOP/Interest Charges Ratio to be less than (a) 1.75 to 1.0 for the period from January 31, 1998 through January 30, 1999 and (b) 2.5 to 1.0 thereafter." (e) The Pricing Schedule is hereby amended in its entirety to read as follows: "PRICING SCHEDULE" Each of the "Applicable Margin," "Commitment Fee Rate" and "Facility Fee Rate" means, for any day, the per annum rates set forth below in the column under such term and in the row corresponding to the 'Debt to Capital Ratio' that exists on such day.
- ------------------------------------------------------------------------------------------------------ Debt to Capital Applicable Margin Ratio for Eurodollar Loans Commitment Fee Rate Facility Fee Rate - ------------------------------------------------------------------------------------------------------ < 0.30 0.125% 0.000% 0.125% - ------------------------------------------------------------------------------------------------------ > 0.30 but < = 0.35 0.225% 0.000% 0.125% - ------------------------------------------------------------------------------------------------------ > 0.35 but < = 0.40 0.325% 0.025% 0.125% - ------------------------------------------------------------------------------------------------------ > 0.40 but < = 0.50 0.400% 0.050% 0.150% - ------------------------------------------------------------------------------------------------------ > 0.50 0.625% 0.050% 0.200%" - ------------------------------------------------------------------------------------------------------
3. Representations and Warranties. In order to induce the Majority Banks and the Agent to make this Amendment, the Company hereby represents that: (a) the execution and delivery of this Amendment and the performance of the Company thereunder and under the Credit Agreement as amended hereby (i) have been duly authorized by all necessary corporate action, will not violate any provision of law, or the Company's charter or by-laws, or result in the breach of or constitute a default, or require a consent, under any indenture or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries or their respective property may be bound or affected, and (ii) each of this Amendment and the Credit Agreement as amended hereby constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms; 2 (b) the representations and warranties in Section 8 of the Credit Agreement are true and correct as of the Closing Date (hereinafter defined) as if they were being made on such date; and (c) no Event of Default or event which with notice or lapse of time, or both, would constitute an Event of Default, has occurred and is continuing on the Closing Date. 4. Conditions of Effectiveness. This Amendment shall be effective (as of the date hereof) on the date when all of the following conditions shall have been met, and such date shall be the "Closing Date": (a) Counterparts of this Amendment shall have been executed by the Company, the Banks and the Agent; (b) The Agent shall have received a certificate dated the Closing Date specifying the names and titles and including specimen signatures of the officers authorized to sign this Amendment. 5. Miscellaneous. (a) Except as specifically amended hereby, all the provisions of the Credit Agreement shall remain unamended and in full force and effect, and the term "Credit Agreement", and words of like import shall be deemed to refer to the Credit Agreement as amended by this Amendment unless otherwise provided herein or the context otherwise requires. Nothing herein shall affect the obligations of the Company under the Credit Agreement with respect to any period prior to the effective date hereof. (b) This Amendment shall be governed by and construed and interpreted in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their duly authorized officers as of the day and year first above written. THE PEP BOYS - MANNY, MOE & JACK By /s/ George Babich ------------------------------------------- Title: Vice President-Finance and Treasurer THE CHASE MANHATTAN BANK, as Agent and a Bank By /s/ [ILLEGIBLE] -------------------------------------------- Title: Vice President THE PEP BOYS - MANNY, MOE & JACK OF CALIFORNIA, as a Guarantor By /s/ George Babich -------------------------------------------- Title: Vice President-Finance and Treasurer 3 PBY CORPORATION, as a Guarantor By /s/ George Babich -------------------------------------------- Title: Vice President-Finance and Treasurer THE PEP BOYS - MANNY, MOE & JACK OF DELAWARE, INC., as a Guarantor By /s/ George Babich -------------------------------------------- Title: Vice President-Finance and Treasurer THE PEP BOYS - MANNY, MOE & JACK OF PUERTO RICO, INC., as a Guarantor By /s/ George Babich -------------------------------------------- Title: Vice President-Finance and Treasurer COLCHESTER INSURANCE COMPANY, as a Guarantor By [N/A] --------------------------------------------- Title: CARRUS SUPPLY CORPORATION, as a Guarantor By /s/ George Babich -------------------------------------------- Title: Vice President-Finance and Treasurer 4 CORESTATES BANK By /s/ Randal Southern ------------------------------- Title: Vice President BANK OF AMERICA NT&SA By /s/ J. Pritchard ------------------------------- Title: Vice President NATIONSBANK By /s/ [ILLEGIBLE] ------------------------------- Title: Senior Vice President SUN TRUST BANKS INC.. By /s/ [ILLEGIBLE] ------------------------------- Title: Group Vice President FIRST UNION NATIONAL BANK By /s/ Carl Goelz ------------------------------- Title: Vice President PNC BANK. By /s/ [ILLEGIBLE] ------------------------------- Title: Vice President 5 FLEET BANK By /s/ Thomas J. Bullard -------------------------------- Title: Vice President UNION BANK of California By /s/ [ILLEGIBLE] -------------------------------- Title: Vice President CREDIT SUISSE FIRST BOSTON By /s/ Jay Chall -------------------------------- Title: Director 6 EX-99.13 14 EXHIBIT B(3) AMENDMENT NO. 2 AMENDMENT NO. 2 dated as of July 31, 1998 to the AMENDED AND RESTATED CREDIT AGREEMENT dated as of April 21, 1995 among THE PEP BOYS - MANNY, MOE & JACK, the Banks signatory thereto and THE CHASE MANHATTAN BANK, as Agent. W I T N E S S E T H: WHEREAS, the Company, the Banks and the Agent are parties to the Amended and Restated Credit Agreement referred to above (as heretofore amended, the "Credit Agreement") pursuant to which the Banks have agreed to extend credit to the Company as provided therein; WHEREAS, the Company has requested the Banks and the Agent to amend the Credit Agreement as herein after set forth; WHEREAS, the Majority Banks and the Agent are agreeable to such amendment on the terms and conditions set forth below; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein it is hereby agreed as follows: 1. Definitions. All terms defined in the Credit Agreement shall be used herein as defined in the Credit Agreement unless otherwise defined herein or the context otherwise requires. 2. Amendments to the Agreement. (a) Section 1.01 of the Credit Agreement is hereby amended by restating the definition of "NOP/Interest Charges Ratio" in its entirety to read as follows: "'NOP/Interest Charges Ratio' shall mean, (a) as at the end of each fiscal quarter occurring during fiscal year ending January 30, 1999 of the Company, the ratio of (i) Net Operating Profit for the period of such fiscal quarter and including any 1999 fiscal quarters prior thereto to (ii) Interest Expense for such period; and (b) as at any date of determination after fiscal year ending January 30, 1999, the ratio of (i) Net Operating Profit for the period of four consecutive fiscal quarters of the Company ending on or most recently ended prior to such date of determination to (ii) Interest Expense for such period." (b) Section 9.10 of the Agreement is hereby amended by restating it in its entirety to read as follows: "9.10 NOP/Interest Charges Ratio. The Company will not at any time permit the NOP/Interest Charges Ratio to be less than 2.25 to 1.0." 1 (c) The first paragraph of the Pricing Schedule is hereby amended in its entirety to read as follows: "Each of the 'Applicable Margin,' 'Commitment Fee Rate' and 'Facility Fee Rate' means, for any day, the per annum rates set forth below in the column under such term and in the row corresponding to the 'Debt to Capital Ratio' that exists on such day; provided that for each day after the first quarter of the Company's fiscal year ending January 30, 1999 on which the NOP/Interest Charges Ratio is less than 2.5 to 1, the Facility Fee Rate shall increase by 0.01%." 3. Representations and Warranties. In order to induce the Majority Banks and the Agents to make this Amendment, the Company hereby represents that: (a) the execution and delivery of this Amendment and the performance of the Company thereunder and under the Credit Agreement as amended hereby (i) have been duly authorized by all necessary corporate action, will not violate any provision of law, or the Company's charter or by-laws, or result in the breach of or constitute a default, or require a consent, under any indenture or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries or their respective property may be bound or affected, and (ii) each of this Amendment and the Credit Agreement as amended hereby constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms; (b) the representations and warranties in Section 8 of the Credit Agreement are true and correct as of the Closing Date (hereinafter defined) as if they were being made on such date; and (c) no Event of Default or event which with notice or lapse of time, or both, would constitute an Event of Default, has occurred and is continuing on the Closing Date. 2 4. Conditions of Effectiveness. This Amendment shall be effective (as of the date hereof) on the date when all of the following conditions shall have been met, and such date shall be the "Closing Date": (a) Counterparts of this Amendment shall have been executed by the Company, the Banks and the Agent; (b) The Agent shall have received a certificate dated the Closing Date specifying the names and titles and including specimen signatures of the officers authorized to sign this Amendment. (c) The Borrower shall have paid an amendment fee to the Agent for the account of each Bank equal to 0.05% of the amount of such Bank's Commitment. 5. Miscellaneous. (a) Except as specifically amended hereby, all the provisions of the Credit Agreement shall remain unamended and in full force and effect, and the term "Credit Agreement", and words of like import shall be deemed to refer to the Credit Agreement as amended by this Amendment unless otherwise provided herein or the context otherwise requires. Nothing herein shall affect the obligations of the Company under the Credit Agreement with respect to any period prior to the effective date hereof. (b) This Amendment shall be governed by and construed and interpreted in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their duly authorized officers as of the day and year first above written. 3 THE PEP BOYS - MANNY, MOE & JACK By /s/ George Babich -------------------------------------------- Title: Vice President-Finance and Treasurer THE CHASE MANHATTAN BANK, as Agent and a Bank By /s/ [ILLEGIBLE] -------------------------------------------- Title: Vice President PBY CORPORATION, as a Guarantor By /s/ George Babich -------------------------------------------- Title: Vice President-Finance and Treasurer CARRUS SUPPLY CORPORATION, as a Guarantor By /s/ George Babich -------------------------------------------- Title: Vice President-Finance and Treasurer 4 THE PEP BOYS - MANNY, MOE & JACK OF CALIFORNIA, as a Guarantor By /s/ George Babich -------------------------------------------- Title: Vice President-Finance and Treasurer THE PEP BOYS - MANNY, MOE & JACK OF DELAWARE, INC., as a Guarantor By /s/ George Babich -------------------------------------------- Title: Vice President-Finance and Treasurer THE PEP BOYS - MANNY, MOE & JACK OF PUERTO RICO, INC., as a Guarantor By /s/ George Babich -------------------------------------------- Title: Vice President-Finance and Treasurer BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By /s/ J. Pritchard -------------------------------------------- Title: Vice President 5 CREDIT SUISSE FIRST BOSTON By /s/ Jay Chall ------------------------------- Title: Director By /s/ James Lee ------------------------------- Title: Assistant Vice President FIRST UNION NATIONAL BANK By /s/ Rendel Southern ------------------------------- Title: Vice President [Fleet Bank] By /s/ Christopher Kampe ------------------------------- Title: Assistant Vice President NATIONSBANK, N.A. (CAROLINAS) By /s/ Timothy Sparros ------------------------------- Title: Senior Vice President 6 PNC BANK, N.A. By /s/ [ILLEGIBLE] ------------------------------- Title: Officer SUNTRUST BANK, ATLANTA By /s/ [ILLEGIBLE] ------------------------------- Title: Group Vice President By /s/ Karen Copeland ------------------------------- Title: Assistant Vice President UNION BANK OF CALIFORNIA, N.A. By /s/ [ILLEGIBLE] ------------------------------- Title: Vice President 7 EX-99.14 15 EXHIBIT B(4) AMENDMENT NO. 3 AMENDMENT NO. 3 dated as of October 31, 1998 to the AMENDED AND RESTATED CREDIT AGREEMENT dated as of April 21, 1995 among THE PEP BOYS - MANNY, MOE & JACK., the Banks signatory thereto and THE CHASE MANHATTAN BANK, as Agent. W I T N E S S E T H: WHEREAS, the Company, the Banks and the Agent are parties to the Amended and Restated Credit Agreement referred to above (as heretofore amended, the "Credit Agreement") pursuant to which the Banks have agreed to extend credit to the Company as provided therein; WHEREAS, pursuant to the Consent and Waiver dated as of October 5, 1998 (the "Consent") to the Credit Agreement, the Majority Banks consented to the sale of one hundred Pep Boys Express stores and the closing of nine other such stores; WHEREAS, the Company has requested the Banks and the Agent to amend the Credit Agreement as herein after set forth; WHEREAS, the Majority Banks and the Agent are agreeable to such amendment on the terms and conditions set forth below; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein it is hereby agreed as follows: 1. Definitions. All terms defined in the Credit Agreement shall be used herein as defined in the Credit Agreement unless otherwise defined herein or the context otherwise requires. 2. Amendments to the Agreement. (a) Section 1.01 of the Credit Agreement is hereby amended by restating the definition of "Net Operating Profits" to read as follows: "'Net Operating Profit' shall mean, for any period for the Company and its Consolidated Subsidiaries, (i) net sales minus (ii) total costs and expenses (excluding costs of income taxes and Interest Expense), in each case determined in accordance with GAAP; provided that charges and expenses incurred in connection with the sale of one hundred Pep Boys Express stores and the closing nine other such stores, as contemplated by the Consent, which occur in the third and fourth quarters of the fiscal year ending January 31, 1999 shall be excluded from the calculation of Net Operating Profit. Such excluded amounts shall not exceed $29,742,000." (b) Section 1.01 of the Credit Agreement is hereby further amended by adding in alphabetical order therein a new definition of the term "Consent" to read as follows: "'Consent' shall mean that certain Consent and Waiver dated as of October 5, 1998 (the "Consent") to this Agreement, pursuant to which the Majority Banks consented to the sale by the Company of one hundred Pep Boys Express stores and the closing of nine other such stores." 1 (c) Section 9.10 of the Agreement is hereby amended by restating it in its entirety to read as follows: "9.10 NOP/Interest Charges Ratio. The Company will not at any time permit the NOP/Interest Charges Ratio to be less than: (a) for the period from January 31, 1999 through May 1, 1999, 1.65 to 1.0; (b) for the period from May 2, 1999 through July 31, 1999, 1.75 to 1.0; (c) for the period from August 1, 1999 through October 30, 1999 2.0 to 1.0 and (d) at any time thereafter, 2.25 to 1.0." (d) The Pricing Schedule is hereby amended in its entirety to read as follows: "PRICING SCHEDULE Each of the 'Applicable Margin,' 'Commitment Fee Rate' and 'Facility Fee Rate' means, for any day, the per annum rates set forth below in the column under such term and in the row corresponding to the 'Debt to Capital Ratio' that exists on such day; provided that until the Company maintains the NOP/Interest Charges Ratio at 2.25 to 1.0 or greater, the 'Applicable Margin,' 'Commitment Fee Rate,' and 'Facility Fee Rate' shall be no less than the per annum rate set forth below in the column under such term and in the row corresponding to the 'Debt to Capital Ratio' in the range of 0.45 to < 0.50. Debt to Capital Applicable Margin for Commitment Fee Facility Fee Rate Ratio Eurodollar Loans Rate < 0.30 0.175% 0.000% 0.175% > 0.30 but < or = 0.35 0.275% 0.000% 0.175% > 0.35 but < or = 0.40 0.375% 0.025% 0.20 % > 0.40 but < or = 0.45 0.40 % 0.05 % 0.20 % > 0.45 but < or = 0.50 0.45 % 0.050% 0.25 % > 0.50 0.625% 0.050% 0.30 %" 2 3. Representations and Warranties. In order to induce the Majority Banks and the Agent to make this Amendment, the Company hereby represents that: (a) the execution and delivery of this Amendment and the performance of the Company thereunder and under the Credit Agreement as amended hereby (i) have been duly authorized by all necessary corporate action, will not violate any provision of law, or the Company's charter or by-laws, or result in the breach of or constitute a default, or require a consent, under any indenture or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries or their respective property may be bound or affected, and (ii) each of this Amendment and the Credit Agreement as amended hereby constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms; (b) the representations and warranties in Section 8 of the Credit Agreement are true and correct as of the Closing Date (hereinafter defined) as if they were being made on such date; and (c) no Event of Default or event which with notice or lapse of time, or both, would constitute an Event of Default, has occurred and is continuing on the Closing Date. 4. Conditions of Effectiveness. This Amendment shall be effective (as of the date hereof) on the date when all of the following conditions shall have been met, and such date shall be the "Closing Date": (a) Counterparts of this Amendment shall have been executed by the Company, the Banks and the Agent; (b) The Agent shall have received a certificate dated the Closing Date specifying the names and titles and including specimen signatures of the officers authorized to sign this Amendment. (c) The Company shall have paid an amendment fee to the Agent for the account of each Bank equal to 0.125% of the amount of such Bank's Commitment. 5. Miscellaneous. (a) Except as specifically amended hereby, all the provisions of the Credit Agreement shall remain unamended and in full force and effect, and the term "Credit Agreement", and words of like import shall be deemed to refer to the Credit Agreement as amended by this Amendment unless otherwise provided herein or the context otherwise requires. Nothing herein shall affect the obligations of the Company under the Credit Agreement with respect to any period prior to the effective date hereof. (b) This Amendment shall be governed by and construed and interpreted in accordance with the laws of the State of New York. 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their duly authorized officers as of the day and year first above written. THE PEP BOYS - MANNY, MOE & JACK By /s/ Michael J. Holden --------------------------------- Title: Executive Vice President & Chief Financial Officer THE CHASE MANHATTAN BANK, as Agent and a Bank By /s/ Lee P. Brennan ------------------------------- Title: Vice President THE PEP BOYS - MANNY, MOE & JACK OF CALIFORNIA, as a Guarantor By /s/ Michael J. Holden --------------------------------- Title: Executive Vice President & Chief Financial Officer PBY CORPORATION, as a Guarantor By /s/ Michael J. Holden --------------------------------- Title: Executive Vice President & Chief Financial Officer THE PEP BOYS - MANNY, MOE & JACK OF DELAWARE, INC., as a Guarantor By /s/ Michael J. Holden --------------------------------- Title: Executive Vice President & Chief Financial Officer THE PEP BOYS - MANNY, MOE & JACK OF PUERTO RICO, INC., as a Guarantor By /s/ Michael J. Holden --------------------------------- Title: Executive Vice President & Chief Financial Officer 4 CARRUS SUPPLY CORPORATION, as a Guarantor By /s/ Michael J. Holden --------------------------------- Title: Executive Vice President & Chief Financial Officer BANK OF AMERICA NT&SA By________________________________ Title: SUN TRUST BANKS INC.. By /s/ David Wisdom ---------------------------------- Title: Group Vice President SUN TRUST BANKS INC.. By /s/ Laura G. Harrison ---------------------------------- Title: Assistant Vice President FIRST UNION NATIONAL BANK By /s/ Randal D. Southern ---------------------------------- Title: Vice President PNC BANK. By /s/ Brennan T. Danile ---------------------------------- Title: Corporate Banking Officer FLEET BANK By /s/ Christopher J. Kampe ---------------------------------- Title: Vice President UNION BANK of CA By /s/ Cecilia M. Valente ---------------------------------- Title: Senior Vice President CREDIT SUISSE FIRST BOSTON By /s/ Robert N. Finney ---------------------------------- Title: Managing Director CREDIT SUISSE FIRST BOSTON By /s/ James M. Lee ---------------------------------- Title: Assistant Vice President 5 EX-99.15 16 EXHIBIT G(1) ITEM 8 FINANCIAL STATEMENT AND SUPPLEMENTARY DATA INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders The Pep Boys - Manny, Moe & Jack We have audited the accompanying consolidated balance sheets of The Pep Boys - Manny, Moe & Jack and subsidiaries as of January 31, 1998 and February 1, 1997, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended January 31, 1998. Our audits also included the financial statement schedule listed in the index at Item 14. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Pep Boys - Manny, Moe & Jack and subsidiaries at January 31, 1998 and February 1, 1997, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 1998 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Deloitte & Touche LLP Philadelphia, Pennsylvania March 19, 1998 25
CONSOLIDATED BALANCE SHEETS The Pep Boys - Manny, Moe & Jack and Subsidiaries (dollar amounts in thousands, except per share amounts) January 31, February 1, 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash $ 10,811 $ 2,589 Accounts receivable, less allowance for uncollectible accounts of $265 and $252 13,070 7,653 Merchandise inventories 655,363 520,082 Prepaid expenses 27,449 33,042 Deferred income taxes 23,215 16,982 Other 40,308 24,570 - ----------------------------------------------------------------------------------------------------------------------------------- Total Current Assets 770,216 604,918 - ----------------------------------------------------------------------------------------------------------------------------------- Property and Equipment - at cost: Land 296,721 278,345 Building and improvements 920,522 794,244 Furniture, fixtures and equipment 542,256 448,425 Construction in progress 21,432 22,528 - ----------------------------------------------------------------------------------------------------------------------------------- 1,780,931 1,543,542 Less accumulated depreciation and amortization 403,182 353,808 - ----------------------------------------------------------------------------------------------------------------------------------- Total Property and Equipment 1,377,749 1,189,734 - ----------------------------------------------------------------------------------------------------------------------------------- Other 13,395 23,713 - ----------------------------------------------------------------------------------------------------------------------------------- $ 2,161,360 $ 1,818,365 - ----------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 409,053 $ 337,536 Accrued expenses 162,666 133,557 Short-term borrowings 47,000 63,000 Current maturities of long-term debt 157 134 - ----------------------------------------------------------------------------------------------------------------------------------- Total Current Liabilities 618,876 534,227 - ----------------------------------------------------------------------------------------------------------------------------------- Long-Term Debt, less current maturities 402,021 217,178 Deferred Income Taxes 73,208 50,382 Convertible Subordinated Notes 86,250 86,250 Zero Coupon Convertible Subordinated Notes 158,370 152,237 Commitments and Contingencies Stockholders' Equity: Common stock, par value $1 per share: Authorized 500,000,000 shares; Issued and outstanding 63,657,728 and 63,119,491 63,658 63,119 Additional paid-in capital 171,741 162,660 Retained earnings 647,505 612,581 - ----------------------------------------------------------------------------------------------------------------------------------- 882,904 838,360 Less cost of shares in benefits trust - 2,232,500 shares, at cost 60,269 60,269 - ----------------------------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 822,635 778,091 - ----------------------------------------------------------------------------------------------------------------------------------- $ 2,161,360 $ 1,818,365 - -----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 26
CONSOLIDATED STATEMENTS OF EARNINGS The Pep Boys - Manny, Moe & Jack and Subsidiaries (dollar amounts in thousands, except per share amounts) January 31, February 1, February 3, Year ended 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Merchandise Sales $1,720,670 $ 1,554,757 $ 1,355,008 Service Revenue 335,850 273,782 239,332 - ------------------------------------------------------------------------------------------------------------------------------------ Total Revenues 2,056,520 1,828,539 1,594,340 - ------------------------------------------------------------------------------------------------------------------------------------ Costs of Merchandise Sales 1,246,431 1,070,263 943,875 Costs of Service Revenue 269,769 220,757 194,942 - ------------------------------------------------------------------------------------------------------------------------------------ Total Costs of Revenues 1,516,200 1,291,020 1,138,817 - ------------------------------------------------------------------------------------------------------------------------------------ Gross Profit from Merchandise Sales 474,239 484,494 411,133 Gross Profit from Service Revenue 66,081 53,025 44,390 - ------------------------------------------------------------------------------------------------------------------------------------ Total Gross Profit 540,320 537,519 455,523 - ------------------------------------------------------------------------------------------------------------------------------------ Selling, General and Administrative Expenses 430,517 350,419 296,089 - ------------------------------------------------------------------------------------------------------------------------------------ Operating Profit 109,803 187,100 159,434 Nonoperating Income 5,309 2,435 2,090 Interest Expense 39,656 30,306 32,072 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings Before Income Taxes 75,456 159,229 129,452 Income Taxes 25,845 58,405 47,958 - ------------------------------------------------------------------------------------------------------------------------------------ Net Earnings $ 49,611 $ 100,824 $ 81,494 - ------------------------------------------------------------------------------------------------------------------------------------ Basic Earnings per Share $ .81 $ 1.67 $ 1.37 Diluted Earnings per Share $ .80 $ 1.62 $ 1.34 - ------------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 27
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY The Pep Boys - Manny, Moe & Jack and Subsidiaries (dollar amounts in thousands, except per share amounts) Additional Total Common Stock Paid-in Retained Benefits Stockholders' Shares Amount Capital Earnings Trust Equity - ------------------------------------------------------------------------------------------------------------------------------------ Balance, January 28, 1995 61,501,679 $61,502 $130,732 $454,288 $(60,269) $586,253 Net earnings 81,494 81,494 Cash dividends ($.19 per share) (11,339) (11,339) Exercise of stock options and related tax benefits 555,471 555 7,829 8,384 Dividend reinvestment plan 26,871 27 662 689 Acquisitions and transfers of 140,000 shares to employees' savings plan (21) (21) - ------------------------------------------------------------------------------------------------------------------------------------ Balance, February 3, 1996 62,084,021 62,084 139,202 524,443 (60,269) 665,460 Net earnings 100,824 100,824 Cash dividends ($.21 per share) (12,686) (12,686) Exercise of stock options and related tax benefits 1,002,333 1,002 22,977 23,979 Dividend reinvestment plan 33,137 33 1,025 1,058 Acquisitions and transfers of 150,500 shares to employees' savings plan (544) (544) - ------------------------------------------------------------------------------------------------------------------------------------ Balance, February 1, 1997 63,119,491 63,119 162,660 612,581 (60,269) 778,091 Net earnings 49,611 49,611 Cash dividends ($.24 per share) (14,687) (14,687) Exercise of stock options and related tax benefits 491,039 492 6,850 7,342 Minimum pension liability adjustment, net of tax 1,366 1,366 Dividend reinvestment plan 47,198 47 1,221 1,268 Acquisitions and transfers of 190,000 shares to employees' savings plan (356) (356) - ------------------------------------------------------------------------------------------------------------------------------------ Balance, January 31, 1998 63,657,728 $63,658 $171,741 $647,505 $(60,269) $822,635 - ------------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 28
CONSOLIDATED STATEMENTS OF CASH FLOWS The Pep Boys - Manny, Moe & Jack and Subsidiaries (dollar amounts in thousands) January 31, February 1, February 3, Year ended 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Cash Flows from Operating Activities: Net earnings $ 49,611 $ 100,824 $ 81,494 Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities: Depreciation and amortization 82,862 65,757 53,456 Accretion of bond discount 6,133 2,238 - Increase in deferred income taxes 16,593 8,838 2,034 Loss (gain) from sales of assets 12,278 (34) 201 Changes in operating assets and liabilities: Increase in accounts receivable, prepaid expenses and other (16,875) (44,950) (2,445) Increase in merchandise inventories (135,281) (102,230) (51,009) Increase in accounts payable 71,517 115,012 122,360 Increase in accrued expenses 30,119 37,138 25,228 - ------------------------------------------------------------------------------------------------------------------------------------ Total Adjustments 67,346 81,769 149,825 - ------------------------------------------------------------------------------------------------------------------------------------ Net Cash Provided by Operating Activities 116,957 182,593 231,319 - ------------------------------------------------------------------------------------------------------------------------------------ Cash Flows from Investing Activities: Capital expenditures (284,084) (245,246) (205,913) Proceeds from sales of assets 929 3,841 114 - ------------------------------------------------------------------------------------------------------------------------------------ Net Cash Used in Investing Activities (283,155) (241,405) (205,799) - ------------------------------------------------------------------------------------------------------------------------------------ Cash Flows from Financing Activities: Net borrowings (payments) under line of credit agreements 19,000 (1,500) (102,700) Borrowings from life insurance policies 12,406 - - Reduction of long-term debt (134) (107,187) (19,807) Dividends paid (14,687) (12,686) (11,339) Net proceeds from issuance of notes 149,225 146,250 98,992 Proceeds from exercise of stock options 7,342 23,979 8,384 Proceeds from dividend reinvestment plan 1,268 1,058 689 - ------------------------------------------------------------------------------------------------------------------------------------ Net Cash Provided by (Used in) Financing Activities 174,420 49,914 (25,781) - ------------------------------------------------------------------------------------------------------------------------------------ Net Increase (Decrease) in Cash 8,222 (8,898) (261) Cash at Beginning of Year 2,589 11,487 11,748 - ------------------------------------------------------------------------------------------------------------------------------------ Cash at End of Year $ 10,811 $ 2,589 $ 11,487 - ------------------------------------------------------------------------------------------------------------------------------------ Supplemental Disclosure of Cash Flow Information: Income taxes paid $ 29,009 $ 56,336 $ 40,251 Interest paid, net of amounts capitalized 38,622 34,081 30,155 - ------------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 29 THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended January 31, 1998, February 1, 1997 and February 3, 1996 (dollar amounts in thousands, except per share amounts) NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS The Pep Boys - Manny, Moe & Jack and Subsidiaries (the "Company") is engaged principally in the retail sale of automotive parts and accessories, automotive maintenance and service and the installation of parts through a chain of 711 stores at January 31, 1998. The Company currently operates stores in 33 states, Washington, D.C. and Puerto Rico. FISCAL YEAR END The Company's fiscal year ends on the Saturday nearest to January 31. Fiscal years 1997, 1996 and 1995 were comprised of 52 weeks, 52 weeks and 53 weeks, respectively. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated. USE OF ESTIMATES The preparation of the Company's consolidated financial statements in conformity with generally accepted accounting principles necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. MERCHANDISE INVENTORIES Merchandise inventories are valued at the lower of cost (last-in, first-out method) or market. If the first-in, first-out method of valuing inventories had been used, inventories would have been approximately $870 and $3,300 higher at January 31, 1998 and February 1, 1997, respectively. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Depreciation and amortization are computed using the straight-line method over the following estimated useful lives: building and improvements, 5 1/2 to 40 years; furniture, fixtures and equipment, 3 to 10 years. CAPITALIZED INTEREST Interest on borrowed funds is capitalized in connection with the construction of certain long-term assets. Capitalized interest amounted to $1,861, $1,575 and $1,407 in fiscal years 1997, 1996 and 1995, respectively. SERVICE REVENUE Service revenue consists of the labor charge for installing merchandise or maintaining or repairing vehicles, excluding the sale of any installed parts or materials. COSTS OF REVENUES Costs of merchandise sales include the cost of products sold, buying, warehousing and store occupancy costs. Costs of service revenue include service center payroll and related employee benefits and service center occupancy costs. Occupancy costs include utilities, rents, real estate and property taxes, repairs and maintenance and depreciation and amortization expenses. PENSION EXPENSE Annual pension expense is actuarially computed using the "projected unit credit method" which attributes an equal portion of total projected benefits to each year of employee service. INCOME TAXES The Company uses the liability method of accounting for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under the liability method, deferred income taxes are determined based upon enacted tax laws and rates applied to the differences between the financial statement and tax bases of assets and liabilities. ADVERTISING The Company expenses the production costs of advertising the first time the advertising takes place. The Company nets cooperative advertising reimbursements against costs incurred. Net advertising expense for fiscal years 1997, 1996 and 1995 was $0, $324 and $973, respectively. No advertising costs were recorded as an asset as of January 31, 1998. IMPAIRMENT OF LONG-LIVED ASSETS Effective February 4, 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This standard prescribes the method for asset impairment evaluation for long-lived assets and certain identifiable intangibles that are either held and used or to be disposed of. The implementation of this standard did not have an effect on the Company's financial position or results of operations. 30 ACCOUNTING FOR STOCK-BASED COMPENSATION The Company adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," on February 4, 1996. As permitted by SFAS No. 123, the Company is accounting for employee stock-based compensation plans in accordance with Accounting Principles Board (APB) opinion No. 25, "Accounting for Stock Issued to Employees," and has provided disclosures required by SFAS No. 123. REPORTING COMPREHENSIVE INCOME In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 130, "Reporting Comprehensive Income." This statement, which establishes standards for reporting and disclosure of comprehensive income, is effective for interim and annual periods beginning after December 15, 1997, although earlier adoption is permitted. As this statement only requires additional disclosures in the Company's consolidated financial statements, its adoption will not have any impact on the Company's consolidated financial position or results of operations. The Company will adopt SFAS No. 130 in fiscal 1998. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." This statement, which establishes standards for the reporting of information about operating segments and requires the reporting of selected information about operating segments in interim financial statements, is effective for fiscal years beginning after December 15, 1997, although earlier application is permitted. If applicable, this statement would only require additional disclosures in the Company's consolidated financial statements and as such, its adoption will not have any impact on the Company's consolidated financial position or results of operations. The Company expects to adopt SFAS No. 131 in fiscal 1998. EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." This statement, which established standards for the reporting of information about pensions and other postretirement benefits, is effective for periods beginning after December 15, 1997, although earlier adoption is permitted. The Company does not expect adoption of this statement to result in significant changes to its presentation of pension and other postretirement benefit information. The Company will adopt SFAS No. 132 in fiscal 1998. RECLASSIFICATIONS Certain reclassifications have been made to the prior years' consolidated financial statements to conform to the current year's presentation. 31 NOTE B - DEBT SHORT-TERM BORROWINGS The Company had short-term borrowings of $47,000 at January 31, 1998 and $63,000 at February 1, 1997. The Company had short-term lines of credit with several banks totaling $159,000 at January 31, 1998 and February 1, 1997. The interest rates on these lines were negotiated based upon market conditions. The weighted average interest rate on borrowings from these lines was 5.9% at January 31, 1998 and 5.8% at February 1, 1997. The average and maximum month end balances on these borrowings were $111,014 and $143,150 during fiscal 1997 and $98,696 and $154,200 during fiscal 1996.
LONG-TERM DEBT - ----------------------------------------------------------------------------------------------------------- Jan. 31, Feb. 1, 1998 1997 - ----------------------------------------------------------------------------------------------------------- Medium-term notes, 6.4% to 6.7%, due November 2004 through September 2007 $150,000 $ - 7% notes due June 2005 100,000 100,000 Revolving credit agreement (a) 75,000 40,000 6 5/8% notes due May 2003 75,000 75,000 Mortgage notes payable, 5.8% to 8% (b) 2,178 2,312 - ----------------------------------------------------------------------------------------------------------- 402,178 217,312 Less current maturities 157 134 - ----------------------------------------------------------------------------------------------------------- Total long-term debt $402,021 $217,178 - -----------------------------------------------------------------------------------------------------------
(a) The Company has a revolving credit agreement with ten major banks providing for borrowings of up to $200,000. Funds may be drawn and repaid anytime prior to March 30, 2002. Sixty days prior to each anniversary date, the Company may request, and upon agreement of each bank, extend the maturity of this facility an additional year. If one of the banks fails to agree to this extension, the Company has the right to replace that bank. At the Company's option, the interest rate on any loan may be based on (i) the higher of the federal funds rate plus 1/4% or the prime rate, (ii) LIBOR plus up to .63% or (iii) a negotiated rate based upon market conditions. The weighted average interest rate was 5.9% at January 31, 1998 and 5.7% at February 1, 1997. (b) The weighted average interest rate on the mortgage notes payable was 6.9% at January 31, 1998 and February 1, 1997. These notes, which mature at various times through August 2016, are collateralized by land and building with an aggregate carrying value of approximately $7,695 at January 31, 1998. 32 CONVERTIBLE SUBORDINATED NOTES On August 24, 1994 the Company sold $86,250 of 4% convertible subordinated notes. These notes are convertible by the holders into the common stock of the Company at any time on or before September 1, 1999 (the maturity date) at a conversion price of $41 per share subject to adjustment in certain events. The notes are redeemable, in whole or in part, at the option of the Company at any time on or after September 15, 1997, at a redemption price of 101% of the principal amount and at par on or after September 1, 1998. The notes are subordinated to all existing and future senior indebtedness of the Company. ZERO COUPON CONVERTIBLE SUBORDINATED NOTES On September 20, 1996, the Company issued $271,704 principal amount (at maturity) of Liquid Yield Option Notes (LYONs) with a price to the public of $150,000. The net proceeds to the Company were $146,250. The issue price of each such LYON was $552.07 and there will be no periodic payments of interest. The LYONs will mature on September 20, 2011, at $1,000 per LYON, representing a yield to maturity of 4.0% per annum (computed on a semiannual bond equivalent basis). Each LYON is convertible at the option of the holder at any time on or prior to maturity, unless previously redeemed or otherwise purchased, into common stock of the Company at a conversion rate of 12.929 shares per LYON. The LYONs are redeemable at the option of the holder on September 20, 2001 and September 20, 2006 at the issue price plus accrued original issue discount. The Company, at its option, may elect to pay the purchase price on any such purchase date in cash or common stock, or any combination thereof. No LYONs were converted in 1997 and 1996. In addition, on or prior to September 20, 2001, the Company will purchase for cash any LYON, at the option of the holder, in the event of change in control of the Company. The LYONs are subordinated to all existing and future senior indebtedness of the Company. Several of the Company's debt agreements require the maintenance of certain financial ratios and covenants. Approximately $57,649 of the Company's net worth was not restricted by these covenants at fiscal year end. The Company is in compliance with all debt covenants at January 31, 1998. The annual maturities of all long-term debt for the next five years are $157 in 1998, $86,420 in 1999, $183 in 2000, $197 in 2001 and $75,111 in 2002. Any compensating balance requirements related to all revolving credit agreements and debt were satisfied by balances available from normal business operations. The Company was contingently liable for outstanding letters of credit in the amount of approximately $23,443 at January 31, 1998. In February 1998, the Company established a Medium-Term Note program which permits the Company to issue up to $200,000 of Medium-Term Notes. Under this program the Company has sold $100,000 principal amount of senior notes, ranging in annual interest rates from 6.7% to 6.9% and due March 2004 and March 2006. The net proceeds of $99,429 were used for working capital, the repayment of debt and for general corporate purposes. NOTE C - LEASE COMMITMENTS The Company leases certain property and equipment under operating leases which contain renewal and escalation clauses. Aggregate minimum rental commitments for leases having noncancelable lease terms of more than one year are approximately: 1998 - $43,015; 1999 - $41,967; 2000 - $41,642; 2001 - $41,831; 2002 - $42,081; thereafter - $422,636. Rental expenses incurred for operating leases in 1997, 1996 and 1995 were $49,105, $33,616 and $22,302, respectively. NOTE D - STOCKHOLDERS' EQUITY RIGHTS AGREEMENT On December 31, 1997, the Company distributed as a dividend one common share purchase right on each of its common shares. The rights will not be exercisable or transferable apart from the Company's common stock until a person or group, as defined in the rights agreement (dated December 5,1997), without the proper consent of the Company's Board of Directors, acquires 15% or more, or makes an offer to acquire 15% or more of the Company's outstanding stock. When exercisable, the rights entitle the holder to purchase one share of the Company's common stock for $125. Under certain circumstances, including the acquisition of 15% of the Company's stock by a person or group, the rights entitle the holder to purchase common stock of the Company or common stock of an acquiring company having a market value of twice the exercise price of the right. The rights do not have voting power and are subject to redemption by the Company's Board of Directors for $.01 per right anytime before a 15% position has been acquired and for 10 days thereafter, at which time the rights become nonredeemable. The rights expire on December 31, 2007. BENEFITS TRUST On April 29, 1994, the Company established a flexible employee benefits trust with the intention of purchasing up to $75,000 worth of the Company's common shares. The repurchased shares will be held in the trust and will be used to fund the Company's existing benefit plan obligations including healthcare programs, savings and retirement plans and other benefit obligations. The trust will allocate or sell the repurchased shares over the next 15 years to fund these benefit programs. As shares are released from the trust, the Company will charge or credit 33 additional paid-in capital for the difference between the fair value of shares released and the original cost of the shares to the trust. For financial reporting purposes, the trust is consolidated with the accounts of the Company. All dividend and interest transactions between the trust and the Company are eliminated. As of January 31, 1998, the Company has repurchased 2,232,500 shares of its common stock at a cost of $60,269 which is shown as "Cost of shares in benefits trust" on the Company's consolidated balance sheets. NOTE E - FOURTH QUARTER CHARGES During the fourth quarter of fiscal 1997 the Company recorded pretax charges of $28,012 ($18,418 net of tax), $16,330 of which was recorded as Costs of Merchandise Sales on the Company's Consolidated Statements of Earnings and includes the costs associated with closing nine stores, converting all PARTS USA stores to the PEP BOYS EXPRESS format, certain equipment write-offs and other non-recurring expenses. The remaining $11,682 of these expenses, which include costs associated with reducing the store expansion program, certain equipment write-offs and other non-recurring expenses, have been included in Selling, General and Administrative Expenses on the Company's Consolidated Statements of Earnings. NOTE F - PENSION AND SAVINGS PLANS The Company has a pension plan covering substantially all of its full-time employees hired on or before February 1, 1992. Normal retirement age is 65. Pension benefits are based on salary and years of service. The Company's policy is to fund amounts as are necessary on an actuarial basis to provide assets sufficient to meet the benefits to be paid to plan members in accordance with the requirements of ERISA. The actuarial computations using the "projected unit credit method" assumed a discount rate on benefit obligations of 7.5% in 1997, 7.5% in 1996 and 8.5% in 1995, and an expected long-term rate of return on plan assets of 8.5%. The assumption for annual salary increases over the average remaining service lives of employees under the plan was 4% in 1996 and 1995. Variances between actual experience and assumptions for costs and returns on assets are amortized over the remaining service lives of employees under the plan. As of December 31, 1996, the Company froze the accrued benefits under the plan and active participants became fully vested. The plan's trustee will continue to maintain and invest plan assets and will administer benefit payments. In accordance with SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," a curtailment gain of $1,554 was recognized in 1996. Pension (income) expense includes the following:
Jan. 31, Feb. 1, Feb. 3, Year Ended 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- Normal service costs $ - $1,213 $ 968 Interest cost on projected benefit obligation 1,667 1,561 1,382 Actual return on plan assets (614) (752) (720) Net amortization of transition asset and unrecognized net gain (214) (214) (759) Prior service cost - 19 19 Asset gain deferred (1,115) (974) (1,013) - ----------------------------------------------------------------------------------------------------------------------------------- Total pension (income) expense $ (276) $ 853 $ (123) - -----------------------------------------------------------------------------------------------------------------------------------
Pension plan assets are stated at fair market value and are composed primarily of money market funds, fixed income investments with maturities of less than five years and the Company's common stock. 34 The following table sets forth the reconciliation of the plan's funded status as of December 31 of each year. The actuarial present value of benefit obligation assumed a weighted average discount rate of 7.25% at December 31, 1997 and 7.5% at December 31, 1996.
Dec. 31, Dec. 31, 1997 1996 - ------------------------------------------------------------------------------------------------------------- Actuarial present value of benefit obligation: Vested benefit obligation $(24,567) $(22,076) - ------------------------------------------------------------------------------------------------------------- Accumulated benefit obligation $(24,567) $(22,076) - ------------------------------------------------------------------------------------------------------------- Projected benefit obligation for service rendered to date $(24,567) $(22,076) Plan assets at fair value 20,324 20,815 - ------------------------------------------------------------------------------------------------------------- Assets less than projected benefit obligation (4,243) (1,261) Unrecognized net asset (at date of transition) (857) (1,071) Unrecognized net loss from past experience different from previous assumption 3,043 - Adjustment to recognize minimum liability (2,186) - - ------------------------------------------------------------------------------------------------------------- Accrued pension cost as of January 31, 1998 and February 1, 1997, respectively $ (4,243) $ (2,332) - -------------------------------------------------------------------------------------------------------------
The Company has a 401(k) savings plan which covers all full-time employees who are at least 21 years of age with one or more years of service. The Company contributes the lesser of 50% of the first 6% of a participant's contributions or 3% of the participant's compensation. The Company's savings plan contribution expense was $4,543 in 1997, $3,685 in 1996 and $3,150 in 1995. 35 NOTE G - INCOME TAXES The provision for income taxes includes the following:
Jan. 31, Feb. 1, Feb. 3, Year ended 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- Current: Federal $ 8,651 $45,831 $42,276 State 601 3,761 3,648 Deferred: Federal 15,487 8,225 1,905 State 1,106 588 129 - ----------------------------------------------------------------------------------------------------------------------------------- $25,845 $58,405 $47,958 - -----------------------------------------------------------------------------------------------------------------------------------
A reconciliation of the statutory federal income tax rate to the effective rate of the provision for income taxes follows:
Jan. 31, Feb. 1, Feb. 3, Year ended 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- Statutory tax rate 35.0% 35.0% 35.0% State income taxes, net of federal tax benefits 1.5 1.8 1.9 Other, net (2.2) (.1) .1 - ----------------------------------------------------------------------------------------------------------------------------------- 34.3% 36.7% 37.0% - -----------------------------------------------------------------------------------------------------------------------------------
Deferred income taxes relate to the following temporary differences:
Jan. 31, Feb. 1, Feb. 3, Year ended 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- Depreciation $ 22,173 $ 9,330 $ 6,420 Inventories 575 (1,593) (2,551) Vacation accrual (725) (593) (522) Pension accrual (2,118) 263 47 Store closing reserves (3,866) - - Insurance (288) 1,096 (1,143) Other, net 842 310 (217) - ----------------------------------------------------------------------------------------------------------------------------------- $16,593 $ 8,813 $ 2,034 - -----------------------------------------------------------------------------------------------------------------------------------
36 The following are components of the net deferred tax accounts as of January 31, 1998:
Federal State Total - ----------------------------------------------------------------------------------------------------------------------------------- Deferred tax assets: Current $33,817 $2,415 $36,232 Long-term 18,981 1,356 20,337 Deferred tax liabilities: Current 12,149 868 13,017 Long-term 87,308 6,237 93,545 - -----------------------------------------------------------------------------------------------------------------------------------
The following are components of the net deferred tax accounts as of February 1, 1997:
Federal State Total - ----------------------------------------------------------------------------------------------------------------------------------- Deferred tax assets: Current $26,426 $1,883 $28,309 Long-term 18,720 1,337 20,057 Deferred tax liabilities: Current 10,572 755 11,327 Long-term 65,748 4,691 70,439 - -----------------------------------------------------------------------------------------------------------------------------------
Items that gave rise to significant portions of the deferred tax accounts are as follows:
Jan. 31, Feb. 1, Year ended 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------------- Deferred tax assets: Inventories $ 9,500 $10,075 Vacation accrual 4,325 3,600 Minimum pension liability adjustment 820 - Store closing reserves 3,866 - Other, net 4,704 3,307 - ----------------------------------------------------------------------------------------------------------------------------------- $23,215 $16,982 - ----------------------------------------------------------------------------------------------------------------------------------- Deferred tax liabilities: Depreciation $70,681 $48,507 Other, net 2,527 1,875 - ----------------------------------------------------------------------------------------------------------------------------------- $73,208 $50,382 - -----------------------------------------------------------------------------------------------------------------------------------
37 NOTE H - NET EARNINGS PER SHARE The FASB issued SFAS No. 128, "Earnings per Share," to be effective for all periods ending after December 15, 1997. SFAS 128 requires all prior period earnings per share data presented to be restated to conform with the provisions of this pronouncement. SFAS 128 replaces primary earnings per share with the presentation of basic earnings per share and fully diluted earnings per share with diluted earnings per share. For fiscal years 1997, 1996 and 1995, basic earnings per share are based on net earnings divided by the weighted average number of shares outstanding during the period. Diluted earnings per share assumes conversion of convertible subordinated notes, zero coupon convertible subordinated notes and the dilutive effects of stock options. Adjustments for convertible securities were antidilutive in 1997 and therefore excluded from the computation of diluted EPS, however, these securities could potentially be dilutive in the future. Options to purchase 2,281,572 shares of common stock at various prices ranging from $23.78 to $37.38 were outstanding at January 31, 1998 but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price of the common shares. - -------------------------------------------------------------------------------- - -- (in thousands, except per share amounts)
Fiscal 1997 Fiscal 1996 ---------------------------------- ------------------------------------------ Earnings Shares Per Share Earnings Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------- ------------ ------ ----------- ------------- ------ Basic EPS Earnings available to common stockholders $49,611 61,133 $0.81 $100,824 60,305 $1.67 ===== ===== Effect of Dilutive Securities Adjustment for interest on 4% convertible subordinated notes, net of tax - - 2,168 2,104 Adjustment for interest on 4% zero coupon subordinated notes, net of tax - - 1,409 1,303 Common Shares assumed issued upon exercise of dilutive stock options - 524 - 893 Diluted EPS ------- ------ -------- ------ Earnings available to common stockholders assuming conversion $49,611 61,657 $0.80 $104,401 64,605 $1.62 ======= ====== ===== ======== ====== ===== [RESTUBBED TABLE] (in thousands, except per share amounts) Fiscal 1995 --------------------------------- Earnings Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- ------ Basic EPS Earnings available to common stockholders $81,494 59,581 $1.37 ===== Effect of Dilutive Securities Adjustment for interest on 4% convertible subordinated notes, net of tax 2,200 2,104 Adjustment for interest on 4% zero coupon subordinated notes, net of tax - - Common Shares assumed issued upon exercise of dilutive stock options - 903 Diluted EPS ------- ------ Earnings available to common stockholders assuming conversion $83,694 62,588 $1.34 ======= ====== =====
38 NOTE I - STOCK OPTIONS PLANS Options to purchase the Company's common stock have been granted to key employees and certain members of the Board of Directors. The option prices are at least 100% of the fair market value of the common stock on the grant date. Under the terms of the Company's Incentive Stock Option Plan adopted in 1982, options to purchase up to 3,600,000 shares of the Company's common stock were authorized. Options granted prior to 1988 are exercisable from the date of grant. Options granted in 1988 and thereafter are exercisable on the second anniversary of the grant date. All options under this plan cannot be exercised more than ten years from the grant date. No additional options will be granted under this plan. Under the terms of the Company's Nonqualified Stock Option Plans, adopted in 1984 and 1985, options to purchase up to 3,300,000 shares of the Company's common stock were authorized. The options became exercisable over a five-year period with one-fifth exercisable on the grant date and one-fifth on each anniversary date for the four years following the grant date. Options granted cannot be exercised more than ten and one-half years after the grant date. No additional options will be granted under these plans. On May 21, 1990, the stockholders approved the 1990 Stock Incentive Plan which authorized the issuance of restricted stock and/or options to purchase up to 1,000,000 shares of the Company's common stock. Additional shares in the amounts of 2,000,000, 1,500,000 and 1,500,000 were authorized by stockholders on June 4, 1997, May 31, 1995 and June 1, 1993, respectively. Under this plan, both incentive and nonqualified stock options may be granted to eligible participants. Incentive stock options are exercisable on the second or third anniversary of the grant date and nonqualified options become exercisable over a five-year period with one-fifth exercisable on the grant date and one-fifth on each anniversary date for the four years following the grant date. Options cannot be exercised more than ten years after the grant date. As of January 31, 1998, 2,277,285 shares remain available for grant. Stock option transactions for the Company's stock option plans are summarized as follows:
Fiscal 1997 Fiscal 1996 Fiscal 1995 ------------------------ ----------------------- -------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price - --------------------------------------------------------------------------------------------------------------------------- Outstanding - beginning of year 3,500,036 $23.34 4,031,329 $20.91 3,662,779 $16.24 Granted 837,000 30.15 613,702 33.64 1,042,970 30.90 Exercised (487,914) 15.00 (988,605) 18.43 (582,470) 8.16 Canceled (383,928) 30.24 (156,390) 31.10 (91,950) 28.76 - --------------------------------------------------------------------------------------------------------------------------- Outstanding - end of year 3,465,194 25.40 3,500,036 23.34 4,031,329 20.91 - --------------------------------------------------------------------------------------------------------------------------- Options exercisable - at year end 1,988,209 21.08 2,227,917 18.53 2,724,607 16.77 Weighted average estimated fair value of options granted 11.00 11.28 11.04 - ---------------------------------------------------------------------------------------------------------------------------
39 The following table summarizes information about stock options outstanding at January 31, 1998:
Options Outstanding Options Exercisable ---------------------------------------------- ------------------------------- Weighted Average Weighted Weighted Number Remaining Average Number Average Range of Outstanding Contractual Exercise Exercisable Exercise Exercise Prices at 1/31/98 Life Price at 1/31/98 Price - ---------------------------------------------------------------------------------------------------------------------------------- $11.13 to $20.00 894,855 2 years $12.36 894,855 $12.36 $20.01 to $25.00 404,900 6 years 22.85 336,850 22.67 $25.01 to $30.00 297,889 7 years 27.38 192,311 27.79 $30.01 to $37.38 1,867,550 8 years 31.88 564,193 31.67 - ---------------------------------------------------------------------------------------------------------------------------------- $11.13 to $37.38 3,465,194 1,988,209 - ----------------------------------------------------------------------------------------------------------------------------------
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for its stock option plans. Accordingly, no compensation expense has been recognized for its stock option plans. Had compensation cost for the Company's stock option plans for options granted in fiscal 1995 and thereafter been determined based on the fair value at the grant dates and recognized as compensation expense on a straight-line basis over the vesting period of the grant consistent with the method of SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net earnings and net earnings per share would have been reduced to the pro forma amounts indicated below:
- --------------------------------------------------------------------------------------------------- Fiscal 1997 Fiscal 1996 - --------------------------------------------------------------------------------------------------- Net earnings: As reported $49,611 $ 100,824 Pro forma $46,120 $ 98,185 Net earnings per share: As reported Basic $ 0.81 $ 1.67 Diluted $ 0.80 $ 1.62 Pro forma Basic $ 0.75 $ 1.63 Diluted $ 0.75 $ 1.58 - ---------------------------------------------------------------------------------------------------
The pro forma effect on net earnings for fiscal 1997 and fiscal 1996 are not representative of the pro forma effect on net earnings in future years because it does not take into consideration pro forma compensation expense related to grants made prior to 1995. The fair value of each option granted during fiscal 1997 and fiscal 1996 is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: (i) 0.7% dividend yield for all years, (ii) expected volatility of 33% and 32%, respectively, (iii) risk-free interest rate ranges of 5.5% to 6.9% and 5.5% to 6.7%, respectively, and (iv) ranges of expected lives 3.5 years to 6.5 years and 3.5 years to 6 years, respectively. NOTE J - CONTINGENCIES The Company is a defendant in a purported class action entitled "Brian Lee, Anthony Baxton, and Harry Schlein v. The Pep Boys - Manny, Moe & Jack," in the Circuit Court of Mobile County, Alabama. The Company has moved to dismiss the case for failure to state a claim. The Company's motion to dismiss is pending before the Circuit Court of Mobile County, Alabama. In their complaint, the plaintiffs allege that the Company sold old or used automotive batteries to consumers as if those batteries were new. The complaint purports to state causes of action for fraud and deceit, negligent misrepresentation, breach of contract and violation of state consumer protection statutes. The plaintiffs are seeking compensatory and punitive damages, as well as injunctive and equitable relief. The Company believes the claims are without merit and intends to vigorously defend this action. 40 The Company is also party to various other lawsuits and claims arising in the normal course of business. In the opinion of management, these lawsuits and claims, including the case above, are not singularly or in the aggregate, material to the Company's financial position or results of operations. NOTE K - FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of the Company's financial instruments are as follows: ...............................................................................
January 31, 1998 February 1, 1997 ------------------------ --------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value - ------------------------------------------------------------------------------------------------------------------------- Assets: Cash $ 10,811 $ 10,811 $ 2,589 $ 2,589 Accounts receivable 13,070 13,070 7,653 7,653 Liabilities: Accounts payable 409,053 409,053 337,536 337,536 Short-term borrowings 47,000 47,000 63,000 63,000 Long-term debt including current maturities 402,178 406,086 217,312 215,029 Convertible subordinated notes 86,250 84,637 86,250 88,838 Zero coupon convertible subordinated notes 158,370 147,236 152,237 146,041 - -------------------------------------------------------------------------------------------------------------------------
CASH, ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND SHORT-TERM BORROWINGS The carrying amounts approximate fair value because of the short maturity of these items. LONG-TERM DEBT INCLUDING CURRENT MATURITIES, CONVERTIBLE SUBORDINATED NOTES AND ZERO COUPON CONVERTIBLE SUBORDINATED NOTES Interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities are used to estimate fair value for debt issues that are not quoted on an exchange. The fair value estimates presented herein are based on pertinent information available to management as of January 31, 1998 and February 1, 1997. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date, and current estimates of fair value may differ significantly from amounts presented herein. 41
QUARTERLY FINANCIAL DATA (UNAUDITED) The Pep Boys - Manny, Moe & Jack and Subsidiaries (dollar amounts in thousands, except per share amounts) - -------------------------------------------------------------------------------------------------------------------- Net Earnings Cash Market Price Year Ended Total Gross Operating Net Per Share Dividends Per Share Jan. 31, 1998 Revenues Profit Profit Earnings Basic Diluted Per Share High Low - -------------------------------------------------------------------------------------------------------------------- 1st Quarter $489,278 $141,942 $44,105 $23,146 $.38 $.37 $.0600 35 29 3/8 2nd Quarter 539,298 160,465 55,508 30,088 .49 .47 .0600 35 5/8 30 3rd Quarter 525,564 152,866 46,318 24,120 .39 .38 .0600 34 7/8 23 5/8 4th Quarter 502,380 85,047 (36,128) (27,743) (.45) (.45) .0600 26 3/16 21 9/16 - -------------------------------------------------------------------------------------------------------------------- Year Ended Feb. 1, 1997 - -------------------------------------------------------------------------------------------------------------------- 1st Quarter $428,614 $121,301 $39,594 $20,116 $.34 $.33 $.0525 34 7/8 27 7/8 2nd Quarter 476,673 141,421 55,333 30,235 .50 .49 .0525 35 1/2 28 3rd Quarter 478,819 138,287 50,109 27,777 .46 .44 .0525 38 1/4 30 3/4 4th Quarter 444,433 136,510 42,064 22,696 .37 .36 .0525 38 27 7/8 - --------------------------------------------------------------------------------------------------------------------
Under the Company's present accounting system, actual gross profit from merchandise sales can be determined only at the time of physical inventory, which is taken at the end of the fiscal year. Gross profit from merchandise sales for the first, second and third quarters is estimated by the Company based upon recent historical gross profit experience and other appropriate factors. Any variation between estimated and actual gross profit from merchandise sales for the first three quarters is reflected in the fourth quarter's results. See discussion of fourth quarter charges in Note E to the Consolidated Financial Statements. 42 EX-99.16 17 EXHIBIT G(2) Index Page PART I - FINANCIAL INFORMATION ------------------------------ Item 1. Condensed Consolidated Financial Statements (Unaudited) Consolidated Balance Sheets - October 31, 1998 and January 31, 1998 3 Consolidated Statements of Operations - Thirteen and Thirty-nine weeks ended October 31, 1998 and November 1, 1997 4 Condensed Consolidated Statements of Cash Flows - Thirty-nine weeks ended October 31, 1998 and November 1, 1997 5 Notes to Condensed Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-14 PART II - OTHER INFORMATION 15 - --------------------------- SIGNATURE 16 2 THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollar amounts in thousands, except per share amounts)
Oct. 31, 1998 Jan. 31, 1998* ------------- ------------- (Unaudited) ASSETS Current Assets: Cash and cash equivalents.................................. $ 97,470 $ 10,811 Accounts receivable, net................................... 15,989 13,070 Merchandise inventories.................................... 548,963 655,363 Prepaid expenses........................................... 13,494 27,449 Deferred income taxes...................................... 23,215 23,215 Other...................................................... 30,829 40,308 ------------- ------------- Total Current Assets.................................... 729,960 770,216 Property and Equipment-at cost: Land....................................................... 278,887 296,721 Building and improvements.................................. 897,354 920,522 Furniture, fixtures and equipment.......................... 568,657 542,256 Construction in progress................................... 31,647 21,432 ------------ ------------- 1,776,545 1,780,931 Less accumulated depreciation and amortization............. 463,939 403,182 ------------- ------------- Total Property and Equipment............................ 1,312,606 1,377,749 Other........................................................ 12,897 13,395 ------------- ------------- Total Assets.................................................. $2,055,463 $2,161,360 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable........................................... $ 160,665 $ 409,053 Accrued expenses........................................... 210,071 162,666 Short-term borrowings...................................... - 47,000 Current maturities of long-term debt....................... 166 157 Convertible Subordinated Notes............................. 86,250 - ------------- ------------- Total Current Liabilities............................... 457,152 618,876 Long-Term Debt, less current maturities...................... 526,894 402,021 Deferred Income Taxes........................................ 70,952 73,208 Convertible Subordinated Notes............................... - 86,250 Zero Coupon Convertible Subordinated Notes................... 163,118 158,370 Commitments and Contingencies Stockholders' Equity: Common Stock, par value $1 per share: Authorized 500,000,000 shares - Issued and outstanding 63,820,110 and 63,657,728..................... 63,820 63,658 Additional paid-in capital................................. 175,817 173,107 Retained earnings.......................................... 659,345 647,505 Accumulated other comprehensive income..................... (1,366) (1,366) ------------- ------------ 897,616 882,904 Less: Cost of shares in benefits trust-2,232,500 shares, at cost. 60,269 60,269 ------------- ------------ Total Stockholders' Equity.............................. 837,347 822,635 ------------- ------------ Total Liabilities and Stockholders' Equity.................... $2,055,463 $2,161,360 ============= ============
See notes to condensed consolidated financial statements. *Taken from the audited financial statements at January 31, 1998. 3 THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (dollar amounts in thousands, except per share amounts) UNAUDITED
Thirteen weeks ended Thirty-nine weeks ended -------------------------------- --------------------------------- October 31, 1998 November 1, 1997 October 31, 1998 November 1, 1997 -------------- -------------- -------------- -------------- Merchandise Sales.................................... $512,912 $440,500 $1,527,492 $1,303,518 Service Revenue...................................... 103,055 85,064 308,000 250,622 -------------- -------------- -------------- -------------- Total Revenues....................................... 615,967 525,564 1,835,492 1,554,140 Costs of Merchandise Sales........................... 393,000 304,759 1,123,536 901,184 Costs of Service Revenue............................. 82,890 67,939 245,089 197,683 -------------- -------------- -------------- -------------- Total Costs of Revenues.............................. 475,890 372,698 1,368,625 1,098,867 Gross Profit from Merchandise Sales.................. 119,912 135,741 403,956 402,334 Gross Profit from Service Revenue.................... 20,165 17,125 62,911 52,939 -------------- -------------- -------------- -------------- Total Gross Profit................................... 140,077 152,866 466,867 455,273 Selling, General and Administrative Expenses......... 134,681 106,548 393,475 309,342 -------------- -------------- -------------- -------------- Operating Profit..................................... 5,396 46,318 73,392 145,931 Nonoperating Income.................................. 708 1,129 1,470 3,738 Interest Expense..................................... 12,230 9,758 37,610 28,147 -------------- -------------- -------------- -------------- Earnings (Loss) before Income Taxes.................. (6,126) 37,689 37,252 121,522 Income Taxes......................................... (2,205) 13,569 13,411 44,168 -------------- -------------- -------------- -------------- Net Earnings (Loss).................................. (3,921) 24,120 23,841 77,354 Retained Earnings, beginning of period............... 667,268 658,485 647,505 612,581 Cash Dividends....................................... 4,002 3,673 12,001 11,003 -------------- -------------- -------------- -------------- Retained Earnings, end of period..................... $659,345 $678,932 $ 659,345 $ 678,932 ============== ============== ============== ============== Basic Earnings (Loss) per Share...................... $ (.06) $ .39 $ .39 $ 1.27 Diluted Earnings (Loss) per Share.................... $ (.06) $ .38 $ .39 $ 1.22 ============== ============== ============== ============== Cash Dividends per Share............................. $ .0650 $ .0600 $ .1950 $ .1800 ============== ============== ============== ==============
See notes to condensed consolidated financial statements. 4 THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollar amounts in thousands) UNAUDITED
Thirty-nine weeks ended ---------------------------------- October 31, 1998 November 1, 1997 -------------- -------------- Net Cash Provided by (Used in) Operating Activities............. $ 43,428 $ (1,850) Cash Flows from Investing Activities: Capital expenditures............................................ (126,966) (215,422) Proceeds from sale of assets.................................... 97,473 - Other, net...................................................... 1,730 788 ------------- ------------- Net Cash Used in Investing Activities........................... (27,763) (214,634) Cash Flows from Financing Activities: Net (payments) borrowings under line of credit agreements....... (122,000) 124,100 Net proceeds from issuance of notes............................. 202,241 99,000 Reduction of long-term debt..................................... (118) (368) Dividends paid.................................................. (12,001) (11,003) Proceeds from exercise of stock options and dividend reinvestment plan................................ 2,872 5,753 ------------- ------------- Net Cash Provided by Financing Activities....................... 70,994 217,482 ------------- ------------- Net Increase in Cash................................................. 86,659 998 Cash at Beginning of Period.......................................... 10,811 2,589 ------------- ------------- Cash at End of Period................................................ $ 97,470 $ 3,587 ============= =============
See notes to condensed consolidated financial statements. 5 THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. Condensed Consolidated Financial Statements The consolidated balance sheet as of October 31, 1998, the consolidated statements of operations for the thirteen and thirty-nine week periods ended October 31, 1998 and November 1, 1997 and the condensed consolidated statements of cash flows for the thirty-nine week periods ended October 31, 1998 and November 1, 1997 have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present fairly the financial position, results of operations and cash flows at October 31, 1998 and for all periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's January 31, 1998 annual report to shareholders. The results of operations for the thirteen and thirty-nine week period ended October 31, 1998 are not necessarily indicative of the operating results for the full year. NOTE 2. Merchandise Inventories Merchandise inventories are valued at the lower of cost (last-in, first-out) or market. If the first-in, first-out method of valuing inventories had been used by the Company, inventories would have been approximately $870,000 higher at both October 31, 1998 and January 31, 1998. NOTE 3. Comprehensive Income Effective February 1, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." This statement establishes standards for reporting and disclosure of comprehensive income and its components in financial statements. Accumulated other comprehensive income in the consolidated balance sheets as of October 31, 1998 and January 31, 1998 consists of a minimum pension liability adjustment. There were no differences between net earnings and comprehensive income for the thirteen and thirty-nine week periods ended October 31, 1998 and November 1, 1997. NOTE 4. Accounting for Derivative Instruments and Hedging Activities In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This statement is effective for fiscal years beginning after June 15, 1999, although early adoption is encouraged. Management has not yet determined what impact, if any, the application of this statement will have on the Company's financial statements. Note 5. Medium-Term Note Program In February 1998, the Company established a Medium-Term Note program which permits the Company to issue up to $200,000,000 of Medium-Term Notes. Under this program the Company has sold $100,000,000 principal amount of senior notes, ranging in annual interest rates from 6.7% to 6.9% and due March 2004 and March 2006. The net proceeds of $99,429,000 were used for working capital, the repayment of debt and for general corporate purposes. Additionally, in July 1998, under this note program, the Company sold $100,000,000 of Term Enhanced ReMarketable Securities with a stated maturity date of July 2017. The Company sold a call option with the securities, which allows the securities to be remarketed to the public in July 2006 under certain circumstances. If the securities are not remarketed, the Company will be obligated to repay the principal amount in full in July 2017. The level yield to maturity on the securities is approximately 6.85% and the coupon rate is 6.92%. The net proceeds of $101,923,500 from the sale of the securities and the call option were used for working capital, the repayment of debt and for general corporate purposes. 6 NOTE 6. Net Earnings (Loss) Per Share
Thirteen weeks ended Thirty-nine weeks ended (in thousands, except per share data) -------------------- ----------------------- October 31, 1998 November 1, 1997 October 31, 1998 November 1, 1997 ----------------- ---------------- ---------------- ---------------- (a) Net earnings (loss).............................. $(3,921) $24,120 $23,841 $77,354 Adjustment for interest on 4% convertible subordinated notes, net of income tax effect... _ 554 _ 1,661 Adjustment for interest on zero coupon convertible subordinated notes, net of income tax effect... _ 978 _ 2,898 - --------------------------------------------------------------------------------------------------------------------------------- (b) Adjusted net earnings (loss) $(3,921) $25,652 $23,841 $81,913 - --------------------------------------------------------------------------------------------------------------------------------- (c) Average number of common shares outstanding during the period.............................. 61,567 61,210 61,527 61,070 Common shares assumed issued upon conversion of 4% convertible subordinated notes.............. _ 2,104 _ 2,104 Common shares assumed issued upon conversion of zero coupon convertible subordinated notes..... _ 3,513 _ 3,513 Common shares assumed issued upon exercise of dilutive stock options, net of assumed repurchase, at the average market price........ _ 435 220 590 - --------------------------------------------------------------------------------------------------------------------------------- (d) Average number of common shares assumed outstanding during the period.................. 61,567 67,262 61,747 67,277 - --------------------------------------------------------------------------------------------------------------------------------- Basic Earnings (Loss) per Share (a/c)............ $ (.06) $ .39 $ .39 $ 1.27 Diluted Earnings (Loss) per Share (b/d).......... $ (.06) $ .38 $ .39 $ 1.22 - ---------------------------------------------------------------------------------------------------------------------------------
Adjustments for certain convertible securities were antidilutive during the thirteen and thirty-nine week periods ended October 31, 1998 and have therefore been excluded from the computation of diluted EPS; however, these securities could potentially be dilutive in the future. Options to purchase 3,971,661 shares of common stock at various prices ranging from $15.53 to $37.38 were outstanding at October 31, 1998, but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price of the common shares. NOTE 7. Third Quarter Charges In October 1998 the Company closed and consummated the sale of real estate assets relating to 100 of its non-service/non-tire format Pep Boys Express stores. Nine other such stores were also closed in October. As a result of these events, the Company recorded pretax charges to earnings of $25,251,000 ($16,160,000 net of tax), $23,769,000 of which was recorded as Cost of Merchandise Sales in the Company's Consolidated Statements of Operations and includes costs associated with the sale and closure of the 109 Pep Boys Express stores. These costs include various building, leasehold improvement, fixture and equipment write-offs, as well as lease commitment charges and the costs associated with handling the related merchandise inventories. The remaining $1,482,000 of related costs, which includes mainly store and general office payroll and travel expenses, have been included in Selling, General and Administrative Expenses on the Company's Consolidated Statements of Operations. 7 -----END PRIVACY-ENHANCED MESSAGE-----