(ITEM 1) ELECTION OF DIRECTORS
What is the makeup of the Board of
Directors?
On April
23, 2008, Jeffrey C. Rachor resigned from his positions as President & Chief
Executive Officer and as a member of our Board of Directors. In connection
therewith, our Board of Directors was reduced to eleven members.
Nominees for Election
The Board
of Directors proposes that the following nominees be elected. If elected, each
nominee will serve a one-year term expiring at the 2009 Annual Meeting and until
such director’s successor has been duly elected and qualified. Each of the
nominees has consented to serve, if elected. Unless contrary instructions are
given, the proxy holders named on the enclosed proxy card will vote for the
election of these nominees. If any nominee becomes unavailable to serve as a
director, the proxy holders will vote for the election of any substitute nominee
designated by the Board.
The nominees standing for election
are:
|
William
Leonard
|
Director since
2002; Chairman of the Board since February 2006
|
Mr. Leonard, 60, served
as our Interim Chief Executive Officer from July 18, 2006 through March 25,
2007. From 1992 through his retirement in 2004, Mr. Leonard served as an
officer, and ultimately President & Chief Executive Officer and a director,
of ARAMARK Corporation, a professional services company providing food,
hospitality, facility management services and uniform and work
apparel.
|
Peter A.
Bassi
|
Director since
2002
|
Mr. Bassi, 58, is retired. From 1997
through 2004, he served as an officer, and ultimately Chairman, of Yum!
Restaurants International, a division of Yum! Brands, Inc., that operates
restaurants under the KFC, Long John Silver's, Pizza Hut, Taco Bell, A&W
Restaurant and other brands. Mr. Bassi serves a director of BJ’s restaurants,
Inc.
|
Jane
Scaccetti
|
Director since
2002
|
Ms. Scaccetti, 54, a CPA, has been a
shareholder and principal of Drucker & Scaccetti PC, a private accounting
firm, since 1990. Ms. Scaccetti serves as a director of Nutrition Management
Services Company.
|
John T.
Sweetwood
|
Director since
2002
|
Mr. Sweetwood, 60, is a principal
and the President of Woods Investment, LLC, a private real estate investment
firm. From 1995 through 2002, Mr. Sweetwood served as an officer, and ultimately
as President of The Americas, of Six Continents Hotels (currently,
Intercontinental Hotels Group), a division of Six Continents PLC (currently IHG
PLC) that operates hotels under the InterContinental, Crown Plaza, Holiday Inn
and other brands.
|
M. Shân
Atkins
|
Director since
2004
|
Ms. Atkins, 51, a CPA and Chartered
Accountant, is Managing Director of Chetrum Capital LLC, a private investment
firm. From 1996 through 2001, Ms. Atkins served as an officer, and ultimately as
Executive Vice President – Strategic Initiatives, of Sears Roebuck & Co. Ms.
Atkins serves as a director of Shoppers Drug Mart Corporation, Spartan Stores,
Inc. and Tim Hortons Inc.
6
|
Robert H.
Hotz
|
Director since
2005
|
Mr. Hotz, 63, is Senior Managing
Director, Co-Head of Investment Banking, a member of the Operating Committee and
Co-Chairman of Houlihan Lokey Howard & Zukin, Inc, where he has been
employed since 2002. Mr. Hotz serves as a director of Universal Health Services,
Inc.
|
James A.
Mitarotonda
|
Director since
August 2006
|
Mr. Mitarotonda, 53, is the Chairman
of the Board, President and Chief Executive Officer of Barington Capital Group,
L.P., an investment firm that he co-founded in 1991. Mr. Mitarotonda served as
the President and Chief Executive Officer of Dynabazaar, Inc. from May 2006
until April 2007 and January 2004 until December 2004. Mr. Mitarotonda also
served as the Co-Chief Executive Officer and Co-Chairman LQ Corporation, Inc.
from April 2003 until May 2004 and as its sole Chief Executive Officer from May
2004 until October 2004. Mr. Mitarotonda serves as a director of A. Schulman,
Inc. and Griffon Corporation.
Each of Messrs. Mitarotonda, Reid,
White and Williams was originally appointed to the Board pursuant to the terms
of an agreement between the Company and a group of investors led by Barington
Capital Group, L.P. See “Certain Relationships and Related Transactions” for a
more complete description of the Barington Agreement.
|
Nick
White
|
Director since
August 2006
|
Mr. White, 63, is President and
Chief Executive Officer of White & Associates, a management consulting firm
that he founded in 2000. From 1973 through 2000, Mr. White held numerous
executive and management level positions with Wal-Mart Stores, Inc., including
Executive Vice President and General Manager of the Supercenter division from
1990 to 2000 and Executive Vice President and General Manager of Sam's Wholesale
Club from 1985 through 1989. Mr. white serves as a Director of Dillard’s,
Inc.
|
James A.
Williams
|
Director since
August 2006
|
Mr. Williams, 65, is the Corporate
President and Vice Chairman of GoldToeMoretz, LLC, the resultant parent company
formed as a result of the merger of Gold Toe Bands, Inc. and Moretz Sports, Inc.
in October 2006. From 1999 through October 2006, Mr. Williams served as the
President and Chief Executive Officer of Gold Toe Brands, Inc., the largest
branded sock manufacturer in the United States.
|
Thomas R.
Hudson Jr.
|
Director since
August 2006
|
Mr.
Hudson, 42, is and has been since May 2002 the Manager of Pirate Capital LLC, an
investment manager, which he founded. From February 2001 through May 2002, Mr.
Hudson was a private investor. From 1999 to February 2001, Mr. Hudson served as
a Managing Director at Amroc Investments, LLC, an investment management firm,
where he directed all distressed research and managed the bank loan trading
desk. Prior to that, from 1997 to 1999, Mr. Hudson served as a Vice President
and Portfolio Manager at Goldman, Sachs & Co., an investment bank, where he
was responsible for investing and trading a $500 million portfolio of distressed
domestic and international private assets. No such companies employing Mr.
Hudson were a parent, subsidiary or affiliate of the Company. Mr. Hudson
currently serves as a director of The Allied Defense Group, Inc., The Brink’s
Company and PW Eagle, Inc.
Mr.
Hudson was originally appointed to the Board in exchange for Pirate Capital
LLC’s withdrawal of its Notice of Intent to Nominate One Person for Election as
a Director and to Move a Business Proposal at the 2006 Annual
Meeting.
|
Irvin D.
Reid
|
Director since
December 2007
|
Dr. Reid, 67, is the
President of Wayne State University, an urban research university located in
Detroit, Michigan and sits on the Board of the Federal Reserve Bank of Chicago
(Detroit Branch). Mr. Reid serves as a director of Mack-Cali Realty Corporation
and Handleman Corporation.
7
THE BOARD OF DIRECTORS RECOMMENDS A
VOTE
“FOR”
EACH OF THESE NOMINEES FOR DIRECTOR
Corporate Governance
Our Board of Directors’
governance principles are embodied in our corporate Code of Ethics (applicable
to all Pep Boys associates including our executive officers and members of the
Board), the Board of Directors Code of Conduct and the various Board committee
charters, all of which are available for review on our website, www.pepboys.com,
or which will be provided in writing, free of charge, to any shareholder upon
request to: Pep Boys, 3111 West Allegheny Avenue, Philadelphia, PA 19132,
Attention: Secretary. The information on our website is not part of this Proxy
Statement. References to our website herein are intended as inactive textual
references only.
As
required by the New York Stock Exchange (NYSE), promptly following our 2007
Annual Meeting, our President & CEO certified to the NYSE that he was not
aware of any violation by Pep Boys of NYSE corporate governance listing
standards.
Independence.
An independent director is independent from management and
free from any relationship with Pep Boys that, in the opinion of the Board,
would interfere in the exercise of independent judgment as a director. In
reaching such an opinion, the Board considers, among other factors, the
guidelines for independent directors promulgated by the NYSE. The independence
of the outside directors is reviewed annually by the full Board. In accordance
with NYSE
guidelines, our Board consists of a majority of independent directors. In
fact, all of our current directors are independent. All Committees of the Board
consist entirely of independent directors.
Communicating with the Board of Directors.
Interested parties should address all communications to the full Board or
an individual director to the attention of our corporate Secretary. Our
corporate Secretary reviews all such communications to determine if they are
related to specific products or services, are solicitations or otherwise relate
to improper or irrelevant topics. All such improper communications receive a
response in due course. Any communication directed to an individual director
relating solely to a matter involving such director is forwarded to such
director. Any communication directed to an individual director relating to a
matter involving both such director and Pep Boys or the Board of Directors, as a
whole, is forwarded to such director and the Chairman of the Board. The balance
of the communications are forwarded to the Chairman of the Board. Except for
improper communications, all interested party communications to the Board of
Directors or an individual director received by the corporate Secretary are kept
in confidence from management. These procedures were adopted unanimously by the
independent directors.
Director Attendance
at the Annual Meeting.
All Board members are strongly
encouraged to attend the Annual Meeting of Shareholders. All nominees then
standing for election attended the 2007 Annual Meeting.
Executive Sessions of the
Independent Directors
. Our non-executive
Chairman, Mr. Leonard, presides over all such sessions, which are held, at a
minimum, immediately following all regularly scheduled Board
meetings.
Personal Loans to Executive
Officers and Directors.
Pep Boys has no
personal loans extended to its executive officers or directors.
Meetings and Committees of the Board of Directors
The Board
of Directors held 16 meetings during fiscal 2007. During fiscal 2007, each
incumbent director attended at least 75% of the aggregate number of meetings
held by the Board and all committee(s) on which such director served. The Board
of Directors has standing Audit, Human Resources and Nominating and Governance
Committees. All Committee members are “independent” as defined by the listing
standards of the NYSE.
8
Audit
Committee.
Ms. Atkins (chair), Mr. Hotz, Dr.
Reid and Ms. Scaccetti are the current members of the Audit Committee. The Audit
Committee reviews Pep Boys’ consolidated financial statements and makes
recommendations to the full Board of Directors on matters concerning the audits
of Pep Boys’ books and records. The Audit Committee met 14 times during fiscal
2007.
Human
Resources Committee.
Messrs. Bassi (chair),
Sweetwood, White and Williams are the current members of the Human Resources
Committee. The Human Resources Committee recommends the compensation for all of
Pep Boys’ officers and serves as the Board’s representative on all human
resource matters directly impacting Pep Boys’ business performance. The Human
Resource Committee met seven times during fiscal 2008.
Nominating and Governance Committee.
Messrs. Sweetwood (chair), Bassi, Hudson and Mitarotonda are the current
members of the Nominating and Governance Committee. The Nominating and
Governance Committee recommends candidates to serve on the Board and serves as
the Board’s representative on all corporate governance matters. The Nominating
and Governance Committee met three times during fiscal 2008.
Operational Efficiency Committee.
On
December 15, 2006, the Board appointed a special committee, that meets from
time-to-time, to assist management with identifying and realizing opportunities
to reduce operational costs. The Committee currently consists of Messrs. Hudson
(chair), Leonard, White and Williams.
Real
Estate Committee.
On December 15, 2006, the
Board appointed a special committee, that meets from time-to-time, to assist
management in exploring, and executing against, alternatives for monetizing its
real estate assets. The Committee currently consists of Messrs. Mitarotonda
(chair), Hudson and Sweetwood and Ms. Scaccetti.
Can a shareholder nominate a
candidate for director?
The
Nominating and Governance Committee considers nominees recommended by our
shareholders. Written recommendations should be sent to our offices located at
3111 West Allegheny Avenue, Philadelphia, PA 19132, Attention: Secretary. The
recommendation should state the qualifications of the nominee to be
considered.
A
shareholder may also nominate candidates to be considered for election as
directors at an upcoming shareholders’ meeting by timely notifying us in
accordance with our By-laws. To be timely, a shareholder’s notice must be
received at our principal executive offices not less than 50 nor more than 75
days prior to the date of the scheduled shareholders’ meeting. If the public
announcement of the holding of the shareholders’ meeting was given less than 65
days prior to the date of such meeting, then a shareholder’s notice received at
our principal executive offices within ten days of the date of such public
announcement will be considered timely. The shareholder’s notice must also set
forth all of the following information:
-
the name and address of the shareholder making the nomination
-
a representation that the shareholder intends to appear in person or by
proxy at the meeting to nominate the proposed nominee
-
the name of the proposed nominee
-
the proposed nominee’s principal occupation and employment for the past 5
years
-
a description of any other directorships held by the proposed
nominee
-
a description of all arrangements or understandings between the nominee
and any other person or persons relating to the nomination of, and voting
arrangements with respect to, the nominee
9
How are candidates identified and
evaluated?
Identification.
The Nominating and
Governance Committee considers all candidates recommended by our shareholders,
directors and senior management on an equal basis. The Nominating and Governance
Committee’s preference is to identify nominees using our own resources, but has
the authority to and will engage search firms(s) as necessary.
Qualifications
. The Nominating and
Governance Committee evaluates each candidate’s judgment, diversity (age,
gender, ethnicity, etc.) and professional background and experience, as well as,
his or her independence from Pep Boys. Such qualifications are evaluated against
our then current requirements, as expressed by the Chief Executive Officer, and
the current make up of the full Board.
Evaluations
. Candidates are evaluated
on the basis of their resume, third party references, public reputation and
personnel interviews. Before a candidate can be recommended to the full Board,
such candidate must, at a minimum, have been interviewed by each member of the
Nominating and Governance Committee and have met, in person, with at least one
member of the Nominating and Governance Committee, the Chairman of the Board and
the Chief Executive Officer.
How are directors compensated?
Base
Compensation.
Each non-management director
(other than the Chairman of the Board) receives an annual director’s fee of
$35,000. Our Chairman of the Board receives an annual director’s fee of
$80,000.
Committee Compensation.
Directors
serving on our standing Board committees also receive the following annual fees.
|
|
|
|
Chair
|
|
Member
|
|
|
Audit
|
|
$
|
25,000
|
|
$
|
15,000
|
|
|
Human
Resources
|
|
$
|
10,000
|
|
$
|
5,000
|
|
|
Nominating and Governance
|
|
$
|
10,000
|
|
$
|
5,000
|
In
addition, members of special committees appointed by the Board receive a
one-time fee upon appointment to such committees of $15,000.
A
director may elect to have all or a part of his or her director’s fees deferred.
Amounts deferred receive a rate of return equal to the prime interest rate or
the performance of Pep Boys Stock (represented by stock units), as elected by
the director, and are paid at a later date chosen by the director at the time of
deferral. A director who is also an employee of Pep Boys receives no additional
compensation for service as a director.
Equity
Grants.
The Pep Boys 1999 Stock Incentive
Plan, or the 1999 Plan, provides for an annual grant of restricted stock units
and options having an aggregate value of $45,000 to non-management directors.
Restricted stock units granted to non-management directors vest in 25%
increments over four years commencing on the first anniversary of the date of
grant; provided, however, that the receipt of the shares underlying the
restricted stock units is automatically deferred until termination of service as
a director. The stock options granted to non-management directors are priced at
the fair market value of Pep Boys Stock on the date of grant. Twenty percent of
the stock options granted are exercisable immediately and an additional 20%
become exercisable on each of the next four anniversaries of the grant date. The
1999 Plan is administered, interpreted and implemented by the Human Resources
Committee of the Board of Directors.
10
The table
details the compensation paid to non-employee directors during the fiscal year
ended February 2, 2008.
Director Compensation Table
|
|
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
Fees Earned or
|
|
(Restricted Stock
|
|
|
|
|
|
|
|
Paid in Cash
|
|
Units)
|
|
Option Awards
|
|
Total
|
|
Name
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
William
Leonard
|
|
|
80,000
|
|
|
|
33,750
|
|
|
|
11,250
|
|
|
|
125,000
|
|
|
M. Shân Atkins
|
|
|
60,000
|
|
|
|
33,750
|
|
|
|
11,250
|
|
|
|
105,000
|
|
|
Peter
A. Bassi
|
|
|
50,000
|
|
|
|
33,750
|
|
|
|
11,250
|
|
|
|
95,000
|
|
|
Robert H. Hotz
|
|
|
50,000
|
|
|
|
33,750
|
|
|
|
11,250
|
|
|
|
95,000
|
|
|
Thomas
R. Hudson, Jr.
|
|
|
35,000
|
|
|
|
33,750
|
|
|
|
11,250
|
|
|
|
80,000
|
|
|
James A.
Mitarotonda
|
|
|
40,000
|
|
|
|
33,750
|
|
|
|
11,250
|
|
|
|
85,000
|
|
|
Irvin
D. Reid
|
|
|
4,166
|
|
|
|
11,865
|
|
|
|
3,955
|
|
|
|
19,986
|
|
|
Jane Scaccetti
|
|
|
50,000
|
|
|
|
33,750
|
|
|
|
11,250
|
|
|
|
95,000
|
|
|
John T.
Sweetwood
|
|
|
50,000
|
|
|
|
33,750
|
|
|
|
11,250
|
|
|
|
95,000
|
|
|
Nick White
|
|
|
40,000
|
|
|
|
33,750
|
|
|
|
11,250
|
|
|
|
85,000
|
|
|
James
A. Williams
|
|
|
40,000
|
|
|
|
33,750
|
|
|
|
11,250
|
|
|
|
85,000
|
|
Certain Relationships and Related
Transactions
On
August 2, 2006, the Company entered into an agreement with a group of investors
led by Barington Capital Group, L.P. The agreement expires at the 2008 Annual
Meeting. Pursuant to the agreement, among other things:
-
the Company increased the size of the Board from nine to ten
directors
-
Messrs. Lukens, Mitarotonda, White and Williams were
appointed to the Board and its committees
-
the 2006 Annual Meeting was scheduled
-
the Company agreed to include each of Messrs. Lukens,
Mitarotonda, White and Williams in the Board’s slate of directors for election
at the 2006 and 2007 Annual Meetings
-
the Company made certain modifications to its Shareholder
Rights Plan
-
the Barington Group agreed not to nominate persons for
election as directors at the 2006 Annual Meeting and to abide by certain
standstill provisions until the 2008 Annual Meeting
Mr.
Mitarotonda is party to the agreement in his individual capacity. He is also the
President and Chief Executive Officer of Barington Capital Group, L.P. A copy of
the agreement is on file with the SEC as an Exhibit to the Company’s Current
Report on Form 8-K filed on August 3, 2006.
11
Report of the Audit Committee of the
Board of Directors
The Audit Committee reviews Pep Boys’ financial statements and
makes recommendations to the full Board of Directors on matters concerning the
audits of Pep Boys’ books and records. Each committee member is “independent” as
defined by the listing standards of the New York Stock Exchange. Ms. Atkins
(chair), Mr. Hotz, Mr. Reid and Ms. Scaccetti are the current members of the
Audit Committee. Both Ms. Atkins and Ms. Scaccetti have been designated by the
full Board as Audit Committee Financial Experts as defined by SEC regulations. A
written charter adopted by the full Board governs the activities of the Audit
Committee. The charter is reviewed, and when necessary revised, annually. A copy
of the current Audit Committee Charter is attached hereto as
Appendix A
.
Management has primary responsibility for Pep
Boys’ internal accounting controls and financial reporting process. The
independent registered public accounting firm is responsible for performing an
independent audit of Pep Boys’ consolidated financial statements and internal
control over financial reporting in accordance with standards of the Public
Company Accounting Oversight Board (United States) and to issue a report as a
result of such audit and to issue an attestation of management’s assertion of
Pep Boys internal control over financial reporting. The Audit Committee’s
responsibility is to monitor and oversee these processes. The Audit Committee
serves as a focal point for communication among the Board of Directors, the
independent registered public accounting firm, management and Pep Boys’ internal
audit function, as the respective duties of such groups, or their constituent
members, relate to Pep Boys’ financial accounting and reporting and to its
internal controls.
In this
context, the Audit Committee reviewed and discussed the audited consolidated
financial statements with management and the independent registered public
accounting firm. These discussions included the matters required to be discussed
by Statement on Auditing Standards No. 61 (Communication with Audit Committees).
The Audit Committee also reviewed and discussed with management, the internal
auditors and the independent registered public accounting firm, management’s
report, and the independent registered public accounting firm’s attestation, on
internal control over financial reporting in accordance with Section 404 of the
Sarbanes-Oxley Act of 2002.
The Audit
Committee also discussed with the independent registered public accounting firm
its independence from Pep Boys and its management, including the written
disclosures submitted to the Audit Committee by the independent registered
public accounting firm as required by Independence Standards Board Standard No.
1 (Independence Discussions with Audit Committees).
Based
upon the discussions and reviews referred to above, the Audit Committee
recommended that the Board of Directors include the audited consolidated
financial statements and management’s report on internal control over financial
reporting in Pep Boys’ Annual Report on Form 10-K for the fiscal year ended
February 2, 2008 filed with the SEC.
This
report is submitted by:
M.
Shân Atkins
Robert H. Hotz
Irvin D. Reid
Jane
Scaccetti
12
Independent Registered Public
Accounting Firm’s Fees
The following table summarizes the aggregate fees billed to us by
our independent registered public accounting firm, Deloitte & Touche LLP,
the member firms of Deloitte Touche Tohmatsu, and their respective affiliates.
|
Fiscal
Year
|
|
2007
|
|
2006
|
|
Audit
Fees
|
|
$
|
2,093,300
|
|
$
|
1,407,200
|
|
Audit-Related
Fees
|
|
|
16,430
|
|
|
80,845
|
|
Tax
Fees
|
|
|
41,000
|
|
|
124,675
|
|
All Other Fees
|
|
|
0
|
|
|
0
|
|
Total
|
|
$
|
2,150,750
|
|
$
|
1,612,720
|
Audit Fees.
Audit Fees
billed in fiscal 2007 and fiscal 2006 consisted of (i) the audit of our annual
financial statements, (ii) the audit of our internal control over financial
reporting, (iii) the reviews of our quarterly financial statements and (iv)
comfort letters, statutory and regulatory audits, consents and other services
related to SEC matters.
Audit-Related Fees.
Audit-Related Fees billed in fiscal 2007 consisted of employee benefit
plan audits and in 2006 consisted of financial accounting and reporting
consultations and employee benefit plan audits.
Tax Fees.
Tax Fees billed
in fiscal 2007 and 2006 consisted of tax compliance services in connection with
tax audits and appeals.
The
Audit Committee annually engages Pep Boys’ independent registered public
accounting firm and pre-approves, for the following fiscal year, their services
related to the annual audit and interim quarterly reviews of Pep Boys’ financial
statements and all reasonably related assurance and services. All non-audit
services are considered for approval by the Audit Committee on an as-requested
basis by Pep Boys. For fiscal 2007, the Audit Committee discussed the non-audit
services with Deloitte & Touche LLP and management to determine that they
were permitted under the rules and regulations concerning the independence of
independent registered public accounting firms promulgated by the SEC and the
American Institute of Certified Public Accountants. Following such discussions,
the Audit Committee determined that the provision of such non-audit services by
Deloitte & Touche LLP was compatible with maintaining their independence.
13
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Summary
.
The
compensation provided to the executives listed in the Summary Compensation
Table, whom we refer to as our named executive officers, consists of base
salaries, short-term cash incentives, long-term equity incentives, retirement
plan contributions and heath and welfare benefits. Long-term incentives consist
of stock options and restricted stock units, or RSUs. Our executive compensation
program is designed to attract and retain highly-qualified individuals and to
reward such individuals for their efforts in achieving our corporate objectives,
and is based upon four principles:
-
Performance-oriented.
Ensuring the alignment of shareholder, corporate and individual
goals.
-
Value-oriented.
Ensuring optimum value creation, while considering tax effectiveness,
accounting impact, overhang and dilution
considerations.
-
Fairness.
Ensuring
an executive team orientation, where future value is equitable relative to an
individual’s role and contribution.
-
Corporate Ownership.
Building executive stock ownership to demonstrate commitment to and
faith in the future of Pep Boys.
All
program components are designed to be competitive at the market median of our
peer group, with the opportunity to earn more or less based on performance. Our
peer group consists of the following competitors and comparably-sized specialty
retailers: AutoZone, Advance Auto Parts, CSK Auto, Monro Muffler & Brake,
O’Reilly Automotive, Border’s, Cost Plus, Dick’s Sporting Goods, Hibbitt Sports,
Jo-Ann Stores, PetSmart and Williams-Sonoma. The compensation mix as a
percentage of total compensation is designed to reflect market competitiveness
and job level responsibility. The Human Resources Committee recommends to the
full Board of Directors the annual total compensation levels for all of the
named executive officers (other than the CEO), based on recommendations made by
the CEO and the head of Human Resources and in consultation with management
consultants. The Human Resources Committee recommends to the full Board of
Directors the annual total compensation level for the CEO, based on
recommendations made by the head of Human Resources and the General Counsel and
in consultation with management consultants.
The
current executive compensation program structure was originally adopted in 2004
following a comprehensive consulting engagement by the Hay Group. Since its
adoption in 2004, we have made annual adjustments to the component compensation
levels based upon consultation with the Hay Group and Towers Perrin and
benchmarking analysis conducted against the compensation levels of our Peer
Group.
The Human
Resources Committee and the Board of Directors consider our overall compensation
levels for the named executive officers to be reasonable and
appropriate.
Please
note that the “
Components of
Compensation
”
discussion that follows is generally
applicable to all named executive officers who served as executive officers
during fiscal 2007. Each of Messrs. Cirelli and Yanowitz, served as executive
officers during the entirety of fiscal 2007. Messrs. Rachor, Odell and Webb
joined the Company during fiscal 2007. See the discussion that follows under,
“
New Executive Officers
.” Messrs. Smith and Page left the employment of the Company
during fiscal 2007. See the discussion that follows under, “
Former Executive Officers
.”
Mr. Leonard, served as our Interim CEO from July 18, 2006 through March 25,
2007. See the discussion that follows under, “
Interim Chief Executive Officer
.”
14
Components of
Compensation
.
Base
Salary
. The Human Resources Committee reviews
base salaries annually to reflect the experience, performance and scope of
responsibility of the named executive officers and to ensure that the salaries
are at levels that are appropriate to retain high quality individuals. The Human
Resources Committee measures each named executive officer’s individual
performance during the applicable fiscal year on a five-point scale, based upon
such executive officer’s supervisor’s assessment. These performance values are
then applied against the relative position of the named executive officer’s
current salary within the market range for his position and the budgeted
percentage increase for all officers as a group. This budgeted percentage
increase was 2.0% for fiscal 2007. Due to our poor operating performance in
fiscal 2006, no named executive officer was awarded a merit-based increase to
their base salary for fiscal 2007.
Short-Term Incentives
. The named
executive officers participate in our Annual Incentive Bonus Plan, which is a
short-term incentive plan designed to reward the achievement of pre-established
corporate and, except for the President & CEO, individual goals. For fiscal
2007, the named executive officers’ bonus levels were as follows:
|
|
|
|
|
% of Salary
|
|
|
|
Weighting
|
|
Title
|
|
Threshold
|
|
Target
|
|
MAX
|
|
CAP
|
|
Corporate (%)
|
|
Individual (%)
|
|
President & CEO
|
|
75
|
|
150
|
|
225
|
|
300
|
|
100
|
|
0
|
|
COO
|
|
37.5
|
|
75
|
|
112.5
|
|
150
|
|
60
|
|
40
|
|
SVP
|
|
22.5
|
|
45
|
|
67.5
|
|
90
|
|
60
|
|
40
|
For fiscal 2007, the corporate bonus
objectives, which are those financial measures deemed most important to Pep
Boys’ overall success, and their weightings were as follows:
|
Objective
|
|
Weighting (%)
|
|
Threshold
|
|
Target
|
|
MAX
|
|
CAP
|
|
Operating Profit
|
|
70
|
|
$45,000,000
|
|
$63,800,000
|
|
$75,000,000
|
|
$90,000,000
|
|
Field
Management
|
|
|
|
|
|
|
|
|
|
|
|
Turnover
Percentage
|
|
10
|
|
*
|
|
*
|
|
*
|
|
*
|
|
Working
Capital
|
|
|
|
|
|
|
|
|
|
|
|
(inventory minus A/P)
|
|
10
|
|
$360,000,000
|
|
$340,700,000
|
|
$330,000,000
|
|
$320,000,000
|
|
Service
Center
|
|
|
|
|
|
|
|
|
|
|
|
Customer Service
Index
|
|
10
|
|
40
|
|
44
|
|
46
|
|
48
|
|
|
*
|
|
Confidential
commercial information, the disclosure of which would result in
competitive harm for the Company.
|
For
fiscal 2007, the Human Resources Committee established target levels that it
believed were achievable. However, it also believed, at the time the target
levels were established, that the achievement of the targets was substantially
uncertain.
Individual performance goals were also established for Messrs. Cirelli
and Yanowitz (those named executive officers who were in position at the
beginning of fiscal 2007) based upon departmental objectives.
For
fiscal 2007, the Company achieved its bonus objectives in the areas of (i) field
management turnover percentage at target and (ii) service center customer
service index at threshold (40), resulting in a corporate bonus payout of 13.55%
of target. In addition, each of Messrs. Cirelli and Yanowitz earned individual
bonus payouts of 100% and 100% of target, respectively, based upon the
achievement of certain departmental objectives. Accordingly, for fiscal 2007,
Messrs. Cirelli and Yanowitz each received bonus payouts of 21% of their
respective 2007 annual salaries. As an inducement for Messrs. Rachor, Webb and
Odell to join the Company in fiscal 2007, each of their fiscal 2007 bonus
payouts were guaranteed at target level regardless of the Company’s performance
against its bonus objectives. Because Messrs. Smith and Page left the employment
of the Company prior to the conclusion of fiscal 2007, neither of them received
a bonus payout.
15
Long-Term Incentives
. We believe that
compensation through equity grants directly aligns the interests of management
with that of its shareholders -- long-term growth in the price of Pep Boys
stock. The Stock Incentive Plans provide for the grant of stock options at
exercise prices equal to the fair market value (the mean between and the high
and low quoted selling prices) of Pep Boys stock on the date of grant and the
grant of RSUs. All of the stock options granted in fiscal 2007 expire seven
years from the date of grant and become exercisable in 20% installments over
four years beginning on the date of grant (except for Mr. Rachor’s inducement
options which vest in 25% increments over three years beginning on the date of
grant). All of the RSUs granted in fiscal 2007 vest in 25% increments over four
years beginning on the first anniversary of the date of grant (except for Mr.
Rachor’s inducement RSUs which vest in 25% increments over three years beginning
on the date of grant). Dividend equivalents are paid on RSUs.
The Human
Resources Committee has established annual target grants for the named executive
officers, which are designed to be competitive at market median of our peer
group. The annual grants are typically made at the Board meeting immediately
prior to our year-end earnings release. The annual target grants are also
designed to assist the named executive officers in achieving our established
ownership guidelines, as described below. The annual target grants for the named
executive officers are as follows:
|
Title
|
|
Target RSU
Grant
|
|
Target Option
Grant
|
|
President & CEO
|
|
$1,200,000
|
|
150,000
|
|
COO
|
|
18,000
|
|
6000
|
|
SVP
|
|
6000
|
|
2000
|
The Human
Resources Committee weighted the split between RSUs and options more heavily
towards RSUs as is consistent with the prevailing corporate trend and in order
to reduce our share overhang and the resulting dilution.
When
making annual grants, the Human Resources Committee applies the performance
values derived from the named executive officers’ performance assessments
(discussed above) to the target grants to determine the actual grant level.
In fiscal
2007, each of Messrs. Cirelli, Yanowitz and Smith received equity grants
reflective of their fiscal 2006 individual performance.
We have
established stock ownership guidelines for our executive officers. Under our
stock ownership guidelines, it is
recommended
that each named executive officer
incrementally acquire, over their first five years of employment with Pep Boys,
and then hold, at least two times their annual salary in Pep Boys stock. An
officer may satisfy the stock ownership guidelines through direct share
ownership and/or by holding RSUs.
Retirement Plans
. We maintain The Pep
Boys Savings Plan, which is a broad-based 401(k) plan. Participants make
voluntary contributions to the savings plan, and we match 50% of the amounts
contributed by participants under the savings plan, up to 6% of salary. Due to
low levels of participation in the savings plan, the plan historically did not
meet the non-discriminatory testing requirements under Internal Revenue Code
regulations. As a result, the savings plan was required to make annual refunds
of contributions made by our “highly compensated employees” (including the named
executive officers) under the savings plan. Beginning in 2004, we limited our
officers’ contributions to the savings plan to ½% of their salary per year. In
order to assist our officers with their retirement savings, we adopted a
non-qualified deferred compensation plan that allows participants to defer up to
20% of their annual salary and 100% of their annual bonus. In order to further
encourage share ownership and more directly align the interests of management
with that of its shareholders, the first 20% of an officer’s bonus deferred into
Pep Boys Stock is matched by us on a one-for-one basis with Pep Boys Stock that
vests over three years.
In order
to keep our executive compensation program competitive, we also have an
Executive Supplemental Retirement Plan, or SERP. The defined benefit portion of
the SERP provides a retirement benefit based upon a participant’s years of
service and average compensation, which benefit (and our resulting obligation)
is not fixed until the participant’s retirement. To minimize the uncertainty of
this financial obligation, in fiscal 2004, participation in the defined benefit
portion of the SERP was frozen for all unvested and new SERP participants. All
officers who do not actively participate in the defined benefit portion of the
SERP now receive fixed annual contributions to a retirement account maintained
under the SERP based upon their age and then current compensation in accordance
with the following:
16
|
|
|
Annual
contribution as a
|
|
|
|
percentage of
cash
|
|
|
|
compensation
(salary +
|
|
|
|
short-term
cash
|
|
If the Participant is…
|
|
incentive)
|
|
At
least 55 years of age
|
|
19%
|
|
|
|
At
least 45 years of age but not more than 54 years of age
|
|
16%
|
|
|
|
At
least 40 years of age but not more than 44 years of age
|
|
13%
|
|
|
|
Not
more than 39 years of age
|
|
10%
|
All named executive officers
participate in the defined contribution portion of the SERP, except for Mr. Page
who participated in the defined benefit portion of the SERP. Mr. Page also had a
frozen benefit under our qualified defined benefit plan, as described in
“Pension Plans” on page 23 below.
Health
and Welfare Benefits
.
In order to keep our executive compensation program
competitive, we also provide our named executive officers with health and
welfare benefits, including medical and dental coverage, life insurance valued
at one times salary, long term disability coverage, an auto allowance and a
tax/financial planning allowance.
Employment Agreements
. We have entered
into an Employment Agreement and Change of Control Agreement with Mr. Rachor and
Non-Competition and Change of Control Agreements with Messrs. Odell, Cirelli,
Webb and Yanowitz as described in “Employment Agreements with Named Executive
Officers
”
on page 25 below. The purpose of Mr. Rachor’s Employment Agreement is to
secure his employment for a period of three years. The purpose of our
Non-Competition Agreements is to prevent our named executive officers from
soliciting our employees or competing with us if they leave Pep Boys of their
own volition. As consideration for such restrictive covenants, the
Non-Competition Agreements provide for a severance payment to be made to a named
executive officer if he is terminated by the Company without “cause.” The
purpose of the Change of Control Agreements is to provide an incentive for our
officers to remain in employment and continue to focus on the best interests of
the company without regard to any possible change of control.
New Executive
Officers.
Mr.
Rachor joined the Company on March 13, 2007. In order to induce Mr. Rachor to
join the Company, the Human Resource Committee recommended, and the full Board,
approved (i) a base salary of $1,200,000, (ii) a target annual bonus equal to
150% of his base salary (such bonus being guaranteed for fiscal 2007), (iii)
participation in the Company’s other incentive and welfare and benefit plans
made available to executives, (iv) an inducement grant of 1,000,000 options and
500,000 restricted stock units and (v) a signing bonus of $1,200,000. This
compensation package was designed by the Human Resources Committee to be
competitive with those of the chief executive officers of the Company’s peer
group and to compensate Mr. Rachor for certain bonus awards and equity holdings
that Mr. Rachor forfeited upon leaving his former employer.
Mr. Odell
joined the Company on September 17, 2007. In order to induce Mr. Odell to join
the Company, the Human Resource Committee recommended, and the full Board,
approved (i) a base salary of $500,000, (ii) a target annual bonus equal to 75%
of his base salary (such bonus being guaranteed for fiscal 2007), (iii)
participation in the Company’s other incentive and welfare and benefit plans
made available to executives, (iv) an inducement grant of restricted stock units
valued at $500,000, (v) the grant of Mr. Odell’s fiscal 2008 target long-term
incentives on his hire date (rather than in February 2008) and (vi) a signing
bonus of $400,000. This compensation package was designed by the Human Resources
Committee to be competitive with those of the chief operating officers of the
Company’s peer group and to compensate Mr. Odell for certain bonus awards and
equity holdings that Mr. Odell forfeited upon leaving his former
employer.
17
Mr. Webb
joined the Company on September 10, 2007. In order to induce Mr. Webb to join
the Company, the Human Resource Committee recommended, and the full board,
approved (i) a base salary of $400,000, (ii) a target annual bonus equal to 45%
of his base salary (such bonus being guaranteed for fiscal 2007), (iii)
participation in the Company’s other incentive and welfare and benefit plans
made available to executives, (iv) an inducement grant of restricted stock units
valued at $360,000 and (v) a signing bonus of $375,000. This compensation
package was designed by the Human Resources Committee to be competitive with
those of the chief merchandising officers of the Company’s peer group and to
compensate Mr. Webb for certain bonus awards and equity holdings that Mr. Webb
forfeited upon leaving his former employer.
Interim Chief Executive Officer.
To
appropriately compensate our Chairman of the Board for his services as Interim
Chief Executive Officer, from July 2006 through March 2007, we paid Mr. Leonard
a monthly salary of $83,333 and reimbursed him for his commuting expense, with a
tax gross-up, from his home in California to our Philadelphia store support
center. Otherwise, Mr. Leonard did not receive or participate in any of our
welfare, retirement or other benefit plans or receive any perquisites. While Mr.
Leonard served as interim CEO, he did not receive his customary cash
consideration on account of his service on the Board of Directors, but he did
receive his customary equity grants under our Stock Incentive Plan as a member
of the Board. Mr. Leonard’s director compensation received in fiscal 2006 is not
reflected in the named executive officer compensation tables below.
Former Executive Officers.
Mr. Smith was separated from the
Company effective September 7, 2007. Pursuant to the terms of Mr. Smith’s
Non-Competition Agreement, Mr. Smith received a severance payment equal to two
years’ base salary and the accelerated vesting of all his then outstanding
options and RSUs. Mr. Smith also became entitled to the disbursement of his
vested SERP balance.
Mr. Page
retired from the Company effective September 7, 2007. Pursuant to the terms of
Mr. Page’s Non-Competition Agreement, Mr. Page received a severance payment
equal to one and half years’ base salary. Mr. Page also became entitled to the
disbursement of his vested SERP balance.
While
Messrs. Rachor and Yanowitz were both executive officers as of the end of fiscal
2007, both executive officers subsequently resigned from the Company. Mr.
Yanowitz announced his planned departure from the Company on January 17, 2008.
He resigned from the Company effective May 1, 2008. Mr. Rachor resigned from the
Company effective April 23, 2008.
18
Tax and
Accounting Matters.
We consider the tax and accounting impact of each type of compensation in
determining the appropriate compensation structure. For tax purposes, annual
compensation payable to the named executive officers generally must not exceed
$1 million in the aggregate during any year to be fully deductible under Section
162(m) of the Internal Revenue Code. The Stock Incentive Plans are structured
with the intention that stock option grants will qualify as “performance based”
compensation that is not subject to the $1 million deduction limit under Section
162(m). In addition, bonuses paid to the CEO under the Annual Incentive Bonus
Plan qualify as “performance based” compensation that is not subject to the $1
million deduction limit under Section 162(m). RSUs generally do not qualify as
“performance based” compensation for this purpose and are therefore subject to
the $1 million deduction limit. In order to compete effectively for the
acquisition and retention of top executive talent, we believe that we must have
the flexibility to pay salary, bonus and other compensation that may not be
fully deductible under Section 162(m). Accordingly, the Human Resources
Committee retains the authority to authorize payments that may not be deductible
under Section 162(m) if it believes that such payments are in the best interests
of Pep Boys and our shareholders. All compensation paid to the named executive
officers in fiscal 2007 except for a portion paid to Mr. Rachor was fully
decuctible.
Compensation Committee Report
We have
reviewed and discussed the forgoing Compensation Discussion and Analysis with
management. Based upon our review and discussion with management, we have
recommended to the Board of Directors that the Compensation Discussion and
Analysis be included in this Proxy Statement and in Pep Boys’ Annual Report on
Form 10-K for the fiscal year ended February 2, 2008 filed with the SEC.
This report is submitted by:
Peter A. Bassi
John T. Sweetwood
Nick White
James A. Williams
19
The
following table provides information regarding the fiscal 2007 compensation for
Pep Boys’ Interim CEO, CFO, the three other executive officers that received the
highest compensation in fiscal 2007 and our former CEO. These executives are
referred to herein as the “named executive officers.”
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
Value
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
Deferred
|
|
All
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
|
|
Comp-
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
Compen-
|
|
ensation
|
|
Compen-
|
|
|
|
|
|
|
|
|
|
Bonus
|
|
Awards
|
|
Awards
|
|
sation
|
|
Earnings
|
|
sation
|
|
|
|
Name
and
|
|
Fiscal
|
|
Salary
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Total
|
|
Principal
Position
|
|
Year
|
|
($)
|
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
($)
|
|
Jeffrey
C. Rachor
|
|
2007
|
|
1,038,461
|
|
1,200,000
|
|
3,537,535
|
|
2,325,339
|
|
1,800,000
|
|
--
|
|
743,068
|
|
10,644,403
|
|
President & CEO
(g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
R. Odell
|
|
2007
|
|
192,307
|
|
400,000
|
|
72,142
|
|
8,460
|
|
141,781
|
|
--
|
|
48,997
|
|
863,687
|
|
EVP – COO
(h)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph
A. Cirelli
|
|
2007
|
|
300,019
|
|
--
|
|
56,670
|
|
15,751
|
|
64,980
|
|
0
|
|
20,925
|
|
458,345
|
|
SVP – Bus.Dev.
|
|
2006
|
|
296,842
|
|
--
|
|
35,869
|
|
23,128
|
|
70,833
|
|
162,816
|
|
33,940
|
|
623,428
|
|
|
|
Scott
A. Webb
|
|
2007
|
|
161,538
|
|
375,000
|
|
35,657
|
|
--
|
|
71,507
|
|
--
|
|
30,373
|
|
674,075
|
|
SVP – Merch. &
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing
(i)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harry
F. Yanowitz
(j)
|
|
2007
|
|
400,000
|
|
--
|
|
383,819
|
|
91,268
|
|
86,634
|
|
--
|
|
102,278
|
|
1,063,999
|
|
SVP - CFO
|
|
2006
|
|
397,307
|
|
340,000
|
|
327,574
|
|
154,832
|
|
102,744
|
|
--
|
|
109,958
|
|
1,432,415
|
|
|
|
William
Leonard
|
|
2007
|
|
153,846
|
|
--
|
|
--
|
|
--
|
|
--
|
|
--
|
|
11,492
|
|
165,338
|
|
Chairman &
|
|
2006
|
|
553,846
|
|
250,000
|
|
--
|
|
--
|
|
--
|
|
--
|
|
8,831
|
|
812,667
|
|
Interim CEO
(k)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hal
Smith
|
|
2007
|
|
268,269
|
|
--
|
|
1,306,459
|
|
331,698
|
|
--
|
|
--
|
|
1,028,440
|
|
2,934,866
|
|
EVP – Merch. &
|
|
2006
|
|
452,076
|
|
--
|
|
304,027
|
|
314,155
|
|
109,849
|
|
--
|
|
123,868
|
|
1,303,975
|
|
Marketing
(l)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark L.
Page
(m)
|
|
2007
|
|
265,125
|
|
--
|
|
1,426
|
|
605
|
|
--
|
|
0
|
|
2,794,071
|
|
3,061,227
|
|
SVP – Parts &
|
|
2006
|
|
359,692
|
|
--
|
|
20,817
|
|
25,625
|
|
69,389
|
|
131,219
|
|
31,129
|
|
637,871
|
|
Tires
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Represents signing
bonuses for those executives who joined the Company in fiscal
2007.
|
|
(b)
|
|
Represents the amount
recognized as compensation expense in fiscal 2007 for financial statement
purposes in accordance SFAS No. 123(R), without giving effect to estimated
forfeitures. Refer to Notes 1 and 12 to the Consolidated Financial
Statements included in our Annual Report on Form 10-K for the year ended
February 2, 2008 for a discussion of the assumptions used for calculating
such compensation expense.
|
|
(c)
|
|
Represents the amount
recognized as compensation expense in fiscal 2007 for financial statement
purposes in accordance SFAS No. 123(R), without giving effect to estimated
forfeitures. Refer to Notes 1 and 12 to the Consolidated Financial
Statements included in our Annual Report on Form 10-K for the year ended
February 2, 2008 for a discussion of the assumptions used for calculating
such compensation expense.
|
20
|
(d)
|
|
Represents amounts
earned under our Annual Incentive Bonus Plan in Fiscal 2007.
|
|
(e)
|
|
Solely represents
actuarial increases in the benefit value provided under the defined
benefit portion of our SERP as we do not pay above-market or preferential
earnings on non-qualified deferred compensation. Messrs. Cirelli and Page
were the only named executive officers who participated in the defined
benefit portion of our SERP during fiscal 2007. Due to the fact that both
Mr. Cirelli and Mr. Page have reached the maximum number of years of
service that can be credited under the SERP and that the discount rate
used in the actuarial calculation increased in fiscal 2007, their benefit
values actuarially decreased in fiscal 2007.
|
|
(f)
|
|
Consists of the
following dollar amounts:
|
|
|
|
Rachor
|
|
Odell
|
|
Cirelli
|
|
Webb
|
|
Yanowitz
|
|
Smith
|
|
Page
|
|
Contributed under the defined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
contribution portion of our SERP
|
|
160,015
|
|
13,215
|
|
--
|
|
11,231
|
|
69,470
|
|
--
|
|
--
|
|
Contributed (company
match) under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
our Deferred
Compensation Plan
|
|
360,000
|
|
28,356
|
|
--
|
|
14,301
|
|
--
|
|
--
|
|
--
|
|
Contributed (company match) in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
connection with Pep Boys 401(k)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
Plan
|
|
--
|
|
--
|
|
563
|
|
--
|
|
563
|
|
--
|
|
--
|
|
Paid as dividend
equivalents on
RSUs
|
|
101,250
|
|
3,457
|
|
2,522
|
|
1,504
|
|
18,169
|
|
14,782
|
|
1,350
|
|
Paid as
an auto allowance
|
|
21,923
|
|
3,692
|
|
13,500
|
|
3,115
|
|
13,500
|
|
9,333
|
|
11,942
|
|
Paid as a tax/financial
planning
allowance
|
|
--
|
|
--
|
|
3,692
|
|
--
|
|
--
|
|
--
|
|
2,969
|
|
Representing group term life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
insurance premiums
|
|
2,160
|
|
277
|
|
648
|
|
222
|
|
576
|
|
1,730
|
|
914
|
For Mr. Rachor and Mr. Leonard also
includes $97,720 and $11,492 in temporary living and commuting expense
reimbursement, respectively.
For Mr. Smith also includes a $900,000
severance payment and the disbursement of his $102,595 vested SERP balance.
For Mr. Page also includes a $530,250
severance payment and the disbursement of his $2,246,646 vested SERP balance.
|
(g)
|
|
Mr. Rachor joined Pep
Boys on March 13, 2007 and, subsequently, resigned on April 22,
2008.
|
|
(h)
|
|
Mr. Odell joined Pep
Boys on September 17, 2007.
|
|
(i)
|
|
Mr. Webb joined Pep
Boys on September 10, 2007.
|
|
(j)
|
|
Mr. Yanowitz resigned
on April 18, 2008.
|
|
(k)
|
|
Mr. Leonard served as
interim CEO from July 18, 2006 through March 26, 2007.
|
|
(l)
|
|
Mr. Smith was
separated from the Company effective September 7, 2007.
|
|
(m)
|
|
Mr. Page retired
effective September 7, 2007.
|
21
The following table shows all grants
of plan based awards to the named executive officers during fiscal 2007:
Grants of Plan Based Awards
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
|
|
|
|
|
|
|
All Other Stock
|
|
Awards:
|
|
|
|
Grant Date
|
|
|
|
|
|
Awards:
|
|
Number of
|
|
|
|
Fair Value of
|
|
|
|
|
|
Number of
|
|
Securities
|
|
Exercise
or
|
|
Stock and
|
|
|
|
|
|
Shares of Stock
|
|
Underlying
|
|
Base Price
of
|
|
Option Awards
|
|
|
|
|
|
or
Units
|
|
Options
|
|
Option
Awards
|
|
($)
|
|
Name
|
|
|
Grant Date
|
|
(#)
|
|
(#)
|
|
($/Sh)
|
|
(a)
|
|
Jeffrey C. Rachor
|
|
03/13/2007
|
|
|
n/a
|
|
|
|
1,000,000
|
|
|
15.080
|
|
|
4,930,000
|
|
|
|
|
03/13/2007
|
|
|
500,000
|
|
|
|
n/a
|
|
|
n/a
|
|
|
7,500,000
|
|
|
|
|
|
Michael R. Odell
|
|
09/17/2007
|
|
|
n/a
|
|
|
|
6,000
|
|
|
14.775
|
|
|
30,732
|
|
|
|
|
09/17/2007
|
|
|
18,000
|
|
|
|
n/a
|
|
|
n/a
|
|
|
265,320
|
|
|
|
|
09/17/2007
|
|
|
33,222
|
|
|
|
n/a
|
|
|
n/a
|
|
|
500,000
|
|
|
|
|
|
Joseph A. Cirelli
|
|
02/15/2007
|
|
|
n/a
|
|
|
|
2,000
|
|
|
15.965
|
|
|
10,800
|
|
|
|
|
02/15/2007
|
|
|
4,000
|
|
|
|
n/a
|
|
|
n/a
|
|
|
64,160
|
|
|
|
|
|
Scott A. Webb
|
|
09/10/2007
|
|
|
22,291
|
|
|
|
n/a
|
|
|
n/a
|
|
|
360,000
|
|
|
|
|
|
Harry F. Yanowitz
|
|
02/15/2007
|
|
|
n/a
|
|
|
|
4,000
|
|
|
15.965
|
|
|
21,600
|
|
|
|
|
02/15/2007
|
|
|
8,000
|
|
|
|
n/a
|
|
|
n/a
|
|
|
128,320
|
|
|
|
|
|
Hal Smith
|
|
02/15/2007
|
|
|
n/a
|
|
|
|
12,000
|
|
|
15.965
|
|
|
64,800
|
|
|
|
|
02/15/2007
|
|
|
36,000
|
|
|
|
n/a
|
|
|
n/a
|
|
|
577,440
|
|
|
|
(a)
|
|
Represents the
grant-date fair value calculated under SFAS No.
123(R).
|
22
The
following table shows information regarding unexercised stock options and
unvested RSUs held by the named executive officers as of February 2, 2008
Outstanding Equity Awards at Fiscal
Year-End Table
|
|
Option
Awards
|
|
|
|
|
|
Stock
Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Number
of
|
|
Number of
|
|
|
|
|
|
Number of
|
|
That
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
Shares or
|
|
Have
Not
|
|
|
Underlying
|
|
Underlying
|
|
Option
|
|
|
|
Units of
|
|
Yet
|
|
|
Unexercised
|
|
Unexercised
|
|
Exercise
|
|
Option
|
|
Stock That
|
|
Vested
|
|
|
Options
(#)
|
|
Options (#)
|
|
Price
|
|
Expiration
|
|
Have Not
|
|
($)
|
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
($)
|
|
Date
|
|
Vested
(#)
|
|
(a)
|
|
Jeffrey C. Rachor
|
250,000
|
|
750,000
|
(b)
|
|
15.0800
|
|
3/13/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
375,000
|
(c)
|
|
4,365,000
|
|
|
|
Michael R. Odell
|
1,200
|
|
4,800
|
(d)
|
|
14.7750
|
|
9/17/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,222
|
(e)
|
|
596,224
|
|
|
|
Joseph A. Cirelli
|
20,000
|
|
|
|
|
23.1250
|
|
3/31/2008
|
|
|
|
|
|
|
|
12,500
|
|
|
|
|
14.2812
|
|
9/24/2008
|
|
|
|
|
|
|
|
15,000
|
|
|
|
|
18.6250
|
|
6/2/2009
|
|
|
|
|
|
|
|
15,000
|
|
|
|
|
15.6875
|
|
8/19/2009
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
16.1250
|
|
5/29/2012
|
|
|
|
|
|
|
|
500
|
|
125
|
(f)
|
|
23.4200
|
|
3/3/2011
|
|
|
|
|
|
|
|
3,000
|
|
2000
|
(g)
|
|
17.5400
|
|
2/25/2012
|
|
|
|
|
|
|
|
600
|
|
900
|
(h)
|
|
15.8550
|
|
2/27/2013
|
|
|
|
|
|
|
|
400
|
|
1600
|
(i)
|
|
15.9650
|
|
2/15/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125
|
(j)
|
|
1,455
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
(k)
|
|
23,280
|
|
|
|
|
|
|
|
|
|
|
|
3,375
|
(l)
|
|
39,285
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
(m)
|
|
46,560
|
|
|
|
Scott A. Webb
|
|
|
|
|
|
|
|
|
|
22,291
|
(n)
|
|
259,467
|
|
|
|
Harry Yanowitz
|
125,000
|
|
|
|
|
10.4250
|
|
6/9/2013
|
|
|
|
|
|
|
|
12,000
|
|
3000
|
(f)
|
|
23.4200
|
|
3/3/2011
|
|
|
|
|
|
|
|
6,000
|
|
4000
|
(g)
|
|
17.5400
|
|
2/25/2012
|
|
|
|
|
|
|
|
1,200
|
|
1800
|
(h)
|
|
15.8550
|
|
2/27/2013
|
|
|
|
|
|
|
|
800
|
|
3200
|
(i)
|
|
15.9650
|
|
2/15/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
(o)
|
|
34,920
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
(k)
|
|
46,560
|
|
|
|
|
|
|
|
|
|
|
|
6,750
|
(l)
|
|
78,570
|
|
|
|
|
|
|
|
|
|
|
|
8,000
|
(m)
|
|
93,120
|
|
(a)
|
|
Based upon the closing stock
price of a share of PBY Stock on February 1, 2008 ($11.64).
|
|
(b)
|
|
One-third of such options
became/become exercisable on each of March 13, 2008, 2009 and
2010.
|
23
|
(c)
|
|
One-third of such RSUs
vested/vest on each of March 13, 2008, 2009 and 2010.
|
|
|
|
(d)
|
|
One-quarter of such options
become exercisable on each of September 17, 2008, 2009, 2010 and
2011.
|
|
|
|
(e)
|
|
One quarter of such RSUs vest on
each of September 17, 2008, 2009, 2010 and 2011.
|
|
|
|
(f)
|
|
All of such options became
exercisable on March 3, 2008.
|
|
|
|
(g)
|
|
One-half of such options
became/become exercisable on February 25, 2008 and 2009.
|
|
|
|
(h)
|
|
One-third of such options
became/become exercisable on February 27, 2008, 2009 and
2010.
|
|
|
|
(i)
|
|
One-quarter of such options
became/become exercisable on each of February 15, 2008, 2009, 2010 and
2011.
|
|
|
|
(j)
|
|
All of such RSUs vested on March
19, 2008.
|
|
|
|
(k)
|
|
One-half of such RSUs vested/vest
on each of March 18, 2008 and 2009.
|
|
|
|
(l)
|
|
One-third of such RSUs
vested/vest on each of February 27, 2008, 2009 and 2010.
|
|
|
|
(m)
|
|
One-quarter of such RSUs
vested/vest on each of February 15, 2008, 2009, 2010 and
2011.
|
|
|
|
(n)
|
|
One-quarter of such RSUs vest on
each of September 10, 2008, 2009, 2010 and 2011.
|
|
|
|
(o)
|
|
All of such RSUs vested on March
3, 2008.
|
The
following table shows information regarding stock options exercised by the named
executive officers and RSUs held by the named executive officers that vested,
during fiscal 2007.
|
Option Exercises and Stock Vested Table
|
|
|
|
|
|
Option
Awards
|
|
Stock
Awards
|
|
|
Number of Shares
|
|
|
|
Number of Shares
|
|
|
|
|
|
|
Acquired on
|
|
Value Realized on
|
|
Acquired on
|
|
Value Realized on
|
|
Name
|
|
Exercise (#)
|
|
Exercise ($)
|
|
Vesting (#)(a)
|
|
Vesting ($)(b)
|
|
Jeffrey C. Rachor
|
--
|
|
--
|
|
|
125,000
|
|
|
|
1,875,000
|
|
|
Joseph
A. Cirelli
|
15,500
|
|
240,605
|
|
|
2,250
|
|
|
|
36,294
|
|
|
Harry F. Yanowitz
|
--
|
|
--
|
|
|
7,250
|
|
|
|
111,823
|
|
|
Hal
Smith
(c)
|
50,000
|
|
294,494
|
|
|
94,000
|
|
|
|
1,421,800
|
|
|
Mark L. Page
|
35,900
|
|
501,525
|
|
|
1,000
|
|
|
|
15,540
|
|
|
|
(a)
|
|
Messrs. Rachor, Yanowitz and Page
defer/deferred the issuance of vested shares underlying RSUs.
|
|
|
(b)
|
|
Based upon the closing price of a
share of PBY Stock on the vesting date(s) not the SFAS No. 123(R)
recognized compensation expense reflected elsewhere in this proxy
statement.
|
|
|
(c)
|
|
Pursuant to the terms of Mr.
Smith’s Non-Competition Agreement, upon separation from the Company, all
then unvested RSUs (76,000) held by Mr. Smith were
accelerated.
|
Pension Plans
Qualified Defined Benefit Pension Plan
. We have a qualified defined benefit pension plan for all employees
hired prior to February 2, 1992. Future benefit accruals on behalf of all
participants were frozen under this plan as of December 31, 1996. Benefits
payable under this plan are calculated based on the participant’s compensation
(base salary plus accrued bonus) over the last five years of the participant’s
employment by Pep Boys and the number of years of participation in the plan.
Benefits payable under this plan are not subject to deduction for Social
Security or other offset amounts. The maximum annual benefit for any employee
under this plan is $20,000. Messrs. Cirelli and Page were the only named
executive officers who participated in the qualified defined benefit pension
plan in fiscal 2007. Their accrued annualized benefits thereunder, at normal
retirement age, were $15,063 and $19,162, respectively.
Executive Supplemental Retirement Plan
. As discussed above, our SERP includes a defined benefit portion for
certain participants. Messrs. Cirelli and Page were the only named executive
officers participating in the defined benefit portion of the SERP in fiscal
2007. Benefits paid to a participant under the qualified defined pension plan
will be deducted from the benefits otherwise payable under the SERP. Except as
described in the immediately preceding sentence, benefits under the SERP are not
subject to deduction for Social Security or other offset amounts. Benefits under
the SERP generally vest after four years of participation.
24
Normal
retirement defined benefits are based upon the average compensation (base salary
plus accrued bonus) of an executive during the five years that yield the highest
benefit. The annual death benefit is equal to 50% of the participant’s base
salary on the date of his death, payable until the later of 15 years immediately
following the date of death or the participant’s normal retirement date. This
plan also provides for a lump sum distribution of the present value of a
participant’s accrued defined benefits following termination of employment in
connection with a change in control of Pep Boys. A trust agreement has been
established to better assure the executive officers of the satisfaction of Pep
Boys’ obligations under this plan following a change in control.
The following table shows
information regarding pension benefits for the named executive officers.
|
|
|
|
|
|
|
Present
Value of
|
|
Payments Made
|
|
|
|
|
|
Number of
Years
|
|
Accumulated
|
|
During Last Plan
|
|
|
|
|
|
Credited
Service
|
|
Benefit
|
|
Year
|
|
Name
|
|
|
Plan Name
|
|
(#)
|
|
($)
|
|
($)
|
|
Joseph A. Cirelli
|
|
|
|
25
|
|
959,928
|
|
|
0
|
|
|
Mark
L. Page
|
|
Defined Benefit
SERP
|
|
--
|
|
0
|
|
|
2,246,646
|
(a)
|
(a) Such amount became payable to
Mr. Page upon his retirement on September 7, 2007.
Nonqualified Defined Contribution and
Other Nonqualified Deferred Compensation Plans
The
following tables show information regarding benefits under our defined
contribution SERP and Deferred Compensation Plan for the named executive
officers.
|
Nonqualified Defined Contribution Plan
|
|
|
|
|
|
|
Executive
|
|
Registrant
|
|
Aggregate
|
|
Aggregate
|
|
Aggregate
|
|
|
Contributions
|
|
Contributions
|
|
Earnings in
|
|
Withdrawals/
|
|
Balance at Last
|
|
|
in Last FY
|
|
in Last FY
|
|
Last FY
|
|
Distributions
|
|
FYE
|
|
Name
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Jeffrey C. Rachor
|
--
|
|
|
160,015
|
|
|
|
--
|
|
|
--
|
|
|
160,015
|
|
|
Michael R. Odell
|
--
|
|
|
13,215
|
|
|
|
--
|
|
|
--
|
|
|
13,215
|
|
|
Scott A. Webb
|
--
|
|
|
11,231
|
|
|
|
--
|
|
|
--
|
|
|
11,231
|
|
|
Harry
Yanowitz
|
--
|
|
|
69,470
|
|
|
|
8,011
|
|
|
--
|
|
|
255,969
|
|
|
Hal Smith
|
--
|
|
|
--
|
|
|
|
(19,906
|
)
|
|
297,399
|
|
|
0
|
|
|
Nonqualified Deferred Compensation Plan
|
|
|
|
|
|
Executive
|
|
Registrant
|
|
Aggregate
|
|
Aggregate
|
|
Aggregate
|
|
|
Contributions
|
|
Contributions
|
|
Earnings in
|
|
Withdrawals/
|
|
Balance at Last
|
|
|
in Last FY
|
|
in Last FY
|
|
Last FY
|
|
Distributions
|
|
FYE
|
|
Name
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Jeffrey C. Rachor
|
360,000
|
|
|
|
360,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
720,000
|
|
|
Michael R. Odell
|
28,356
|
|
|
|
28,356
|
|
|
|
--
|
|
|
|
--
|
|
|
|
56,712
|
|
|
Joseph A. Cirelli
|
|
|
|
|
--
|
|
|
|
(17,380
|
)
|
|
|
39,577
|
|
|
|
68,751
|
|
|
Scott
A. Webb
|
14,301
|
|
|
|
14,301
|
|
|
|
--
|
|
|
|
--
|
|
|
|
28,602
|
|
|
Harry Yanowitz
|
--
|
|
|
|
--
|
|
|
|
(6,967
|
)
|
|
|
--
|
|
|
|
20,897
|
|
|
Hal
Smith
|
--
|
|
|
|
--
|
|
|
|
(14,671
|
)
|
|
|
49,085
|
|
|
|
0
|
|
|
Mark L. Page
|
--
|
|
|
|
--
|
|
|
|
(18,130
|
)
|
|
|
208,178
|
|
|
|
0
|
|
25
Employment Agreements With Named
Executive Officers
President & Chief Executive Officer.
We have an Employment Agreement with Mr. Rachor for a three-year term
expiring on March 26, 2010 that outlines Mr. Rachor’s compensation package
discussed above and provides him with a severance payment equal to two year’s
base salary and the accelerating vesting of his SERP balance upon termination by
the Company without cause prior to March 26, 2010.
Interim CEO Agreement.
We had a letter
agreement with Mr. Leonard, which provided for a monthly salary of $83,333
during his term as interim CEO (July 18, 2006 – March 25, 2007). Mr. Leonard did
not receive or participate in any of the Company’s welfare, retirement or other
benefits plans or receive any other perquisites. While Mr. Leonard served as
interim CEO, he did not receive his customary cash consideration on account of
his service on the Board, but did receive his customary equity grants under the
Company’s 1999 Stock Incentive Plan.
Change
of Control Agreements.
We have agreements
with Messrs. Rachor, Odell, Cirelli and Webb that become effective upon a change
of control of Pep Boys. Following a change of control, these employment
agreements become effective for two years and provide these executives with
positions and responsibilities, base and incentive compensation and benefits
equal or greater to those provided immediately prior to the change of control.
In addition, we are obligated to pay any excise tax imposed by Section 4999 of
the Internal Revenue Code (a parachute payment excise tax) on a change of
control payment made to a named executive officer. A trust agreement has been
established to better assure the named executive officers of the satisfaction of
Pep Boys’ obligations under their employment agreements following a change of
control. Upon a change of control, all outstanding but unvested stock options
and RSUs held by our all of our associates (including the named executive
officers) vests and becomes fully exercisable. For the purposes of these
agreements, a change of control shall be deemed to have taken place if:
-
incumbent directors (those in place on, or approved by
two-thirds of those in place on, the date of the execution of the agreements)
cease to constitute a majority of our Board
-
any person becomes the beneficial owner of 20% or more of our
voting securities
-
the consummation of business combination transaction, unless
immediately thereafter (1) more than 50% of the voting power of the resulting
entity is represented by our shareholders immediately prior to such
transaction, (2) no person is the beneficial owner of more than 20% of the
resulting entity’s voting securities and (3) at least a majority of the
directors of the resulting entity were incumbent directors
-
a sale of all or substantially all of our assets
-
the approval of a complete liquidation or dissolution of Pep
Boys; or
-
such other events as the Board may designate.
We also
have a Change of Control Agreement with Mr. Yanowitz that is substantially
similar to those entered into by the Company’s other executive officers, except
that (i) it provides for a payment equal to two years’ salary, bonus and
benefits, if Mr. Yanowitz provides three-months of transition services following
a change of control, and (ii) the definition of change of control thereunder has
been expanded to include a sale, discontinuance or closure of a material portion
of the Company’s assets and those business combination transactions where the
Company’s shareholders own less than 75% of the equity of the resulting
entity.
Non-Competition
Agreements.
In exchange for a severance
payment equal to one year’s base salary upon the termination of their employment
without cause, each of Messrs. Odell, Cirelli, Webb and Yanowitz has agreed to
customary covenants against competition during their employment and for one year
thereafter; provided, that Mr. Odell’s severance payment will be equal to
18-months’ base salary if he is terminated during his first 18 months of
employment.
26
Executive Officer
Transition
. On May 24, 2008, Mr. Odell was
appointed Interim Chief Executive Officer. In connection with such appointment,
the sole change to Mr. Odell’s compensation was a $20,000 monthly increase to
his base salary. Mr. Odell succeeds Mr. Rachor, who resigned on April 23, 2008.
Mr. Rachor was not entitled to any additional compensation (aside from his
salary and benefits through his resignation date) in connection with his
resignation. On May 1, 2008, Raymond L. Arthur was appointed Executive Vice
President – Chief Financial Officer. In connection with his appointment, the
Company’ entered into standard Change of Control and Non-Competition Agreements
with Mr. Arthur, except that his severance payment under his Non-Competition
Agreement will be equal to 18-months salary if he is terminated within one-year
of the appointment of the Company’s next permanent Chief Executive Officer
(other than Mr. Odell). Mr. Arthur succeeds Mr. Yanowitz, who announced his
planned departure from the Company on January 17, 2008 and subsequently resigned
on May 1, 2008. Mr. Yanowitz was not entitled to any additional compensation
(aside from his salary and benefits through his resignation date) in connection
with his resignation.
Potential Payments Upon Termination
or Change of Control
The
following table shows information regarding the payments and benefits that a
named executive officer would have received under his Employment Agreement (Mr.
Rachor) or Non-Competition Agreement (Messrs. Odell, Cirelli, Webb, Yanowitz)
assuming that he was terminated without cause as of February 2, 2008.
|
|
|
Cash
Payment
|
|
Name
|
|
|
($)
|
|
Jeffrey R. Rachor
|
|
2,400,000
|
|
Michael R. Odell
|
|
750,000
|
|
Joseph A. Cirelli
|
|
300,020
|
|
Scott
A. Webb
|
|
400,000
|
|
Harry F. Yanowitz
|
|
400,000
|
The
following table shows information regarding the payments and benefits that a
named executive officer would have received under his Change of Control
Agreement assuming that he was terminated immediately upon a change of control
as of February 3, 2008.
|
|
|
|
|
|
|
|
|
|
Value
of
|
|
|
|
|
|
|
|
|
2X
|
|
Accelerated
|
|
|
2X
|
|
2X
|
|
2X
|
|
Health
and
|
|
Vesting
of
|
|
|
Base
|
|
Target
|
|
SERP
|
|
Welfare
|
|
Outstanding
|
|
|
Salary
|
|
Bonus
|
|
($)
|
|
Benefits
|
|
Equity
Awards
|
|
Name
|
|
($)
|
|
($)
|
|
(a)
|
|
($)
|
|
($)(b)
|
|
Jeffrey R. Rachor
|
2,400,000
|
|
3,600,000
|
|
960,000
|
|
136,167
|
|
4,365,000
|
|
Michael R. Odell
|
1,000,000
|
|
750,000
|
|
175,000
|
|
68,323
|
|
596,224
|
|
Joseph A. Cirelli
|
600,040
|
|
270,018
|
|
139,209
|
|
66,565
|
|
64,020
|
|
Scott
A. Webb
|
800,000
|
|
360,000
|
|
116,000
|
|
63,523
|
|
259,467
|
|
Harry F. Yanowitz
|
800,000
|
|
360,000
|
|
116,000
|
|
66,805
|
|
311,925
|
|
(a)
|
|
Represents two year’s worth of
contributions under the defined contribution portion of the
SERP.
|
|
(b)
|
|
Represents the value of the
accelerated vesting of all “in the money” stock options and RSUs at the
closing price of a share of PBY Stock on February 2, 2008
($11.64).
|
27
(ITEM 2) PROPOSAL TO RATIFY THE
APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors, upon the recommendation of the Audit Committee, has appointed the
firm of Deloitte & Touche LLP to serve as our independent registered public
accounting firms with respect to the consolidated financial statements of Pep
Boys and its subsidiaries for fiscal 2008. Deloitte & Touche LLP served as
our independent registered public accounting firm for fiscal 2007.
A
representative of Deloitte & Touche LLP is expected to be present at the
meeting and will have the opportunity to make a statement if he or she desires
to do so. The representative is also expected to be available to respond to
appropriate questions of shareholders.
If the
shareholders do not ratify the appointment of Deloitte & Touche LLP, another
independent registered public accounting firm recommended by the Audit Committee
will be considered by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A
VOTE
"FOR"
THE RATIFICATION OF THE APPOINTMENT OF THE
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
28
(ITEM 3) THE AMENDMENT OF OUR
ARTICLES OF INCORPORATION
TO PROVIDE
FOR MAJORITY VOTING IN UNCONTESTED ELECTIONS OF DIRECTORS
Pep Boys has a
longstanding commitment to solid corporate governance, and is committed to
providing shareholders a meaningful role in the election of Directors.
Accordingly, we are recommending to our shareholders the amendment of our
Articles of Incorporation to include a majority vote standard in uncontested
elections of Directors.
If adopted, the majority vote
standard would provide that in uncontested elections - elections where the
number of nominees equals the number of Directors to be elected - a Director
nominee will only be elected if the number of votes cast “for” the nominee
exceeds the number of votes cast “against” the nominee. An “abstain” vote will
have no effect on the outcome of the election, but will be counted for purposes
of determining whether a quorum is present. New nominees, if any, not already
serving on the Board who fail to receive a majority of votes cast in uncontested
elections will not be elected to the Board in the first instance. Under
Pennsylvania law, if an incumbent Director nominee does not receive such
majority vote in an uncontested election, the incumbent Director will continue
to serve on the Board until his or her successor is elected and qualified.
Accordingly, if the proposed amendment is adopted, an incumbent director who
does not receive the required majority vote for re-election will be required to
tender a resignation to the Board of Directors. The Board of Directors will then
accept or reject the resignation, or take other appropriate action, based upon
the best interests of the Company and its shareholders and will publicly
disclose its decision and rationale within 90 days.
In contested elections, those in
which the number of nominees exceed the number of Directors to be elected, the
voting standard will continue to be a plurality of votes cast - those nominees
receiving the most votes cast are elected. In addition, the proposed amendment
clarifies that a shareholders right to cumulate votes - the right to multiply
the number of votes to which he or she may be entitled by the total number of
Directors to be elected in such election and he may cast the whole number of his
votes for (but not against) any one nominee or he may distribute them among two
or more nominees – will continue to apply only in contested elections.
The text of the proposed amendment
to our Articles of Incorporation is attached to this Proxy Statement as
Appendix B
.
Under Pennsylvania law, the
affirmative vote of a majority of the votes cast at a shareholder meeting is
required to approve the amendment. The Board urges each shareholder to read
Appendix B carefully before voting on this proposal. If the proposed amendment
is approved by our shareholders, it will become effective upon filing with the
Secretary of the Commonwealth of Pennsylvania.
THE BOARD OF DIRECTORS RECOMMENDS A
VOTE
"FOR"
THE AMENDMENT OF OUR ARTICLES OF INCORPORATION
TO PROVIDE FOR MAJORITY VOTING IN UNCONTESTED ELECTIONS OF
DIRECTORS
29
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934 requires our directors, executive
officers and 10% Holders to file initial reports of ownership and reports of
changes in ownership of Pep Boys Stock. Based solely upon a review of copies of
such reports, we believe that during fiscal 2007, our directors, executive
officers and 10% Holders complied with all applicable Section 16(a) filing
requirements.
COST OF SOLICITATION OF PROXIES
The
expense of the solicitation of the proxies, including the cost of preparing and
distributing material, the handling and tabulation of proxies received and
charges of brokerage houses and other institutions in forwarding such documents
to beneficial owners, will be paid by us. In addition to the mailing of the
proxy materials, solicitations may be made in person or by telephone by our
directors, officers or employees or independent parties engaged to solicit
proxies.
PROPOSALS OF
SHAREHOLDERS
All
proposals which any shareholder wishes to present at the 2009 Annual Meeting and
to have included in the Board of Directors’ proxy materials relating to that
meeting must be received no later than December 28, 2008. Such proposals should
be sent to:
Pep Boys
3111 West Allegheny Avenue
Philadelphia, PA 19132
Attention:
Secretary
Our
by-laws provide an alternative procedure for submitting shareholder proposals.
While a shareholder proposal submitted in accordance with the following
procedures may be presented at a meeting, such proposal is not required to be
included in any Board of Directors’ proxy materials relating to that meeting. In
order to present an item of business at a shareholders’ meeting, a shareholder’s
notice must be received by us not less than 50 nor more than 75 days prior to
the date of the scheduled shareholders’ meeting. If the public announcement of
the holding of the shareholders’ meeting was given less than 65 days prior to
the date of such meeting, then a shareholder’s notice received by us within ten
days of the date of such public announcement will be considered timely. The
shareholder’s notice should be sent to:
Pep Boys
3111 West Allegheny Avenue
Philadelphia, PA 19132
Attention:
Secretary
The shareholder’s notice shall set
forth all of the following information:
-
the name and address of the shareholder
-
a representation that the shareholder intends to appear in
person or by proxy at the meeting
-
a general description of each item of business proposed to be
brought before the meeting
The
presiding officer of the meeting may refuse to consider any business attempted
to be brought before any shareholder meeting that does not comply with these
procedures.
30
ANNUAL REPORT ON FORM
10-K
WE WILL
PROVIDE, FREE OF CHARGE, UPON THE WRITTEN REQUEST OF ANY PERSON SOLICITED BY THE
PROXY STATEMENT, A COPY OF OUR ANNUAL REPORT ON FORM 10-K (INCLUDING THE
FINANCIAL STATEMENTS AND THE SCHEDULES THERETO) AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION FOR OUR MOST RECENT FISCAL YEAR. SUCH WRITTEN REQUEST SHOULD
BE DIRECTED TO:
Pep Boys
3111 West Allegheny Avenue
Philadelphia, PA 19132
Attention:
Secretary
31
Appendix A
THE PEP BOYS – MANNY, MOE & JACK
AUDIT COMMITTEE CHARTER
The Board
of Directors of The Pep Boys – Manny, Moe & Jack (the “Company”) has adopted
this updated Charter for its Audit Committee (“Committee”) effective for its
fiscal year commencing February 3, 2008.
I.
COMPOSITION
The
Committee shall be comprised of at least three (3) non-management directors
appointed by the full Board of Directors, upon the recommendation of the
Nominating and Corporate Governance Committee, who shall serve at the pleasure
of the full Board. Each Committee member shall comply with the independence
requirements of the New York Stock Exchange, Inc (“NYSE”) and the Securities and
Exchange Commission (“SEC”) and shall have sufficient financial experience and
ability to enable them to discharge their responsibilities. In addition, at
least one Committee member shall be an “audit committee financial expert” as
defined by the SEC.
II.
AUTHORITY
The
Committee is authorized to carry out the responsibilities set forth in this
Charter and any other assignments requested by the Board of Directors. The
Committee shall have full access to the Company’s books, records, facilities and
personnel (including, without limitation, direct access to the Company’s
internal audit function) to carry out its responsibilities and is authorized to
retain persons or entities having special competence to assist the Committee in
fulfilling its responsibilities, after notice to the Chairman of the Board. The
Committee shall have access to the Company’s outside counsel for advice and
information.
III.
PURPOSE
The
Committee shall assist the Board of Directors in fulfilling its fiduciary
responsibilities as to its oversight of (a) the integrity of the Company’s
financial statements, (b) the compliance of the Company’s public disclosures
with legal and regulatory requirements, (c) the independence and qualifications
of the Company’s independent registered public accounting firm and (d) the
performance of the Company’s internal audit function and independent registered
public accounting firm. The Committee is to serve as a focal point for
communication among the Board of Directors, the Company’s independent registered
public accounting firm, internal audit function and management, as the
respective duties of such groups, or their constituent members, relate to the
Company’s financial accounting and reporting and internal controls.
The
Committee is not intended to be part of the Company’s operational or managerial
decision-making process. The Company’s management, and not the Committee or the
independent registered public accounting firm, is responsible for producing the
Company’s financial statements and reports and for instituting and maintaining
internal controls. The independent registered public accounting firm are
responsible for attesting to the fair presentation of the financial statements
in accordance with generally accepted accounting principles and upon the
adequacy of the Company’s internal controls.
IV.
RESPONSIBILITIES
In furtherance of its stated
purpose, the Committee shall have the following responsibilities:
4.1
Financial Reporting
. To discuss with management and the independent registered public
accounting firm the annual audited financial statements and quarterly financial
statements, including matters required to be reviewed under applicable SEC, NYSE
and any other applicable legal or regulatory requirements.
The
Committee will review the Company's Form 10-K with management, the Director of
Internal Audit and the independent registered public accounting firm. Based on
such review, the Committee shall make its recommendation to the Board as to the
inclusion of the Company’s audited financial statements and assessment of
internal controls in the Company’s Annual Report on Form 10-K.
After
consulting with each member of the Committee, the Committee Chair will review
the Company's Form 10-Qs and any Form 8-K which includes financial statements
with management and, if appropriate, the Director of Internal Audit and/or the
independent registered public accounting firm.
In
connection with all such reviews, the Committee will also review the
corresponding (i) proceedings of the Corporate Accountability Committee in
support of the SEC’s required CEO and CFO certifications and (ii) management
representation letters to the independent registered public accounting
firm.
4.2
Proxy Statement
. To prepare and
publish an annual Committee report in the Company's proxy statement.
4.3
Internal Controls Over Financial
Reporting
. To review with management, the
internal audit function and the independent registered public accounting firm
the Company’s policies and procedures to seek assurance as to the adequacy of
the Company’s internal controls over financial reporting. Annually, the
Committee shall review the Company’s plan for documenting and testing the
Company’s internal controls and, at least quarterly, shall review the Company’s
progress against such plan and the results of such testing.
4.4
Press Releases
. To discuss with management and the independent registered public
accounting firm, as appropriate, earnings press releases and any other press
releases which contain previously non-public material financial information. The
Committee shall review all such releases with management prior to their release
to the public.
4.5
Independent Registered Public Accounting
Firm
. To select the independent registered
public accounting firm to examine the Company's accounts, controls and financial
statements and to ask the full Board to seek the shareholders’ ratification of
such selection at each Annual Meeting of Shareholders. The Committee shall have
the sole authority and responsibility to select, evaluate, compensate and
oversee the work of any registered public accounting firm engaged for the
purpose of preparing or issuing an audit report or performing other audit,
review or attest services for the Company (including resolution of disagreements
between management and the registered public accounting firm regarding financial
reporting). The independent registered public accounting firm and each such
registered public accounting firm will report directly to the Committee. The
Committee shall have the sole authority to approve all audit engagement fees and
terms and the Committee must pre-approve any audit and non-audit service
provided to the Company by the Company's independent registered public
accounting firm.
To obtain
and review at least annually a formal written report from the independent
registered public accounting firm delineating (i) the auditing firm's internal
quality-control procedures and (ii) any material issues raised within the
preceding five years by the auditing firm's internal quality-control reviews, by
peer reviews of the firm or by any governmental or other inquiry or
investigation relating to any audit conducted by the firm. The Committee will
also review steps taken by the auditing firm to address any findings in any of
the foregoing reviews. Also, in order to assess the independence of the
independent registered public accounting firm, the committee will review at
least annually all relationships between the independent registered public
accounting firm and the Company.
To set
policies for the hiring of employees or former employees of the Company's
independent registered public accounting firm.
To ensure
that the lead audit partners assigned by the Company's independent registered
public accounting firm to the Company, as well as the audit partner responsible
for reviewing the Company's audit shall be changed at least every five years.
To
consider whether there should be regular rotation of the independent audit firm
to assure continuing independence of the independent registered public
accounting firm.
The
Committee shall have the authority to dismiss the independent registered public
accounting firm if it deems necessary at any time.
A - 2
4.6
Accounting Standards and
Principles
. To review the Company's financial
reporting and accounting standards and principles, significant changes in such
standards or principles or in their application and the key accounting decisions
affecting the Company's financial statements, including alternatives to, and the
rationale for, the decisions made.
4.7
Internal Audit Function
. To review and approve the internal audit staff functions,
including (i) purpose, authority and organizational reporting lines and (ii)
annual audit plan, budget and staffing. At least quarterly, the Committee shall
review internal audit’s progress against such plan and the results of such
audit. The senior internal audit executive shall not be terminated or reassigned
without the consent of the committee.
4.8
Risk Assessment
. To discuss with management and the independent registered public
accounting firm, as appropriate, any audit problems or difficulties and
management's response, and the Company's financial risk assessment and financial
risk management policies, including the Company's major financial risk exposure
and steps taken by management to monitor and mitigate such exposure. Annually,
the Committee shall review with management, the Company’s Cost of Risk and
Litigation portfolios and, shall be provided with quarterly updates of any
material changes thereto.
4.9
Whistleblower Lines
. To oversee the Company’s maintenance of an anonymous telephone hotline
for the reporting by all of the Company’s employees questionable accounting or
auditing activities. The Committee shall also review with management periodic
reports from the Company’s anonymous hotline for the reporting by all of the
Company’s employees of employee dishonesty, theft, embezzlement and human
resource matters.
4.10
Conflicts of Interest
. To review with the General Counsel, and to investigate as
appropriate, any matters pertaining to the integrity of management, members of
the Board and the independent registered public accounting firm, including
conflicts of interest and adherence to standards of business conduct as required
by the policies of the Company.
4.11
Expense Reimbursement
. To review with management, the results of its an annual
review of the expenses reimbursed to the Chief Executive Officer to ensure
compliance with all applicable company policies.
4.12
Self-Evaluation
. To perform an annual evaluation of the performance of the Committee
using criteria and procedures established by the Committee, and to review the
results of that evaluation with the full Board.
4.13
Charter
. To review and update the
Committee’s charter annually.
V. MEETINGS
The
Committee expects to meet nine times per year and may meet as many other times
as the full Board or the Committee deems necessary. The Committee may meet or
otherwise take action in the same manner or manners as may the full Board of
Directors. The Committee may request that members of management, the internal
audit function and/or representatives of the independent registered public
accounting firm be present at meetings of the Committee, as well as outside
experts or counsel, if appropriate. At each meeting, the Committee will
generally hold an executive session. Minutes of each Committee meeting are to be
prepared and sent to Committee members for approval.
A - 3
Appendix B
Amendment to Articles of
Incorporation
The following Article 7 is proposed to
be added to the Amended and Restated Articles of Incorporation of The Pep Boys –
Manny, Moe & Jack:
“7. Election of Directors by the
shareholders shall be as follows:
(a) In an
election of Directors that is not a contested election, to be elected a nominee
must receive the affirmative vote of a majority of the votes cast with respect
to the election of that nominee. An incumbent Director who does not receive the
required majority vote for re-election is required to tender a resignation to
the Board of Directors. The Board of Directors will then accept or reject the
resignation, or take other appropriate action, based upon the best interests of
the Company and its shareholders and will publicly disclose its decision and
rationale within 90 days.
(b) In a
contested election of Directors, the nominee receiving the highest number of
votes up to the number of Directors to be elected shall be elected. In a
contested election of Directors, a shareholder entitled to vote shall have the
right to multiply the number of votes to which he may be entitled by the total
number of directors to be elected in such election and he may cast the whole
number of his votes for (but not against) any one nominee or he may distribute
them among two or more nominees.
(c) A
“contested election” is an election of Directors in which there are more
nominees for election than the number of Directors to be elected and one or more
of the nominees has been properly proposed by the shareholders.”
THE PEP BOYS –– MANNY, MOE &
JACK
Annual Meeting of Shareholders – To
Be Held June 19, 2008
THE BOARD OF DIRECTORS SOLICITS THIS
PROXY
The undersigned hereby appoint(s)
Bernard K. McElroy, Brian D. Zuckerman, and each of them, attorney, agent and
proxy of the undersigned, with full power of substitution, to vote all shares of
common stock of the The Pep Boys–Manny, Moe & Jack that the undersigned
would be entitled to vote if personally present at the 2008 Annual Meeting of
Shareholders of the Company, and at any postponement or adjournment
thereof
.
THIS PROXY WILL BE VOTED AS
SPECIFIED BY THE UNDERSIGNED. IF NO CHOICE IS SPECIFIED, THIS PROXY WILL BE
VOTED
FOR
THE ELECTION OF ALL NOMINEES FOR DIRECTOR LISTED ON
THE REVERSE SIDE,
FOR
PROPOSAL NUMBER 2,
FOR
PROPOSAL NUMBER 3, AND ACCORDING TO THE DISCRETION OF THE PROXY HOLDERS
ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY
POSTPONEMENT OR ADJOURNMENT THEREOF.
(Continued and to be signed on the
reverse side)
ANNUAL MEETING OF
SHAREHOLDERS OF
THE PEP BOYS -
MANNY, MOE & JACK
June 19, 2008
Please sign, date and
mail
your proxy card in the
envelope provided as soon
as
possible.
ê
Please detach along perforated line and mail in the
envelope provided.
ê
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN
HERE
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The
Board of Directors recommends a vote FOR all of the
nominees.
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1. Election of
Directors:
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The Board of Directors
recommends a vote FOR Item 2.
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(ONLY mark circles to withhold
authority,
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NOMINEES:
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See Instructions below)
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FOR
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AGAINST
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ABSTAIN
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FOR ALL NOMINEES
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O William
Leonard
O Peter A. Bassi
O Jane Scaccetti
O John T.
Sweetwood
O M. Shân Atkins
O Robert H. Hotz
O James A.
Mitarotonda
O Nick White
O James A. Williams
O Thomas R. Hudson
Jr.
O Dr. Irvin D. Reid
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2. To approve the appointment of Deloitte & Touche LLP as
the Company’s independent registered public accounting
firm.
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WITHHOLD AUTHORITY
FOR ALL
NOMINEES
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The Board of Directors recommends a vote FOR
Item 3.
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FOR
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AGAINST
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ABSTAIN
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FOR ALL EXCEPT
(See
instructions below)
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3. The amendment of our Articles of Incorporation to provide
for majority voting in uncontested elections of
Directors.
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INSTRUCTIONS:
To withhold authority to vote
for any individual nominee(s), mark
“FOR ALL EXCEPT”
and fill in
the circle next to each nominee you wish to withhold, as shown here:
l
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To change the
address on your account, please check the box at right and indicate your
new address in the address space above. Please note that changes to the
registered name(s) on the account may not be submitted via this
method.
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Signature of Shareholder
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Date:
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Signature of Shareholder
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Date:
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Note:
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Please sign exactly as your name or names appear on this
Proxy. When shares are held jointly, each holder should sign. When signing
as executor, administrator, attorney, trustee or guardian, please give
full title as such. If the signer is a corporation, please sign full
corporate name by duly authorized officer, giving full title as such. If
signer is a partnership, please sign in partnership name by authorized
person.
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