-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, B7aBSbfBz7hHRXTzyLjJSUFxx0RxxFr+NqIwUdvIECudUrpCJqbzJ95yc1d1iqCA MJeEHL4E+R8u1Ib7BLwf4w== 0000077449-95-000002.txt : 19950501 0000077449-95-000002.hdr.sgml : 19950501 ACCESSION NUMBER: 0000077449-95-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19950128 FILED AS OF DATE: 19950428 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEP BOYS MANNY MOE & JACK CENTRAL INDEX KEY: 0000077449 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO & HOME SUPPLY STORES [5531] IRS NUMBER: 230962915 STATE OF INCORPORATION: PA FISCAL YEAR END: 0203 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03381 FILM NUMBER: 95532270 BUSINESS ADDRESS: STREET 1: 3111 W ALLEGHENY AVE CITY: PHILADELPHIA STATE: PA ZIP: 19132 BUSINESS PHONE: 2152299000 10-K 1 FORM 10-K YEAR ENDED JANUARY 28, 1995 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 - ------------------------------------------------------------------------------- FORM 10-K (Mark One) (x) Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (FEE REQUIRED) For the fiscal year ended January 28, 1995 or ( ) Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (NO FEE REQUIRED) For the transition period from to . ----- ----- Commission file number 1-3381 The Pep Boys - Manny, Moe & Jack ---------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 23-0962915 ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. employer identification no.) incorporation or organization) 3111 West Allegheny Avenue, Philadelphia, PA 19132 -------------------------------------------- ------------ (Address of principal executive office) (Zip code) Registrant's telephone number, including area code 215-229-9000 ------------ Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - ----------------------------- ----------------------------------------- Common Stock, $1.00 par value New York Stock Exchange 4% Convertible Subordinated Notes due September 1, 1999 New York Stock Exchange Common Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ______ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) As of the close of business on April 7, 1995, the aggregate market value of the voting stock held by nonaffiliates of the registrant was not less than $1,649,063,360. As of April 7, 1995 there were 61,554,346 shares of the registrant's common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE PART III Portions of the registrant's definitive proxy statement, which will be filed with the commission pursuant to Regulation 14A not later than 120 days after the end of the Company's fiscal year, for the Company's Annual Meeting of Shareholders presently scheduled to be held on May 31, 1995. This Annual Report on Form 10-K for the year ended January 28, 1995, at the time of filing with the Securities and Exchange Commission, modifies and supersedes all prior documents filed pursuant to Sections 13, 14 and 15(d) of the Securities Exchange Act of 1934 for purposes of any offers or sales of any securities on or after the date of such filing, pursuant to any Registration Statement or Prospectus filed pursuant to the Securities Act of 1933 which incorporates by reference this Annual Report. PART I ITEM I BUSINESS GENERAL The Company is engaged principally in the retail sale of automotive parts and accessories, automotive maintenance and service and the installation of parts sold by it through its chain of 435 Pep Boys stores (as of January 28, 1995), having an aggregate of 4,166 service bays. The Company operates approximately 8,900,000 gross square feet of retail space for an average of approximately 20,500 gross square feet per store. The following table indicates by state the number of stores of the Company in operation at the end of fiscal 1991, 1992, 1993 and 1994 and the number of stores opened and closed by the Company during each of the last three fiscal years: NUMBER OF STORES AT END OF FISCAL YEARS 1991 THROUGH 1994
1992 1993 1994 1991 -------------------------- -------------------------- -------------------------- State YEAR END Opened Closed Year End Opened Closed Year End Opened Closed Year End - -------------------- -------- ------ ------ -------- ------ ------ -------- ------ ------ -------- Alabama - 1 - 1 - - 1 - - 1 Arizona 25 - 1 24 - - 24 - - 24 Arkansas - - - - 1 - 1 - - 1 California 94 4 6 92 8 7* 93 11* 2 102 Colorado - - - - - - - 5 - 5 Delaware 5 - - 5 - - 5 - - 5 Florida 20 7 - 27 6 - 33 1 - 34 Georgia 20 - - 20 - - 20 - - 20 Illinois - - - - 3 - 3 10 - 13 Indiana - - - - 1 - 1 - - 1 Kansas - - - - 1 - 1 1 - 2 Kentucky - - - - 1 - 1 2 - 3 Louisiana 7 2 - 9 3 - 12 - - 12 Maryland 14 1 - 15 1 - 16 - - 16 Massachusetts - - - - 2 - 2 1 - 3 Michigan - - - - - - - 1 - 1 Missouri - - - - 1 - 1 - - 1 Nevada 8 - - 8 - - 8 - - 8 New Hampshire - - - - - - - 1 - 1 New Jersey 13 - - 13 1 - 14 2 1 15 New Mexico 8 - - 8 - - 8 - - 8 New York - 7 - 7 2 - 9 2 - 11 North Carolina 11 - - 11 - - 11 - - 11 Ohio - - - - - - - 9 - 9 Oklahoma 6 - - 6 - - 6 - - 6 Pennsylvania 30 1 1 30 2 1 31 3 - 34 Rhode Island - - - - 1 - 1 - - 1 South Carolina 5 1 - 6 - - 6 - - 6 Tennessee 7 - - 7 - - 7 - - 7 Texas 47 2 - 49 3 - 52 3 - 55 Utah 5 1 - 6 - - 6 - - 6 Virginia 12 2 1 13 - - 13 - - 13 --- --- --- --- --- --- --- --- --- --- Total 337 29 9 357 37 8 386 52 3 435 === === === === === === === === === === * Included in this number is the Company's Santa Monica store which was temporarily closed in fiscal 1993 and re-opened in fiscal 1994. /TABLE NEW STORES AND EXPANSION STRATEGY The most important factors considered by the Company when deciding to open new stores are the population density of the target area and the automotive traffic count at the site of the proposed store. The most important factors considered by the Company when deciding whether to close a store are profitability and whether the store is outmoded by virtue of store size, location and surroundings, number of service bays, number of other stores within the same market area and the cost/benefit of establishing a replacement store rather than expanding or otherwise upgrading an older store. The Company introduced a new supplemental store format in fiscal 1994, which operates under the name Pep Boys - "PARTS USA". These new format stores will generally be between approximately 10,000 - 13,000 square feet and stock approximately 22,000 stock-keeping-units but will not carry tires or have service bays. The Company believes the utilization of this secondary format will enable it to grow at a faster rate and achieve greater economies of scale by providing more retail outlets as well as increase its market penetration and share. The Company currently plans to open as many as 50 new automotive "SUPERCENTERS" with service bays and 25 of its new format "PARTS USA" stores in fiscal 1995. Included in this expansion will be the Company's initial entry into Puerto Rico - its first units outside of the continental United States. If the Company opens stores in all 75 locations, it anticipates spending approximately $160,000,000 in addition to the $8,755,000 it had already spent as of January 28, 1995 in connection with certain of these locations. Funds required to finance this expansion are expected to come primarily from operating activities with the remainder provided by unused lines of credit or from accessing traditional lending sources which may include the public capital markets. During fiscal 1994 the Company opened 51 new stores which includes its first "PARTS USA" store. All 50 of the automotive "SUPERCENTERS" opened during fiscal 1994 were in the "warehouse" format, which was introduced in fiscal 1991. The Company had 121 warehouse format stores as of January 28, 1995. In addition to lower capital costs and a shorter construction schedule, the warehouse format stores provide a more convenient shopping environment to customers. During 1994 the Company introduced the first of its new prototype "SUPERCENTER". This new prototype features a number of enhancements to the current warehouse format including a parts counter that runs along the center aisle of the store. The Company believes this new format further enhances customer service by positioning its store staff closer to shoppers in the general merchandise area of the store. The Company anticipates that all the automotive "SUPERCENTERS" to be opened in fiscal 1995 will be in this new prototype format and will consist of approximately 22,000 gross square feet, including approximately 12 service bays with computerized diagnostic equipment. The Company's ability to meet its expansion goals will depend, in large measure, upon the availability of suitable sites, prevailing economic conditions, its success in completing negotiations to purchase or lease properties, and its ability to obtain governmental approvals and meet construction deadlines. MERCHANDISING Each Pep Boys' automotive "SUPERCENTER" carries the same basic product line, with variations based on the number and type of cars registered in the different markets. A full complement of a store's inventory currently includes approximately 25,000 items. The Company's automotive product line includes: tires; batteries; new and rebuilt parts for domestic and imported cars, including suspension parts, ignition parts, mufflers, engines and engine parts, oil and air filters, belts, hoses, air conditioning parts, and brake parts; chemicals, including oil, antifreeze, polishes, additives, cleansers and paints; mobile electronics, including sound systems, alarms and cellular telephones; car accessories, including seat covers, floor mats, gauges, mirrors and booster cables; and a large selection of truck and van accessories. In addition to offering a wide variety of high quality, branded products, the Company sells an array of high quality products under the Pep Boys and various other private label names. The Company sells oil, transmission fluid, chemicals, and paints under the Pep Boys name. The Company sells antifreeze under the name PURE AS GOLD(R). The Company sells starters and alternators under the names "True Blue" and PRO-START(R), water pumps under the names "True Blue" and PRO-COOL(tm) and batteries under the name PROSTART(R). Brakes are sold under the names SHUR GRIP(R) and PROSTOP(tm) and tires under the names CORNELL(R) and FUTURA(R). The Company also sells shock absorbers under the name "ProRyder", and trunk and hatchback lift supports under the name PROLIFT(tm). All products sold by the Company under the Pep Boys and various other private label names accounted for approximately 22% of the Company's merchandise sales in fiscal 1994. The remaining merchandise is sold under the brand names of others. Except for revenues from maintaining or repairing automobiles and installing products, which accounted for approximately 12.8%, 13.3% and 13.9% of the Company's total revenues in fiscal years 1992, 1993 and 1994 respectively, no class of products or services accounted for as much as 10% of the Company's total revenues. The Company has a point-of-sale system in all of its stores which gathers sales and gross profit data by stock-keeping-unit from each store on a daily basis. This information is then used by the Company to help formulate its pricing, marketing and merchandising strategies. The Company has an electronic work order system in all of its service centers. This system creates a service history for each vehicle, provides customers with a comprehensive, professional sales document and will enable the Company to establish a service customer database. The Company uses an "Everyday Low Price" (EDLP) strategy in establishing its selling prices. Management believes that EDLP provides better value to its customers on a day-to-day basis, helps level customer demand and allows more efficient management of inventories. The Company uses various forms of advertising to promote its category dominant product offering, its state-of-the-art automotive service and repair capabilities and its commitment to customer service and satisfaction. The Company's advertising vehicles include, but are not limited to, multipage catalogs, television and radio commercials and in-store promotions. A large portion of the gross cost of the advertising directed by the Company is customarily borne by the suppliers of the products advertised. In fiscal 1994, approximately 72% of the Company's total revenues were cash transactions (including personal checks), and the remainder were credit and charge card sales. The Company does not experience significant seasonal fluctuation in the generation of its revenues. STORE OPERATIONS AND MANAGEMENT All Pep Boys' stores are open seven days a week. Each store with service bays has a manager, a service manager, a parts manager and two or more assistant managers. A store manager's average length of service with the Company is approximately eight years. The Company has service bays in 427 of its 435 locations. Each service department can perform a variety of services which include: engine tune-ups, wheel alignments, state inspections, air conditioning service; the repair and installation of parts and accessories including brake parts, suspension parts, exhaust systems, front end parts, ignition parts, belts, hoses, clutches, filters, radios, alarms, sun roofs, cruise controls, and various other merchandise sold in Pep Boys' stores; installation and balancing of tires, and oil and lubrication services. The Company coordinates the operation and merchandising of each store through a network of district and regional managers. The regional managers report to one of three Vice Presidents - Store Operations who report to the Company's Senior Vice President - Store Operations who reports to the Company's Executive Vice President. Supervision and control over the individual stores are facilitated by means of the Company's computer system, operational handbooks and regular visits to the individual stores by the district operations managers and loss prevention personnel. All of the Company's advertising, accounting, management information systems, purchasing and most administrative functions are conducted at its corporate headquarters in Philadelphia, Pennsylvania. Certain administrative functions for the Company's western, southwestern, and southeastern operations are performed at various regional offices of the Company. See "Properties." INVENTORY CONTROL AND DISTRIBUTION Almost all of the Company's merchandise is distributed to its stores from its warehouses by Company-owned or leased trucks. Target levels of inventory for each product have been established for each of the Company's warehouses and stores and are based upon prior shipment history, sales trends and seasonal demand. Inventory on hand is compared to the target levels on a weekly basis at each warehouse. If the inventory on hand at a warehouse is below the target levels, the Company's buyers order merchandise from its suppliers. Each Pep Boys store has an automatic inventory replenishment system that automatically orders additional inventory when a store's inventory on hand falls below the target level. In addition, the Company's centralized buying system installed in fiscal 1992, coupled with a new warehousing system which is currently operating in four of its five main distribution facilities, has greatly enhanced the Company's ability to control its inventory. The Company plans to install the new warehousing system in its remaining distribution center in fiscal 1995. SUPPLIERS During fiscal 1994, the Company's ten largest suppliers accounted for approximately 32% of the merchandise purchased by the Company. No single supplier accounted for more than 5% of the Company's purchases. The Company has no long-term contracts for the purchase of merchandise. Management believes that the relationships the Company has established with its suppliers are generally good. In the past, the Company has not experienced difficulty in obtaining satisfactory sources of supply and believes that adequate alternative sources of supply exist, at substantially similar cost, for virtually all types of merchandise sold in its stores. COMPETITION The business of the Company is generally highly competitive. The Company encounters competition from nationwide and regional chains and from local independent merchants. Some of the Company's competitors are general, full range, discount or traditional department stores which carry automotive parts and accessories and/or have automotive service centers, and others, similar to the Company, are specialized automotive service retailers. Certain of its competitors are larger in terms of sales volume and/or store size, have access to greater capital and management resources and have been operating longer in particular geographic areas than the Company. Although the Company's competition varies by geographical area, the Company believes that it generally has a favorable competitive position in terms of depth and breadth of product line, price, quality of personnel and customer service. In addition, the Company believes that its operation of service bays in its "SUPERCENTERS'" automotive service centers positively differentiates it from most of its competitors. The Company believes that the warranty policies in connection with the higher priced items it sells, such as tires, batteries, brake linings and other major automotive parts and accessories, are comparable or superior to those of its competitors. EMPLOYEES At January 28, 1995, the Company employed 15,874 persons as follows:
Full-time Part-time Total Description Numbers % Numbers % Numbers % - ------------------------------------------------------------------------------------------------------------------------------------ Store Sales 5,005 42.4 3,069 75.4 8,074 50.9 Store Service 5,115 43.3 815 20.0 5,930 37.3 Store Regional Management 79 .7 - - 79 .5 ------ ----- ----- ----- ------ ----- STORE TOTAL 10,199 86.4 3,884 95.4 14,083 88.7 Warehouses 805 6.8 166 4.1 971 6.1 Offices 800 6.8 20 .5 820 5.2 ------ ----- ----- ----- ------ ----- TOTAL EMPLOYEES 11,804 100.0 4,070 100.0 15,874 100.0 ====== ===== ===== ===== ====== =====
Of the 805 full-time warehouse employees referred to above, 164 employees at the Company's New Jersey warehouse facilities are members of a union. The Company believes employee relations are generally good. At the end of fiscal 1993, the Company employed approximately 10,509 full-time and 4,386 part-time employees, and at the end of fiscal 1992, the Company employed approximately 9,300 full-time and 4,100 part-time employees. ITEM 2 PROPERTIES The Company's headquarters in Philadelphia, Pennsylvania, which also serves as an administrative regional office for its eastern operations, occupies approximately 263,000 square feet of a five-story structure owned by the Company with approximately 300,000 square feet of floor space. The Company occupies approximately 30,000 square feet of a 60,000 square foot three-story structure which the Company owns located in Los Angeles, California which serves as an administrative regional office for its western operations. The Company leases approximately 4,000 square feet of office space in each of Decatur, Georgia and Richardson, Texas which serve as administrative regional offices for its southeastern and southwestern operations, respectively. Of the 435 store locations operated by the Company at January 28, 1995, 298 are owned and 137 are leased. Of the 137 leased store locations, 56 are fully leased and 81 are ground leases only. The following table sets forth certain information regarding the owned and leased warehouse space utilized by the Company at January 28, 1995.
Warehouse Products Square Owned or Stores States Location Warehoused Footage Leased Serviced Serviced - --------------------------------------------------------------------------- Los Angeles, CA All except 216,000 Owned 105 AZ, CA, NV tires Los Angeles, CA Tires 73,000 Leased 105 AZ, CA, NV Los Angeles, CA All except 137,000 Leased 105 AZ, CA, NV tires Phoenix, AZ All except 100,000 Owned 54 AZ, CO, NM, tires and NV, TX, UT chemicals Phoenix, AZ Tires and 57,000 Leased 54 AZ, CO, NM, chemicals NV, TX, UT Phoenix, AZ Tires and 42,000 Leased 54 AZ, CO, NM, chemicals NV, TX, UT Bridgeport, NJ All except 195,000 Owned 95 DE, MA, MD, tires MI, NH, NJ, NY, OH, PA, RI, VA Bridgeport, NJ Tires and 273,000 Leased 95 DE, MA, MD, chemicals MI, NH, NJ, NY, OH, PA, RI, VA Atlanta, GA All 392,000 Owned 110 AL, FL, GA, IL, IN, KY, NC, OH, SC, TN, VA Mesquite, TX All 244,000 Owned 71 AR, KS, LA, MO, OK, TX --------- Total 1,729,000
The Company anticipates that its existing current and leased warehouse space will accommodate inventory necessary to support store expansion and any increase in stock-keeping-units during fiscal 1995. The Company is subject to federal, state and local provisions relating to the protection of the environment, including provisions with respect to the disposal of oil at its store locations. Estimated capital expenditures relating to compliance with such environmental provisions are not material. ITEM 3 LEGAL PROCEEDINGS The Company is involved in a number of lawsuits arising in the ordinary course of business. Management is of the opinion that such lawsuits will not result in any material liability to the Company. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year ended January 28, 1995. ITEM A EXECUTIVE OFFICERS OF THE COMPANY The following table indicates the names, ages, years with the Company and positions (together with the year of election to such positions) of the executive officers of the Company: Years with Position with the Company and Name Age Company Year of Election to Position - --------------------- ---- ---------- ----------------------------- Mitchell G. Leibovitz 49 16 Chairman of the Board since March 1994; Chief Executive Officer since March 1990; President since 1986 Wendel H. Province 47 5 Executive Vice President since November 1994; Chief Operating Officer since March 1993. Michael J. Holden 43 15 Senior Vice President & Chief Financial Officer since March 1987; Treasurer since 1984 Frederick A. Stampone 39 13 Senior Vice President since March 1987; Chief Administrative Officer since March 1993; Secretary since December 1988 Mark L. Page 38 19 Senior Vice President - Store Operations since March 1993 Messrs. Leibovitz, Province, Holden and Stampone have been executive officers of the Company for more than the past five years. Mr. Page has been an executive officer of the Company for less than the past five years. Mr. Page was a regional manager for the Company from February 1987 until February 1991 when he was elected Vice President - Western Store Operations. On March 14, 1993 Mr. Page became Senior Vice President - Store Operations. Each of the officers serves at the pleasure of the Board of Directors of the Company. There are no arrangements or understandings pursuant to which any officer was elected to office. PART II ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The common stock of The Pep Boys - Manny, Moe & Jack is listed on the New York Stock Exchange under the symbol "PBY". There were 3,843 registered shareholders as of January 28, 1995. The following table sets forth for the periods listed the high and low sale prices and the cash dividends paid on the Company's common stock. MARKET PRICE PER SHARE
Market Price Per Share Cash Dividends Fiscal year ended January 28, 1995 High Low Per Share - ----------------------------------------------------------------------------- First Quarter $31 $26 $.0425 Second Quarter 33 3/4 29 1/4 .0425 Third Quarter 36 29 1/8 .0425 Fourth Quarter 36 7/8 28 1/2 .0425 Fiscal year ended January 29, 1994 - ----------------------------------------------------------------------------- First Quarter $26 1/2 $20 3/4 $.0375 Second Quarter 23 7/8 20 1/2 .0375 Third Quarter 24 7/8 20 3/4 .0375 Fourth Quarter 27 1/2 23 1/4 .0375
It is the present intention of the Company's Board of Directors to continue to pay regular quarterly cash dividends; however, the declaration and payment of future dividends will be determined by the Board of Directors in its sole discretion and will depend upon the earnings, financial condition and capital needs of the Company and other factors which the Board of Directors deems relevant. ITEM 6 SELECTED FINANCIAL DATA The following tables sets forth the selected financial data for the Company and should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere herein. SELECTED FINANCIAL DATA (UNAUDITED) (dollar amounts in thousands, except per share amounts)
Year ended Jan. 28, 1995 Jan. 29, 1994 Jan. 30, 1993 Feb. 1, 1992 Feb. 2, 1991 - ------------------------------------------------------------------------------------------------------------------------------------ STATEMENT OF EARNINGS DATA Merchandise sales $1,211,536 $1,076,543 $1,008,191 $ 873,381 $ 774,502 Service revenue 195,449 164,590 147,403 128,127 110,172 Total revenues 1,406,985 1,241,133 1,155,594 1,001,508 884,674 Gross profit from merchandise sales 364,378 307,861 272,412 240,199 217,052 Gross profit from service revenue 32,417 27,457 24,528 19,726 17,854 Total gross profit 396,795 335,318 296,940 259,925 234,906 Selling, general and administrative expenses 247,872 214,710 194,160 176,275 157,468 Operating profit 148,923 120,608 102,780 83,650 77,438 Nonoperating income 3,490 3,601 3,015 1,933 1,601 Interest expense 25,931 19,701 20,180 25,071 20,262 Earnings before income taxes and cumulative effect of change in accounting principle 126,482 104,508 85,615 60,512 58,777 Earnings before cumulative effect of change in accounting principle 80,008 65,512 54,579 38,872 37,530 Cumulative effect of change in accounting principle (4,300) - - - - Net earnings 75,708 65,512 54,579 38,872 37,530 BALANCE SHEET DATA Working capital $ 121,858 $ 92,518 $ 104,622 $ 81,935 $ 91,801 Current ratio 1.42 to 1 1.37 to 1 1.47 to 1 1.46 to 1 1.55 to 1 Merchandise inventories $ 366,843 $ 305,872 $ 295,179 $ 230,894 $ 234,688 Property and equipment-net 861,910 723,452 628,918 588,593 556,990 Total assets 1,291,019 1,078,518 967,813 856,925 819,421 Long-term debt (including convertible subordinated notes) 380,787 253,000 209,347 279,250 285,868 Stockholders' equity 586,253 547,759 509,763 378,514 344,603 DATA PER COMMON SHARE Earnings before cumulative effect of change in accounting principle $ 1.32 $ 1.06 $ .90 $ .69 $ .67 Cumulative effect of change in accounting principle (.07) - - - - Net earnings 1.25 1.06 .90 .69 .67 Cash dividends .17 .15 .1375 .1275 .1175 Stockholders' equity 9.53 8.97 8.40 6.79 6.20 Common share price range: high-low 36 7/8-26 27 1/2-20 1/2 27 3/8-17 1/8 19 1/2-10 3/8 17 1/4-8 3/8 OTHER STATISTICS Return on average stockholders' equity 13.4% 12.4% 12.3% 10.8% 11.4% Common shares outstanding 61,501,679 61,060,055 60,669,102 55,773,813 55,606,116 Capital expenditures $ 185,072 $ 135,165 $ 78,025 $ 65,801 $ 105,826 Number of retail outlets 435 386 357 337 313 /TABLE ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table presents for the periods indicated certain items in the consolidated statements of earnings as a percentage of total revenues (except as otherwise provided) and the percentage change in dollar amounts of such items compared to the indicated prior period.
Percentage of Total Revenues Percentage Change -------------------------------------------- ------------------------------- Jan. 28, 1995 Jan. 29, 1994 Jan. 30, 1993 Fiscal 1994 vs. Fiscal 1993 vs. Year ended (Fiscal 1994) (Fiscal 1993) (Fiscal 1992) Fiscal 1993 Fiscal 1992 - --------------------------------------- ------------- ------------- ------------ ----------- ----------- Merchandise Sales...................... 86.1% 86.7% 87.2% 12.5% 6.8% Service Revenue(1)..................... 13.9 13.3 12.8 18.7 11.7 ------------- ------------- ------------ ----------- ----------- Total Revenues 100.0 100.0 100.0 13.4 7.4 Costs of Merchandise Sales(2).......... 69.9(3) 71.4(3) 73.0(3) 10.2 4.5 Costs of Service Revenue(2)............ 83.4(3) 83.3(3) 83.4(3) 18.9 11.6 ------------- ------------- ------------ ----------- ----------- Total Costs of Revenues................ 71.8 73.0 74.3 11.5 5.5 Gross Profit from Merchandise Sales.... 30.1(3) 28.6(3) 27.0(3) 18.4 13.0 Gross Profit from Service Revenue...... 16.6(3) 16.7(3) 16.6(3) 18.1 11.9 ------------- ------------- ------------ ----------- ----------- Total Gross Profit..................... 28.2 27.0 25.7 18.3 12.9 Selling, General and Administrative Expenses.............. 17.6 17.3 16.8 15.4 10.6 ------------- ------------- ------------ ----------- ----------- Operating Profit....................... 10.6 9.7 8.9 23.5 17.3 Nonoperating Income.................... .2 .3 .3 (3.1) 19.4 Interest Expense....................... 1.8 1.6 1.8 31.6 (2.4) ------------- ------------- ------------ ----------- ----------- Earnings Before Income Taxes and Cumulative Effect of Change in Accounting Principle................. 9.0 8.4 7.4 21.0 22.1 Income Taxes........................... 36.7(4) 37.3(4) 36.3(4) 19.2 25.6 ------------- ------------- ------------ ----------- ----------- Earnings Before Cumulative Effect of Change in Accounting Principle....... 5.7 5.3 4.7 22.1 20.0 Cumulative Effect of Change in Accounting Principle................. (.3) - - - - ------------- ------------- ------------ ----------- ----------- Net Earnings 5.4 5.3 4.7 15.6 20.0 ============= ============= ============ =========== =========== (1) Service revenue consists of the labor charge for installing merchandise or maintaining or repairing vehicles, excluding the sale of any installed parts or materials. (2) Costs of merchandise sales include the cost of products sold, buying, warehousing and store occupancy costs. Costs of service revenue include service center payroll and related employee benefits and service center occupancy costs. Occupancy costs include utilities, rents, real estate and property taxes, repairs and maintenance and depreciation and amortization expenses. (3) As a percentage of related sales or revenue, as applicable. (4) As a percentage of earnings before income taxes and cumulative effect of change in accounting principle. /TABLE FISCAL 1994 vs. FISCAL 1993 Total revenues for fiscal 1994 increased 13% over fiscal 1993 due to a higher store count (435 at January 28, 1995 compared with 386 at January 29, 1994) coupled with a 5% increase in comparable store revenues (revenues generated by stores in operation during the same months of each period). Comparable store merchandise sales increased 5% while comparable store service revenue increased 8% over fiscal 1993. The increase in gross profit from merchandise sales, as a percentage of merchandise sales, was due primarily to significantly higher merchandise margins and a slight decrease in store occupancy costs. The small decrease in gross profit from service revenue, as a percentage of service revenue, was due primarily to an increase in service payroll costs offset, in part, by a decrease in service employee benefits costs. The increase in selling, general and administrative expenses, as a percentage of total revenues, was due primarily to an increase in store expenses offset, in part, by a decrease in employee benefits costs. The 32% increase in interest expense was due to higher debt levels incurred to fund the Company's store expansion program coupled with higher interest rates. The 22% increase in earnings before the cumulative effect of a change in accounting principle in fiscal 1994, as compared with fiscal 1993, was due to increases in comparable store revenues and gross profit from merchandise sales, as a percentage of merchandise sales, offset, in part, by increases in selling, general and administrative expenses and interest expense, as a percentage of total revenues. FISCAL 1993 vs. FISCAL 1992 Total revenues for fiscal 1993 increased 7% over fiscal 1992 due to a higher store count (386 at January 29, 1994 compared with 357 at January 30, 1993) coupled with a 1% increase in comparable store revenues. Comparable store merchandise sales remained constant while comparable store service revenue increased 3% over fiscal 1992. The increase in gross profit from merchandise sales, as a percentage of merchandise sales, was due primarily to significantly higher merchandise margins offset, in part, by increases in store occupancy costs and warehousing costs. The small increase in gross profit from service revenue, as a percentage of service revenue, was due primarily to a decrease in service employee benefits costs offset, in part, by an increase in service payroll and occupancy costs. The increase in selling, general and administrative expenses, as a percentage of total revenues, was due primarily to an increase in store expenses. The 2% decrease in interest expense was due to lower interest rates offset, in part, by higher debt levels incurred to fund the Company's store expansion program. The increase in income taxes, as a percentage of earnings before income taxes and cumulative effect of change in accounting principle, was due primarily to a 1% increase in the federal statutory tax rate from 34% to 35%. The 20% increase in net earnings in fiscal 1993, as compared with fiscal 1992, was due to a substantial increase in gross profit from merchandise sales, as a percentage of merchandise sales, offset, in part, by an increase in selling, general and administrative expenses, as a percentage of total revenues. EFFECTS OF INFLATION The Company uses the LIFO method of inventory valuation. Thus, the cost of merchandise sold approximates current cost. Although the Company cannot accurately determine the precise effect of inflation on its operations, it does not believe inflation has had a material effect on revenues or results of operations during fiscal 1994, fiscal 1993 or fiscal 1992. LIQUIDITY AND CAPITAL RESOURCES The Company's cash requirements arise principally from the need to finance the acquisition, construction and equipping of new stores and to purchase inventory. The Company opened 51 stores in fiscal 1994, 37 stores in fiscal 1993 and 29 stores in fiscal 1992. In fiscal 1994, with increased levels of capital expenditures, coupled with cash utilized to acquire shares of the Company's common stock for its benefits trust, the Company increased its debt by $182,859,000. In fiscal 1993, with increased levels of capital expenditures coupled with cash utilized to acquire treasury stock which was subsequently transferred to its benefits trust, the Company increased its debt by $77,525,000. In fiscal 1992, with substantial cash flows from operating activities and the conversion of substantially all its $75,000,000 convertible subordinated notes, the Company reduced its debt by $72,639,000. The following table indicates the Company's principal cash requirements for the past three years.
(dollar amounts Fiscal Fiscal Fiscal in thousands) 1994 1993 1992 Total - ---------------------------------------------------------------------------- Cash Requirements Capital expenditures $185,072 $135,165 $ 78,025 $398,262 Net inventory additions(1) 87,248 26,487 24,001 137,736 - ---------------------------------------------------------------------------- Total $272,320 $161,652 $102,026 $535,998 - ---------------------------------------------------------------------------- Net cash provided by operating activities (excluding net inventory additions) $124,474 $111,595 $100,415 $336,484 -------------------------------------------------------------------------- 1 Net inventory additions include the increase in inventory less the net change in checks outstanding and accounts payable.
Inventories have increased in the past three years as the Company added a net of 98 stores while stock-keeping-units per store rose during the period from approximately 22,000 to approximately 25,000, many of which were higher cost hard parts. The Company currently plans to open approximately 75 stores in fiscal 1995. Management estimates that the cost to open 75 stores, coupled with capital expenditures in existing stores, warehouses and offices during fiscal 1995 will be approximately $200,000,000. Funds required to finance the store expansion are expected to come from operating activities with the remainder provided by unused lines of credit, which totalled $96,800,000 at January 28, 1995, or from accessing traditional lending sources which may include the public capital markets. The Company's working capital increased to $121,858,000 at January 28, 1995 from $92,518,000 at January 29, 1994. The Company's long-term debt increased, as a percentage of its total capitalization, to 39% at January 28, 1995 from 32% at January 29, 1994. ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders The Pep Boys - Manny, Moe & Jack Philadelphia, Pennsylvania We have audited the accompanying consolidated balance sheets of The Pep Boys - Manny, Moe & Jack and subsidiaries as of January 28, 1995 and January 29, 1994, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended January 28, 1995. Our audits also included the financial statement schedule listed in the index at Item 14. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Pep Boys - Manny, Moe & Jack and subsidiaries at January 28, 1995 and January 29, 1994, and the results of their operations and their cash flows for each of the three years in the period ended January 28, 1995 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note A to the consolidated financial statements, in 1994 the Company changed its method of accounting for postemployment benefits to conform with Statement of Financial Accounting Standards No. 112. Deloitte & Touche LLP Philadelphia, Pennsylvania March 20, 1995 CONSOLIDATED BALANCE SHEETS The Pep Boys - Manny, Moe & Jack and Subsidiaries (dollar amounts in thousands, except per share amounts)
January 28, January 29, 1995 1994 ---------- ---------- ASSETS Current Assets: Cash ......................................................... $ 11,748 $ 12,050 Accounts receivable, less allowance for uncollectible accounts of $126 and $50..................................... 3,804 1,525 Merchandise inventories....................................... 366,843 305,872 Deferred income taxes......................................... 12,000 9,100 Other......................................................... 16,914 13,161 ---------- ---------- Total Current Assets....................................... 411,309 341,708 Property and Equipment - at cost: Land.......................................................... 215,623 183,601 Building and improvements..................................... 592,748 500,467 Furniture, fixtures and equipment............................. 283,317 229,730 Construction in progress...................................... 13,287 9,364 ---------- ---------- 1,104,975 923,162 Less accumulated depreciation and amortization................ 243,065 199,710 ---------- ---------- Total Property and Equipment............................... 861,910 723,452 Other.............................................................. 17,800 13,358 ---------- ---------- Total Assets $1,291,019 $1,078,518 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Checks outstanding............................................ $ 8,422 $ 22,193 Accounts payable.............................................. 91,742 104,248 Accrued expenses.............................................. 72,318 59,574 Short-term borrowings......................................... 97,200 54,500 Income taxes payable.......................................... - 1,278 Current maturities of long-term debt.......................... 19,769 7,397 ---------- ---------- Total Current Liabilities.................................. 289,451 249,190 Long-Term Debt, less current maturities............................ 294,537 253,000 Deferred Income Taxes.............................................. 34,528 28,569 Convertible Subordinated Notes..................................... 86,250 - Commitments Stockholders' Equity: Common Stock, par value $1 per share: Authorized 500,000,000 shares; Issued and outstanding 61,501,679 and 61,060,055............ 61,502 61,060 Additional paid-in capital.................................... 130,732 122,977 Retained earnings............................................. 454,288 388,653 ---------- ---------- 646,522 572,690 Less: Treasury Stock - 948,200 shares, at cost...................... - 24,931 Cost of shares in benefits trust - 2,232,500 shares, at cost.. 60,269 - ---------- ---------- Total Stockholders' Equity................................. 586,253 547,759 ---------- ---------- Total Liabilities and Stockholders' Equity $1,291,019 $1,078,518 ========== ========== See notes to consolidated financial statements. /TABLE CONSOLIDATED STATEMENTS OF EARNINGS The Pep Boys - Manny, Moe & Jack and Subsidiaries (dollar amounts in thousands, except per share amounts)
January 28, January 29, January 30, Year ended 1995 1994 1993 - ------------------------------------------------------ ---------- ---------- ---------- Merchandise Sales..................................... $1,211,536 $1,076,543 $1,008,191 Service Revenue....................................... 195,449 164,590 147,403 ---------- ---------- ---------- Total Revenues........................................ 1,406,985 1,241,133 1,155,594 ---------- ---------- ---------- Costs of Merchandise Sales............................ 847,158 768,682 735,779 Costs of Service Revenue.............................. 163,032 137,133 122,875 ---------- ---------- ---------- Total Costs of Revenues............................... 1,010,190 905,815 858,654 ---------- ---------- ---------- Gross Profit from Merchandise Sales................... 364,378 307,861 272,412 Gross Profit from Service Revenue..................... 32,417 27,457 24,528 ---------- ---------- ---------- Total Gross Profit.................................... 396,795 335,318 296,940 Selling, General and Administrative Expenses.......... 247,872 214,710 194,160 ---------- ---------- ---------- Operating Profit...................................... 148,923 120,608 102,780 Nonoperating Income................................... 3,490 3,601 3,015 Interest Expense...................................... 25,931 19,701 20,180 ---------- ---------- ---------- Earnings Before Income Taxes and Cumulative Effect of Change in Accounting Principle................... 126,482 104,508 85,615 Income Taxes.......................................... 46,474 38,996 31,036 ---------- ---------- ---------- Earnings before Cumulative Effect of Change in Accounting Principle................................ 80,008 65,512 54,579 Cumulative Effect of Change in Accounting Principle.. (4,300) - - ---------- ---------- ---------- Net Earnings $ 75,708 $ 65,512 $ 54,579 ========== ========== ========== Earnings per Share Before Cumulative Effect of Change in Accounting Principle............................. $ 1.32 $ 1.06 $ .90 Cumulative Effect of Change in Accounting Principle... (.07) - - ---------- ---------- ---------- Net Earnings per Share $ 1.25 $ 1.06 $ .90 ========== ========== ========== See notes to consolidated financial statements. /TABLE CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY The Pep Boys - Manny, Moe & Jack and Subsidiaries (dollar amounts in thousands, except per share amounts)
Common Stock -------------------- Additional Retained Treasury Benefits Total Stock- Shares Amount Paid-in Capital Earnings Stock Trust holders' Equity ---------- ------- --------------- --------- -------- -------- --------------- Balance, February 1, 1992.................. 55,773,813 $55,774 $ 36,885 $285,855 $ - $ - $378,514 Net earnings............................... 54,579 54,579 Cash dividends ($.1375 per share).......... (8,173) (8,173) Conversion of 6% convertible subordinated notes into equity........................ 4,162,776 4,163 71,211 75,374 Exercise of stock options and related tax benefits............................. 720,699 720 8,761 9,481 Dividend reinvestment plan................. 11,814 12 267 279 Acquisitions and transfers of 107,700 shares to employees' savings plan........ (291) (291) ---------- ------- --------------- -------- -------- -------- --------------- Balance, January 30, 1993.................. 60,669,102 60,669 116,833 332,261 - - 509,763 Net earnings............................... 65,512 65,512 Cash dividends ($.15 per share)............ (9,120) (9,120) Exercise of stock options and related tax benefits............................. 377,569 378 5,744 6,122 Dividend reinvestment plan................. 13,384 13 291 304 Acquisitions and transfers of 80,000 shares to employees' savings plan........ 109 109 Acquisition of 948,200 shares of treasury stock............................ (24,931) (24,931) ---------- ------- --------------- -------- --------- -------- --------------- Balance, January 29, 1994.................. 61,060,055 61,060 122,977 388,653 (24,931) - 547,759 Net earnings............................... 75,708 75,708 Cash dividends ($.17 per share)............ (10,073) (10,073) Exercise of stock options and related tax benefits............................. 427,543 428 7,568 7,996 Dividend reinvestment plan................. 14,081 14 421 435 Acquisitions and transfers of 75,000 shares to employees' savings plan........ (122) 807 685 Acquisitions and transfers of 2,232,500 shares of treasury stock to benefits trust.................................... (112) 24,124 (60,269) (36,257) ---------- ------- --------------- -------- --------- ---------- --------------- Balance, January 28, 1995.................. 61,501,679 $61,502 $130,732 $454,288 $ - $(60,269) $586,253 ========== ======= =============== ======== ========= ========== =============== See notes to consolidated financial statements. /TABLE CONSOLIDATED STATEMENTS OF CASH FLOWS The Pep Boys - Manny, Moe & Jack and Subsidiaries (dollar amounts in thousands)
January 28, January 29, January 30, Year ended 1995 1994 1993 - -------------------------------------------------------------------------- ----------- ----------- ----------- Cash Flows from Operating Activities: Net earnings............................................................ $75,708 $ 65,512 $ 54,579 Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities: Depreciation and amortization........................................... 44,402 39,125 36,674 Cumulative effect of accounting change.................................. 4,300 - - Increase (decrease)in deferred income taxes............................. 5,611 680 (2,266) (Gain)loss from sales of assets......................................... (1,406) (297) 266 Increase in accounts receivable and other............................... (7,854) (2,023) (2,865) Increase in merchandise inventories................................... (60,971) (10,693) (64,285) (Decrease) increase in checks outstanding and accounts payable.......... (26,277) (15,794) 40,284 Increase in accrued expenses............................................ 6,683 8,325 9,256 (Decrease) increase in income taxes payable............................. (2,970) 273 4,771 ----------- ----------- ----------- Total Adjustments................................................. (38,482) 19,596 21,835 ----------- ----------- ----------- Net Cash Provided by Operating Activities................................. 37,226 85,108 76,414 ----------- ----------- ----------- Cash Flows from Investing Activities: Capital expenditures.................................................... (183,872) (135,165) (78,025) Proceeds from sales of assets........................................... 3,437 1,494 738 Other, net.............................................................. 116 68 (1,993) Net sales and maturities of marketable securities....................... - - 3,286 ----------- ----------- ----------- Net Cash Used in Investing Activities..................................... (180,319) (133,603) (75,994) ----------- ----------- ----------- Cash Flows from Financing Activities: Net borrowings under line of credit agreements.......................... 117,700 44,500 18,301 Reduction of long-term debt............................................. (22,291) (41,975) (16,177) Net proceeds from issuance of notes..................................... 85,387 73,892 - Acquisitions of treasury stock.......................................... (36,257) (24,931) - Dividends paid.......................................................... (10,073) (9,120) (8,173) Proceeds from exercise of stock options................................. 7,996 6,122 6,252 Proceeds from dividend reinvestment plan................................ 435 304 279 (Loss) gain on stock purchased for employees' savings plan.............. (106) 109 (291) ----------- ----------- ----------- Net Cash Provided by Financing Activities................................. 142,791 48,901 191 ----------- ----------- ----------- Net (Decrease) Increase in Cash........................................... (302) 406 611 Cash at Beginning of Year................................................. 12,050 11,644 11,033 ----------- ----------- ----------- Cash at End of Year....................................................... $11,748 $ 12,050 $ 11,644 =========== =========== =========== .................................................................................................................................... Supplemental Disclosure of Cash Flow Information: Income taxes paid....................................................... $46,384 $38,043 $28,531 Interest paid, net of amounts capitalized............................... 23,959 19,110 18,915 .................................................................................................................................... Supplemental Disclosure of Noncash Financing Activities: Mortgage note assumed in property acquisition........................... $ 1,200 $ - $ - Conversion of 6% convertible subordinated notes into equity............. - - 74,763 .................................................................................................................................... See notes to consolidated financial statements
THE PEP BOYS- MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended January 28, 1995, January 29, 1994 and January 30, 1993 (dollar amounts in thousands, except per share amounts) NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS The Pep Boys-Manny, Moe & Jack and Subsidiaries (the "Company") is engaged principally in the retail sale of automotive parts and accessories, automotive maintenance and service and the installation of parts through a chain of 435 stores at January 28, 1995. FISCAL YEAR END The Company's fiscal year ends on the Saturday nearest to January 31. Fiscal years 1994, 1993 and 1992 each comprised 52 weeks. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated. MERCHANDISE INVENTORIES Merchandise inventories are valued at the lower of cost (last-in, first-out method) or market. If the first-in, first-out method of valuing inventories had been used, inventories would have been approximately $15,319 and $15,452 higher at January 28, 1995 and January 29, 1994, respectively. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Depreciation and amortization are computed using the straight-line method over the following estimated useful lives: building and improvements, 5 1/2 to 40 years; furniture, fixtures and equipment, 3 to 10 years. CAPITALIZED INTEREST Interest on borrowed funds is capitalized in connection with the construction of certain long-term assets. Capitalized interest amounted to $1,850, $1,254 and $852 in fiscal years 1994, 1993 and 1992, respectively. SERVICE REVENUE Service revenue consists of the labor charge for installing merchandise or maintaining or repairing vehicles, excluding the sale of any installed parts or materials. COSTS OF REVENUES Costs of merchandise sales include the cost of products sold, buying, warehousing and store occupancy costs. Costs of service revenue include service center payroll and related employee benefits and service center occupancy costs. Occupancy costs include utilities, rents, real estate and property taxes, repairs and maintenance and depreciation and amortization expenses. PENSION EXPENSE Annual pension expense is actuarially computed using the "projected unit credit method" which attributes an equal portion of total projected benefits to each year of employee service. INCOME TAXES The Company uses the liability method of accounting for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Under the liability method, deferred income taxes are determined based upon enacted tax laws and rates applied to the differences between the financial statement and tax basis of assets and liabilities. The adoption of SFAS No. 109 on February 2, 1992 did not have any effect on the Company's financial position or results of operations. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS Effective February 2, 1992 the Company adopted SFAS No. 106, "Accounting for Postretirement Benefits Other than Pensions." As a result of adopting this standard, the Company recognized an expense of $12 in fiscal year 1992, which is the full impact of SFAS No. 106 on the Company's financial position and results of operations. Effective January 30, 1994 the Company adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits." This statement establishes accrual accounting standards for employer-provided benefits which cover former or inactive employees after employment, but before retirement. As a result of adopting this standard, the Company recognized a charge to earnings of $4,300, net of income tax benefit of $2,552. RECLASSIFICATIONS Certain reclassifications have been made to the prior years' consolidated financial statements to conform to the current year's presentation. NOTE B - DEBT SHORT-TERM BORROWINGS The Company had short-term borrowings of $97,200 at January 28, 1995 and $54,500 at January 29, 1994. The Company had short-term lines of credit with several banks totalling $194,000 at January 28, 1995 and $119,000 at January 29, 1994. The interest rates on these lines are negotiated based upon market conditions. The weighted average interest rate on borrowings from these lines was 4.7% during 1994 and 3.4% during 1993. The weighted average interest rate on borrowings from these lines was 5.9% at January 28, 1995 and 3.4% at January 29, 1994. The average and maximum month end balances on these borrowings were $78,488 and $97,200 in 1994 and $30,435 and $54,500 in 1993. LONG-TERM DEBT ............................................................................... Jan. 28, Jan. 29, 1995 1994 -------- -------- 8 7/8% notes due April 15, 1996 .................... $110,650 $125,000 Indebtedness to banks under revolving credit loan agreement dated June 16, 1989 (a)................................ 100,000 35,000 6 5/8% notes due May 15, 2003 ...................... 75,000 75,000 9.3% senior notes (b)............................... 16,071 23,214 Other revolving lines of credit (c)................. 10,000 - Mortgage notes payable at annual interest rates ranging from 4.2% to 7.5% (d)..................................... 2,585 2,183 -------- -------- 314,306 260,397 Less current maturities.......................... 19,769 7,397 -------- -------- Total long-term debt................................ $294,537 $253,000 ======== ======== ............................................................................. (a) The Company has a revolving credit agreement with seven major banks providing for borrowings of up to $100,000. Funds may be drawn and repaid anytime prior to June 30, 1995, at which time the total commitment, or any portion thereof, may be converted, at the Company's election, into term loans payable at 6.3% of the term commitment amount each quarter for the next four years. At the Company's option, the interest rate on any loan may be based on the prime rate, a "CD-based" rate, a "LIBOR-based" rate or a negotiated rate based upon market conditions. The weighted average interest rate was 6.1% at January 28, 1995 and 3.3% at January 29, 1994. (b) Annual maturities for the 9.3% senior notes are as follows: $7,143 due in each of 1995 and 1996 with the remaining balance of $1,785 due in 1997. (c) The Company entered into a revolving credit agreement with a bank which permits the Company to borrow an aggregate of $10,000. Upon the bank's demand, this line is due and payable in 13 months. The interest rate on this line, at the Company's election, is based on the prime rate, a "CD- based" rate, a "LIBOR-based" rate or a negotiable rate based upon market conditions. The weighted average interest rate was 6.2% at January 28, 1995. (d) The weighted average interest rate on the mortgage notes payable was 6.9% at January 28, 1995 and 5.3% at January 29, 1994. These notes, which mature at various times through August 2016, are collateralized by land and building with an aggregate carrying value of approximately $7,839 at January 28, 1995. CONVERTIBLE SUBORDINATED NOTES On August 24, 1994 the Company sold $86,250 of 4% convertible subordinated notes. These notes are convertible by the holders into the common stock of the Company anytime on or before September 1, 1999 (the maturity date) at a conversion price of $41 per share subject to adjustment in certain events. The notes are redeemable, in whole or in part, at the option of the Company at any time on or after September 15, 1997, at a redemption price of 101% of the principal amount and at par on or after September 1, 1998. Several of the Company's debt agreements require the maintenance of certain financial ratios and covenants. Approximately $116,409 of the Company's net worth was not restricted by these covenants at fiscal year end. The Company is in compliance with all debt covenants at January 28, 1995. The annual maturities of all long-term debt for the next five years are $19,769 in 1995, $153,959 in 1996, $26,932 in 1997, $25,157 in 1998 and $98,920 in 1999. Any compensating balance requirements related to all revolving credit agreements and debt were satisfied by balances available from normal business operations. The Company was contingently liable for outstanding letters of credit in the amount of approximately $28,904 at January 28, 1995. NOTE C - LEASE COMMITMENTS The Company leases certain property and equipment under operating leases which contain renewal and escalation clauses. Aggregate minimum rental commitments for leases having noncancellable lease terms of more than one year are approximately: 1995 - $16,811; 1996 - $15,827; 1997 - $15,015; 1998 - $14,027; 1999 - $13,673; thereafter - $185,984. The present value of the aggregate minimum rental commitments for operating leases, discounted at 10% is approximately $124,626. Rental expenses incurred for operating leases in 1994, 1993 and 1992 were $18,474, $16,786 and $14,094, respectively. NOTE D - STOCKHOLDERS' EQUITY RIGHTS AGREEMENT On December 31, 1987, the Company distributed as a dividend one common share purchase right on each of its common shares. The rights will not be exercisable or transferable apart from the Company's common stock until a person or group, as defined in the rights agreement, (dated December 17, 1987 and as amended on June 6, 1989), without the proper consent of the Company's Board of Directors, acquires 20% or more, or makes an offer to acquire 30% or more of the Company's outstanding stock, exclusive of stock holdings as of December 17, 1987. When exercisable, the rights entitle the holder to purchase one share of the Company's common stock for $55. Under certain circumstances, including the acquisition of 20% of the Company's stock by a person or group, the rights entitle the holder to purchase common stock of the Company or common stock of an acquiring company having a market value of twice the exercise price of the right. The rights do not have voting power and are subject to redemption by the Company's Board of Directors for $.02 per right anytime before a 20% position has been acquired and for 15 days thereafter, at which time the rights become nonredeemable. The rights expire on December 31, 1997. BENEFITS TRUST On April 29, 1994 the Company established a flexible employee benefits trust with the intention of purchasing up to $75,000 worth of the Company's common shares. The repurchased shares will be held in the trust and will be used to fund the Company's existing benefit plan obligations including healthcare programs, savings and retirement plans and other benefit obligations. The trust will allocate or sell the repurchased shares over the next 15 years to fund these benefit programs. As shares are released from the trust, the Company will charge or credit additional paid-in capital for the difference between the fair value of shares released and the original cost of the shares to the trust. For financial reporting purposes the trust is consolidated with the accounts of the Company. All dividend and interest transactions between the trust and the Company are eliminated. As of January 28, 1995, the Company has repurchased 2,232,500 shares of its common stock at a cost of $60,269,000 which is shown as "Cost of shares in benefits trust" on the Company's consolidated balance sheets. NOTE E - PENSION AND SAVINGS PLANS The Company has a pension plan covering substantially all of its full-time employees hired on or before February 1, 1992. Normal retirement age is 65. Pension benefits are based on salary and years of service. The Company's policy is to fund amounts as are necessary on an actuarial basis to provide assets sufficient to meet the benefits to be paid to plan members in accordance with the requirements of ERISA. The actuarial computations using the "projected unit credit method" assumed a discount rate on benefit obligations of 7.8% in 1994 and 8% in 1993 and 1992, and an expected long-term rate of return on plan assets of 8.5%. The assumption for annual salary increases over the average remaining service lives of employees under the plan was 4% in 1994 and 1993, and 6.5% in 1992. Variances between actual experience and assumptions for costs and returns on assets are amortized over the remaining service lives of employees under the plan. Pension expense includes the following: ............................................................................. Jan. 28, Jan. 29, Jan. 30, 1995 1994 1993 -------- -------- ------- Normal service costs................ $1,516 $ 1,478 $ 1,733 Interest cost on projected benefit obligation................ 1,413 1,250 1,291 Actual return on plan assets........ (1,706) (1,361) (1,474) Net amortization of transition asset and unrecognized net loss... (214) (257) (256) Prior service cost.................. 19 23 23 Asset gain (loss) deferred.......... 56 (217) - -------- -------- -------- Total pension expense............... $1,084 $ 916 $ 1,317 ======== ======== ======== ............................................................................. Pension plan assets are stated at fair market value and are composed primarily of guaranteed investment contracts, group annuity contracts and money market funds, all with major insurance companies and banking institutions, and investments in the Company's common stock. The following table sets forth the reconciliation of the plan's funded status as of December 31 of each year. The actuarial present value of benefit obligation assumed a discount rate of 8.5% at December 31, 1994 and 7.8% at December 31, 1993. ............................................................................. Dec. 31, Dec. 31, 1994 1993 ---------- ---------- Actuarial present value of benefit obligation: Vested benefit obligation....................... $(13,885) $(14,218) ---------- ---------- Accumulated benefit obligation.................. $(14,840) $(15,506) ---------- ---------- Projected benefit obligation for service rendered to date..................... $(17,912) $(18,918) Plan assets at fair value....................... 20,625 19,637 ---------- ---------- Assets in excess of projected benefit obligation........................... 2,713 719 Unrecognized net asset (at date of transition).. (1,500) (1,714) Unrecognized net gain from past experience different from previous assumption................................... (4,454) (1,204) Unrecognized prior service cost................. 85 127 ---------- ---------- Accrued pension expense as of January 28, 1995 and January 29, 1994, respectively............... $ (3,156) $ (2,072) ========== ========== ............................................................................. The Company has a 401(k) savings plan which covers all full-time employees who are at least 21 years of age with one or more years of service. The Company contributes the lesser of 50% of the first 6% of a participant's contributions or 3% of the participant's compensation. The Company's savings plan contribution expense was $2,563 in 1994, $2,277 in 1993, and $1,980 in 1992. NOTE F - INCOME TAXES The provision for income taxes includes the following: ............................................................................. Jan. 28, Jan. 29, Jan. 30, Year ended 1995 1994 1993 - -------------------------------- --------- --------- --------- Current: Federal...................... $39,210 $34,234 $29,739 State........................ 4,205 3,587 3,563 Deferred: Federal...................... 2,865 2,527 (1,946) State........................ 194 (1,352) (320) --------- --------- --------- $46,474 $38,996 $31,036 ========= ========= ========= ............................................................................. A reconciliation of the statutory federal income tax rate to the effective rate of the provision for income taxes follows: ............................................................................. Jan. 28, Jan. 29, Jan. 30, Year ended 1995 1994 1993 - -------------------------------- --------- --------- --------- Statutory tax rate.............. 35.0% 35.0% 34.0% State income taxes, net of federal tax benefits................. 2.3 2.3 2.5 Other, net...................... (0.6) - (0.2) --------- --------- --------- 36.7% 37.3% 36.3% ========= ========= ========= ............................................................................. Deferred income taxes relate to the following temporary differences: ............................................................................. Jan. 28, Jan. 29, Jan. 30, Year ended 1995 1994 1993 - -------------------------------- --------- --------- --------- Depreciation.................... $4,594 $ 2,293 $ 1,124 Inventories..................... 257 (2,244) (1,504) Vacation accrual................ (259) (189) (216) Pension accrual................. (406) (344) (1,178) Casualty gain................... 1,289 544 - Insurance....................... (2,459) 680 - All other....................... 43 435 (492) --------- --------- --------- $3,059 $ 1,175 $(2,266) ========= ========= ========= ............................................................................. The following are components of the net deferred tax accounts as of January 28, 1995: ............................................................................... Federal State Total ------- ------ ------- Deferred tax assets: Current....................... $16,288 $1,103 $17,391 Long-term..................... 12,995 882 13,877 Deferred tax liabilities: Current....................... 5,049 342 5,391 Long-term..................... 45,333 3,072 48,405 ............................................................................. The following are components of the net deferred tax accounts as of January 29, 1994: .............................................................................. Federal State Total ------- ------ ------- Deferred tax assets: Current....................... $11,887 $ 807 $12,694 Long-term..................... 11,212 758 11,970 Deferred tax liabilities: Current....................... 3,366 228 3,594 Long-term..................... 37,966 2,573 40,539 ............................................................................. Items that gave rise to significant portions of the deferred tax accounts are as follows: ............................................................................. Jan. 28, Jan. 29, Year ended 1995 1994 - -------------------------- --------- -------- Deferred tax assets: Inventories................. $6,421 $ 6,678 Vacation accrual............ 2,423 2,164 Other....................... 3,156 258 --------- -------- $12,000 $ 9,100 ========= ======== Deferred tax liabilities: Depreciation................ $32,628 $28,034 Other....................... 1,900 535 --------- -------- $34,528 $28,569 ========= ======== .............................................................................. NOTE G --- NET EARNINGS PER SHARE Net earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding after reduction for treasury shares and shares held in benefits trust and assuming exercise of dilutive stock options computed by the treasury stock method using the average market price during the period. Primary and fully diluted earnings per share are essentially the same. The weighted average number of shares and share equivalents used in computing net earnings per share were: 60,565,000 in 1994, 61,891,000 in 1993 and 60,636,000 in 1992. NOTE H - STOCK OPTIONS AND AWARDS Options to purchase the Company's common stock have been granted to key employees and certain members of the Board of Directors. The option prices are at least 100% of the fair market value of the common stock on the grant date. Under the terms of the Company's Incentive Stock Option Plan adopted in 1982, options to purchase up to 3,600,000 shares of the Company's common stock were authorized. Options granted prior to 1988 are exercisable from the date of grant. Options granted in 1988 and thereafter are exercisable on the second anniversary of the grant date. All options under this plan cannot be exercised more than ten years from the grant date. As of May 21, 1990, no additional options will be granted under this plan. Under the terms of the Company's Nonqualified Stock Option Plans, adopted in 1984 and 1985, options to purchase up to 3,300,000 shares of the Company's common stock were authorized. The options became exercisable over a five-year period with one-fifth exercisable on the grant date and one-fifth on each anniversary date for the four years following the grant date. Options granted cannot be exercised more than ten and one-half years after the grant date. As of May 21, 1990, no additional options will be granted under these plans. On May 21, 1990, the stockholders approved the 1990 Stock Incentive Plan which authorized the issuance of restricted stock and/or options to purchase up to 1,000,000 shares of the Company's common stock. An additional 1,500,000 shares were authorized by stockholders on June 1, 1993. Under this plan, both incentive and nonqualified stock options may be granted to eligible participants. Incentive stock options are exercisable on the second anniversary of the grant date and nonqualified options become exercisable over a five-year period with one-fifth exercisable on the grant date and one-fifth on each anniversary date for the four years following the grant date. Options cannot be exercised more than ten years after the grant date. As of January 28, 1995, 644,439 shares remain available for grant. The Company has reserved sufficient shares of common stock to meet its stock option plans' obligations. ............................................................................ Stock option transactions are summarized as follows: ............................................................................. Incentive Nonqualified Fiscal 1993 Stock Options Stock Options - ----------------------------------------------------------------------------- Outstanding--beginning of year 830,041 2,776,390 Granted 234,100 322,585 Exercised (178,111) (191,750) Canceled (73,050) (6,500) ------------- ------------- Outstanding--end of year 812,980 2,900,725 Exercisable--end of year 456,930 2,397,911 Price range of options exercised $3.97 to $14.98 $10.94 to $16.19 Price range of options outstanding end of year $3.97 to $26.25 $3.97 to $23.13 ............................................................................. ............................................................................. Fiscal 1994 - ----------------------------------------------------------------------------- Outstanding--beginning of year................................ 812,980 2,900,725 Granted................................ 272,050 197,301 Exercised.............................. (209,215) (216,587) Canceled............................... (87,600) (6,875) ------------- ------------- Outstanding--end of year............... 788,215 2,874,564 Exercisable--end of year............... 399,215 2,445,716 Price range of options exercised.......$3.97 to $21.81 $3.97 to $27.94 Price range of options outstanding end of year..............$6.19 to $34.88 $5.91 to $32.69 ............................................................................. NOTE I - FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value of the Company's financial instruments are as follows: January 28, 1995 January 29, 1994 ---------------------- --------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value ---------- ---------- -------- ---------- Assets: Cash..................... $ 11,748 $ 11,748 $ 12,050 $ 12,050 Accounts receivable...... 3,804 3,804 1,525 1,525 Liabilities: Checks outstanding....... $ 8,422 $ 8,422 $ 22,193 $ 22,193 Accounts payable......... 91,742 91,742 104,248 104,248 Short-term borrowings.... 97,200 97,200 54,500 54,500 Long-term debt including current maturities...... 314,306 309,228 260,397 275,430 Convertible Subordinated Notes................... 86,250 83,231 - - ............................................................................... CASH, ACCOUNTS RECEIVABLE, CHECKS OUTSTANDING, ACCOUNTS PAYABLE AND SHORT-TERM BORROWINGS The carrying amounts approximate fair value because of the short maturity of these items. LONG-TERM DEBT INCLUDING CURRENT MATURITIES AND CONVERTIBLE SUBORDINATED NOTES Interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities are used to estimate fair value for debt issues that are not quoted on an exchange. The fair value estimates presented herein are based on pertinent information available to management as of January 28, 1995 and January 29, 1994. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since those dates, and current estimates of fair value may differ significantly from amounts presented herein. QUARTERLY FINANCIAL DATA (UNAUDITED) The Pep Boys - Manny, Moe & Jack and Subsidiaries (dollar amounts in thousands, except per share amounts)
.................................................................................................................................... Net Cash Market Price Year ended Total Gross Operating Net Earnings Dividends Per Share Jan. 28, 1995 Revenues Profit Profit Earnings Per Share Per Share High Low - ------------------------------------------------------------------------------------------------------------------------------------ 1st Quarter $337,700 $90,527 $32,601 $17,557 (1) $.29 (1) $.0425 31 26 2nd Quarter 370,395 102,885 42,448 23,518 .39 .0425 33 3/4 29 1/4 3rd Quarter 363,229 100,195 38,311 20,640 .34 .0425 36 29 1/8 4th Quarter 335,661 103,188 35,563 18,293 .30 .0425 36 7/8 28 1/2 - ------------------------------------------------------------------------------------------------------------------------------------ .................................................................................................................................... Net Cash Market Price Year ended Total Gross Operating Net Earnings Dividends Per Share Jan. 29, 1994 Revenues Profit Profit Earnings Per Share Per Share High Low - ------------------------------------------------------------------------------------------------------------------------------------ 1st Quarter $299,147 $74,789 $25,093 $13,442 $.22 $.0375 26 1/2 20 3/4 2nd Quarter 329,146 87,752 34,226 19,102 .31 .0375 23 7/8 20 1/2 3rd Quarter 316,015 84,492 31,954 17,443 .28 .0375 24 7/8 20 3/4 4th Quarter 296,825 88,285 29,335 15,525 .25 .0375 27 1/2 23 1/4 - ------------------------------------------------------------------------------------------------------------------------------------ 1 Does not include a $4,300 ($.07 per share) charge from a cumulative effect of an accounting change for postemployment benefits. Under the Company's present accounting system, actual gross profit from merchandise sales can be determined only at the time of physical inventory, which is taken at the end of the fiscal year. Gross profit from merchandise sales for the first, second and third quarters is estimated by the Company based upon recent historical gross profit experience and other appropriate factors. Any variation between estimated and actual gross profit from merchandise sales for the first three quarters is reflected in the fourth quarter's results.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The material contained in the registrant's definitive proxy statement, which will be filed pursuant to Regulation 14A not later than 120 days after the end of the Company's fiscal year, (the "Proxy Statement") under the caption "Election of Directors" is hereby incorporated herein by reference. The information regarding executive officers called for by Item 401 of Regulation S-K is included in Part I as Item A, in accordance with General Instruction G(3) to Form 10-K. ITEM 11 EXECUTIVE COMPENSATION The material in the Proxy Statement under the caption "Executive Compensation" other than the material under the caption "Executive Compensation - - Report of Compensation Committee of the Board of Directors on Executive Compensation" and "Executive Compensation - Performance Graph" is hereby incorporated herein by reference. ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The material in the Proxy Statement under the caption "Share Ownership of Certain Beneficial Owners and Management" is hereby incorporated herein by reference. ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The material in the Proxy Statement under the caption "Executive Compensation - Certain Relationships and Related Transactions" is hereby incorporated herein by reference. PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a). 1. The following consolidated financial statements of The Pep Boys - Manny, Moe & Jack are included in Item 8. Consolidated Balance Sheets - January 28, 1995 and January 29, 1994 Consolidated Statements of Earnings - Years ended January 28, 1995, January 29, 1994 and January 30, 1993 Consolidated Statements of Stockholders' Equity - Years ended January 28, 1995, January 29, 1994 and January 30, 1993 Consolidated Statements of Cash Flows - Years ended January 28, 1995, January 29, 1994 and January 30, 1993 Notes to Consolidated Financial Statements 2. The following consolidated financial statement schedule of The Pep Boys - Manny, Moe & Jack is included. Schedule II Valuation and Qualifying Accounts and Reserves All other schedules have been omitted because they are not applicable or not required or the required information is included in the consolidated financial statements or notes thereto. 3. Exhibits (3.1) Articles of Incorporation, Incorporated by reference from as amended the Company's Form 10-K for the fiscal year ended January 30, 1988. (3.2) By-Laws, as amended Incorporated by reference from the Registration Statement on Form S-3 (File No. 33-39225). (4.1) Indenture dated as of March 22, Incorporated by reference from 1991 between the Company and the Registration Statement on Bank America Trust Company of Form S-3 (File No. 33-39225). New York as Trustee, including Form of Debt Security (4.2) Indenture, dated as of August Incorporated by reference from the 31, 1994, between the Company Registration Statement on Form S-3 and First Fidelity Bank, (File No. 33-55115) filed August, National Association as Trustee, 17, 1994. including Form of Debenture (10.1) Medical Reimbursement Plan of Incorporated by reference from the Company the Company's Form 10-K for the fiscal year ended January 31, 1982. (10.2)* 1982 Incentive Stock Option Plan Incorporated by reference from of the Company the Company's Form 10-K for the fiscal year ended January 31, 1982. (10.3)* 1984 Non-Qualified Stock Option Incorporated by reference from Plan the Company's Form 10-K for the fiscal year ended February 2, 1985. (10.4)* 1985 Non-Qualified Stock Option Incorporated by reference from Plan the Company's Form 10-K for the fiscal year ended February 2, 1985. (10.5) Rights Agreement dated as of Incorporated by reference from December 17, 1987 between the the Company's Form 8-K dated Company and the Philadelphia December 17, 1987. National Bank (10.6)* Directors' Deferred Compensation Incorporated by reference from Plan, as amended the Company's Form 10-K for the fiscal year ended January 30, 1988. (10.7)* Form of Employment Agreement, as Incorporated by reference from amended, dated as of December 12, the Company's Form 10-K for the 1989 fiscal year ended February 3, 1990. (10.8) Loan Agreement dated as of Incorporated by reference from June 28, 1988 related to 9.33% the Company's Form 10-K for the Senior Notes due May 30, 1998 fiscal year ended January 28, 1989. (10.9)* Amendment No. 1 to the 1985 Incorporated by reference from Non-Qualified Stock Option Plan the Company's Form 10-K for the fiscal year ended January 28, 1989. (10.10)* Amendment No. 1 to the 1982 Incorporated by reference from Incentive Stock Option Plan the Company's Form 10-K for the fiscal year ended January 28, 1989. (10.11) Amendment dated June 6, 1989 Incorporated by reference from to Rights Agreement dated as of the Company's Report on Form 8 December 17, 1987 between the filed July 6, 1989. Company and the Philadelphia National Bank (10.12) Dividend Reinvestment and Stock Incorporated by reference from Purchase Plan dated January 4, the Registration Statement on 1990 Form S-3 (File No. 33-32857) filed January 5, 1990. (10.13) Credit Agreement dated as of Incorporated by reference from June 16, 1989 between the the Company's Form 10-K for the Company and the Chase Manhattan fiscal year ended February 3, Bank (Agent) 1990. (10.14)* Executive Supplemental Pension Incorporated by reference from Plan amended and restated the Company's Form 10-K for the effective January 1, 1988 fiscal year ended February 3, 1990. (10.15)* 1990 Stock Incentive Plan Incorporated by reference from the Company's Form 10-Q for the quarter ended November 3, 1990. (10.16)* Amendment No. 1 to 1990 Stock Incorporated by reference from Incentive Plan the Company's Form 10-K for the fiscal year ended February 1, 1992. (10.17)* The Pep Boys - Manny, Moe & Incorporated by reference from Jack Trust Agreement for the the Company's Form 10-K for the Executive Supplemental Pension fiscal year ended February 1, Plan and Certain Contingent 1992. Compensation Arrangements, dated as of February 13, 1992 (10.18)* Amendment to the Executive Incorporated by reference from Supplemental Pension Plan the Company's Form 10-K for the (amended and restated effective fiscal year ended February 1, January 1, 1988), dated as of 1992. February 13, 1992 (10.19)* Consulting and Retirement Incorporated by reference from Agreement by and between the the Company's Form 10-K for the Company and Benjamin Strauss, fiscal year ended February 1, dated as of February 2, 1992 1992. (10.20)* Amendment No. 2 to the 1982 Incorporated by reference from Incentive Stock Option Plan the Company's Form 10-Q for the quarter ended October 31, 1992. (10.21)* Amendment No. 3 to the Non- Incorporated by reference from Qualified Stock Option Plan the Company's Form 10-Q for the quarter ended October 31, 1992. (10.22)* Amendment No. 2 to the 1990 Incorporated by reference from Stock Incentive Plan the Company's Form 10-Q for the quarter ended October 31, 1992. (10.23)* President's Merit Award Program Incorporated by reference from of the Company, as amended, the Company's Form 10-K for the dated as of April 1, 1992 year ended January 30, 1993. (10.24) Flexible Employee Benefits Trust Incorporated by reference from the Company's Form 8-K dated May 6, 1994 (10.25)* The Pep Boys- Manny, Moe & Jack Pension Plan, as amended, dated December 28, 1994 (10.26)* The Pep Boys Savings Plan, as amended, dated December 28, 1994 (10.27)* Executive Incentive Bonus Plan of the Company, as amended and restated as of March 30, 1994. (11) Computation of Earnings per Share (12) Computation of Ratio of Earnings to Fixed Charges (21) Subsidiaries of the Company (23) Independent Auditors' Consent (27) Financial Data Schedules (b) No Form 8-K was filed for the fourth quarter of the year ended January 28, 1995. *Management contract or compensatory plan or arrangement. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE PEP BOYS - MANNY, MOE & JACK (Registrant) Dated: April 27, 1995 by: /s/Michael J. Holden -------------------------- Michael J. Holden Senior Vice President and Chief Financial Officer and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURE CAPACITY DATE /s/Mitchell G. Leibovitz Chairman of the Board, President April 24, 1995 - ------------------------ and Chief Executive Officer ---------------- Mitchell G. Leibovitz (Principal Executive Officer) /s/Michael J. Holden Senior Vice President - Chief April 27, 1995 - ------------------------ Financial Officer & Treasurer ---------------- Michael J. Holden (Principal Financial and Accounting Officer) /s/Lennox K. Black Director April 24, 1995 - ------------------------ ---------------- Lennox K. Black /s/Pemberton Hutchinson Director April 24, 1995 - ------------------------ ---------------- Pemberton Hutchinson /s/Bernard J. Korman Director April 24, 1995 - ------------------------ ---------------- Bernard J. Korman /s/J. Richard Leaman, Jr. Director April 25, 1995 - ------------------------ ---------------- J. Richard Leaman, Jr. /s/Malcolmn D. Pryor Director April 25, 1995 - ------------------------ ---------------- Malcolmn D. Pryor /s/Lester Rosenfeld Director April 24, 1995 - ------------------------ ---------------- Lester Rosenfeld /s/Benjamin Strauss Director April 25, 1995 - ------------------------ ---------------- Benjamin Strauss /s/Myles H. Tanenbaum Director April 25, 1995 - ------------------------ ---------------- Myles H. Tanenbaum /s/David V. Wachs Director April 25, 1995 - ------------------------ ---------------- David V. Wachs FINANCIAL STATEMENT SCHEDULES FURNISHED PURSUANT TO THE REQUIREMENTS OF FORM 10-K THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands) - ---------------------------------------------------------------------------------------------------------------------------------- Column A Column B Column C Column D Column E - ---------------------------------------------------------------------------------------------------------------------------------- Additions Additions Balance at Charged to Charged to Balance at Beginning of Costs and Other End of Descriptions Period Expenses Accounts Deductions-* Period - ---------------------------------------------------------------------------------------------------------------------------------- ALLOWANCE FOR DOUBTFUL ACCOUNTS: Year Ended January 28, 1995 $50 $114 $ - $38 $126 - ---------------------------------------------------------------------------------------------------------------------------------- Year Ended January 29, 1994 $85 $4 $ - $39 $50 - ---------------------------------------------------------------------------------------------------------------------------------- Year Ended January 30, 1993 $246 $41 $ - $202 $85 - ---------------------------------------------------------------------------------------------------------------------------------- *Uncollectible accounts written off. /TABLE INDEX TO EXHIBITS (10.25) The Pep Boys- Manny, Moe & Jack Pension Plan (10.26) The Pep Boys Savings Plan (10.27) Executive Incentive Bonus Plan (11) Computation of Earnings per Share (12) Computation of Ratio of Earnings to Fixed Charges (21) Subsidiaries of the Company (23) Independent Auditors' Consent (27) Financial Data Schedules EX-10.25 2 THE PEP BOYS - MANNY, MOE & JACK PENSION PLAN TABLE OF CONTENTS SECTION PAGE INTRODUCTION 1 DEFINITIONS 3 2.1 Definitions 3 2.2 Construction 18 PARTICIPATION AND SERVICE 19 3.1 Eligibility to Participate 19 3.2 Cessation of Participation 19 3.3 Changes in Status and Transfers to Affiliates 20 3.4 Reemployment 21 PLAN BENEFITS 22 4.1 Normal Retirement 22 4.2 Deferred Retirement 23 4.3 Early Retirement 24 4.4 Disability Benefit 24 4.5 Termination Benefit 24 4.6 Form of Payments 25 4.7 Death Prior to the Annuity Starting Date 29 4.8 Form of Pension Payments 30 4.9 Restrictions and Limitations on Distributions 30 4.10 Restrictions on Death Distributions 31 4.11 Cash-Out of Small Benefits 32 4.12 Rollovers from the Plan 33 4.13 Payment to an Alternate Payee 33 VESTING 34 5.1 Vesting Schedule 34 5.2 Forfeitures 34 5.3 Reemployment 34 FUNDING 36 6.1 Contributions by Employer 36 6.2 Insurance 36 6.3 Investment Policies 36 AMENDMENT AND TERMINATION 38 7.1 Amendments Generally 38 7.2 Amendments to Vesting Schedule 38 7.3 Termination, Discontinuance of Contributions or Curtailment 39 7.4 Distributions on Termination 39 7.5 Action by Company 39 ADMINISTRATION 40 8.1 Duties and Responsibilities of Fiduciaries; Allocation of Responsibility Among Fiduciaries for Plan and Fund Administration 40 8.2 Allocation of Duties and Responsibilities 41 8.3 Expenses 41 8.4 Claims Procedure 41 8.5 Records and Reports 43 8.6 Other Powers and Duties 44 8.7 Rules and Decisions 45 8.8 Authorization of Benefit Payments 45 8.9 Application and Forms for Benefits 45 8.10 Facility of Payment 45 8.11 Indemnification 46 8.12 Resignation or Removal of the Administrative Committee 46 LIMITATIONS ON CONTRIBUTIONS AND BENEFITS 48 9.1 Determination by Internal Revenue Service 48 9.2 Conditional Contributions 48 9.3 Twenty-Five HCE Limitation 48 9.4 General Limitation on Benefits 49 9.5 Suspension of Benefits on Reemployment 49 MERGER, TRANSFER OR CONSOLIDATION OF PLANS 52 10.1 Plan Assets 52 MISCELLANEOUS 53 11.1 Mandatory Commencement of Benefits 53 11.2 Nonguarantee of Employment 53 11.3 Rights to Fund Assets 53 11.4 Nonalienation of Benefits 54 11.5 Inability to Locate Payee 54 11.6 Applicable Law 54 DETERMINATION OF TOP-HEAVY STATUS 55 12.1 General 55 12.2 Top-Heavy Plan 55 12.3 Super Top-Heavy Plan 56 12.4 Cumulative Accrued Benefits and Cumulative Accounts 56 12.5 Definitions 56 12.6 Minimum Annual Retirement Benefit 57 12.7 Vesting 58 12.8 Defined Benefit and Defined Contribution Plans 59 ERISA TRANSITION PROVISIONS 60 13.1 Scope and Purpose 60 13.2 Calculation of Benefit 60 13.3 Form of Payment of Normal, Late, Early and Disability Benefit 60 13.4 Payment of Vested Benefits 62 13.5 Death Benefits 63 13.6 Transfer of Benefit 64 13.7 Actuarial Equivalency 66 THE PEP BOYS - MANNY, MOE & JACK PENSION PLAN INTRODUCTION THE PEP BOYS - MANNY, MOE & JACK Pension Plan (the "Plan") is established and maintained in accordance with the terms of this instrument. The assets of this Plan are held by the Trustee in accordance with the terms of the Trust Agreement, which is considered to be an integral part of this Plan. Except as provided herein or in the Trust Agreement, the Trustee has the exclusive authority to manage and control the assets of this Plan. Except as otherwise noted herein, this amended and restated version of the Plan applies to those Participants who are credited with an Hour of Service with the Employer on or after January 1, 1989. The Plan is further amended effective January 1, 1989 to comply with the Tax Reform Act of 1986, as amended, ("TRA 86") except for those provisions that became effective in years prior to 1989 as described below, or as specifically noted in the Plan. (1) Titles XI and XVIII of TRA '86; (2) Subtitle C of Title IX of OBRA '86; (3) Optional Form of Benefit Regulations; (4) Temporary regulations under section 414(q) and (s); (5) Proposed regulations under sections 401(a)(9); (6) Notice 87-20, regarding amendments to sections 411(a)(11)(B) and 417(e)(3) of the Code made by section 1139 of TRA '86; and (7) Notice 87-21, regarding changes to section 415 of the Code made by TRA '86; The rights of those individuals (or their beneficiaries) who terminated employment prior to January 1, 1989, in and to their benefits payable from the Plan, are governed by the terms and conditions of the Plan in effect prior to such date. ARTICLE II DEFINITIONS 2.1 DEFINITIONS. When used in this Plan, the following initially capitalized words and phrases shall have the meanings indicated herein: ACCRUED ANNUAL PENSION means as of any applicable date, the pension determined in accordance with the provisions of Section 4.1 that the Participant would be entitled to receive commencing on his Normal Retirement Date based on his Compensation and Years of Credited Service through the applicable date. An Accrued Annual Pension to which a Former Participant is entitled shall not be increased or decreased by reason of any amendments to the Plan adopted on or after the date he ceased to be a Participant or the date of his Termination. ACTUARIAL EQUIVALENT(CE) OR ACTUARIALLY EQUIVALENT means a benefit of equivalent current value to the benefit which would otherwise have been provided on the basis of the following assumptions and determined as of the applicable Annuity Starting Date: For lump sum distributions, the UP-1984 Table of Mortality and the immediate or deferred interest rate, as applicable, used by the Pension Benefit Guaranty Corporation (in effect on January 1 of the Plan Year in which the distribution occurs) for valuing benefits in pay status for plans terminating at the same time, shall be used. The Actuarial Equivalent value of a lump sum distribution that is payable to a Former Participant prior to Early Retirement Date, shall be the Actuarial Equivalent value of the benefit determined as of Normal Retirement Date (using the applicable PBGC rate). For conversions under Section 4.6(b), for optional forms paid according to Section 4.6(e), early retirement under Section 4.3, conversions with respect to annuity payments made pursuant to qualified domestic relations orders and adjustments under Section 9.4, the UP-1984 Table of Mortality at 7 1/2 percent interest, shall be used. For purposes of establishing present value for Top-Heavy determinations, interest at 7 1/2% shall be used and the UP-1984 Table of Mortality. ACTUARY means an enrolled actuary qualifying as such in accordance with Title III of ERISA or any firm or entity employing such enrolled actuaries. ADMINISTRATIVE COMMITTEE means the individual or group of individuals appointed to manage the administration of this Plan. AFFILIATE means any employer which has not adopted this Plan and is not a Participating Employer, but which is included as a member with the Employer in a controlled group of corporations, or which is a trade or business (whether or not incorporated) included with the Employer in a brother-sister group or combined group of trades or businesses under common control or which is a member of an affiliated service group in which the Employer is a member, determined in each instance in accordance with the appropriate sections of the Code. ANNUITY STARTING DATE means the first day on which benefits are payable as an annuity or in the case of benefits not payable as an annuity, the first day on which all events have occurred which entitle the Participant or Former Participant to the benefits. BENEFICIARY means the individual or entity designated to receive any death benefits payable under the Plan. Anything herein to the contrary notwithstanding, in the case of a married Participant or Former Participant, no Beneficiary designation which designates a Beneficiary other than the Participant's Spouse shall be effective unless such designation constitutes a valid waiver of the qualified joint and survivor annuity. In the event that the Participant failed to designate a Beneficiary or is predeceased by all designated primary and contingent Beneficiaries, death benefits under this Plan shall be payable to the following classes of recipients, each class to take to the exclusion of all subsequent classes, and all members of each class to share equally: (1) Surviving Spouse; (2) lineal descendants (including adopted children and step-children), by right of representation; (3) surviving parents; (4) surviving brothers and sisters; (5) Participant's estate. BOARD OF DIRECTORS means the board of directors of the Company. BREAK IN SERVICE OR ONE-YEAR BREAK IN SERVICE means a Plan Year during which an individual is not credited with more than 500 Hours of Service. An Eligible Employee will not be deemed to have incurred a Break in Service if he is absent from employment by reason of (1) pregnancy of the Eligible Employee, (2) birth of a child of the Eligible Employee, (3) placement of a child in connection with the adoption of the child by an individual, or (4) caring for the child during the period immediately following the birth or placement for adoption. During the period of absence the Eligible Employee shall be credited with the number of hours that would be generally credited but for such absence or if the general number of work hours is unknown, eight Hours of Service for each normal workday during the leave (whether or not approved). These hours shall be credited to the Plan Year in which the leave of absence commences if crediting of such hours is required to prevent the occurrence of a Break in Service in such computation period, and in other cases in the immediately following Plan Year. No more than 501 Hours of Service shall be credited under this paragraph for any single continuous period (whether or not such period occurs in a single computation period). CODE OR IRC means the Internal Revenue Code of 1986, as amended, and includes any regulations issued thereunder. COMPANY means the PEP BOYS - MANNY, MOE & JACK, a Pennsylvania corporation. COMPENSATION means, effective with respect to any Participant who is credited with an Hour of Service on or after January 1, 1993, for any Plan Year, total income reported to the Participant as wages for the Employee on Box 1 of Form W-2 (Box 10 prior to 1993) less any expense reimbursements and taxable fringe benefits, including any amounts that the Participant has authorized the Employer to make on his behalf to a 401(k) plan as elective deferrals or to a cafeteria plan under Section 125 of the Code. Effective January 1, 1989, with respect to Participants who Terminated employment on or after that date, Compensation shall be limited to the amount permitted under the applicable limitation of Section 401(a)(17) of the Code, as amended, in effect for any Plan Year (adjusted each year to reflect such higher amount as may be permitted each year under the Code). Notwithstanding the foregoing, in applying the limits imposed by Section 401(a)(17) for Plan Years beginning on or after January 1, 1989 and ending on or before January 1, 1994, with respect to Participants who Terminated employment on or after January 1, 1989, Compensation up to $235,840 may be taken into account for each Plan Year. Effective January 1, 1994, Compensation shall be limited to $150,000 (adjusted each year to reflect such higher amount as may be permitted each year under the Code). In determining the Compensation of a Participant who is a five percent owner or Highly Compensated Employee in the group consisting of the ten Highly Compensated Employees paid the greatest Compensation during the Plan Year, (the "limited individuals"), then with respect to any individuals in such Participant's family, (i) such individual shall not be considered to be a separate Participant, and (ii) any Compensation paid to such individual (and any applicable contribution or benefit on behalf of such individual) shall be treated as if it were paid (or on behalf of) to the five percent owner or Highly Compensated Employee. The term "family" shall include only the Spouse of the Participant and any lineal descendants of the Participant who might have not attained age 19 before the last day of the Plan Year. The term "family unit" shall include the limited individuals and family. The maximum amount of Compensation permitted to be taken into account under Section 401(a)(17) of the Code for any Plan Year, shall be allocated among the members of the family unit in proportion to each member's Compensation for the Plan Year. DIRECT ROLLOVER means a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. DISABILITY means a medically determinable physical or mental impairment of a permanent nature which prevents a Participant from performing his customary employment duties without endangering his health. DISTRIBUTEE means a Participant or Former Participant. In addition, the Participant's or Former Participant's Spouse or former Spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are Distributees with regard to the interest of the Spouse or former Spouse. EARLY RETIREMENT AGE means the date on which a Participant has attained age 55 and completed five Years of Credited Service. EARLY RETIREMENT DATE means the first day of any month following attainment of his Early Retirement Age. EFFECTIVE DATE of this amended and restated Plan means January 1, 1989, except as otherwise provided in the Plan. The original effective date of the Plan is December 15, 1942. ELIGIBLE EMPLOYEE means any individual employed by the Employer. Eligible Employee shall not include any individual who qualifies as a Leased Employee and any individual whose terms and conditions of employment are covered by a collective bargaining agreement that does not provide for participation in the Plan. Notwithstanding the foregoing, (i) any individual initially hired or rehired by the Employer or an Affiliate on or after February 2, 1992, shall not be deemed to be an Eligible Employee and shall not be eligible to participate or resume participation in the Plan; and (ii) any individual whose employment status as of February 1, 1992, is covered by a collective bargaining agreement that does not provide for participation in the Plan and whose employment status changes on or after February 2, 1992 so that he (A) is no longer covered by a collective bargaining agreement that does not provide for participation in the Plan, and (B) would otherwise be eligible to participate in the Plan, shall not be deemed to be an Eligible Employee and shall not be eligible to participate in the Plan. ELIGIBLE RETIREMENT PLAN means: (i) an individual retirement account described in Section 408(a) of the Code; (ii) an individual retirement annuity described in Section 408(b) of the Code; (iii) an annuity plan described in Section 403(a) of the Code; or (iv) a qualified trust described in Section 401(a) of the Code, that accepts the Distributee's Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving Spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. ELIGIBLE ROLLOVER DISTRIBUTION means any distribution of all or any portion of the balance to the credit of the Distributee, but does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated Beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities) and any other distribution that does not qualify as an Eligible Rollover Distribution, as defined in Section 401(a)(31)(C) of the Code. EMPLOYEE means any individual employed in a common law employment arrangement with the Employer. A Leased Employee shall be deemed to be an Employee. EMPLOYER means the Company and any Participating Employer, which with the approval of the Board of Directors, has adopted this Plan. ENTRY DATE means January 1 and July 1 of each Plan Year. ERISA means the Employee Retirement Income Security Act of 1974, as amended, and includes any regulations issued thereunder. FINAL AVERAGE COMPENSATION means the average monthly Compensation for the five consecutive Plan Years, out of the last ten Plan Years that a Participant completes, coincident with or prior to the date of determination (or actual period of employment if shorter than five years) in which a Participant was employed by the Employer for which such average is the highest. FORMER PARTICIPANT means any Eligible Employee, who was a Participant in the Plan and with respect to whom a benefit remains payable from the Plan. FUND means the trust or account consisting of the assets of the Plan. HIGHLY COMPENSATED EMPLOYEE means: (a) employees who were five percent owners, as defined in section 416(i)(1)(iii) of the Code, at any time during the determination year or the look-back year; (b) Employees with Compensation greater than $75,000 (as adjusted at the same time and in the same manner as Section 415(d) of the Code) during the look-back year; (c) Employees with Compensation greater than $50,000 (as adjusted at the same time and in the same manner as Section 415(d) of the Code) during the look-back year and who are in the top-paid group for the look-back year; (d) Employees who are officers during the look-back year and who have compensation in the look-back year greater than 150% of the contribution limit in Section 415(c) of the Code; and (e) Employees who are both described in paragraph (b), (c), or (d) above when these paragraphs are modified to substitute the determination year for the look-back year and one of the 100 Employees who receive the highest compensation from the Employer during the determination year. (1) The top-paid group shall consist of the top 20% of active Employees, ranked on the basis of compensation received from the Employer during the year excluding Employees with less than 6 months of service, part-time Employees (less than 17 1/2 hours per week or less than 6 months a year), Employees who are not yet age 21 and nonresident aliens. These Employees shall not be excluded for purposes of identifying the particular Employees in the top-paid group. If the Plan being tested covers only non- collective bargaining Employees, and collective bargaining Employees constitute 90 percent or more of the Employer's Employees, then such collective bargaining Employees shall be excluded both from the total number of active Employees and the identification of particular Employees in the top-paid group. The top-paid group shall not include Employees who perform no service during the year. (2) For purposes of determining whether an Employee is highly compensated, the determination year is the Plan Year for which the determination is being made. The look-back year shall be the preceding Plan Year. Notwithstanding the foregoing, the Administrative Committee shall have the authority to make the look-back year be the calendar year ending with or within the current Plan Year of determination. If the Administrative Committee makes this election, it shall be deemed to apply to all plans of the Employer and Affiliates. (3) The number of officers shall be limited to the lesser of (a) 50, or (b) the greater of 3 or 10 percent of all Employees. If the Employer does not have at least one officer whose compensation is in excess of 150% of the limit in Section 415(c) of the Code, then the highest paid officer of the Employer shall be treated as a Highly Compensated Employee. (4) For purposes of defining Highly Compensated Employee, compensation means any permissible definition of compensation as defined in Section 415(c)(3) of the Code, including elective contributions. The dollar limits are those for the calendar year in which the determination or look-back year begins. (5) The Plan shall take into account Employees of all employers aggregated under Sections 414(b), (c), (m) and (o) of the Code, in determining who is highly compensated. Also, for this purpose, the term "Employee" shall include Leased Employees. HOURS OF SERVICE means: (a) PERFORMANCE OF DUTIES. The actual hours for which an Eligible Employee is paid or entitled to be paid for the performance of duties by the Employer; (b) NONWORKING PAID TIME. Each hour for which an Eligible Employee is paid or entitled to be paid by the Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity, disability, layoff, jury duty, military duty or leave of absence; provided, however, no more than 501 Hours of Service shall be credited to an Eligible Employee on account of any single continuous period during which he performed no duties; and provided further that no credit shall be given for payments made or due under a plan maintained solely for the purpose of complying with applicable workers' or unemployment compensation or for payments which solely reimburse an Eligible Employee for medical or medically related expenses incurred by the Eligible Employee; (c) BACK PAY. Each hour for which pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer; provided, however, Hours of Service credited under paragraphs (a) and (b) above shall not be recredited by operation of this paragraph; (d) EQUIVALENCIES. The Administrative Committee shall have the authority to adopt any of the following equivalency methods for counting Hours of Service that are permissible under regulations issued by the Department of Labor: (1) Working Time; (2) Periods of Employment or (3) Earnings. The adoption of any equivalency method for counting Hours of Service shall be evidenced by a certified resolution of the Administrative Committee, which shall be attached to and made part of the Plan. Such resolution shall indicate the date from which such equivalency shall be effective. (e) MISCELLANEOUS. Unless the Administrative Committee directs otherwise the methods of determining Hours of Service when payments are made for other than the performance of duties and of crediting such Hours of Service to Plan Years set forth in Regulations Sec. 2530.200b-2(b) and (c) promulgated by the Secretary of Labor, shall be used hereunder and are incorporated by reference into the Plan. Participants on military leaves of absence who are not directly or indirectly compensated or entitled to be compensated by the Employer while on such leave shall be credited with Hours of Service as required by Section 9 of the Military Selective Service Act. Notwithstanding any other provision of this Plan to the contrary, an Eligible Employee shall not be credited with Hours of Service more than once with respect to the same period of time. INVESTMENT MANAGER means an investment adviser, bank or insurance company which meets the requirements of Section 3(38) of ERISA. LEASED EMPLOYEE means any person who is not an Employee of the Employer and who provides services to the Employer if: (a) such services are provided pursuant to an agreement between the Employer and any leasing organization; (b) such person has performed such services for the Employer (or for the Employer and Affiliates) on a substantially full-time basis for a period of at least one year; and (c) such services are of a type historically performed in the business field of the Employer by Employees. Notwithstanding the foregoing, a person shall not be deemed to be a Leased Employee if he is covered by a plan maintained by the leasing organization and Leased Employees (as determined without regard to this paragraph) do not comprise more than 20% of the Employer's nonhighly compensated workforce. Such plan must be a money purchase pension plan providing for nonintegrated employer contributions of ten percent of compensation and also providing for immediate participation and vesting. LIMITATION YEAR means the Plan Year. NORMAL ANNUAL PENSION means the lifetime annual pension determined in accordance with the provisions of Section 4.1. NORMAL RETIREMENT AGE means the Participant's 65th birthday. NORMAL RETIREMENT DATE means the first day of the month coincident with or next following Normal Retirement Age. PARTICIPANT means an Eligible Employee participating in the Plan in accordance with the provisions of Article III. PARTICIPATING EMPLOYER means any direct or indirect subsidiary of the Company or any other entity designated by the Board of Directors, which has adopted this Plan with the approval of the Company. Participating Employers shall be limited to those direct or indirect subsidiaries of the Company that would be Affiliates except for the fact that they have adopted the Plan. PLAN means THE PEP BOYS - MANNY, MOE & JACK Pension Plan, as herein set forth and as it may be amended hereafter. This Plan also includes the PEP BOYS - MANNY, MOE & JACK of California Pension Plan, the assets and liabilities of which were merged with and into this Plan, effective as of December 31, 1987. PLAN YEAR means the period from January 1 through December 31 of each year. SPOUSE (SURVIVING SPOUSE) means the spouse or surviving spouse of the Participant or Former Participant; provided that a former spouse will be treated as the spouse or surviving spouse to the extent provided under a qualified domestic relations order as described in Section 414(p) of the Code. TERMINATED (OR TERMINATION) means a termination of employment with the Employer or with an Affiliate for any reason other than a transfer of employment from the Employer to an Affiliate or from an Affiliate to another Affiliate. TRUST AGREEMENT means the agreements forming a part of the Plan pursuant to which the assets of the Plan are held and managed by the Trustee. TRUSTEE means the trustee or trustees named in the Trust Agreement, or any successor thereto. YEARS OF CREDITED SERVICE means the periods of employment taken into account in determining a Participant's Accrued Annual Pension or Normal Annual Pension under this Plan. A Participant shall be credited with a Year of Credited Service for each Plan Year in which he has completed 1,000 Hours of Service with the Employer. A Participant shall be credited with a partial Year of Credited Service, to the completed month, for the portion of a Plan Year during which he was not a Participant for the entire Plan Year, provided that the number of Hours completed by the Participant during such portion of a Plan Year equal or exceed the product of (i) 83.33 and (ii) the number of full months the Participant was actually a Plan Participant in such Plan Year. A Participant who was employed by the Employer between December 15, 1978 and December 31, 1978, shall be credited with .04167 of a Year of Credited Service for such period. A Participant shall not earn Years of Credited Service prior to the Entry Date on which he first became a Participant except that any Participant who was employed on December 14, 1976, shall earn Years of Credited Service for his pre-participation eligibility waiting period to the extent that such service would have been credited as Years of Credited Service, if the eligibility requirements in effect on December 15, 1976 had been in effect when such Participant's employment commenced with the Employer. YEAR OF SERVICE means: (a) when applied to eligibility provisions, (i) the 12-month period commencing on an individual's date of employment with the Employer in which he is credited with 1,000 or more Hours of Service, and (ii) thereafter, the Plan Year which includes the first anniversary of the Eligible Employee's initial date of employment and successive anniversaries of such Plan Year, in which he is credited with 1,000 or more Hours of Service; and (b) when applied to vesting provisions, each Plan Year in which an Eligible Employee is credited with 1,000 Hours of Service. An Employee who was credited with 1,000 Hours of Service in the 12 consecutive month period beginning (i) December 15, 1977 and ending on December 14, 1978; and (ii) beginning January 1, 1978 and ending December 31, 1978, shall earn a Year of Service for such additional time periods. Years of Service completed prior to December 15, 1976 shall be disregarded if such service would have been disregarded under the break in service rules then in effect. For purposes of determining an Eligible Employee's eligibility to participate in the Plan pursuant to Section 3.1 and vesting pursuant to Section 5.1, Years of Service shall include an Eligible Employee's Years of Service (i) as a Leased Employee of the Employer or an Affiliate (after the employer became an Affiliate) and not described in Section 414(n)(5) or (ii) as an Employee of the Employer or an Affiliate (after the employer became an Affiliate) covered by the terms of a collective bargaining agreement that does not provide for participation in this Plan, (iii) while a common law Employee of the Employer who is not deemed to be an Eligible Employee or as a common law Employee of an Affiliate, or (iv) while an Employee of a predecessor organization of the Employer in any case where the Employer maintains the plan of such predecessor organization. 2.2 CONSTRUCTION. The masculine gender, where appearing in this Plan, shall be deemed to include the feminine gender, unless the context clearly indicates to the contrary. Titles of sections are inserted for convenience and shall not affect the meaning or construction of the Plan. ARTICLE III PARTICIPATION AND SERVICE 3.1 ELIGIBILITY TO PARTICIPATE. Each Eligible Employee who was a Participant in the Plan on December 31, 1988 shall continue as a Participant on January 1, 1989 if he is still employed on that date. Each other Eligible Employee shall commence participation in the Plan on the Entry Date coincident with or next following attainment of age 21 and completion of one Year of Service. Any individual hired or rehired by the Employer or an Affiliate on or after February 2, 1992, shall not be eligible to commence or resume participation in the Plan. Notwithstanding any provision of this Plan to the contrary, any individual whose employment status as of February 1, 1992, is covered by the terms of a collective bargaining agreement that does not provide for participation in the Plan and whose employment status changes on or after February 2, 1992 so that he is no longer covered by a collective bargaining agreement that does not provide for participation in the Plan, shall not be eligible to participate in the Plan. 3.2 CESSATION OF PARTICIPATION. An Eligible Employee shall cease to be a Participant upon the earliest of: (a) the date on which he retires under the retirement provisions of the Plan; (b) the date on which he ceases to satisfy the eligibility requirements of Section 3.1; or (iii) the date on which his employment Terminates for any reason including death, or Disability. 3.3 CHANGES IN STATUS AND TRANSFERS TO AFFILIATES. (a) An Employee who transfers from an Affiliate to the Employer and becomes an Eligible Employee or an Employee of the Employer who becomes an Eligible Employee shall be eligible to participate in the Plan on the date as of which he has satisfied the eligibility requirements of Section 3.1. He shall commence participation in the Plan on the later of his transfer or change in status or the Entry Date next following the date he has satisfied the eligibility requirements of Section 3.1. (b) A Participant's status as such under the Plan shall be changed, as provided below, upon and after the occurrence of: (1) In the case of a Participant whose employment was not covered by a collective bargaining agreement at the time the Participant became such, the date as of which the Participant's employment becomes covered by a collective bargaining agreement that excludes such individual from participation in this Plan; (2) The date as of which a Participant becomes a Leased Employee; or (3) The date as of which a Participant is transferred to or hired by an Affiliate. (c) The Participant's status under the Plan upon and after the occurrence of one of the above events shall be modified as follows: (1) The Participant's Accrued Annual Pension shall not be increased or decreased thereafter by reason of the Participant's continued employment with the Employer or with an Affiliate or by reason of any increases or decreases in Compensation after such date; and (2) The Participant will remain eligible for the benefits provided by Article IV, if at the time his employment with the Employer or an Affiliate ceases, he has satisfied the age, service and other requirements of this Plan for such benefits. (3) The Participant will continue to be credited with additional Years of Service if he continues to be employed by the Employer or an Affiliate except as otherwise provided for under the Plan. 3.4 REEMPLOYMENT. A Participant who Terminated employment with the Employer and is reemployed by the Employer shall again be eligible to become a Participant on the date he again performs an Hour of Service for the Employer. A former Eligible Employee who is reemployed by the Employer prior to incurring five consecutive one year Breaks in Service, shall become eligible to become a Participant on the Entry Date he has satisfied the age and service requirements of Section 3.1 or the date he is reemployed by the Employer, if later. A former Eligible Employee who is reemployed after incurring five consecutive one year Breaks in Service shall be treated as a new Eligible Employee and must meet the requirements of Section 3.1 for purposes of eligibility to participate. ARTICLE IV PLAN BENEFITS 4.1 NORMAL RETIREMENT. A Participant may retire on his Normal Retirement Date. Each Participant who retires on his Normal Retirement Date, and who has not received benefits, under other provisions of the Plan, shall be entitled to receive the greater of a Normal Annual Pension or an Accrued Annual Pension determined as of any previous date on which the Participant was eligible for early retirement pursuant to Section 4.3. Any Former Participant whose rights and interests in the Plan are vested, and who has not received benefits under other provisions of the Plan, shall be entitled to receive an Accrued Annual Pension commencing on his Normal Retirement Date and continuing during his lifetime. The Plan may suspend the benefits of a Participant who continues in the service of the Employer after Normal Retirement Date, provided that if such Participant is an Eligible Employee, such Eligible Employee receives payment from the Employer for 80 Hours of Service during a calendar month. Any Participant whose Normal Annual Pension is suspended shall be notified in writing by personal delivery or first class mail during the first month or payroll period for which payment of benefits is suspended. The Normal Annual Pension payable to each Participant or Former Participant shall be equal to .008 of the Participant's Final Average Compensation, multiplied by his Years of Credited Service, multiplied by 12. Notwithstanding the foregoing, in no event shall (i) a Participant's monthly benefit hereunder exceed $1,666.67; nor (ii) a Participant's monthly benefit hereunder be less than his Accrued Annual Pension as of December 31, 1988, (with Final Average Compensation and Years of Credited Service determined as of such date) without the limitations on Compensation that became effective on January 1, 1989. In addition, the monthly benefit payable to any Participant who is employed by the Employer on or after January 1, 1994 shall not be less than his Accrued Annual Pension determined as of December 31, 1993, (with Final Average Compensation and Years of Credited Service determined as of such date) based on the limitations on Compensation that were in effect under Section 401(a)(17) of the Code prior to January 1, 1994. A Participant or Former Participant to whom Article XIII of the Plan relates, shall receive the greater of the benefit described in this Section 4.1 or the benefit set forth in Section 13.2. 4.2 DEFERRED RETIREMENT. A Participant who continues in employment beyond his Normal Retirement Date may retire on the first day of any succeeding calendar month that coincides with or next follows the month in which his actual retirement occurs. A Participant's deferred retirement benefit shall be determined either under (a) or (b), whichever produces the greater benefit: (a) by continuing to apply the formula set forth in Section 4.1 to his Compensation and Years of Credited Service after his Normal Retirement Date; or (b) by using the increased Actuarial Equivalent of the Participant's benefit which he had accrued under the terms of the Plan as of his Normal Retirement Date. 4.3 EARLY RETIREMENT. By written notice delivered to the Administrative Committee before the date his pension is to commence, effective January 1, 1989, a Participant who has attained Early Retirement Date and whose employment Terminates on or after January 1, 1989, may elect to receive an early retirement pension after Termination. In such event he shall be entitled to either: (a) A deferred pension commencing at his Normal Retirement Date equal to the Accrued Annual Pension determined on the basis of his Compensation and Years of Credited Service to the date of his early retirement hereunder; or (b) A pension commencing as of the first day of any month coincident with or next following his Early Retirement Date which is equal to the Actuarial Equivalent of the benefit calculated under Section 4.1 payable at the Participant's Normal Retirement Date. 4.4 DISABILITY BENEFIT. A Participant who becomes Disabled shall be eligible to receive a pension commencing at his Normal Retirement Date in an amount equal to his Accrued Annual Pension, determined as of his Disability Date. In lieu of the foregoing, a Participant may elect to receive his Accrued Annual Pension as of the first day of any month following his Disability, which shall be the Actuarial Equivalent of the Participant's benefit payable at his Normal Retirement Date. 4.5 TERMINATION BENEFIT. A Participant who Terminates his employment with a vested interest in his Accrued Annual Pension shall be eligible to receive his benefit in accordance with Section 4.1 or Section 4.3, as applicable. A Former Participant who Terminated employment on or after January 1, 1989 who met the service requirement for early retirement when he Terminated employment, may elect to receive an early retirement pension as of the first day of any month coincident with or next following attainment of age 55. 4.6 FORM OF PAYMENTS. (a) SINGLE PARTICIPANTS. If a Participant or Former Participant is single on the Annuity Starting Date, the normal form of payment, unless elected otherwise within the 90 day period ending on the Annuity Starting Date, shall be a single life annuity with payments guaranteed for 120 months. (b) MARRIED PARTICIPANTS. If a Participant or Former Participant is married on the Annuity Starting Date, the normal form of payment, unless elected otherwise, within the 90 day period ending on the Annuity Starting Date, and with the consent of the Participant's or Former Participant's Spouse, pursuant to subsection (d), shall be a qualified joint and survivor annuity, which shall be the Actuarial Equivalent of the normal form for single Participants described in Section 4.6(a), as applicable, payable for life to the Participant or Former Participant and thereafter, for the life of the Participant's or Former Participant's Surviving Spouse in an amount equal to 50% of the amount that was payable to the Participant or Former Participant. (c) NOTICE AND INFORMATION TO PARTICIPANTS. The Administrative Committee shall furnish each Participant or Former Participant with the following information regarding benefits payable under the Plan in written nontechnical language: (1) A general description or explanation of the automatic post-retirement Spouse's benefit described in Section 4.6(b) and single life annuity benefit with payments guaranteed for 120 months described in Section 4.6(a) and notification of the Participant's or Former Participant's right to waive the right to receive his benefits in a qualified joint and survivor annuity or single life annuity with payments guaranteed for 120 months and the right to make or revoke a previous election to waive the qualified joint and survivor annuity or single life annuity with payments guaranteed for 120 months. (2) A general explanation of the relative financial effect on a Participant's or Former Participant's benefits of any of the foregoing elections. (3) Notification of the availability, upon written request of a Participant or Former Participant of an explanation of the financial effect of any of the foregoing elections upon the requesting Participant's or Former Participant's benefits under the Plan and notification that each Participant or Former Participant may make only one such request. (4) A general explanation of the rights of a Participant's or Former Participant's Spouse. The Administrative Committee shall provide a Participant or Former Participant with the information described in this Section no later than 30 days and no earlier than 90 days prior to each Participant's or Former Participant's Annuity Starting Date. (d) ELECTION AND REVOCATION OF SPOUSE'S ANNUITIES. A Participant or Former Participant who is entitled to receive his benefits or Spouse's benefits in the form described in Section 4.6(a) or (b) may elect to receive such benefits in any other form permitted by the Plan by giving written notification to the Administrative Committee during the election period of his intent to receive his benefits in such other form. Such election period shall be the 90 day period ending on the Annuity Starting Date. Any election to waive the qualified joint and survivor annuity under Section 4.6(b) shall not take effect unless the Spouse of the Participant or Former Participant consents in writing to such election and the Spouse's consent acknowledges the effect of such election and is witnessed by a notary public or a representative of the Administrative Committee. The requirements with respect to spousal consent may be waived if it is established to the satisfaction of the Administrative Committee that the consent may not be obtained because there is no Spouse or because the Spouse cannot be located or because of such other circumstances as may be prescribed by regulation. Any consent necessary under this provision will be irrevocable and valid only with respect to the Spouse who signs the consent. Any election made under this Section may be revoked by the Participant or Former Participant during the specified election period. Such revocation shall be effected by written notification to the Administrative Committee. Following such revocation, another election under this Section may be made at any time during the specified election period. A revocation of a prior waiver may be made at any time by a Participant or Former Participant without the consent of the Spouse before the Annuity Starting Date. Any actual or constructive election under this paragraph (d) having the effect of providing a Spouse's benefit shall automatically be revoked if the electing person ceases to have a Spouse during the election period. However, if the electing person subsequently remarries, the spousal consent requirements will automatically be reinstated at that time. (e) OPTIONAL FORMS. In lieu of the normal form of benefit set forth in Sections 4.6(a) and (b), a Participant or Former Participant may elect one of the optional forms of payment described below. All optional forms of payment shall be the Actuarial Equivalent of the normal form for single Participants set forth in Section 4.1, determined as of the Annuity Starting Date. (1) LIFE ANNUITY OPTION Guaranteed for 120 months. A Participant or Former Participant may elect to have his pension paid in the form of a straight life annuity with payments guaranteed for 120 months. Under such annuity, payments will be made monthly during the Participant's or Former Participant's lifetime in an amount equal to the Participant's or Former Participant's Normal Annual Pension or Accrued Annual Pension. If the Participant or Former Participant should die before receiving 120 months of payments, the remaining payments shall be payable to a Beneficiary designated by such Participant or Former Participant. (2) LIFE ANNUITY OPTION. A Participant or Former Participant may elect to have his pension paid in the form of a straight life annuity. Under such annuity, payments will be made monthly during the Participant's or Former Participant's lifetime in an amount equal to the Participant's or Former Participant's Normal Annual Pension or Accrued Annual Pension. (3) ADDITIONAL OPTIONS. A Participant or Former Participant to whom the provisions of Article XIII apply may elect to have his Normal Annual Pension or Accrued Annual Pension paid in the forms set forth therein. Any election of an optional form of payment may be revoked by the Participant or Former Participant prior to the first day on which such optional form is scheduled to be paid. If the Surviving Spouse or other joint annuitant, whichever is applicable, dies before the first day on which an optional form is scheduled to be paid, the optional form is replaced by the normal form that would have been paid absent the election of an optional form. Any election of an optional form of benefit provided shall provide that any death benefit payable hereunder shall comply with the incidental death benefit requirements of Section 401(a)(9)(G) of the Code and regulations thereunder. 4.7 DEATH PRIOR TO THE ANNUITY STARTING DATE. If a Participant or Former Participant dies prior to the Annuity Starting Date, a death benefit may be payable under the circumstances described below. (a) On the death of a vested Participant or Former Participant who has reached his Early Retirement Date, his Spouse shall, if his Spouse has survived him and they have been married through the one-year period ending on the date of death, be entitled to receive immediately a monthly benefit equal to one- half (1/2) of the Participant's Accrued Annual Pension or Normal Annual Pension determined as of the date of his death, payable as a qualified joint and 50% survivor annuity set forth in Section 4.6(b) and reduced for early payment, as applicable, in accordance with Section 4.3. (b) On the death of a vested Participant or Former Participant who has not reached his Early Retirement Date, but who is entitled to a vested interest in his Accrued Annual Pension, his Spouse shall, if his Spouse has survived him and they have been married through the one-year period ending on the date of death, be entitled to receive a monthly benefit, payable on the Participant's earliest retirement date under the Plan, equal to one-half (1/2) of the Participant's Accrued Annual Pension determined as of the date of his death, payable as a qualified joint and 50% survivor annuity set forth in Section 4.6(b) and reduced for early payment, as applicable, in accordance with Section 4.3. (c) A Participant's or Former Participant's Surviving Spouse shall have the right to elect to defer payment of the Spouse's survivor benefit until the date the Participant would have reached his Normal Retirement Date, had he lived. 4.8 FORM OF PENSION PAYMENTS. Payments shall be paid monthly as of the first of the month, except that the Administrative Committee shall direct that payments which would otherwise be less than $20 per month be made quarterly, semi-annually or annually. 4.9 RESTRICTIONS AND LIMITATIONS ON DISTRIBUTIONS. Distribution of benefits to a Participant or Former Participant must commence no later than April l of the calendar year following the calendar year in which the Participant or Former Participant attains age 70 1/2; provided, however, that distribution to a Participant or Former Participant who attained age 70 1/2 before January 1, 1988 and is not a five percent owner as defined in Section 416(i) of the Code (with respect to the Plan Year ending in the calendar year in which the Participant or Former Participant attains age 66 1/2 or any succeeding Plan Year) must commence no later than April 1 of the calendar year following the later of the calendar year in which the Participant or Former Participant attains age 70 1/2 or the calendar year in which the Participant or Former Participant retires. To the extent a Participant continues to accrue additional benefits, his Accrued Annual Pension shall be redetermined annually to include such additional accruals, but shall not be offset by the Actuarial Equivalent value of any payments previously made. The Annuity Starting Date of such Participant shall be deemed to occur at the date the first payment required by this Section is due to be paid. Any additional accruals after benefits commence hereunder shall be paid in accordance with the election made by the Participant pursuant to Section 4.6. 4.10 RESTRICTIONS ON DEATH DISTRIBUTIONS. Distributions pursuant to the death of a Participant or Former Participant shall be distributed no later than December 31 of the calendar year in which occurs the fifth anniversary of the Participant's or Former Participant's death. However, if such distribution had already commenced in the form of payments over a period permitted by Section 4.5, the remaining benefits may be distributed over such period. The first sentence of the preceding paragraph shall not apply if either condition of (a) or (b) as set forth below are satisfied: (a) If the Participant's or Former Participant's designated Beneficiary is the Surviving Spouse of such Participant or Former Participant, such distribution shall not be required to begin prior to the later of (i) December 31 of the calendar year following the calendar year in which the Participant or Former Participant died, or (ii) December 31 of the calendar year in which the Participant or Former Participant would have attained age 70 1/2, and at such time may be distributed over the life of such Spouse (if the Surviving Spouse dies prior to commencement of distributions to such Spouse, then this subsection (a) shall be applied as if the Surviving Spouse were the Participant or Former Participant); (b) If the Participant's or Former Participant's distribution, or any portion thereof, is payable to a designated Beneficiary, such distribution or portion thereof may be distributed in accordance with regulations over the life of such designated Beneficiary if such distribution or portion thereof begins not later than December 31 of the calendar year in which occurs the first anniversary of the Participant's or Former Participant's death. For purposes of subsections (a) and (b), life expectancy shall be calculated in accordance with the provisions of Section 72 of the Code. Any amount payable to a child pursuant to the death of a Participant or Former Participant shall be treated as if it were payable to the Participant's or Former Participant's Surviving Spouse if such amount would become payable to the Surviving Spouse upon such child reaching majority (or other designated event permitted by regulations). 4.11 CASH-OUT OF SMALL BENEFITS. (a) Notwithstanding any other provision of this Article IV, the Actuarial Equivalent value of (i) a qualified joint and survivor annuity payable to a Participant or Former Participant who meets the requirements of Section 4.6(b) and who is fully vested or (ii) a single life annuity with payments guaranteed for 120 months payable to a Participant or Former Participant who shall be distributed to the Participant or Former Participant no later than the end of the second Plan Year after his retirement or termination if such Actuarial Equivalent value of his entire Accrued Annual Pension or Normal Annual Pension is $3,500 or less. A Participant who has a zero vested interest in his Accrued Annual Pension shall be deemed to have received a distribution of his Accrued Annual Pension immediately upon his Termination of employment. (b) Notwithstanding any other provision of this Article IV, the Actuarial Equivalent value of the Spouse's death benefit payable to the Spouse of a Participant or Former Participant pursuant to Section 4.7 shall be distributed to such Spouse as soon as practicable following the Participant's or Former Participant's death if such Actuarial Equivalent value is $3,500 or less. (c) In the event a Former Participant who received a distribution pursuant to subsection (a), is reemployed, his prior Years of Credited Service attributable to the distribution shall be restored hereunder, but the Participant's subsequent Accrued Annual Pension or Normal Annual Pension under the Plan shall be adjusted to offset the subsequent benefit by the Actuarial Equivalent of the amount of Accrued Annual Pension attributable to the distribution. 4.12 ROLLOVERS FROM THE PLAN. Notwithstanding any provision of the Plan to the contrary, effective January 1, 1993, a Distributee may elect, at the time and in the manner prescribed by the Administrative Committee, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan, specified by the Distributee, in a Direct Rollover. 4.13 PAYMENTS TO AN ALTERNATE PAYEE. Payments to an Alternate Payee pursuant to a qualified domestic relations order under Section 414(p) of the Code shall not be made prior to the date that the Participant or Former Participant has reached or would have reached his earliest retirement date under the Plan, except for any small payments provided under Section 4.11. ARTICLE V VESTING 5.1 VESTING SCHEDULE. A Participant's right to a Normal Annual Pension or an Accrued Annual Pension shall be fully vested and nonforfeitable if he is living and employed by the Employer or an Affiliate on his Normal Retirement Age. Prior thereto, the rights and interests of a Participant or Former Participant in and to his Accrued Annual Pension under the Plan shall become fully vested and nonforfeitable in accordance with the following schedule: Years of ServiceVested PercentageForfeited Percentage less than 5 years 0% 100% 5 years of more 100% 0% 5.2 FORFEITURES. Notwithstanding Section 5.1, and except as otherwise provided under the Plan, a Participant's or Former Participant's rights and interests in the Plan, shall be forfeited, if prior to full vesting under Section 5.1, he dies before Normal Retirement Date or actual retirement date, whichever is later. All forfeitures shall occur immediately upon Termination of employment and shall not be used to increase the benefits of any Participant. 5.3 REEMPLOYMENT. (a)Upon the reemployment of a Participant who was vested when he Terminated employment, his Years of Service and Years of Credited Service shall be reinstated as of his date of reemployment. (b)Upon the reemployment of a Participant or Employee who was not vested when he Terminated employment, his Years of Service and Years of Credited Service shall be reinstated as of his date of reemployment unless the number of his consecutive One-Year Breaks in Service equals or exceeds the greater of five years or the number of his Years of Service with which he was credited prior to such consecutive One-Year Breaks in Service. ARTICLE VI FUNDING 6.1 CONTRIBUTIONS BY EMPLOYER. The Employer shall contribute to the Fund on account of each Plan Year an aggregate amount, in cash or other property, determined pursuant to a funding method and actuarial assumptions, which shall be selected by the Administrative Committee, and which shall be, in the opinion of an Actuary who shall be appointed by the Administrative Committee, designed to fund the Plan's benefits on a sound actuarial basis. Such amount shall also be sufficient to satisfy the Plan's "minimum funding standard" within the meaning of the Code for that Plan Year. The Employer's contribution for each Plan Year shall be made no later than the time permitted under the Code and regulations promulgated by the Secretary of the Treasury. 6.2 INSURANCE. The Employer may enter into a contract or contracts with an insurance company, qualified to perform services under the laws of more than one state, which shall become part of this Plan, for purposes of providing the benefits and funding the Plan. 6.3 INVESTMENT POLICIES. The investment policies of the Plan shall be established and may be changed at any time by the Administrative Committee, which shall thereupon communicate such policies to any persons having authority to manage the Plan's assets. The Investment Manager shall have the authority to invest in any collective investment fund maintained exclusively for the investment of assets of exempt, qualified employee benefit trusts. The assets so invested shall be subject to all the provisions of the instrument establishing such collective investment fund, as amended from time to time, which is hereby incorporated herein by reference and deemed to be an integral part of the Plan and corresponding Trust. The Administrative Committee, whose membership is to be determined by the Board, is the named fiduciary to act on behalf of the Company in the management and control of the Plan assets and to establish and carry out a funding policy consistent with the Plan objectives and with the requirements of any applicable law. The Administrative Committee shall carry out the Company's responsibility and authority: (a)To appoint as such term is defined in Section 3(38) of ERISA, one or more persons to serve as Investment Manager with respect to all or part of the Plan assets, including assets maintained under separate accounts of an insurance company; (b)To allocate the responsibilities and authority being carried out by the Administrative Committee among the members of the Administrative Committee. (c)To take any action appropriate to assure that the Plan assets are invested for the exclusive purpose of providing benefits to Participant and their Beneficiaries in accordance with the Plan and defraying reasonable expenses of administering the Plan, subject to the requirements of any applicable law. (d)To establish any rules it deems necessary. The Administrative Committee including each member and former member to whom duties and responsibilities have been allocated, shall be indemnified and held harmless by the Employer with respect to any breach of alleged responsibilities performed or to be performed hereunder. ARTICLE VII AMENDMENT AND TERMINATION 7.1 AMENDMENTS GENERALLY. The Company, by action of the Board of Directors or to the extent indicated under Section 8.2, by the Administrative Committee, reserves the right to make from time to time any amendment or amendments to this Plan or Trust Agreement that do not cause any part of the Fund to be used for, or diverted to, any purpose other than the exclusive benefit of Participants or Former Participants. Except as may be permitted by ERISA or the Code, no amendment to the Plan shall decrease a Participant's or Former Participant's accrued benefits or eliminate an optional form of benefit as those terms are defined in the Code. 7.2 AMENDMETNS TO VESTING SCHEDULE. Any future amendment to the Plan which alters the vesting schedule set forth in Section 5.1 or which affects a Participant's nonforfeitable percentage in and to his rights and interests in benefits provided by Employer contributions shall be deemed to include the following terms: (a)The vested percentage of a Participant applicable to his Accrued Annual Pension under the Plan determined as of the later of the date such amendment is adopted or the date such amendment becomes effective shall not be reduced unless the amendment is for purposes of conforming the Plan to requirements of the Code, or any other applicable law; and (b)A Participant with at least three Years of Service on the later of the adoption or effective date of any amendment to the Plan may elect to have his nonforfeitable interest computed under the Plan without regard to such amendment. Such election must be made within 60 days from the later of date on which the amendment was adopted, the amendment was effective or the Participant was issued written notice of such amendment by the Administrative Committee. 7.3 TERMINATION, DISCONTINUANCE OF CONTRIBUTIONS OR CURTAILMENT. Subject to the provisions of Title IV of ERISA, the Plan may be terminated or curtailed, or the Employer's obligation to contribute to the Fund may be discontinued, in whole or in part, at any time without the consent of any other person by action of the Board of Directors. 7.4 DISTRIBUTIONS ON TERMINATION. In the event that the Plan is completely or partially terminated, the rights of all affected, actively employed Participants to their Accrued Annual Pensions to the date of such termination shall become fully vested and nonforfeitable only to the extent funded. The assets of the Plan available to provide benefits shall be allocated among the persons who are entitled or who may become entitled to benefits under the Plan, subject to and in the manner prescribed by the applicable provisions of Title IV of ERISA. Any other provision of the Plan to the contrary notwithstanding, if there remain any assets of the Plan after all liabilities of the Plan to Participants or Former Participants and their Beneficiaries have been satisfied or provided for, such residual assets shall thereupon be distributed to the Employer subject to and in accordance with Title IV of ERISA. 7.5 ACTION BY COMPANY. Any action by the Company under the Plan shall be by a duly adopted resolution of the Board of Directors or by any person or persons duly authorized by a duly adopted resolution of that Board to take such action. ARTICLE VIII ADMINISTRATION 8.1 DUTIES AND RESPONSIBILITIES OF FIDUCIARIES; ALLOCATION OF RESPONSIBILITY AMONG FIDUCIARIES FOR PLAN AND TRUST ADMINISTRATION. A Fiduciary shall have only those specific powers, duties, responsibilities and obligations as are specifically given him under this Plan or the Trust. In general, the Employer, shall have the sole responsibility for making the contributions provided for under Section 6.1. The Board of Directors shall have the sole authority to appoint and remove the Trustee and the Administrative Committee and to amend or terminate, in whole or in part, this Plan or the Trust. The Administrative Committee shall have the sole responsibility for the administration of this Plan, which responsibility is specifically described in this Plan and the Trust. The Administrative Committee also shall have the right to appoint and remove any Investment Manager which may be provided for under the Trust and to designate investment and funding policies under which the Trustee and any Investment Manager shall act, which provisions are described in Section 6.3. Except as provided in the Trust agreement and within the scope of any funding and investment policies designated by the Administrative Committee the Trustee shall have the sole responsibility for the administration of the Trust and the management of the assets held under the Trust. It is intended that each Fiduciary shall be responsible for the proper exercise of his own powers, duties, responsibilities and obligations under this Plan and the Trust and generally shall not be responsible for any act or failure to act of another Fiduciary. A Fiduciary may serve in more than one fiduciary capacity with respect to the Plan (including service both as Trustee and as a member of the Administrative Committee). 8.2 ALLOCATION OF DUTIES AND RESPONSIBILITIES. The Administrative Committee shall be appointed by the Board of Directors and shall have the sole responsibility for actual administration of the Plan, as delegated by the Board of Directors. The Administrative Committee may also adopt amendments to the Plan, which upon advice of counsel, it deems necessary or advisable to comply with ERISA or the Code, or any other applicable law, or to facilitate the administration of the Plan. The Administrative Committee may designate persons other than their members to carry out any of its duties and responsibilities. Any duties and responsibilities thus allocated must be described in the written instrument. If any person other than an Eligible Employee of the Employer is so designated, such person must acknowledge in writing his acceptance of the duties and responsibilities thus allocated to him. All such instruments shall be attached to, and shall be made a part of, the Plan. 8.3 ADMINISTRATION AND INTERPRETATION. Subject to the limitations of the Plan, the Administrative Committee shall have complete authority and control regarding the administration and interpretation of the Plan and the transaction of its business, and shall, from time to time, establish such rules as may be necessary or advisable in connection therewith. To the extent permitted by law, all acts and determinations of the Administrative Committee, as to any disputed question or otherwise, shall be binding and conclusive upon Participants, retired Participants, Employees, Spouses, Beneficiaries and all other persons dealing with the Plan. The Administrative Committee may deem its records conclusively to be correct as to the matters reflected therein with respect to information furnished by an Employee. All actions, decisions and interpretations of the Administrative Committee in administering the Plan shall be performed in a uniform and nondiscriminatory manner. 8.4 EXPENSES. The Employer shall pay all expenses authorized and incurred by the Administrative Committee in the administration of the Plan except to the extent such expenses are paid from the Trust. 8.5 CLAIMS PROCEDURE: (a)FILING OF CLAIM. Any Participant, Former Participant or Beneficiary under the Plan ("Claimant"), may file a written claim for a Plan benefit with the Administrative Committee or with a person named by the Administrative Committee to receive claims under the Plan. (b)NOTIFICATION ON DENIAL OF CLAIM. In the event of a denial or limitation of any benefit or payment due to or requested by any Claimant, he shall be given a written notification containing specific reasons for the denial or limitation of his benefit. The written notification shall contain specific reference to the pertinent Plan provisions on which the denial or limitation of benefits is based. In addition, it shall contain a description of any additional material or information necessary for the Claimant to perfect a claim and an explanation of why such material or information is necessary. Further, the notification shall provide appropriate information as to the steps to be taken if the Claimant wishes to submit his claim for review. This written notification shall be given to a Claimant within 90 days after receipt of his claim by the Administrative Committee unless special circumstances require an extension of time to process the claim. If such an extension of time for processing is required, written notice of the extension shall be furnished to the Claimant prior to the termination of said 90-day period and such notice shall indicate the special circumstances which make the postponement appropriate. Such extension shall not extend to a date later than 120 days after receipt of the request for review of a claim. (c)RIGHT OF REVIEW. In the event of a denial or limitation of benefits, the Claimant or his duly authorized representative shall be permitted to review pertinent documents and to submit to the Administrative Committee issues and comments in writing. In addition, the Claimant or his duly authorized representative may make a written request for a full and fair review of his claim and its denial by the Administrative Committee provided, however, that such written request must be received by the Administrative Committee (or his delegate to receive such requests) within sixty days after receipt by the Claimant of written notification of the denial or limitation of the claim. The sixty day requirement may be waived by the Administrative Committee in appropriate cases. (d)DECISION ON REVIEW. (i)A decision shall be rendered by the Administrative Committee within 60 days after the receipt of the request for review, provided that where special circumstances require an extension of time for processing the decision, it may be postponed on written notice to the Claimant (prior to the expiration of the initial 60 day period), for an additional 60 days, but in no event shall the decision be rendered more than 120 days after the receipt of such request for review. (ii)Notwithstanding subparagraph (i), if the Administrative Committee specifies a regularly scheduled time at least quarterly to review such appeals, a Claimant's request for review will be acted upon at the specified time immediately following the receipt of the Claimant's request unless such request is filed within 30 days preceding such time. In such instance, the decision shall be made no later than the date of the second specified time following the Administrative Committee's receipt of such request. If special circumstances (such as a need to hold a hearing) require a further extension of time for processing a request, a decision shall be rendered not later than the third specified time of the Administrative Committee following the receipt of such request for review and written notice of the extension shall be furnished to the Claimant prior to the commencement of the extension. (iii)Any decision by the Administrative Committee shall be furnished to the Claimant in writing and in a manner calculated to be understood by the Claimant and shall set forth the specific reason(s) for the decision and the specific Plan provision(s) on which the decision is based. 8.6 RECORDS AND REPORTS. The Administrative Committee shall exercise such authority and responsibility as it deems appropriate in order to comply with ERISA and governmental regulations issued thereunder relating to records of Participants' account balances and the percentage of such account balances which are nonforfeitable under the Plan; notifications to Participants; and annual reports and registration with the Internal Revenue Service. 8.7OTHER POWERS AND DUTIES. The Administrative Committee shall have such duties and powers as may be necessary to discharge its duties hereunder, including, but not by way of limitation, the following: (a)to construe and interpret the Plan, decide all questions of eligibility and determine the amount, manner and time of payment of any benefits hereunder; (b)to prescribe procedures to be followed by Participants, Former Participants or Beneficiaries filing applications for benefits; (c)to prepare and distribute information explaining the Plan; (d)to receive from the Employer and from Participants, Former Participants and Beneficiaries such information as shall be necessary for the proper administration of the Plan; (e)to furnish the Employer, upon request, such annual reports with respect to the administration of the Plan as are reasonable and appropriate; (f)to receive, review and keep on file (as it deems convenient or proper) reports of the financial condition, and of the receipts and disbursements, of the Trust Fund from the Trustees; (g)to appoint or employ advisors including legal and actuarial counsel to render advice with regard to any responsibility of the Administrative Committee under the Plan or to assist in the administration of the Plan; and (h)to determine the status of qualified domestic relations orders under Section 414(p) of the Code. The Administrative Committee shall have no power to add to, subtract from or modify any of the terms of the Plan, or to change or add to any benefits provided by the Plan, or to waive or fail to apply any requirements of eligibility for a benefit under the Plan. 8.8 RULES AND DECISIONS. The Administrative Committee may adopt such rules as it deems necessary, desirable, or appropriate. All rules and decisions of the Administrative Committee shall be applied uniformly and consistently to all Participants in similar circumstances. When making a determination or calculation, the Administrative Committee shall be entitled to rely upon information furnished by a Participant, Former Participant or Beneficiary, the Employer, the legal counsel of the Employer, or the Trustee. 8.9 AUTHORIZATION OF BENEFIT PAYMENTS. The Administrative Committee shall issue proper directions to the Trustee concerning all benefits which are to be paid from the Trust Fund pursuant to the provisions of the Plan. 8.10APPLICATION AND FORMS FOR BENEFITS. The Administrative Committee may require a Participant, Former Participant or Beneficiary to complete and file with it an application for a benefit, and to furnish all pertinent information requested by it. The Administrative Committee may rely upon all such information so furnished to it, including the Participant's, Former Participant's or Beneficiary's current mailing address. 8.11FACILITY OF PAYMENT. Whenever, in the Administrative Committee's opinion, a person entitled to receive any payment of a benefit or installment thereof hereunder is under a legal disability or is incapacitated in any way so as to be unable to manage his financial affairs, the Administrative Committee may direct the Trustee to make payments to such person or to his legal representative or to a relative or friend of such person for his benefit, or he may direct the Trustee to apply the payment for the benefit of such person in such manner as it considers advisable. 8.12INDEMNIFICATION. The Employer shall indemnify each individual who is an officer, director or Employee of the Employer and who may be called upon or designated to perform fiduciary duties or to exercise fiduciary authority or responsibility with respect to the Plan and shall save and hold him harmless from any and all claims, damages, and other liabilities, including without limitation all expenses (including attorneys' fees and costs), judgments, fines and amounts paid in settlement and actually and reasonably incurred by him in connection with any action, suit or proceeding, resulting from his alleged or actual breach of such duties, authority or responsibility, whether by negligence, gross negligence or misconduct, to the maximum extent permitted by law, provided, however, that this indemnification shall not apply with respect to any actual breach of such duties, authority or responsibility, if the individual concerned did not act in good faith and in the manner he reasonably believed to be in (or not opposed to) the best interest of the Employer, or, with respect to any criminal action or proceeding, had reasonable cause to believe his conduct was unlawful. 8.12RESIGNATION OR REMOVAL OF THE ADMINISTRATIVE COMMITTEE. An Administrative Committee member may resign at any time by giving ten days' written notice to the Employer and the Trustee. The Board of Directors may remove any member of the Administrative Committee by giving written notice to him and the Trustee. Any such resignation or removal shall take effect at a date specified on such notice, or upon delivery to the Administrative Committee if no date is specified. ARTICLE IX LIMITATIONS ON CONTRIBUTIONS AND BENEFITS 9.1 DETERMINATION BY INTERNAL REVENUE SERVICE. Contributions to the Trust Fund are conditioned specifically upon the initial qualification of the Plan under the Code and if the Plan does not so initially qualify, such contribution or part thereof shall be returned to the Employer within one year after such denial of initial qualification. 9.2 CONDITIONAL CONTRIBUTIONS. To the extent permitted under ERISA and the Code, all contributions to the Plan are subject to the following conditions: (a)All contributions made to the Plan by the Employer shall be conditioned upon the deductibility of such contributions under the Code. To the extent that any such deduction is disallowed by the Internal Revenue Service, the Employer by action of the Administrative Committee shall have the right to demand and receive the return of the related contribution to the extent disallowed within one year after the disallowance of said deduction. (b)If the Employer makes a contribution, or any part thereof, by mistake of fact, such contribution or part thereof shall be returned to the Employer within one year after such contribution is made. 9.3 TWENTY-FIVE HCE LIMITATION. Effective for Plan Years commencing on or after January 1, 1991, the annual payments made by the Plan to any individual who is one of the twenty-five (25) highest-paid Highly Compensated Employees, for any Plan Year, shall not exceed the limitations set forth in Treas. Reg. Section 1.401(a)(4)-5. 9.4 GENERAL LIMITATION ON BENEFITS. In addition to the limitations possibly applicable by reason of Section 9.3, and any other provision of the Plan to the contrary notwithstanding, the annual benefit payable to any Participant or Former Participant shall not exceed the limitations imposed by Section 415 of the Code. The provisions of Section 415 of the Code are incorporated into this Plan by reference. If a Participant's participation in other plans maintained by the Employer or an Affiliate would result in a violation of the limitations of Section 415 of the Code, the Participant's benefit under this Plan shall be reduced to the extent necessary to satisfy Section 415 of the Code. 9.5 SUSPENSION OF BENEFITS ON REEMPLOYMENT. (a)In the event that any person receiving benefits under the Plan by reason of retirement is reemployed by the Employer, the Plan shall suspend the payment of benefits as of the first day of the month following the first month in which an Eligible Employee receives payment from the Employer for at least 80 Hours of Service performed during a calendar month during such person's reemployment; (b)Benefits suspended hereunder shall resume as of the first day of the third month commencing after the earlier of the day the reemployed person Terminates employment with the Employer or, if such person is an Eligible Employee, receives payment from the Employer for any Hours of Service performed for fewer than 80 Hours of Service during a calendar month in such reemployed status; (c)Any person whose benefits are suspended under this Section shall be entitled to receive a pension on subsequent retirement or Termination that is not less than the pension received as of the date of suspension hereunder. The person's resumed pension shall be determined on the basis of the Participant's Compensation and Years of Credited Service before the suspension hereunder and Compensation and Years of Credited Service after his reemployment, reduced however, by the value of any pension benefits paid to him previously either (i) prior to his Normal Retirement Date; or (ii) while reemployed by the Employer under circumstances in which his benefits should have been suspended under paragraph (a), but were not. (d)Any Participant whose benefits are suspended pursuant to the foregoing shall be notified in writing of the suspension by personal delivery or first class mail during the first calendar month or payroll period in which benefits are suspended. (e)The Annuity Starting Date with respect to a Participant who is reemployed after commencement of his benefits at Normal Retirement Date, shall be the date his benefits originally commenced for benefits accrued before and after the suspension. (f)The Annuity Starting Date with respect to a Participant who is reemployed after commencement of his benefits at Early Retirement Date shall be: (1)the date his benefits originally commenced with respect to the benefits accrued prior to the suspension; and (2)with respect to the benefits he accrued after his reemployment (if any), and the suspension of his original benefit payments hereunder, the date such subsequent accruals commence to be paid. The provisions of Section 4.6(d) of the Plan shall apply to such subsequent accruals as a second Annuity Starting Date. ARTICLE X MERGER, TRANSFER OR CONSOLIDATION OF PLANS 10.1PLAN ASSETS. There shall be no merger or consolidation of the Plan with, or transfer of assets or liabilities of the Fund to, any other plan of deferred compensation maintained or to be established for the benefit of all or some of the Participants of the Plan, unless each Participant would (if either this Plan or the other plan then terminated) receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation or transfer (if this Plan had then terminated), and unless a duly adopted resolution of the Board of Directors authorizes such merger, consolidation or transfer of assets. ARTICLE XI MISCELLANEOUS 11.1MANDATORY COMMENCEMENT OF BENEFITS. Notwithstanding any provision of this Plan to the contrary, payment of benefits under this Plan shall commence upon the written election of a Participant or Former Participant not later than sixty days after the close of the Plan Year in which the latest of the following events occurs: (a) the Participant attains Normal Retirement Date; (b) the tenth anniversary of the Plan Year in which the Participant commenced participation in the Plan; or (c) the Termination of the Participant's service with the Employer. 11.2NONGUARANTEE OF EMPLOYMENT. Nothing contained in this Plan shall be construed as a contract of employment between the Employer and any Eligible Employee, or as a right of any Eligible Employee to be continued in the employment of the Employer, or as a limitation of the right of the Employer to discharge any of its Eligible Employees with or without cause. 11.3RIGHTS TO FUND ASSETS. No Eligible Employee or Beneficiary shall have any right to, or interest in, any assets of the Fund upon Termination of his employment or otherwise, except as provided from time to time under this Plan, and then only to the extent of the benefits payable under the Plan to such Eligible Employee out of the assets of the Fund. All payments of benefits as provided for in this Plan shall be made solely out of the assets of the Fund. 11.4NONALIENATION OF BENEFITS. Benefits payable under this Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumber, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary, including any such liability which is for alimony or other payments for the support of a spouse or former spouse, or for any other relative of the Eligible Employee prior to actually being received by the person entitled to the benefit under the terms of the Plan, except as required under a qualified domestic relations order as defined in Section 414(p) of the Code. Any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to benefits payable hereunder, shall be void. The Fund shall not in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements or torts of any person entitled to benefits hereunder. 11.5INABILITY TO LOCATE PAYEE. Each person entitled to receive benefits under the Plan shall be responsible for informing the Administrative Committee of his mailing address for purposes of receiving such benefits. If the Administrative Committee is unable to locate any person entitled to receive benefits under the Plan, such benefits shall not be forfeited but shall be carried as a contingent liability of the Plan and shall be payable when a proven and legitimate claim therefor has been submitted to the Administrative Committee. 11.6APPLICABLE LAW. This Plan shall be construed, interpreted, administered and enforced in accordance with the laws of the Commonwealth of Pennsylvania, except to the extent superseded, only when required, by ERISA as in effect from time to time. ARTICLE XII DETERMINATION OF TOP-HEAVY STATUS 12.1GENERAL. Notwithstanding any other provision of the Plan to the contrary, for any Plan Year, in which the Plan is a Top-Heavy Plan or Super Top-Heavy Plan, as defined below, the provisions of this Article 12 shall apply, but only to the extent required by Section 416 of the Code and the regulations thereunder. 12.2TOP-HEAVY PLAN. This Plan shall be Top-Heavy and an Aggregation Group shall be a Top-Heavy Group if as of the Determination Date for such Plan Year, the sum of the Cumulative Accrued Benefits and Cumulative Accounts of Key Eligible Employees for the Plan Year exceeds 60% of the aggregate of all the Cumulative Accounts and Cumulative Accrued Benefits. The Cumulative Accrued Benefits and Cumulative Accounts of those Participants who have not performed any service for the Employer during the five year period ending on the Determination Date, shall be disregarded. (a)If the Plan is not included in a Required Aggregation Group with other plans, then it shall be Top-Heavy only if (i) when considered by itself it is a Top-Heavy Plan and (ii) it is not included in a Permissive Aggregation Group that is not a Top-Heavy Group. (b)If the Plan is included in a Required Aggregation Group with other plans, it shall be Top-Heavy only if the Required Aggregation Group, including any permissively aggregated plans, is Top-Heavy. 12.3SUPER TOP-HEAVY PLAN. This Plan shall be a Super Top-Heavy Plan if it would be a Top-Heavy Plan under Section 12.2, but substituting 90% for 60%. 12.4CUMULATIVE ACCRUED BENEFITS AND CUMULATIVE ACCOUNTS. The determination of the Cumulative Accrued Benefits and Cumulative Accounts under the Plan shall be made in accordance with Section 416 of the Code and the regulations thereunder. 12.5DEFINITIONS. (a)"Aggregation Group" means either a Required Aggregation Group or a Permissive Aggregation Group. (b)"Determination Date" means with respect to any Plan Year, the last day of the preceding Plan Year or in the case of the first Plan Year of any plan, the last day of such Plan Year or such other date as permitted by the Secretary of the Treasury or his delegate. (c)"Group Employer" means the Employer that adopts this Plan and all members of a controlled group of corporations (as defined in Section 414(b) of the Code), all commonly controlled trades or businesses (as defined in Section 414(c) of the Code) or affiliated service groups (as defined in Section 414(m) of the Code) of which the Employer is a part. (d)"Key Eligible Employee" means those individuals described in Section 416(i)(1) of the Code and the regulations thereunder. (e)"Non-Key Eligible Employee" means those Eligible Employees who are not Key Eligible Employees and includes a former Key Eligible Employee. (f)"Permissive Aggregation Group" means a Required Aggregation Group plus any other plans selected by the Company provided that all such plans when considered together satisfy the requirements of Section 401(a)(4) and 410 of the Code. (g)"Required Aggregation Group" means each plan of the Employer in which a Key Eligible Employee participates (in the Plan Year containing the Determination Date or any of the four preceding Plan Years) and each other plan which enables any plan in which a Key Eligible Employee participates during the period tested to meet the requirements of Section 401(a)(4) or 410 of the Code. All employers aggregated under Section 414(b), (c) or (m) of the Code are considered a single employer. The Required Aggregation Group shall include any terminated plan that covered a Key Eligible Employee and was maintained within the five year period ending on the Determination Date. (h)"Valuation Date" means the annual date on which Plan assets must be valued for purposes of determining the Plan's assets and liabilities and the value of account balances maintained under any defined contribution plan of the Employer. The valuation date for purposes of the preceding sentence shall be the same valuation date for computing Plan costs for minimum funding. 12.6MINIMUM ANNUAL RETIREMENT BENEFIT. (a)Each Participant who is a Non-Key Eligible Employee will receive the greater of his Accrued Annual Pension as defined in Section 2.1 or a Minimum Annual Retirement Benefit (expressed as a life annuity commencing at Normal Retirement Date) equal to two percent of the Participant's average compensation (as determined under any permissible definitions under Section 415 of the Code and the regulations thereunder) for the five consecutive years for which the Participant had the highest aggregate compensation multiplied by the Participant's Years of Credited Service with the Employer, up to a maximum of 20%. (b)For purposes of this Section 12.6, Years of Credited Service shall not include service if the Plan were not a Top-Heavy Plan for any Plan Year ending in such period of Years of Credited Service or Years of Credited Service completed in a Plan Year commencing before January 1, 1984. For purposes of this Section 12.6, compensation in years prior to January 1, 1984 and compensation in years after the close of the last Plan Year in which the Plan is Top-Heavy shall be disregarded. (c)A Minimum Annual Retirement Benefit shall not be provided under this Section 12.6 to the extent that the Participant is covered under any other plan or plans of the Group Employer and the Group Employer has provided that the minimum benefit requirements applicable to this Plan will be met by the other plan or plans. (d)A Participant who is a Non-Key Eligible Employee shall not fail to accrue a Minimum Annual Retirement Benefit because of (i) his level of Compensation or (ii) a failure to make mandatory Eligible Employee contributions. 12.7VESTING. A Participant who is credited with one Hour of Service in any Plan Year during which the Plan is Top-Heavy or Super Top-Heavy shall have a nonforfeitable interest in that portion of his Normal Annual Pension, Accrued Annual Pension or Minimum Annual Retirement Benefit attributable to participation during the Plan Year in which the Plan is Top-Heavy or Super Top-Heavy and all prior Plan Years in accordance with the following schedule: Years of Service Nonforfeitable Percentage less than 2 years 0 2 but less than 3 20% 3 but less than 4 40% 4 but less than 5 60% 5 or more 100% If the Plan ceases to be Top-Heavy in any Plan Year, the vesting provisions of Section 5.1 determined without regard to this Section 12.7, shall apply with respect to subsequent Plan Years, subject to Section 7.2(b). 12.8 DEFINED BENEFIT AND DEFINED CONTRIBUTION PLANS. For each Plan Year in which the Plan is Super Top-Heavy or for each Plan Year in which the Plan is Top-Heavy and the additional minimum benefits or contributions required by Section 416(h) of the Code are not provided, the dollar limitations in the denominator of the defined benefit plan fraction and defined contribution plan fraction as defined in Section 415(e) of the Code shall be multiplied by 100 percent rather than 125 percent. If the application of the provisions of this Section 12.8 would cause any Participant to exceed 1.0 for any Limitation Year as set forth in Section 9.4, then the application of this Section 12.8 shall be suspended as to such Participant until such time as he no longer exceeds 1.0. During the period of such suspension, there shall be no accruals for such Participant under this Plan and no Group Employer contributions, forfeitures or voluntary nondeductible contributions allocated to such Participant under any defined contribution plan of the Group Employer. ARTICLE XIII ERISA TRANSITION PROVISIONS 13.1 SCOPE AND PURPOSE. The provisions of this Article XIII shall apply only to those Participants or Former Participants who were Participants on December 14, 1976 and Employees on December 15, 1976. The purpose of this Article XIII is to preserve for those Participants or Former Participants certain of the provisions of the Plan as in effect before December 15, 1976. 13.2 CALCULATION OF BENEFIT. With respect to a Participant or Former Participant covered by this Section 13.2, the Participant's or Former Participant's monthly benefit at his Normal Retirement Date under the Plan shall be the greater of (i) the Participant's or Former Participant's benefit calculated under Section 4.1 or (ii) one-twelfth of the product of (A) and (B), but not in excess of $625, where (A) equals 45% of the Participant's or Former Participant's "Basic Salary" on December 15, 1975 and (B) equals a fraction, the numerator of which is the Participant's or Former Participant's total number of "Years of Participation" at December 14, 1976 and the denominator of which is the total number of "Years of Participation" with which he would have been credited if he separated from service on the "Anniversary Date" nearest his 65th birthday, all as defined under the terms of the Plan as in effect on December 14, 1976. Such amount is set forth in Schedule A, Column 1. 13.3 FORM OF PAYMENT OF NORMAL, LATE, EARLY AND DISABILITY BENEFIT. In addition to the forms of settlement provided under Section 4.6(e), a Participant or Former Participant covered under this Article XIII, shall be entitled to elect in writing on forms provided by the Administrative Committee payment of the "value of the accrued benefit" (as determined under Section 13.7) to which he is entitled under Schedule A, Column 2, increased by interest at the rate of 5% per annum from December 14, 1976 to the date of determination, counting only completed months, in a lump sum upon Normal, Late, Early or Disability Retirement in accordance with the provisions of Sections 4.1, 4.2, 4.3 or 4.4. In the event a Participant or Former Participant elects payment of some or all of the amount of the "value of the accrued benefit" to which he is entitled under Schedule A, Column 2, increased by interest as described in the preceding sentence, in a lump sum, the "actuarial value" (as determined under Section 13.7) of the benefit to which he is otherwise entitled under Article IV shall be reduced by the amount of such payment and the "remaining value", if any, will be paid in a form provided by Section 4.6(e) of the Plan. However, any Participant or Former Participant covered under this Article XIII, the value of whose benefit under Schedule A, Column 2, without increase, is $20,000 or more, alternatively may elect in writing, on forms provided by the Administrative Committee, payment of the value of the entire benefit to which he is entitled under the Plan in an "actuarially equivalent" (as determined under Section 13.6) lump sum upon Normal, Late, Early or Disability Retirement in accordance with the provisions of Section 4.6. Notwithstanding the foregoing, effective January 1, 1989, any Participant covered under this Section 13, who is a Highly Compensated Employee, determined as of any date, and the value of whose benefit under Schedule A, Column 2, without increase, is $20,000 or more, alternatively may elect in writing, on forms provided by the Administrative Committee payment of (i) the value of the benefit which he had accrued as of December 31, 1988 under the Plan in an actuarially equivalent lump sum (as determined under Section 13.7) upon Normal, Late, Early or Disability Retirement in accordance with the provisions of Section 4.1, 4.2, 4.3 or 4.4; and (ii) the remainder of his Accrued Annual Pension, which he had accrued after December 31, 1988, paid to him in one of the forms provided for under Section 4.6 of the Plan. 13.4 PAYMENT OF VESTED BENEFITS. Any Participant or Former Participant covered under this Article XIII who terminates employment with the Employer and all Affiliates with a nonforfeitable benefit under Section 5.1 may elect in writing on forms provided by the Administrative Committee to receive the value of his benefit under Schedule A, Column 2, increased by interest at the rate of 5% per annum from December 14, 1976 to the date of determination, counting only completed months, in a lump sum. The "remaining value" of his benefit, if any, shall be paid in accordance with Section 4.6(e). Any such Participant or Former Participant, the value of whose accrued benefit under Schedule A, Column 2, without increase, is $20,000 or more, alternatively may elect in writing, on forms provided by the Administrative Committee, payment of the value of the entire benefit to which he is entitled under the Plan in an "actuarially equivalent" lump sum. If a Participant or Former Participant who receives a distribution hereunder returns to service covered by the Plan, his prior service shall be restored for purposes of benefit accrual if he contributes to the Trust Fund in cash the amount of the distribution he received, together with interest thereon at the rate set forth in Section 411(c)(2)(C) of the Code per annum, compounded annually, before suffering five consecutive Breaks in Service or five years following the date he is reemployed by the Employer, if earlier. If the Participant or Former Participant does not make such a contribution as provided above, his Accrued Annual Pension upon subsequent termination of service shall be based on accruals arising from and after his return to service under the terms of the Plan plus any "remaining value" of his benefit at the date of his previous termination of service not paid hereunder upon his previous termination of service. Notwithstanding the foregoing, effective January 1, 1989, any Participant covered under this Section 13, who is a Highly Compensated Employee, determined as of any date, and the value of whose benefit under Schedule A, Column 2, without increase, is $20,000 or more, alternatively may elect in writing, on forms provided by the Administrative Committee, payment of (i) the value of the benefit which he had accrued as of December 31, 1988 under the Plan in an actuarial equivalent lump sum (as determined under Section 13.7) upon his Termination of employment in accordance with the provisions of Section 4.5; and (ii) the remainder of his Accrued Annual Pension, which he had accrued after December 31, 1988, paid to him in one of the forms provided for under Section 4.6 of the Plan. 13.5 DEATH BENEFITS. The Beneficiary of any Participant or Former Participant covered under this Article XIII who attained his Normal Retirement Date, as defined under the terms of the Plan as in effect on December 14, 1976, on or before December 14, 1976, and dies on or after December 15, 1976, but prior to the earlier of the date (i) benefit payments to him commence or (ii) an annuity contract is purchased to provide his retirement benefit, shall be entitled to receive a death benefit equal to the "actuarial value" at the time of death of such Participant's or Former Participant's accrued benefit under Schedule A, Column 2. The benefit will be paid in the mode of distribution designated by the Participant or Former Participant in writing; provided, however, if the Participant's or Former Participant's designated Beneficiary should die on or before the commencement of distribution of benefits or the Participant or Former Participant fails to designate the mode of distribution, the mode of distribution shall be determined by the Administrative Committee after consultation with the Participant's or Former Participant's Beneficiary. Notwithstanding the foregoing, if the Participant or Former Participant is married, the Participant's or Former Participant's Spouse shall be the Beneficiary unless the Spouse waives the right to be the Beneficiary in writing witnessed by a notary public or a member of the Administrative Committee in accordance with the rules established by the Administrative Committee. Notwithstanding the foregoing, effective January 1, 1989, any Participant covered under this Section 13, who is a Highly Compensated Employee, determined as of any date, and the value of whose benefit under Schedule A, Column 2, without increase, is $20,000 or more, alternatively may elect in writing, on forms provided by the Administrative Committee, payment of (i) the value of the benefit which he had accrued as of December 31, 1988 under the Plan in an actuarial equivalent lump sum (as determined under Section 13.7) upon his death paid to his Beneficiary; and (ii) the remainder of his Accrued Annual Pension, which he had accrued after December 31, 1988, paid to his Beneficiary in the form provided for under Section 4.7 of the Plan. 13.6 TRANSFER OF BENEFIT. (i) Any Participant or Former Participant (A) who has reached his Normal Retirement Date on or before December 15, 1976, (B) whose benefit is calculated under the Plan as effective prior to December 15, 1976 and (C) whose benefit payments have not started prior to October 9, 1979, shall be entitled to elect irrevocably in writing as hereinafter provided that the Administrative Committee transfer the amount of his accrued benefit to be held as a separate bookkeeping account under the terms of the Trust Agreement. The election may be made effective as of the January 1st or July 1st next following the delivery of a written request to the Administrative Committee at least 30 days before such date. (ii) In addition to the forms of settlement provided under Section 4.6, a Participant or Former Participant covered under this Section 13.5, shall be entitled to elect in writing on forms provided by the Administrative Committee one of the following settlement options: (A) approximately equal monthly, quarterly or annual installments as elected by the Participant or Former Participant over a period not exceeding the life expectancy of the Participant or Former Participant or the joint life expectancy of the Participant or Former Participant and his designated Beneficiary with the remainder of such installments, if any, after the Participant's or Former Participant's death payable to his designated beneficiary or Beneficiaries; or (B) a lump sum; or (C) any combination of the above. Notwithstanding the foregoing, the Participant or Former Participant must elect under this Section 13.5(ii) or 4.6(e) a method of settlement under which the present value of the installments to be paid to the Participant or Former Participant over his projected life span is more than 50% of the present value of the installments payable to both the Participant or Former Participant and his Beneficiary or Beneficiaries. (iii) The Beneficiary of any Participant or Former Participant eligible to make the election under Section 13.6(i) who is to receive death benefits under Section 13.5, may subject to the approval of the Administrative Committee, request that the value of the death benefit be held as a separate bookkeeping account under the terms of the Trust Agreement, with distribution to be made in the mode provided for under Section 13.5. 13.7 ACTUARIAL EQUIVALENCY. With respect to Article XIII, when referring to amounts developed under Article IV, "actuarial value", "remaining value", "actuarial equivalent" and "value of the accrued benefit" shall be determined using GAM71 Male mortality table and interest at the rate of 5.5% per annum. However, the value so determined for any Participant or Former Participant to whom this Article XIII applies shall not be less than the actuarial value of the accrued benefit for that Participant or Former Participant as of July 31, 1983, determined using the GAM71 Male and Female (as appropriate) mortality table and interest at the rate of 5.5% per annum. When referring to amounts developed from Schedule A, Column 2, the amount of accrued benefits and actuarial equivalents shall be determined as described, using interest at the rate of 5% per annum. EX-10.26 3 THE PEP BOYS SAVINGS PLAN THE PEP BOYS SAVINGS PLAN TABLE OF CONTENTS I: INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 II: DEFINITIONS AND CONSTRUCTION . . . . . . . . . . . . . . . . . . . 2 2.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.2 Construction. . . . . . . . . . . . . . . . . . . . . . . . . 19 III: PARTICIPATION AND SERVICE . . . . . . . . . . . . . . . . . . . . 20 3.1 Eligibility to Participate. . . . . . . . . . . . . . . . . . 20 3.2 Commencement of Participation . . . . . . . . . . . . . . . . 20 3.3 Cessation of Participation. . . . . . . . . . . . . . . . . . 20 3.4 Special Rules for Eligibility Purposes. . . . . . . . . . . . 20 3.5 Participation and Service upon Reemployment . . . . . . . . . 21 3.6 Transfers to Affiliates and Change in Status. . . . . . . . . 21 3.7 Transfers From Affiliates and Change in Status. . . . . . . . 22 IV: EMPLOYER CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . 23 4.1 Employer Contributions. . . . . . . . . . . . . . . . . . . . 23 4.2 Time and Manner of Contribution . . . . . . . . . . . . . . . 27 4.3 Conditions on Employer Contributions. . . . . . . . . . . . . 27 4.4 Limitations on Pre-Tax Contributions. . . . . . . . . . . . . 28 4.5 Income Attributable to Excess Contributions . . . . . . . . . 31 4.6 Limitations on Matching Contributions . . . . . . . . . . . . 32 4.7 Income Attributable to Excess Aggregate Contributions . . . . 35 4.8 Requirements for Qualified Non-Elective Contributions and Qualified Matching Contributions. . . . . . . . . . . . . . . .35 4.9 Rollovers . . . . . . . . . . . . . . . . . . . . . . . . . . 36 4.10 Rollovers from the Plan . . . . . . . . . . . . . . . . . . . 36 V: ALLOCATIONS TO PARTICIPANTS' ACCOUNTS . . . . . . . . . . . . . . . 37 5.1 Individual Accounts . . . . . . . . . . . . . . . . . . . . . 37 5.2 Account Adjustments . . . . . . . . . . . . . . . . . . . . . 37 5.3 Maximum Annual Additions. . . . . . . . . . . . . . . . . . . 39 5.4 Defined Contribution and Defined Benefit Plans. . . . . . . . 41 5.5 No Rights Created by Allocation . . . . . . . . . . . . . . . 41 VI: PAYMENT OF BENEFITS. . . . . . . . . . . . . . . . . . . . . . . . 42 6.1 Normal Retirement or Termination. . . . . . . . . . . . . . . 42 6.2 Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 6.3 Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 6.4 Time of Payment of Benefits . . . . . . . . . . . . . . . . . 42 6.5 Mode of Payment of Benefits . . . . . . . . . . . . . . . . . 46 6.6 Designation of Beneficiary. . . . . . . . . . . . . . . . . . 46 6.7 Information Required from Beneficiary . . . . . . . . . . . . 47 6.86.8In-Service Withdrawals . . . . . . . . . . . . . . . . . . . 48 6.9 Loans to Participants . . . . . . . . . . . . . . . . . . . . .51 VII: TRUST FUND. . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 7.1 Exclusive Benefit of Employees and Beneficiaries. . . . . . . 55 7.2 Investment Directions by Participants . . . . . . . . . . . . 55 7.3 Investment of Matching Contributions. . . . . . . . . . . . . .56 VIII: ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . 58 8.1 Duties and Responsibilities of Fiduciaries; Allocation of Responsibility Among Fiduciaries for Plan and Trust Administration. . . . . . . . . . . . . . . . . . . . . . . . 58 8.2 Allocation of Duties and Responsibilities . . . . . . . . . . 59 8.3 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 59 8.4 Claims Procedure. . . . . . . . . . . . . . . . . . . . . . . 59 8.5 Records and Reports . . . . . . . . . . . . . . . . . . . . . 61 8.6 Other Powers and Duties . . . . . . . . . . . . . . . . . . . 62 8.7 Rules and Decisions . . . . . . . . . . . . . . . . . . . . . 63 8.8 Authorization of Benefit Payments . . . . . . . . . . . . . . 63 8.9 Application and Forms for Benefits. . . . . . . . . . . . . . 63 8.10 Facility of Payment . . . . . . . . . . . . . . . . . . . . . 63 8.11 Investment Policies . . . . . . . . . . . . . . . . . . . . . 64 8.12 Indemnification . . . . . . . . . . . . . . . . . . . . . . . .65 8.13 Resignation or Removal of the Committee . . . . . . . . . . . .66 IX: MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . 67 9.1 Nonguarantee of Employment. . . . . . . . . . . . . . . . . . 67 9.2 Rights to Trust Assets. . . . . . . . . . . . . . . . . . . . 67 9.3 Nonalienation of Benefits . . . . . . . . . . . . . . . . . . 67 9.4 Discontinuance of Employer Contributions. . . . . . . . . . . 68 X: AMENDMENTS AND ACTION BY EMPLOYER . . . . . . . . . . . . . . . . . 69 10.1 Amendments Generally. . . . . . . . . . . . . . . . . . . . . 69 10.2 Amendments to Vesting Schedule. . . . . . . . . . . . . . . . 69 10.3 Action by Company . . . . . . . . . . . . . . . . . . . . . . 70 XI: SUCCESSOR EMPLOYER AND MERGER OR CONSOLIDATION OF PLANS . . . . . . 71 11.1 Successor Employer. . . . . . . . . . . . . . . . . . . . . . 71 11.2 Plan Assets . . . . . . . . . . . . . . . . . . . . . . . . . 71 XII: PLAN TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . 72 12.1 Right to Terminate. . . . . . . . . . . . . . . . . . . . . . 72 12.2 Liquidation of the Trust Fund . . . . . . . . . . . . . . . . 72 12.3 Manner of Distribution. . . . . . . . . . . . . . . . . . . . 72 XIII: DETERMINATION OF TOP-HEAVY STATUS. . . . . . . . . . . . . . . . 73 13.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 13.2 Top-Heavy Plan. . . . . . . . . . . . . . . . . . . . . . . . 73 13.3 Super Top-Heavy Plan. . . . . . . . . . . . . . . . . . . . . 73 13.4 Cumulative Accrued Benefits and Cumulative Accounts . . . . . 74 13.5 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 74 13.6 Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 13.7 Minimum Contributions . . . . . . . . . . . . . . . . . . . . 75 13.8 Defined Benefit and Defined Contribution Plan Fractions . . . 76 APPENDIX A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 SAVINGS PLAN I: INTRODUCTION The Pep Boys Savings Plan was established by The Pep Boys - Manny, Moe & Jack, a Pennsylvania corporation, effective September 1, 1987, for the benefit of certain of its salaried and hourly employees and certain of its Affiliates, and their beneficiaries. It is to be maintained according to the terms of this instrument. The Committee has the authority to manage the administration of this Plan. The assets of this Plan are held in trust by the Trustee in accordance with the terms of the Trust Agreement, which is considered to be an integral part of this Plan. Except as may be provided in the Trust Agreement, the Trustee has the exclusive authority to manage and control the assets of this Plan. The Plan is intended to be a discretionary contribution plan as defined in Section 401(a)(17) of the Code. The Plan is hereby amended effective January 1, 1989 to reflect various provisions of the Tax Reform Act of 1986, as amended, and other legislation (or such earlier date as required by law). The effective date of any other changes to the Plan shall be as noted herein. II: DEFINITIONS AND CONSTRUCTION 2.1 DEFINITIONS. The following words and phrases, when used in this Plan, shall have the following meanings: ACCOUNTS means a Participant's Pre-Tax Contribution Account, Matching Contribution Account, Discretionary QNEC Account and Rollover Account. AFFILIATE means any employer which has not adopted this Plan and is not a Participating Employer, but which is included as a member with the Employer in a controlled group of corporations, or which is a trade or business (whether or not incorporated) included with the Employer in a brother-sister group or combined group of trades or businesses under common control or which is a member of an affiliated service group in which the Employer is a member, determined in each instance in accordance with the appropriate Sections of the Code. ANNUAL ADDITIONS means, with respect to each Limitation Year, commencing after December 31, 1988, the total of the Employer contributions and forfeitures allocated to a Participant's Accounts pursuant to the provisions of this Plan, plus the total of any Participant contributions for such Limitation Year, plus amounts described in sections 415(l)(1) and 419A(d)(2) of the Code, if any. The Annual Additions for any Limitation Year beginning before January 1, 1987 shall include the total of Employer contributions and forfeitures allocated to a Participant's Accounts plus the lesser of one-half of the Participant's Contributions or the amount of the Participant's contributions in excess of six percent of his Compensation for such Limitation Year. Annual Additions also shall include any additions to the account of a Participant under any other qualified defined contribution plan maintained by the Employer or an Affiliate. For purposes of determining Annual Additions, Compensation for any Limitation Year shall mean the Compensation paid to a Participant by the Employer and any Affiliate and shall include a Participant's earned income, wages, salaries, and fees for professional services and other amounts received for personal services actually rendered in the course of employment with the Employer or Affiliate (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips and bonuses), and excluding the following: (1) Employer or Affiliate contributions to a plan of deferred compensation which are not includable in the Employee's gross income for the taxable year in which contributed, or Employer or Affiliate contributions which are deductible by the Employee, or any distribution from a plan of deferred compensation; (2) Amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by the Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (3) Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (4) Other amounts which receive special tax benefits or contributions made by the Employer or an Affiliate (whether or not under a salary reduction agreement) towards the purchase of an annuity described in Section 403(b) of the Code (whether or not the amounts are actually excludable from the gross income of the Employee). BENEFICIARY means a person or persons (natural or otherwise) designated by a Participant in accordance with the provisions of Section 6.6 to receive any death benefit which shall be payable under this Plan. BOARD OF DIRECTORS means the Board of Directors of The Pep Boys - Manny, Moe & Jack. CALENDAR QUARTER means the three consecutive month periods beginning each January 1, April 1, July 1 and October 1. CODE means the Internal Revenue Code of 1986, as it may be amended, and includes any regulations issued thereunder. COMMITTEE means the individuals appointed under Section 8.1 to administer the Plan. COMPANY means The Pep Boys - Manny, Moe & Jack, a corporation organized and existing under the laws of Pennsylvania, or its predecessor company, its successor or successors which elect to continue this Plan. COMPANY STOCK means the Company's Common Stock, par value of $1.00 per share. COMPENSATION means the total of all remuneration paid during a Plan Year to a Participant by the Employer for personal services, including overtime pay, bonuses and commissions, as reported to a Participant on Box 1 of Form W-2 (Box 10 prior to 1993) and unless specifically excluded hereunder, Pre-Tax Contributions, if any, authorized by a Participant under this Plan, but excluding reimbursement for business, travel or entertainment expenses incurred by the Participant and not reported to the Internal Revenue Service as wages and excluding the amount of any fringe benefits reported to the Internal Revenue Service as wages. A Participant's Compensation for any Plan Year beginning prior to January 1, 1994, in excess of $200,000 (as adjusted each Plan Year by the Secretary) shall not be taken into account for any purposes under the Plan, as required under Section 401(a)(17) of the Code. Effective January 1, 1994, Compensation for any Plan Year shall not exceed $150,000 (such amount to be indexed each year by the Secretary). For purposes of the preceding two sentences, a Participant who has Compensation in excess of $200,000 or $150,000, respectively (in each case as adjusted by the Secretary) may continue to participate under the terms of the Plan and have such excess compensation taken into account as long as the aggregate amount of Compensation taken into account under the terms of the Plan for any Plan Year does not exceed $200,000 or $150,000 (in each case as adjusted by the Secretary) as applicable. Notwithstanding any provision in this Plan to the contrary, for purposes of determining Pre-Tax Contributions and Matching Contributions for a Participant, Compensation shall include such individual's Compensation beginning with the first payroll period following satisfaction of the service requirements of Section 3.1; or the date the Participant elects to authorize Pre-Tax Contributions to the Plan, if later. In determining the Compensation of an Eligible Participant who is a five percent owner or Highly Compensated Eligible Participant in the group consisting of the ten Highly Compensated Employees paid the greatest Compensation during the Plan Year, (the "limited individuals"), then with respect to any individuals in such Eligible Participant's family, (i) such individual shall not be considered to be a separate Eligible Participant, and (ii) any Compensation paid to such individual (and any applicable contribution or benefit on behalf of such individual) shall be treated as if it were paid to (or on behalf of) the five percent owner or Highly Compensated Eligible Participant. The term "family" shall include only the spouse of the Eligible Participant and any lineal descendants of the Eligible Participant who have not attained age 19 before the last day of the Plan Year. The term "family unit" shall include the limited individuals and family. The $200,000 limitation and $150,000 limitation, as adjusted above, shall be allocated among the members of the family unit in proportion to each member's Compensation for the Plan Year. For purposes of Sections 4.4 and 4.6, Compensation shall mean any definition of compensation permissible under Section 414(s) of the Code and regulations thereunder for such period as is determined by the Committee in its sole discretion. DIRECT ROLLOVER means a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. DISABILITY means a medically determinable physical or mental impairment of a permanent nature which prevents a Participant from performing his customary employment duties without endangering his health and which would qualify the Participant for a Disability retirement benefit from the Company's Pension Plan. DISCRETIONARY QNECs means the discretionary qualified nonelective contributions made by the Employer on a Participant's behalf pursuant to Section 4.1(d). DISCRETIONARY QNEC ACCOUNT means the account maintained for a Participant to record his share of Discretionary QNECs under Section 5.2(b)(iii) and adjustments relating thereto. DISTRIBUTEE means a Participant or Former Participant. In addition, the Participant's or Former Participant's Spouse or former Spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are Distributees with regard to the interest of the Spouse or former Spouse. EARLY RETIREMENT DATE means separation from service with the Employer and any Affiliate on or after attainment of age 55 and completion of five years of credited service, as defined in the Company's Pension Plan. EFFECTIVE DATE means September 1, 1987, which is the date on which the provisions of this Plan became effective. ELIGIBLE EMPLOYEE means an individual who is employed by the Employer, and with respect to whom the Employer is required to withhold taxes from remuneration paid to him by the Employer for personal services rendered to the Employer, including any officer or director who shall so qualify. A Leased Employee shall not be deemed to be an Eligible Employee. Any Employee whose terms of employment are covered by a collective bargaining agreement that does not provide for participation in the Plan, shall not be deemed to be an Eligible Employee. The Eligible Employees of Participating Employers, if any, are set forth in Exhibit A, attached hereto. ELIGIBLE PARTICIPANT means as of each Entry Date, for purposes of Sections 4.4 and 4.5, each Eligible Employee who has met the requirements for participation in the Plan regardless of whether he has authorized the Employer to make Pre-Tax Contributions on his behalf to the Plan. For purposes of Section 4.6 and 4.7, Eligible Participant means each Eligible Employee who has met the requirements for participation in the Plan regardless of whether he has authorized the Employer to make Pre-Tax Contributions on his behalf to the Plan and who is otherwise eligible to receive a Matching Contribution in accordance with Section 4.1(c). ELIGIBLE RETIREMENT PLAN means: (i) an individual retirement account described in Section 408(a) of the Code; (ii) an individual retirement annuity described in Section 408(b) of the Code; (iii) an annuity plan described in Section 403(a) of the Code; or (iv) a qualified trust described in Section 401(a) of the Code, that accepts the Distributee's Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving Spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. ELIGIBLE ROLLOVER Distribution means any distribution of all or any portion of the balance to the credit of the Distributee, but does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated Beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities) and any other distribution that does not qualify as an Eligible Rollover Distribution as defined in Section 401(a)(31)(C) of the Code. An Eligible Rollover Distribution shall include an unpaid loan that is offset against a Participant's total Account balance when he receives a distribution at Termination of employment in accordance with Section 6.9(h) of the Plan. EMPLOYEE means any individual employed by the Employer as a common law employee. A Leased Employee shall be deemed to be an Employee. EMPLOYER means the Company and any Participating Employer, which with the approval of the Board of Directors, has adopted this Plan. The Participating Employers are listed on Appendix A. ENTRY DATE means the first day of each Calendar Quarter. Prior to January 1, 1993, the Entry Date was January 1 and July 1 of each Plan Year. ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any regulations promulgated thereunder. EXCESS AGGREGATE CONTRIBUTIONS means with respect to each Plan Year, the amount determined for Highly Compensated Eligible Participants under the procedure set forth in Proposed Treas. Reg. 1.401(m)-1(e)(2) or any successor thereto. EXCESS CONTRIBUTIONS means with respect to each Plan Year, the amount determined for Highly Compensated Eligible Participants under the procedure set forth in Treas. Reg. 1.401(k)-1(f)(2) or any successor thereto. FAMILY MEMBER means the spouse and lineal ascendants or descendants (and their spouses) of a Highly Compensated Eligible Participant. FIDUCIARY means the Employer, the Board of Directors, the Committee or the Trustee, but only with respect to the specific responsibilities of each with respect to Plan and Trust administration. FORMER PARTICIPANT means any former Employee who has credits in his Accounts as of the close of any Plan Year. HIGHLY COMPENSATED ELIGIBLE PARTICIPANT means those Eligible Participants who are Highly Compensated Employees. HIGHLY COMPENSATED EMPLOYEE means: (a) Employees who were five percent owners, as defined in Section 416(i)(1)(iii) of the Code, at any time during the determination year or the look-back year; (b) Employees with compensation greater than $75,000 (as adjusted at the same time and in the same manner as Section 415(d) of the Code) during the look-back year; (c) Employees with compensation greater than $50,000 (as adjusted at the same time and in the same manner as Section 415(d) of the Code) during the look-back year and who are in the top-paid group for the look-back year; (d) Employees who are officers during the look-back year and who have compensation in the look-back year greater than 150% of the contribution limit in Section 415(c) of the Code; (e) Employees who are both described in paragraph (b), (c), or (d) above when these paragraphs are modified to substitute the determination year for the look-back year and one of the 100 Employees who receive the highest compensation from the Employer during the determination year. (1) The top-paid group shall consist of the top 20% of active Employees, ranked on the basis of compensation received from the Employer during the year excluding Employees with less than 6 months of service, part-time Employees (less than 17-1/2 hours per week or less than 6 months a year) Employees who are not yet age 21, and nonresident aliens. These Employees shall not be excluded for purposes of identifying the particular Employees in the top-paid group. If the Plan being tested covers only non-collective bargaining Employees, and collective bargaining Employees constitute 90 percent or more of the Employer's Employees, then such collective bargaining Employees shall be excluded both from the total number of active Employees and the identification of particular Employees in the top-paid group. The top-paid group shall not include Employees who perform no service during the year. (2) For purposes of determining whether an Employee is highly compensated, the determination year is the Plan Year for which the determination is being made. The look-back year is the twelve month period preceding the determination year. The Committee shall have the authority to change the look-back year to be the calendar year ending with or within the current Plan Year. If the Committee makes this election, it shall apply to all plans of the Employer and Affiliates. (3) Also, for this purpose, the term "Employee" shall include Leased Employees unless such Employees are covered under a safe- harbor plan of the leasing organization and not covered under a qualified plan of the employer. (4) The number of officers shall be limited to the lesser of (a) 50, or (b) the greater of 3 individuals or 10 percent of all Employees. If the Employer does not have at least one officer whose compensation is in excess of 150% of the limit in Section 415(c) of the Code, then the highest paid officer of the Employer shall be treated as a Highly Compensated Employee. (5) For purposes of defining Highly Compensated Employees, compensation means compensation as defined in Section 415(c)(3) of the Code, including elective contributions. The dollar limits are those for the calendar year in which the determination or look-back year begins. (6) The Plan shall take into account employees of all employers aggregated under Sections 414(b), (c), (m) and (o) of the Code, in determining who is highly compensated. Notwithstanding the foregoing, the Employer, by action of the Committee, may elect for any Plan Year, to define Highly Compensated Employee by substituting $50,000 for $75,000 in Section 414(q)(1)(B) of the Code and by disregarding Section 414(q)(1)(C) of the Code. HOURS OF SERVICE means: (a) PERFORMANCE OF DUTIES. The actual hours for which an Employee is paid or entitled to be paid for the performance of duties by the Employer; (b) NONWORKING PAID TIME. Each hour for which an Employee is paid or entitled to be paid by the Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity, disability, layoff, jury duty, military duty or leave of absence; provided, however, no more than 501 Hours of Service shall be credited to an Employee on account of any single continuous period during which he performed no duties; and provided further that no credit shall be given for payments made or due under a plan maintained solely for the purpose of complying with applicable workmen's or unemployment compensation or disability insurance laws or for payments which solely reimburse an Employee for medical or medically related expenses incurred by the Employee; and (c) MATERNITY AND PATERNITY LEAVE. Solely for purposes of determining whether a One-Year Break in Service has occurred for vesting purposes, each Hour for which an Employee is absent from employment by reason of (1) pregnancy of the Employee, (2) birth of a child of the Employee, (3) placement of a child in connection with the adoption of the child by an individual or (4) caring for the child during the period immediately following the birth or placement for adoption. During the period of absence, the Employee shall be credited with the number of Hours that would be generally credited but for such absence or if the general number of work hours is unknown, eight Hours of Service for each normal workday during the leave (whether or not approved). These Hours shall be credited to the computation period in which the leave or absence commences if crediting of such Hours is required to prevent the occurrence of a One-Year Break in Service in such computation period, and in other cases in the immediately following computation period. The computation period shall be the Plan Year. No more than 501 Hours of Service shall be credited under this paragraph for any single continuous period (whether or not such period occurs in a single computation period). Hours of Service credited under this subsection (c) shall not be credited for purposes of sharing in Employer contributions pursuant to Section 5.2(b); (d) BACK PAY. Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer; provided, however, Hours of Service credited under paragraphs (a), (b) and (c) above shall not be recredited by operation of this paragraph; (e) EQUIVALENCIES. With respect to full-time Employees only, the Committee has adopted the following equivalency method for counting Hours of Service that are permissible under regulations issued by the Department of Labor: (1) 45 Hours of Service for each week in which an Employee is credited with at least one Hour of Service. Actual Hours shall be counted for those Employees who are not employed on a full time basis. The adoption of any equivalency method for counting Hours of Service shall be evidenced by a certified resolution of the Committee, which shall be attached to and made part of the Plan. Such resolution shall indicate the date from which such equivalency shall be effective; and (f) MISCELLANEOUS. Unless the Committee directs otherwise, the methods of determining Hours of Service when payments are made for other than the performance of duties and of crediting such Hours of Service to Plan Years set forth in Regulations 2530.200b-2(b) and (c) promulgated by the Secretary of Labor shall be used hereunder and are incorporated by reference into the Plan. Participants on military leaves of absence who are not directly or indirectly compensated or entitled to be compensated by the Employer while on such leave shall be credited with Hours of Service as required by Section 9 of the Military Selective Service Act. Notwithstanding any other provision of this Plan to the contrary, an Employee shall not be credited with Hours of Service more than once with respect to the same period of time. INCOME means the net gain or loss of the Trust Fund from investments, as reflected by interest payments, dividends, realized and unrealized gains and losses on securities, other investment transactions and expenses paid from the Trust Fund. In determining the Income of the Trust Fund for any period, assets shall be valued on the basis of their fair market value. INVESTMENT MANAGER means an investment adviser, bank or insurance company, meeting the requirements of Section 3(38) of ERISA appointed by the Company to manage the Plan's assets in accordance with the Trust Agreement. LEASED EMPLOYEE means any person who is not a common law employee of the Employer and who provides services to the Employer if: (a) such services are provided pursuant to an agreement between the Employer and any leasing organization; (b) such person has performed such services for the Employer (or for the Employer and Affiliates) on a substantially full-time basis for a period of at least one year; and (c) such services are of a type historically performed in the business field of the Employer by Employees. Notwithstanding the foregoing, a person shall not be deemed to be a Leased Employee if he is covered by a plan maintained by the leasing organization and Leased Employees (as determined without regard to this paragraph) do not comprise more than 20% of the Employer's nonhighly compensated workforce. Such plan must be a tax-qualified money purchase pension plan providing for nonintegrated employer contributions of ten percent of compensation and also providing for immediate participation and vesting. LIMITATION YEAR means the Plan Year. MATCHING CONTRIBUTIONS means the contributions made by the Employer pursuant to Section 4.1(c). MATCHING CONTRIBUTION ACCOUNT means the account maintained for a Participant to record his share of Matching Contributions under Section 5.2(b)(ii) and adjustments relating thereto. NORMAL REGIREMENT DATE means the date on which a Participant attains age 65. ONE-YEAR BREAK IN SERVICE OR BREAK IN SERVICE means a Plan Year after the Effective Date during which an Employee has not completed more than 500 Hours of Service with the Employer due to a Termination of employment. PARTICIPANT means an Eligible Employee participating in the Plan in accordance with the provisions of Section 3.2. PARTICIPATING EMPLOYER means any direct or indirect subsidiary of the Company or any other entity designated by the Board of Directors, which has adopted this Plan with the approval of the Employer. PLAN means the Pep Boys Savings Plan, as amended from time to time. PLAN YEAR means the 12 consecutive month period commencing January 1 and ending December 31; provided that the first Plan Year shall be a short Plan Year from September 1, 1987 through December 31, 1987. PRE-TAX CONTRIBUTIONS means the contributions made by the Employer on a Participant's behalf pursuant to Section 4.1(a). PRE-TAX CONTRIBUTION ACCOUNT means the account maintained for a Participant to record his share of Pre-Tax Contributions under Section 5.2(b)(i) and adjustments relating thereto. RETIREMENT means Termination of employment with the Employer at or after Normal Retirement Date. ROLLOVER ACCOUNT means the account maintained for a Participant to record the amount of contributions he has rolled over to the Plan pursuant to Section 4.9 and adjustments relating thereto. SPOUSE (SURVIVING SPOUSE) means the spouse or surviving spouse of the Participant or Former Participant; provided that a former spouse will be treated as the spouse or surviving spouse to the extent provided under a qualified domestic relations order as described in section 414(p) of the Code. TERMINATED OR TERMINATION means a termination of employment with the Employer or with an Affiliate for any reason other than a transfer of employment from the Employer to an Affiliate or from an Affiliate to another Affiliate. TRUST (OR TRUST FUND) means the fund known as the "Pep Boys Savings Plan Trust," maintained by the Trustee in accordance with the terms of the Trust Agreement, as amended from time to time, which constitutes a part of this Plan. TRUSTEE or TRUSTEES means any corporation or individuals appointed by the Board of Directors of the Company to administer the Trust. VALUATION DATE means, effective July 1, 1993, the last business day of each month. Prior to July 1, 1993, Valuation Date means the last business day of each Calendar Quarter or more frequently as the Trustee shall determine. YEAR OF ELIGIBILITY SERVICE means a 12 consecutive month period beginning on the later of (i) the date employment commences; or (ii) the date the collective bargaining agreement that covers the Eligible Employee, if applicable, provides for participation in the Plan; (the "initial eligibility computation period") in which an Eligible Employee is credited with at least 1,000 Hours of Service. If an Eligible Employee is not credited with 1,000 Hours of Service in the initial eligibility computation period, then the eligibility computation period shall be the Plan Year, beginning with the Plan Year that includes the first anniversary of the Eligible Employee's initial eligibility computation period. 2.2 CONSTRUCTION. The masculine gender, where appearing in the Plan, shall be deemed to include the feminine gender, unless the context clearly indicates to the contrary. III: PARTICIPATION AND SERVICE 3.1 ELIGIBILITY TO PARTICIPATE. Any Eligible Employee who was employed by the Employer on December 31, 1988 shall continue as a Participant as of January 1, 1989. Each other Eligible Employee shall be eligible to become a Participant as of the date on which he attains age 21 and is credited with a Year of Eligibility Service. 3.2 COMMENCEMENT OF PARTICIPATION. Each Eligible Employee who has satisfied the requirements of Section 3.1 shall commence participation in the Plan on the Entry Date coincident with or next following the date he satisfies such requirement. Each Eligible Employee who is eligible for participation in the Plan shall become a Participant by filing the appropriate forms with the Committee, and shall supply such information as is reasonably necessary for the administration of this Plan. 3.3 CESSATION OF PARTICIPATION. An Eligible Employee shall cease to be a Participant upon the earliest of: (i) the date on which he retires under the Retirement provisions of the Plan; (ii) the date on which his employment with the Employer terminates for any reason, including death or Disability; or (iii) the date on which he ceases to be an Eligible Employee. 3.4 SPEICAL RULES FOR ELIGIBILITY PURPOSES. For purposes of determining an Employee's eligibility to participate in the Plan, Hours of Service shall include an Employee's Hours of Service (i) with an Affiliate after it became an Affiliate hereunder; or (ii) or while an Employee, but not an Eligible Employee, of the Employer or an Affiliate, after it became an Affiliate hereunder. 3.5 PARTICIPATION AND SERVICE UPON REEMPLOYMENT. Upon the reemployment of any person after the Effective Date who had previously been employed by the Employer on or after the Effective Date, the following rules shall apply in determining his participation in the Plan and his Years of Service under Section 3.4. If the reemployed Employee was not a Participant in the Plan during his prior period of employment, he must meet the requirements of Section 3.1 for participation in the Plan as if he were a new Employee. Any Years of Eligibility Service in which he was credited with 1,000 Hours of Service during his prior period of employment shall be reinstated upon his reemployment. If the reemployed Employee was a Participant during his prior period of employment, he shall resume participation in the Plan as soon as administratively practicable following his reemployment by the Employer. 3.6 TRANSFERS TO AFFILIATES AND CHANGE IN STATUS. A Participant's status as such under the Plan shall be modified upon and after the date as of which a Participant (i) is transferred to an Affiliate; (ii) becomes a Leased Employee; (iii) becomes an Employee whose terms of employment are covered by a collective bargaining agreement that does not provide for participation in this Plan; or (iv) ceases for any other reason to be an Eligible Employee while still employed by the Employer. The Participant shall share in Employer contributions only to the extent of his Compensation up to the time such transfer or change in status occurs and shall not thereafter, unless he later is transferred back to the Employer or again becomes an Eligible Employee and becomes eligible under the terms of the Plan to share in such allocations. He, however, shall share in Income allocations pursuant to Section 5.2(a). 3.7 TRANSFERS FROM AFFILIATES AND CHANGE IN STATUS. Any Employee who transfers to the Employer from an Affiliate or who becomes an Eligible Employee eligible for participation in the Plan, shall be eligible to participate in the Plan on the later of the first Entry Date coincident with or next following his satisfaction of the eligibility requirements of Section 3.1 or the first Entry Date coincident with or next following his change in status. The Participant shall share in Employer contributions only to the extent of his Compensation after such transfer or change in status occurs if he becomes an Eligible Employee and becomes eligible under the terms of the Plan to share in such allocations. IV: EMPLOYER CONTRIBUTIONS 4.1 EMPLOYER CONTRIBUTIONS. (a) PRE-TAX CONTRIBUTIONS. (i) Subject to the limitations of Sections 4.4 and 5.3, each Participant shall have the option to authorize the Employer, in writing and in accordance with procedures established by the Committee, to contribute to the Plan for a Plan Year on his behalf, an amount equal to any whole percentage of his Compensation from one percent (1%) up to twelve percent (12%) (as determined without regard to this Section 4.1(a)) for such Plan Year. Such authorization shall be in the form of an election by the Participant to have his Compensation reduced by payroll withholding. Payroll deduction shall commence as soon as practicable following the Entry Date on which an Eligible Employee becomes a Participant or elects to make Pre-Tax Contributions to the Plan. Such withheld amounts are to be transmitted by the Employer to the Trustee as of the earliest date on which such amounts can reasonably be segregated from the Employer's general assets. The amount of such contributions, together with contributions under Sections 4.1(c) and (d), shall not exceed the maximum amount allowable as a deduction under the Code for the Plan Year. (ii) Notwithstanding the foregoing, the Participant shall be prohibited from authorizing any Pre-Tax Contributions to be made on his behalf under this Plan and elective contributions under any other plan, in excess of the applicable limit under Section 402(g) of the Code in effect for the Plan Year to which such Pre-Tax Contributions relate. In the event a Participant has made excess deferrals under the Plan (or, if not, has determined that excess deferrals will be considered to exist under this Plan), then not later than the first day of April following the close of the Participant's taxable year, the Participant may notify the Plan of the amount of the excess deferrals hereunder. The Participant shall be deemed to have notified the Plan of excess deferrals to the extent he has excess deferrals for the taxable year calculated by taking into account only elective deferrals under the Plan and other plans of the Employer or Affiliate. The Employer may notify the Plan on behalf of the Participant under these circumstances. Not later than the first April 15 following the close of the taxable year, the Plan shall distribute to the Participant the amount designated above, including any Income allocated thereto. The Income attributable to a Participant's excess deferral pursuant to this Section 4.1(a)(ii) for the Plan Year during which such excess deferral arose shall be determined in accordance with Treas. Reg. 1.402(g)-1(e)(5)(ii). Unless provided for by the Committee, any Income attributable to a Participant's excess deferrals for the period between the end of the Plan Year and the date of distribution shall be disregarded. Excess deferrals to be distributed for a Plan Year shall be reduced by Excess Contributions previously distributed for the Plan Year beginning in such taxable year as set forth in Section 4.4. A Participant who has excess deferrals for a taxable year may receive a corrective distribution of excess deferrals during the same year. This corrective distribution shall be made only if: (A) The Participant designates the distribution as an excess deferral. The Participant shall be deemed to have designated the distribution to the extent the Participant has excess deferrals for the taxable year calculated by taking into account only elective deferrals under the Plan and other plans of the Employer and Affiliate. The Employer may make the designation on behalf of the individual under these circumstances. (B) The correcting distribution is made after the date on which the Plan received the excess deferral. (C) The Plan designates the distribution as a distribution of excess deferrals. The term "excess deferrals" means the excess of an individual's elective deferrals for any taxable year, as defined in 1.402(g)-1(b), over the applicable limit under Section 402(g)(1) for the taxable year. Notwithstanding the foregoing, the Committee may further limit a Participant's right to make Pre-Tax Contributions to the Plan if in the sole judgment and discretion of the Committee, such limits are necessary to ensure the Plan's compliance with the requirements of Sections 401(k) and (m) of the Code. (b) CHANGE IN AMOUNT OF PRE-TAX CONTRIBUTIONS. Effective as of any Entry Date, upon written notice to the Committee to be effective as of the full payroll period following the processing of such notice, each Participant shall have the option to change the amount of Pre-Tax Contributions he has authorized the Employer to contribute to the Plan on his behalf pursuant to Section 4.1(a) in accordance with rules established therefore by the Committee. Notwithstanding the foregoing, a Participant may authorize the Employer to cease making Pre-Tax Contributions on his behalf at any time, effective as of the next full payroll period following the processing of written notice to the Committee. A Participant who has ceased making Pre-Tax Contributions may again authorize Pre-Tax Contributions to be made to the Plan on his behalf as of any Entry Date upon written notice to the Committee, to be effective as of the next full payroll following the processing of such notice. Prior to January 1, 1993, all changes to Pre-Tax Contribution elections (other than a voluntary suspension of Pre-Tax Contributions) were effective as of any January 1 or July 1. (c) MATCHING CONTRIBUTIONS. Subject to the limitations of Sections 4.4 and 5.3, the Employer shall contribute for each Plan Year, an amount, if any, to be determined by the Board of Directors. Unless and until changed by the Board of Directors, such amount shall be as follows: The lesser of (i) 50% of the Participant's Pre-Tax Contributions for each Calendar Quarter in which he contributed; and (ii) three percent (3%) of the Participant's Compensation for the Calendar Quarter. In order to share in the allocation of the Employer's Matching Contribution, a Participant must be employed by the Employer on the last day of the Plan Year or have Terminated employment during the Plan Year due to Normal Retirement, Early Retirement or Disability prior to the last day of the Plan Year. The Matching Contribution shall be made once each Plan Year, but based on the Pre-Tax Contributions that are made in each Calendar Quarter by those Participants eligible to share in the allocation of the Matching Contribution. The amount of such contributions shall not exceed the maximum amount allowable as a deduction under the Code for such Plan Year and shall be subject to the limitations of Section 5.3. (d) DISCRETIONARY QNECs. Subject to the limitations of Sections 4.4 and 5.3, the Employer shall contribute for each Plan Year an amount, if any, as determined by the Board of Directors on behalf of some or all Participants who are not Highly Compensated Eligible Participants. The amount of such contribution, together with contributions under Sections 4.1(a) and (c), shall not exceed the maximum amount allowable as a deduction under the Code for such Plan Year. It is intended that this contribution shall constitute a qualified nonelective contribution within the meaning of Treas. Reg. 1.401(k)-1(g)(13)(ii) or any successor thereto. 4.2 TIME AND MANNER OF CONTRIBUTION. All Employer contributions shall be paid directly to the Trustee, and except as provided in Section 4.1(a), a contribution for any Plan Year shall be made not later than the date prescribed by law for filing the Employer's federal income tax return, including extensions, for such Plan Year. 4.3 CONDITIONS ON EMPLOYER CONTRIBUTIONS. To the extent permitted or required by ERISA and the Code, contributions under this Plan are subject to the following conditions: (a) If the Employer makes a contribution, or any part thereof, by mistake of fact, such contribution or part thereof shall be returned to the Employer within one year after such contribution is made; (b) Contributions to the Trust Fund are specifically conditioned on the qualification of the Plan under the Code; in the event the Plan is determined to be disqualified, contributions made in respect of any period subsequent to the effective date of such disqualification shall be returned to the Employer within one year after the effective date of disqualification; (c) Contributions to the Plan are specifically conditioned upon their deductibility under the Code; to the extent a deduction is disallowed for any such contribution, such amount shall be returned to the Employer within one year after the disallowance of the deduction; and (d) The amount of any Employer contribution shall be subject to the limitations prescribed in Section 5.3. 4.4 LIMITATIONS ON PRE-TAX CONTRIBUTIONS. The amount of Pre-Tax Contributions made in each Plan Year on behalf of all Eligible Participants under the Plan shall comply with either (i), (ii) and (iii), if applicable, below. (i) The average deferral percentage for the Highly Compensated Eligible Participants shall not exceed the average deferral percentage for all other Eligible Participants multiplied by 125%; or (ii) The average deferral percentage for Highly Compensated Eligible Participants shall not be greater than the average deferral percentage of all other Eligible Participants multiplied by 200% and the excess of the average deferral percentage for Highly Compensated Eligible Participants over all other Eligible Participants shall not exceed two percentage points. Compliance with (i) and (ii) above, shall be determined in accordance with the rules set forth in Section 401(k)(3) of the Code, Treas. Reg. 1.401(k)-1(b), or any successors thereto. (iii) Notwithstanding the foregoing, if this Section 4.4 and Section 4.6 are both satisfied by use of the limitation set forth in subsection (ii) above, the average deferral percentages for the Highly Compensated Eligible Participants and the average contribution percentages for the Highly Compensated Eligible Participants, as defined in Section 4.6, also must satisfy the aggregate limit test set forth in Treas. Reg. 1.401(m)-2(b)(3). If the Committee determines, in its sole discretion, with respect to any Plan Year, that the Plan will (or may) fail (i), (ii) or (iii) above, the Committee shall take any action, that it deems appropriate, including imposing limitations on Pre-Tax Contributions made by Highly Compensated Eligible Participants, for the Plan to satisfy (i), (ii) or (iii) above. If the amount of Pre-Tax Contributions authorized by Highly Compensated Eligible Participants in a Plan Year would not comply with either (i), (ii) or (iii) above, then by the last day of the following Plan Year, the Excess Contributions for such Plan Year (including any Income attributable to such contributions as determined by the Committee) shall be distributed to Highly Compensated Eligible Participants on the basis of the respective portions of such Excess Contributions attributable to each such Highly Compensated Eligible Participant in accordance with Treas. Reg. 1.401(k)-1(f)(4). If Excess Contributions are distributed to Highly Compensated Eligible Participants, the amount of excess of each Highly Compensated Eligible Participant is the amount by which his Pre-Tax Contributions must be reduced for the Participant's deferral percentage to equal the highest permitted actual deferral percentage under the Plan. To calculate the highest permitted actual deferral percentage under the Plan, the actual deferral percentage of the Highly Compensated Eligible Participant with the highest deferral percentage is reduced by the amount required to cause the Participant's actual deferral percentage to equal the percentage of the Highly Compensated Eligible Participant with the next highest actual deferral percentage. If a lesser reduction would enable the arrangement to satisfy the actual deferral percentage test, only such lesser reduction need be made. This process shall be repeated until the requirements set forth above are met. The highest deferral percentage remaining under the Plan after leveling is the highest permitted actual deferral percentage. In no event shall the amount of Excess Contributions to be distributed for a Plan Year with respect to any Highly Compensated Eligible Participant exceed the amount of Pre-Tax Contributions made on behalf of the Highly Compensated Eligible Participant for the Plan Year. The Compensation and Pre-Tax Contributions of Highly Compensated Eligible Participants who are either five percent owners or among the ten most Highly Compensated Employees includes the Compensation and Pre-Tax Contributions of their Family Members. When family aggregation shall be required, the family group shall be treated as one Highly Compensated Eligible Participant and the actual contribution percentage for the group shall be determined by combining the Pre-Tax Contributions, amounts treated as Pre-Tax Contributions and Compensation of all the eligible Family Members. If an Employee is required to be aggregated as a Family Member of more than one family group in the Plan, then all Participants who are Family Members of those family groups that include that Employee, are aggregated as one family group. The amount of Excess Contributions for a Highly Compensated Eligible Participant shall be determined by reducing the contribution percentage of the Highly Compensated Eligible Participants who have the highest percentages to the maximum acceptable level. The amount of Excess Contributions to be reduced shall be reduced by excess deferrals, as defined in Section 4.1(a)(ii), previously distributed for the taxable year ending in the same Plan Year. If the Highly Compensated Eligible Participant's deferral percentage was required to be determined by combining the Compensation and Pre-Tax Contributions of all Family Members who are Participants, the Highly Compensated Eligible Participant's percentage shall be reduced as set forth above. Excess Contributions shall be allocated among the eligible Family Members in proportion to the Pre-Tax Contributions of each such Family Member that were combined above. Alternatively, the Committee may take such other actions as may be permissible under the Code to ensure the Plan's compliance with the requirements of Section 401(k) of the Code, including, without limitation the allocation of the Employer's Discretionary QNEC to some or all Eligible Participants who are not Highly Compensated Eligible Participants in accordance with Section 4.1(d). 4.5 INCOME ATTRIBUTABLE TO EXCESS CONTRIBUTIONS. The Income attributable to a Participant's Excess Contributions pursuant to Section 4.4 for the Plan Year during which such Excess Contributions arose shall be determined in accordance with Treas. Reg. 1.401(k)-1(f)(4)(ii). Unless provided for by the Committee, any gain or loss on a Participant's Excess Contributions for the period between the end of the Plan Year and the date of distribution shall be disregarded. 4.6 LIMITATIONS ON MATCHING CONTRIBUTIONS. The amount of Matching Contributions made in each Plan Year on behalf of all Eligible Participants under the Plan shall comply with either (i), (ii) and (iii), if applicable, below. (i) The average contribution percentage for the Highly Compensated Eligible Participants shall not exceed the average contribution percentage for all other Eligible Participants multiplied by 125%; or (ii) The average contribution percentage for Highly Compensated Eligible Participants shall not be greater than the average contribution percentage of all other Eligible Participants multiplied by 200% and the excess of the average contribution percentage for Highly Compensated Eligible Participants over all other Eligible Participants shall not exceed two percentage points. Compliance with (i) and (ii) above, shall be determined in accordance with the rules set forth in Section 401(m)(2) of the Code and Treas. Reg. 1.401(m)-1(b), or any successors thereto. (iii) Notwithstanding the foregoing, if this Section 4.6 and Section 4.4 are both satisfied by use of the limitation set forth in subsection (ii) above, the average contribution percentages for the Highly Compensated Eligible Participants and the average deferral percentages for the Highly Compensated Eligible Participants, as defined in Section 4.4, also must satisfy the aggregate limit test set forth in Treas. Reg. 1.401(m)-2(b)(3). If the Committee determines, in its sole discretion, with respect to any Plan Year, that the Plan will (or may) fail (i), (ii) or (iii) above, the Committee shall take any action that it deems appropriate, for the Plan to satisfy (i), (ii) or (iii) above. If the amount of Matching Contributions made on behalf of Highly Compensated Eligible Participants in a Plan Year would not comply with either (i), (ii) or (iii) above, then by the last day of the following Plan Year, the Committee may determine that the Excess Aggregate Contributions for such Plan Year (including any Income attributable to such contributions, as determined by the Committee) shall be distributed to Highly Compensated Eligible Participants or forfeited on the basis of the respective portions of such Excess Aggregate Contributions attributable to each such Highly Compensated Eligible Participant in accordance with Treas. Reg. 1.401(m)-1(e). If Excess Aggregate Contributions are distributed or forfeited for Highly Compensated Eligible Participants, the amount of excess of each Highly Compensated Eligible Participant is the amount by which his Matching Contributions must be reduced for the Participant's contribution percentage to equal the highest permitted actual contribution percentage under the Plan. To calculate the highest permitted actual contribution percentage under the Plan, the actual contribution percentage of the Highly Compensated Eligible Participant with the highest contribution percentage is reduced by the amount required to cause the Participant's actual contribution percentage to equal the percentage of the Highly Compensated Eligible Participant with the next highest actual contribution percentage. If a lesser reduction would enable the arrangement to satisfy the actual contribution percentage test, only such lesser reduction need be made. This process shall be repeated until the requirements set forth above are met. The highest contribution percentage remaining under the Plan after leveling is the highest permitted actual contribution percentage. In no event shall the amount of Excess Aggregate Contributions to be distributed or forfeited for a Plan Year with respect to any Highly Compensated Eligible Participant exceed the amount of Matching Contributions made on behalf of the Highly Compensated Eligible Participant for the Plan Year. The Compensation and Matching Contributions of Highly Compensated Eligible Participants who are either five percent owners or among the ten most Highly Compensated Employees includes the Compensation and Matching Contributions of their Family Members. When family aggregation shall be required, the family group shall be treated as one Highly Compensated Eligible Participant and the actual contribution percentage for the group shall be determined by combining the Matching Contributions, amounts treated as Matching Contributions and Compensation of all the eligible Family Members. If an Employee is required to be aggregated as a Family Member of more than one family group in the Plan, then all Participants who are Family Members of those family groups that include that Employee, are aggregated as one family group. The amount of Excess Aggregate Contributions for a Highly Compensated Eligible Participant shall be determined by reducing the contribution percentage of the Highly Compensated Eligible Participants who have the highest percentages to the maximum acceptable level. If the Highly Compensated Eligible Participant's contribution percentage was required to be determined by combining the Compensation and Matching Contributions of all Family Members who are Participants, the Highly Compensated Eligible Participant's percentage shall be reduced as set forth above. Excess Aggregate Contributions shall be allocated among the eligible Family Members in proportion to the Matching Contributions of each such Family Member that were combined above. Alternatively, the Committee may take such other actions as may be permissible under the Code to ensure the Plan's compliance with the requirements of Section 401(m) of the Code, including, without limitation the allocation of the Employer's Discretionary QNEC to some or all Eligible Participants who are not Highly Compensated Eligible Participants in accordance with Section 4.1(d). 4.7 INCOME ATTRIBUTABLE TO EXCESS AGGREGATE CONTRIBUTIONS. The Income attributable to a Participant's Excess Aggregate Contributions pursuant to Section 4.6 for the Plan Year during which such Excess Aggregate Contributions arose shall be determined in accordance with Treas. Reg. 1.401(m)-1(e)(3)(ii). Unless provided for by the Committee, any gain or loss on a Participant's Excess Aggregate Contributions for the period between the end of the Plan Year and the date of distribution shall be disregarded. 4.8 REQUIREMENTS FOR QUALIFIED NON-ELECTIVE CONTRIBUTIONS AND QUALIFIED MATCHING CONTRIBUTIONS. Any contributions that are designated as qualified non-elective contributions or as qualified matching contributions shall meet the requirements of Treas. Reg. Sections 1.401(k)-1(b)(5) and 1.401(m)-1(b)(5). In addition, qualified non-elective contributions and qualified matching contributions shall be fully vested at all times. Such contributions shall be distributed from the Plan only in accordance with the events enumerated in the Plan provided however, that in no event shall such amounts be available for hardship withdrawal. 4.9 ROLLOVERS. A Participant or an Eligible Employee, with the prior discretionary approval of the Committee, may transfer, or have transferred to the Trust any property which has been distributed to him whether such amount is (i) transferred directly from the Trust of another plan that is qualified under Section 401(a) of the Code, as an eligible rollover distribution to this Plan; (ii) transferred by the Participant after his receipt of such amount from a plan qualified under Section 401(a) of the Code; or (iii) transferred from a "conduit" Individual Retirement Account established by the Participant upon his receipt of such amount from a plan qualified under Section 401(a) of the Code; provided, however, that such amount qualifies as a rollover amount as defined by the Code at the time of the transfer. The amount of cash or the fair market value of any other property transferred to the Trust pursuant to this Section 4.9 shall be credited to the Participant's Rollover Account as of the Valuation Date next following such transfer to the Trust and shall be nonforfeitable at all times. 4.10 ROLLOVERS FROM THE PLAN. Notwithstanding any provision of the Plan to the contrary, effective January 1, 1993, a Distributee may elect, at the time and in the manner prescribed by the Committee, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan, specified by the Distributee, in a Direct Rollover. Each Eligible Rollover Distribution shall be made payable to the Eligible Retirement Plan and delivered to the Distributee or paid directly to the Eligible Retirement Plan. 4.11 IN WRITING REQUIREMENT. Unless otherwise required by law, a requirement that a transaction under the Plan be "in writing" may, at the discretion of the Committee, be effected through an interactive telephone system or by other types of electronic communications. V: ALLOCATIONS TO PARTICIPANTS' ACCOUNTS 5.1 INDIVIDUAL ACCOUNTS. The Committee shall create and maintain adequate records to disclose the interest in the Trust of each Participant, Former Participant and Beneficiary. Such records shall be in the form of individual Accounts and credits, and charges shall be made to such Accounts in the manner herein described. While such Accounts shall distinguish between Matching Contributions and adjustments thereto and Pre-Tax Contributions and adjustments thereto and Discretionary QNECS and adjustments thereto, there shall be one Account maintained for each Participant reflecting the Matching Contributions, Pre-Tax Contributions and Discretionary QNECs made to the Plan by or on behalf of each Participant. There also shall be maintained one Account for each Participant reflecting his Rollover Account, if any. The maintenance of individual Accounts is for accounting purposes only, and a segregation of the assets of the Trust Fund with respect to each Account shall not be required. 5.2 ACCOUNT ADJUSTMENTS. The Accounts of Participants, Former Participants and Beneficiaries shall be adjusted in accordance with the following: (a) INCOME. The Income of the Trust Fund shall be allocated as of each Valuation Date to the Accounts of Participants, Former Participants and Beneficiaries who have unpaid balances in their Accounts on a Valuation Date in proportion to the balances in such Accounts immediately after the next preceding Valuation Date, but after (i) first reducing each such Account by 100% of any distributions, loans or withdrawals from such Accounts during the interim period; and (ii) increased by fifty percent (50%) of Pre-Tax Contributions, rollover contributions and loan repayments that are made after the last Valuation Date and during the month that includes the subsequent Valuation Date. For purposes of this subsection, to the extent that the Participant has directed the management of his Account(s) pursuant to Section 7.2, or taken a loan from his Account(s) pursuant to Section 6.9, then, to such extent, the Income with respect to his Accounts shall be separately determined by reference to such investments. Otherwise, all valuations hereunder shall be based on the fair market value of the assets in the Trust Fund on the Valuation Date. (b) EMPLOYER CONTRIBUTIONS. The Employer's contribution for each Plan Year shall be allocated among the Pre-Tax Contribution Accounts and Matching Contribution Accounts of those eligible Participants as set forth below: (i) PRE-TAX CONTRIBUTIONS. The Employer's Pre-Tax Contribution for the Plan Year made pursuant to Section 4.1(a) shall be credited directly to the Pre-Tax Contribution Account of each Participant who authorized a Pre-Tax Contribution. (ii) MATCHING CONTRIBUTIONS. The Employer's Matching Contribution for the Plan Year made pursuant to Section 4.1(c) shall be allocated to the Matching Contribution Accounts of those Participants described in Section 4.1(c). (iii) DUSCRETUIBART QNECs. The Employer's Discretionary QNEC for the Plan Year made pursuant to Section 4.1(d), shall be credited directly to the Discretionary QNEC Accounts of some or all Eligible Participants who are not Highly Compensated Eligible Participants as of the last day of the Plan Year and who are designated to receive an allocation of such contribution. (c) DEEMED DATE OF ALLOCATION. All credits or deductions made under this Article to Participants' Accounts shall be deemed to have been made no later than the last day of the Plan Year though actually determined thereafter. 5.3 MAXIMUM ANNUAL ADDITIONS. The maximum Annual Additions that may be contributed or allocated to a Participant's Accounts under the Plan for any Limitation Year shall not exceed the lesser of: (i) the defined contribution dollar limitation, or (ii) 25 percent of the Participant's compensation, within the meaning of Section 415(c)(3) of the Code, for the Limitation Year. The compensation limitation referred to shall not apply to: (i) Any contribution for medical benefits (within the meaning of Section 419A(f)(2) of the Code) after separation from service which is otherwise treated as Annual Additions, or (ii) Any amount otherwise treated as Annual Additions under Section 415(l)(1) of the Code. The defined contribution dollar limitation shall mean $30,000 or, if greater, one-fourth of the defined benefit dollar limitation set forth in Section 415(b)(1) of the Code as in effect for the Limitation Year. If the total Annual Additions on behalf of a Participant for a Limitation Year would exceed the limitations described herein as a result of a reasonable error in determining the amount of Pre-Tax Contributions that a Participant may make to comply with this Section 5.3, or as a result of a reasonable error in estimating a Participant's Compensation for purposes of this Section, such excess Pre-Tax Contributions may be distributed to the Participant to the extent that such distribution would reduce the excess Annual Additions as permitted under Section 415 of the Code. If Pre-Tax Contributions are distributed, then such amounts shall be disregarded under Section 4.4, 4.5, 4.6 and 4.7 and for purposes of the limitations of Section 402(g) of the Code. If the total Annual Additions on behalf of a Participant for a Limitation Year would exceed the limitations described herein as a result of the allocation of forfeitures, a reasonable error in estimating a Participant's annual compensation, the excess amounts in the Participant's Accounts shall be allocated and reallocated to other Participants in the Plan. However, if the allocation or reallocation of the excess amounts pursuant to the provisions of the Plan causes the limitations of Section 415 to be exceeded with respect to a Participant for the Limitation Year, then these amounts shall be held unallocated in a suspense account. If a suspense account is in existence at any time during a particular Limitation Year, other than the Limitation Year described in the preceding sentence, all amounts in the suspense account must be allocated and reallocated to Participants' Accounts (subject to the limitations of Section 415) before any Employer contributions which would constitute Annual Additions may be made to the Plan for that Limitation Year. 5.4 DEFINED CONTRIBUTION AND DEFINED BENEFIT PLANS. Notwithstanding any other provision of the Plan to the contrary, the total Annual Additions on behalf of a Participant for any Limitation Year shall not cause the sum of that Participant's defined contribution plan fraction and defined benefit plan fraction (as those terms are defined in Section 415 of the Code and regulations thereunder) to exceed 1.0. If the sum of such fractions would exceed l.0 for any Limitation Year, the excess amount will be eliminated first by making appropriate adjustments under any defined benefit plan maintained by the Employer and then under this Plan. 5.5 NO RIGHTS CREATED BY ALLOCATION. Any allocation made and credited to the Account of a Participant, Former Participant or Beneficiary under this Article shall not cause such Participant, Former Participant or Beneficiary to have any right, title or interest in or to any assets of the Trust Fund except at the time or times, and under the terms and conditions, expressly provided in this Plan. VI: PAYMENT OF BENEFITS 6.1 NORMAL RETIREMENT OR TERMINATION. If a Participant's employment is Terminated by reason of his Normal Retirement or Termination, then such Participant shall be entitled to receive the entire amount credited to his Accounts in the manner and at the time provided in Sections 6.4 and 6.5. 6.2 DEATH. In the event that the Termination of employment of a Participant is caused by his death, or in the event that a Participant or Former Participant who is entitled to receive distributions pursuant to Section 6.1 dies prior to receiving the full amount of such distributions, the entire amount credited to his Accounts shall be paid to his Beneficiary in the manner and at the time provided in Sections 6.4 and 6.5. 6.3 VESTING. A Participant shall be fully vested at all times in his Accounts. 6.4 TIME OF PAYMENT OF BENEFITS. (a) A distribution to a Participant of his Accounts on account of Retirement pursuant to Section 6.1 on or after Normal Retirement Date shall be made as soon as practicable following the Valuation Date coincident with or next following such Retirement after receipt by the Committee of the applicable forms. (b) Distribution of a Participant's or Former Participant's Accounts, payable on account of the death of a Participant or Former Participant pursuant to Section 6.2, shall be distributed as follows: (1) In the case of a Participant's death prior to commencement of his benefits in a single lump sum payment, as soon as practicable following such death, but no later than December 31 of the year in which occurs the fifth anniversary of the Participant's or Former Participant's death, (but no earlier than the Valuation Date coincident with or next following his date of death). (2) Notwithstanding subsection (1) above, in the case of a Participant's or Former Participant's death prior to commencement of his benefits, if such Participant's Beneficiary is his Spouse, then such distribution shall not be required to begin prior to the date on which the Participant or Former Participant would have attained age 70-1/2, had he lived. At such time, distribution must be made in the form provided for in Section 6.5. Prior to the date on which the Participant or Former Participant would have attained age 70-1/2, the Spouse may elect to receive the Participant's or Former Participant's Accounts, upon written notice to the Committee in a lump sum. (3) Any amount payable to a child pursuant to the death of a Participant or Former Participant shall be treated as if it were payable to the Participant's or Former Participant's Spouse if such amount would become payable to the Spouse upon such child reaching majority (or other designated event permitted by regulations). (c) Subject to subsection (e) of this Section 6.4, a distribution to a Participant of his Accounts, payable on account of other Termination of employment pursuant to Section 6.3, shall be made as soon as practicable following the Valuation Date coincident with or next following such Termination after receipt by the Committee of the applicable forms. In the case of a distribution of a Participant's Accounts that does not exceed $3,500, if the Participant fails to complete all forms or applications needed to properly process the distribution pursuant to rules set by the Committee, then the distribution shall be automatically made as soon as administratively feasible after the next Valuation Date that is coincident with or next follows the date that is 90 days following the event giving rise to the distribution. If the Participant's Accounts exceed $3,500, distribution of benefits shall not commence unless the Participant consents to such distribution in writing. (d) If the vested percentage of a Participant's Accounts exceed $3,500 (determined at the time of any distribution) a distribution from a Participant's Accounts may not be made prior to a Participant's Normal Retirement Date (other than as a result of death) without obtaining the Participant's consent, at such time and in such manner as may be required by the Code and applicable regulations thereunder, to such distribution being made prior to his Normal Retirement Date. If the Former Participant does not consent to such distribution, benefits shall remain in the Trust Fund and shall continue to receive Income allocations pursuant to Section 5.2(a) and shall not be distributed to the Participant (or his Beneficiary) until his attainment of age 70-1/2 or the Valuation Date coincident with or next following his death, if sooner. Prior to the date on which the Former Participant attains age 70-1/2, the Former Participant may elect to receive all of his Accounts upon written notice to the Committee in a single lump sum. (e) Notwithstanding any other provision of this Plan to the contrary, unless the Participant or Former Participant elects otherwise, payment of benefits under this Plan shall commence not later than sixty (60) days after the close of the Plan Year in which the latest of the following events occurs: (a) the Participant or Former Participant attains age 65; (b) the tenth (10th) anniversary of the Plan Year in which the Participant or Former Participant commenced participation in the Plan; or (c) the Termination of the Participant's service with the Employer. (f) Distribution to a Participant who continues to be employed by the Employer following his attainment of age 70-1/2 of his Accounts must commence no later than April 1 of the calendar year following the calendar year in which the Participant or Former Participant attains age 70-1/2. The foregoing shall not apply to any Participant who (i) has attained age 70-1/2 before January 1, 1988 and (ii) is not a five percent (5%) owner of the Employer, as defined in Section 416(i)(B) of the Code at any time during the Plan Year ending with or within the calendar year in which he attains age 66-1/2 and any subsequent Plan Year. (g) Distribution to an alternate payee of a Participant or Former Participant, pursuant to a qualified domestic relations order ("QDRO"), as defined in Section 414(p) of the Code, shall be made as soon as practicable following the finalization of the QDRO, or such later date as the QDRO may authorize. (h) Effective September 1, 1994, the value of Company Stock or the value of other investment funds shall be determined as of a date that is as close as administratively feasible to the date on which payment is made. Payments shall be made as soon as practicable following the Valuation Date coincident with or next following the distributable event if the necessary paperwork is returned. Prior to September 1, 1994, the Account value for distribution was determined as of the end of the preceding Calendar Quarter coincident with or next following the distributable event. 6.5 MODE OF PAYMENT OF BENEFITS. Any amount to which a Participant, Former Participant or Beneficiary shall become entitled to hereunder shall be distributed to him in a lump sum. All distributions pursuant to this Section shall be made in cash, securities or other property as the Committee in its sole and absolute discretion may determine, to the extent permitted by the Code and regulations thereunder. All distributions shall be made in a lump sum. All distributions shall satisfy the incidental death limitations of Section 401(a)(9)(G) of the Code, including the minimum distribution incidental benefit requirement and the pre-retirement incidental benefit requirement as set forth in Treas. Reg. Section 1.401-1(b)(ii). 6.6 DESIGNATION OF BENEFICIARY. Each Participant or Former Participant (or beneficiary thereof) from time to time may designate any person or persons (who may be designated contingently or successively and who may be an entity other than a natural person) as his Beneficiary or Beneficiaries to whom his Plan benefits are to be paid if he dies before receipt of all such benefits. Each Beneficiary designation shall be made on a form prescribed by the Committee and will be effective only when filed with it during the Participant's or Former Participant's lifetime. Each Beneficiary designation filed with the Committee will cancel all Beneficiary designations previously filed with it by that Participant or Former Participant. The revocation of a Beneficiary designation, no matter how effected, shall not require the consent of any designated Beneficiary. If any Participant or Former Participant fails to designate a Beneficiary in the manner provided above, or if the Beneficiary designated dies before such Participant's or Former Participant's death or before complete distribution of the Participant's or Former Participant's benefits, such Participant's or Former Participant's benefits shall be paid in the following order of priority: first, to the Participant's or Former Participant's surviving spouse, if any; second, to the Participant's or Former Participant's surviving children, if any, in equal shares; third, to the estate of the last to die of such Participant or Former Participant and his Beneficiary or Beneficiaries. Notwithstanding the foregoing, the surviving spouse of a Participant or Former Participant shall be deemed to be the Participant's or Former Participant's designated Beneficiary, and shall be entitled to receive any distribution on account of the Participant's or Former Participant's death in a lump sum, unless the Participant or Former Participant designates a Beneficiary other than the surviving spouse and such surviving spouse consents irrevocably in writing to the designation of such alternate Beneficiary and the Spouse's consent acknowledges the effect of such designation and is witnessed by a notary public or a member of the Committee. The requirements of this paragraph may be waived if it is established to the satisfaction of the Committee that the consent may not be obtained because there is no Spouse or because the Spouse cannot be located or because of such other circumstances as may be prescribed by regulation. 6.7 INFORMATION REQUIRED FROM BENEFICIARY. If at, after or during the time when a benefit is payable to any Beneficiary, the Committee upon request of the Trustee or at its own instance, delivers by registered or certified mail to the Beneficiary at the Beneficiary's last known address a written demand for his then address, or for satisfactory evidence of his continued life, or both, and, if the Beneficiary fails to furnish the information to the Committee within three years from the mailing of the demand, then the Committee shall distribute to the party next entitled thereto under Section 6.7 above as if the Beneficiary were then deceased. 6.8 IN-SERVICE WITHDRAWALS. (a) NON-HARDSHIP (1) A Participant may elect to withdraw an amount equal to all or any part of his interest in his Rollover Account, including earnings, for any reason. (2) Upon attainment of age 59-1/2, a Participant may elect to withdraw all or any portion of his interest in his Pre-Tax Contribution Account. (b) HARDSHIP. On account of financial hardship, as defined below, a Participant may make a withdrawal from his Pre-Tax Contribution Account attributable to all of his Pre-Tax Contributions (as of the last completed valuation) and Interest allocated as of December 31, 1988 to his Pre-Tax Contribution Account. (c) PROCEDURES (1) The amount available for withdrawal shall be based on the most recently completed monthly valuation and shall be withdrawn on a prorata basis from the investment funds in which the underlying contributions are invested. (Prior to September 1, 1994 the amount available for withdrawal was determined as of the last completed quarterly valuation). The amount charged against a Participant's Pre-Tax Contribution Account and/or Rollover Account shall be based on the value of Company Stock or value of other investment funds determined as of a date as close as administratively feasible to the date of payment (prior to September 1, 1994, as of the end of the preceding Calendar Quarter). (2) The existence of a financial hardship and the amount necessary to meet such hardship, shall be determined by the Committee in accordance with the rules set forth below. Notwithstanding the foregoing, a hardship withdrawal by a Participant hereunder may not include any amounts attributable to "qualified non-elective" and "qualified matching" contributions as defined under Section 401(k) of the Code. An immediate and heavy financial need shall be limited to a need for funds for any of the following purposes: (A) medical expenses described in Section 213(d) of the Code and incurred by the Participant, his Spouse, or any of the Participant's dependents (as defined in Section 152 of the Code), or expenses necessary for these individuals to obtain medical care described in Section 213(d) of the Code, as long as such expenses are ineligible for reimbursement under any health care plans; (B) costs directly related to the purchase (excluding mortgage payments) of a principal residence of the Participant; (C) the payment of tuition and related educational fees for the next twelve-months of post-secondary education for the Participant, his Spouse, children or dependents (as defined in Section 152 of the Code); or (D) payments necessary to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant's principal residence. (3) If the following criteria are met, the Participant will be deemed to have a financial need for a hardship withdrawal to be made: (A) the distribution is not in excess of the amount of the immediate and heavy financial need of the Participant; and (B) the Participant has obtained all distributions, other than hardship distributions, and all nontaxable loans currently available under all plans maintained by the Employer or any Affiliate. (4) Following payment of any hardship distribution to a Participant hereunder, such Participant may not make Pre-Tax Contributions (and the Participant shall be precluded from making any employee contributions to all other plans maintained by the Employer as defined in Treas. Reg. Section 1.401(k)-1(d)(2)(iv)(B)(4)), during the twelve calendar months immediately following the effective date of such hardship withdrawal. A Participant may reenroll in the Plan as of the next Entry Date following the suspension period. In addition, the Participant may not make any Pre-Tax Contributions to the Plan for the Participant's taxable year immediately following the taxable year of the hardship withdrawal, in excess of the applicable limit under Section 402(g) of the Code for such next taxable year less the amount of such Participant's Pre-Tax Contributions for the taxable year of the hardship distribution. A similar suspension shall apply if any Participant receives a hardship withdrawal under any other tax-qualified plan maintained by the Employer or any Affiliate in respect of which such a suspension penalty applies. Suspension of a Participant's eligibility to make Pre-Tax Contributions under this Plan shall have no effect on the Participant's right to receive Matching Contributions with respect to Pre-Tax Contributions made before or after the suspension period. 6.9 LOANS TO PARTICIPANTS. The Committee may direct the Trustee to lend a Participant an amount not in excess of the lesser of (i) 50% of his vested Accounts, determined as of the most recently completed monthly valuation (prior to September 1, 1994, as of the last completed quarterly valuation) ; or (ii) $50,000 (reduced by the excess, if any, of the highest outstanding balances of all other loans from the Plan during the one-year period ending on the day before the loan was made over the outstanding balance of loans from the plan on the date on which such loan was made). Notwithstanding the foregoing, a Participant may have only one loan outstanding at any time. Subject to the rules of the Committee set forth below, the Trustee, upon application by a Participant, may make a loan to such Participant for any reason. In addition to such rules as the Committee may adopt, all loans shall comply with the following terms and conditions: (a) An application by a Participant for a loan from the Plan shall be made in writing to the Committee (on a form prescribed by it) whose action thereon shall be final. (b) The period of repayment for any loan shall be arrived at by mutual agreement between the Committee and the borrower, but such period in no event shall exceed five years. Repayment of interest and principal shall commence at the discretion of the Committee, but in no event later than the first day of the third month commencing after the loan was received by the Participant. Repayment of interest and principal shall be according to a substantially level amortization schedule of payments. Payment of interest and principal shall be by payroll deduction. After 26 bi-weekly repayments are made, a Participant may elect to prepay the remaining balance of his loan in one lump sum payment. (c) Each loan shall be made against collateral being the assignment of the borrower's right, title and interest in and to the Trust Fund to the extent of the borrowed amount supported by the borrower's collateral promissory note for the amount of the loan, including interest, payable to the order of the Trustee. (d) Each loan shall bear an interest rate determined in the discretion of the Committee, which rate shall be intended to be commensurate with current fixed rates charged by institutions in the business of lending money for similar types of loans. (e) The minimum amount available for any loan is $500.00. (f) The procedure to be followed by a Participant in applying for a loan shall be determined by the Committee and documented by a duly approved resolution of the Committee. Such resolution shall be attached to and shall be deemed to be a part of the Plan. (g) Notwithstanding anything herein to the contrary, the Committee may direct the Trustee to lend a Former Participant who is a "party in interest" as that term is defined in Section 3(14) of ERISA, an amount not to exceed the amount set forth in the first paragraph of this Section 6.9, but only to the extent required by ERISA. If the Committee directs the Trustee to make a loan to a Former Participant, the rules set forth in Section 6.9 shall apply to such loan, provided, however, that repayment of such loan shall not be by payroll deduction. Repayment shall be made by the Former Participant by check, payable to the Trustee, based on a monthly repayment schedule established by the Committee when the Former Participant makes application for the loan. (h) In the event of (i) default on the loan or (ii) the Participant's Termination of employment prior to repayment of the entire loan balance, the Participant shall have the option to repay the remaining loan balance in full as soon as the necessary paperwork shall be processed. If the loan is not repaid, the Participant shall have the option to continue to repay the loan as a Former Participant in accordance with the rules and procedures determined by the Committee. If repayment is not made or in the event of default, and a Participant does not elect to repay his loan in full, there shall be distributed to the Participant upon his Termination of employment the sum of (i) the value of the Participant's Accounts, without regard to the amount of any outstanding loan (including any accrued interest thereon) plus (ii) the Participant's promissory note. Default means a Participant's failure to repay the loan when due in accordance with the procedures outlined in subsection (b) hereof. Effective January 1, 1995, a Participant who Terminates employment shall not be permitted to continue loan repayments after such Termination. (i) Loans shall be processed from a Participant's Accounts in the following order on a prorata basis from the funds in which invested: (1) Rollover Account; (2) Pre-Tax Contribution Account; (3) Matching Contribution Account. (j) The amount charged against a Participant's Pre-Tax Contribution Account, Rollover Account or Matching Contribution Account shall be based on the value of Company Stock or value of other investment funds determined as of a date as close as administratively feasible to the date the loan is paid to the Participant. (Prior to September 1, 1994, as of the end of the month in which the Participant applied for the loan.) (k) Repayments shall be in reverse order to the order set forth in subsection (i) and invested according to a Participant's current investment elections. VII: TRUST FUND 7.1 EXCLUSIVE BENEFIT OF EMPLOYEES AND BENEFICIARIES. All contributions under this Plan shall be paid to the Trustee and deposited in the Trust Fund. All assets of the Trust Fund, including investment Income, shall be retained for the exclusive benefit of Participants, Former Participants and Beneficiaries and shall be used to pay benefits to such persons or to pay administrative expenses of the Plan and Trust Fund to the extent not paid by the Employer. Except as provided in Section 4.3, 5.3 or 12.2, the assets of the Trust Fund shall not revert to or inure to the benefit of the Employer. 7.2 INVESTMENT DIRECTIONS BY PARTICIPANTS. A Participant may direct the investment of amounts held under his Pre-Tax Contribution Account and Rollover Account in multiples of ten percent (10%) subject to the approval of the Committee and in accordance with the terms, conditions and procedures established by the Committee. Notwithstanding Sections 5.2(a) and 8.4, all earnings and expenses, including commissions and transfer taxes, realized or incurred in connection with any investments pursuant to a Participant's directions shall be credited or charged to the Participant's account for which the investment is made. If a Participant exercises his option to direct the investment of his Pre-Tax Contribution Account and Rollover Account, then to the extent permitted by ERISA no person who is otherwise a fiduciary under the Plan shall be liable under ERISA for any loss, or by reason of any breach which results from such Participant's exercise of such option. The funds available for this purpose shall include the Company Stock fund and at least three other additional funds. A Participant may elect to change the investment (both future and existing contributions) of his Accounts effective as of the first day of any Calendar Quarter following written notification to the Committee (using the value of Accounts determined as of the last business day of the immediately preceding Calendar Quarter). (Prior to January 1, 1993, investment changes were as of any semi-annual Valuation Date.) 7.3 INVESTMENT OF MATCHING CONTRIBUTIONS. (a) The Trustee shall invest one-half of the Matching Contributions allocated to each Participant's Matching Contribution Account in the Company Stock fund and one-half in that fund which, in the opinion of the Committee, provides the highest degree of protection for principal and a reasonable rate of return consistent with the objective of preservation of principal. Effective January 1, 1993, all Matching Contributions shall be invested in Company Stock. (b) All dividends or other distributions with respect to the Company Stock fund shall be applied to purchase additional Company Stock. (c) The Trustee may acquire Company Stock from any source, including the public market, in private transactions, or, if the Company agrees, from the Company (from either treasury shares or authorized but unissued shares). If the Trustee purchases Common Stock from the Company, the purchase price shall be the mean between the highest and lowest quoted selling prices of the Common Stock on the New York Stock Exchange on the date of purchase, except as provided at subsection (e). (d) A Participant who has satisfied the age requirement for an Early Retirement Date may irrevocably elect in writing on a form provided by the Committee that all future Matching Contributions allocable to him after the Valuation Date following timely delivery of his election be invested in the investment category established by the Committee, which in the opinion of the Committee, provides the highest degree of protection for principal and a reasonable rate of return consistent with the objective of preservation of principal. In that case, the portion of the Participant's Matching Contribution Account invested in Company Stock shall be liquidated in four installments, each equal to one-fourth of the number of shares of Company Stock allocated to his Matching Contribution Account, as of four semi-annual Valuation Dates next following the Participant's election. The proceeds shall be deposited in the investment category designed to protect principal. A Participant may not subsequently transfer Matching Contributions back into the Company Stock fund. (e) To the extent the Matching Contribution must be invested in Company Stock, the Company shall make the contribution in Company Stock rather than cash. Each share of Company Stock contributed shall be valued for purposes of determining the number of shares to be contributed at the average of the mean between the highest and lowest quoted selling prices of the Common Stock on the New York Stock Exchange for each day in the last ten business days of December of the Plan Year for which the contribution is made. VIII: ADMINISTRATION 8.1 DUTIES AND RESPONSIBILITIES OF FIDUCIARIES; ALLOCATION OF RESPONSIBILITY AMONG FIDUCIARIES FOR PLAN AND TRUST ADMINISTRATION. A Fiduciary shall have only those specific powers, duties, responsibilities and obligations as are specifically given him under this Plan or the Trust. In general, the Employer, shall have the sole responsibility for making the contributions provided for under Section 6.1. The Board of Directors shall have the sole authority to appoint and remove the Trustee and the Committee and to amend or terminate, in whole or in part, this Plan or the Trust. The Committee shall have the sole responsibility for the administration of this Plan, which responsibility is specifically described in this Plan and the Trust. The Committee also shall have the right to appoint and remove any Investment Manager which may be provided for under the Trust and to designate investment and funding policies under which the Trustee and any Investment Manager shall act, which provisions are described in Section 8.10. Except as provided in the Trust agreement and within the scope of any funding and investment policies designated by the Committee the Trustee shall have the sole responsibility for the administration of the Trust and the management of the assets held under the Trust. It is intended that each Fiduciary shall be responsible for the proper exercise of his own powers, duties, responsibilities and obligations under this Plan and the Trust and generally shall not be responsible for any act or failure to act of another Fiduciary. A Fiduciary may serve in more than one fiduciary capacity with respect to the Plan (including service both as Trustee and as a member of the Committee). 8.2 ALLOCATION OF DUTIES AND RESPONSIBILITIES. The Committee shall be appointed by the Board of Directors and shall have the sole responsibility for actual administration of the Plan, as delegated by the Board of Directors. The Committee may also adopt amendments to the Plan, which upon advice of counsel, it deems necessary or advisable to comply with ERISA or the Code, or any other applicable law, or to facilitate the administration of the Plan. The Committee may designate persons other than their members to carry out any of its duties and responsibilities. Any duties and responsibilities thus allocated must be described in the written instrument. If any person other than an Eligible Employee of the Employer is so designated, such person must acknowledge in writing his acceptance of the duties and responsibilities thus allocated to him. All such instruments shall be attached to, and shall be made a part of, the Plan. 8.3 ADMINISTRATION AND INTERPRETATION. Subject to the limitations of the Plan, the Committee shall have complete authority and control regarding the administration and interpretation of the Plan and the transaction of its business, and shall, from time to time, establish such rules as may be necessary or advisable in connection therewith. To the extent permitted by law, all acts and determinations of the Committee, as to any disputed question or otherwise, shall be binding and conclusive upon Participants, Former Participants, Employees, Spouses, Beneficiaries and all other persons dealing with the Plan. The Committee may deem its records conclusively to be correct as to the matters reflected therein with respect to information furnished by an Employee. All actions, decisions and interpretations of the Committee in administering the Plan shall be performed in a uniform and nondiscriminatory manner. 8.4 EXPENSES. The Employer shall pay all expenses authorized and incurred by the Committee in the administration of the Plan except to the extent such expenses are paid from the Trust. 8.5 CLAIMS PROCEDURE: (a) FILING OF CLAIM. Any Participant, Former Participant or Beneficiary under the Plan ("Claimant"), may file a written claim for a Plan benefit with the Committee or with a person named by the Committee to receive claims under the Plan. (b) NOTIFICATION ON DENIAL OF CLAIM. In the event of a denial or limitation of any benefit or payment due to or requested by any Claimant, he shall be given a written notification containing specific reasons for the denial or limitation of his benefit. The written notification shall contain specific reference to the pertinent Plan provisions on which the denial or limitation of benefits is based. In addition, it shall contain a description of any additional material or information necessary for the Claimant to perfect a claim and an explanation of why such material or information is necessary. Further, the notification shall provide appropriate information as to the steps to be taken if the Claimant wishes to submit his claim for review. This written notification shall be given to a Claimant within 90 days after receipt of his claim by the Committee unless special circumstances require an extension of time to process the claim. If such an extension of time for processing is required, written notice of the extension shall be furnished to the Claimant prior to the termination of said 90-day period and such notice shall indicate the special circumstances which make the postponement appropriate. Such extension shall not extend to a date later than 120 days after receipt of the request for review of a claim. (c) RIGHT OF REVIEW. In the event of a denial or limitation of benefits, the Claimant or his duly authorized representative shall be permitted to review pertinent documents and to submit to the Committee issues and comments in writing. In addition, the Claimant or his duly authorized representative may make a written request for a full and fair review of his claim and its denial by the Committee provided, however, that such written request must be received by the Committee (or his delegate to receive such requests) within sixty days after receipt by the Claimant of written notification of the denial or limitation of the claim. The sixty day requirement may be waived by the Committee in appropriate cases. (d) DECISION ON REVIEW. (i) A decision shall be rendered by the Committee within 60 days after the receipt of the request for review, provided that where special circumstances require an extension of time for processing the decision, it may be postponed on written notice to the Claimant (prior to the expiration of the initial 60 day period), for an additional 60 days, but in no event shall the decision be rendered more than 120 days after the receipt of such request for review. (ii) Notwithstanding subparagraph (i), if the Committee specifies a regularly scheduled time at least quarterly to review such appeals, a Claimant's request for review will be acted upon at the specified time immediately following the receipt of the Claimant's request unless such request is filed within 30 days preceding such time. In such instance, the decision shall be made no later than the date of the second specified time following the Committee's receipt of such request. If special circumstances (such as a need to hold a hearing) require a further extension of time for processing a request, a decision shall be rendered not later than the third specified time of the Committee following the receipt of such request for review and written notice of the extension shall be furnished to the Claimant prior to the commencement of the extension. (iii) Any decision by the Committee shall be furnished to the Claimant in writing and in a manner calculated to be understood by the Claimant and shall set forth the specific reason(s) for the decision and the specific Plan provision(s) on which the decision is based. 8.6 RECORDS AND REPORTS. The Committee shall exercise such authority and responsibility as it deems appropriate in order to comply with ERISA and governmental regulations issued thereunder relating to records of Participants' account balances and the percentage of such account balances which are nonforfeitable under the Plan; notifications to Participants; and annual reports and registration with the Internal Revenue Service. 8.7 OTHER POWERS AND DUTIES. The Committee shall have such duties and powers as may be necessary to discharge its duties hereunder, including, but not by way of limitation, the following: (a) to construe and interpret the Plan, decide all questions of eligibility and determine the amount, manner and time of payment of any benefits hereunder; (b) to prescribe procedures to be followed by Participants, Former Participants or Beneficiaries filing applications for benefits; (c) to prepare and distribute information explaining the Plan; (d) to receive from the Employer and from Participants, Former Participants and Beneficiaries such information as shall be necessary for the proper administration of the Plan; (e) to furnish the Employer, upon request, such annual reports with respect to the administration of the Plan as are reasonable and appropriate; (f) to receive, review and keep on file (as it deems convenient or proper) reports of the financial condition, and of the receipts and disbursements, of the Trust Fund from the Trustees; (g) to appoint or employ advisors including legal counsel to render advice with regard to any responsibility of the Committee under the Plan or to assist in the administration of the Plan; and (h) to determine the status of qualified domestic relations orders under Section 414(p) of the Code. The Committee shall have no power to add to, subtract from or modify any of the terms of the Plan, or to change or add to any benefits provided by the Plan, or to waive or fail to apply any requirements of eligibility for a benefit under the Plan. 8.8 RULES AND DECISIONS. The Committee may adopt such rules as it deems necessary, desirable, or appropriate. All rules and decisions of the Committee shall be applied uniformly and consistently to all Participants in similar circumstances. When making a determination or calculation, the Committee shall be entitled to rely upon information furnished by a Participant, Former Participant or Beneficiary, the Employer, the legal counsel of the Employer, or the Trustee. 8.9 AUTHORIZATION OF BENEFIT PAYMENTS. The Committee shall issue proper directions to the Trustee concerning all benefits which are to be paid from the Trust Fund pursuant to the provisions of the Plan. 8.10 APPLICATION AND FORMS FOR BENEFITS. The Committee may require a Participant, Former Participant or Beneficiary to complete and file with it an application for a benefit, and to furnish all pertinent information requested by it. The Committee may rely upon all such information so furnished to it, including the Participant's, Former Participant's or Beneficiary's current mailing address. 8.11 FACILITY OF PAYMENT. Whenever, in the Committee's opinion, a person entitled to receive any payment of a benefit or installment thereof hereunder is under a legal disability or is incapacitated in any way so as to be unable to manage his financial affairs, the Committee may direct the Trustee to make payments to such person or to his legal representative or to a relative or friend of such person for his benefit, or he may direct the Trustee to apply the payment for the benefit of such person in such manner as it considers advisable. 8.12 INVESTMENT POLICIES. The investment policies of the Plan shall be established and may be changed at any time by the Committee, which shall thereupon communicate such policies to any persons having authority to manage the Plan's assets. The Investment Manager shall have the authority to invest in any collective investment fund maintained exclusively for the investment of assets of exempt, qualified employee benefit trusts. The assets so invested shall be subject to all the provisions of the instrument establishing such collective investment fund, as amended from time to time, which is hereby incorporated herein by reference and deemed to be an integral part of the Plan and corresponding Trust. The Committee, whose membership is to be determined by the Board, is the named fiduciary to act on behalf of the Company in the management and control of the Plan assets and to establish and carry out a funding policy consistent with the Plan objectives and with the requirements of any applicable law. The Committee shall carry out the Company's responsibility and authority: (a) To appoint as such term is defined in Section 3(38) of ERISA, one or more persons to serve as Investment Manager with respect to all or part of the Plan assets, including assets maintained under separate accounts of an insurance company; (b) To allocate the responsibilities and authority being carried out by the Committee among the members of the Committee. (c) To take any action appropriate to assure that the Plan assets are invested for the exclusive purpose of providing benefits to Participant and their Beneficiaries in accordance with the Plan and defraying reasonable expenses of administering the Plan, subject to the requirements of any applicable law. (d) To establish any rules it deems necessary. The Committee including each member and former member to whom duties and responsibilities have been allocated, may be indemnified and held harmless by the Employer with respect to any breach of alleged responsibilities performed or to be performed hereunder. 8.13 INDEMNIFICATION. The Employer shall indemnify each individual who is an officer, director or Employee of the Employer and who may be called upon or designated to perform fiduciary duties or to exercise fiduciary authority or responsibility with respect to the Plan and shall save and hold him harmless from any and all claims, damages, and other liabilities, including without limitation all expenses (including attorneys' fees and costs), judgments, fines and amounts paid in settlement and actually and reasonably incurred by him in connection with any action, suit or proceeding, resulting from his alleged or actual breach of such duties, authority or responsibility, whether by negligence, gross negligence or misconduct, to the maximum extent permitted by law, provided, however, that this indemnification shall not apply with respect to any actual breach of such duties, authority or responsibility, if the individual concerned did not act in good faith and in the manner he reasonably believed to be in (or not opposed to) the best interest of the Employer, or, with respect to any criminal action or proceeding, had reasonable cause to believe his conduct was unlawful. 8.14 RESIGNATION OR REMOVAL OF THE COMMITTEE. An Committee member may resign at any time by giving ten days' written notice to the Employer and the Trustee. The Board of Directors may remove any member of the Committee by giving written notice to him and the Trustee. Any such resignation or removal shall take effect at a date specified on such notice, or upon delivery to the Committee if no date is specified. IX: MISCELLANEOUS 9.1 NONGUARANTEE OF EMPLOYMENT. Nothing contained in this Plan shall be construed as a contract of employment between the Employer and any Employee, or as a right of any Employee to be continued in the employment of the Employer, or as a limitation of the right of the Employer to discharge any of its Employees, with or without cause. 9.2 RIGHTS TO TRUST ASSETS. No Employee or Beneficiary shall have any right to, or interest in, any assets of the Trust Fund upon Termination of his employment or otherwise, except as provided from time to time under this Plan, and then only to the extent of the benefits payable under the Plan to such Employee out of the assets of the Trust Fund. All payments of benefits as provided for in this Plan shall be made solely out of the assets of the Trust Fund. 9.3 NONALIENATION OF BENEFITS. Except as may be permitted by law, and except as may be required or permitted by a qualified domestic relations order as defined in Section 414(p) of the Code, benefits payable under this Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary, including any such liability which is for alimony or other payments for the support of a spouse or former spouse, or for any other relative of the Employee, prior to actually being received by the person entitled to the benefit under the terms of the Plan; and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to benefits payable hereunder shall be void. The Trust Fund shall not in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements or torts of any person entitled to benefits hereunder. 9.4 DISCONTINUANCE OF EMPLOYER CONTRIBUTIONS. In the event of permanent discontinuance of contributions to the Plan by the Employer, the Accounts of all Participants shall, as of the date of such discontinuance, shall continue to be fully-vested and nonforfeitable. X: AMENDMENTS AND ACTION BY EMPLOYER 10.1 AMENDMENTS GENERALLY. The Company reserves the right to make from time to time any amendment or amendments to this Plan or Trust which do not cause any part of the Trust Fund to be used for, or diverted to, any purpose other than the exclusive benefit of Participants, Former Participants or their Beneficiaries; provided, however, that the Company may make any amendment it determines necessary or desirable, with or without retroactive effect, to comply with ERISA. No amendment to the Plan shall decrease a Participant's Accounts or eliminate an optional form of distribution except as may be permitted by the Code or ERISA. 10.2 AMENDMENTS TO VESTING SCHEDULE. Any amendment to the Plan which alters the vesting schedule set forth in Section 6.3 shall be deemed to include the following terms: (a) The vested percentage of a Participant in that portion of his Accounts under the Plan derived from Employer contributions made for Plan Years ending with or within the later of the date such amendment is adopted or the date such amendment becomes effective shall not be reduced; and (b) Each Participant having not less than three years of service at the later of the date such amendment was effective shall be permitted to elect irrevocably to have his vested percentage computed under the Plan without regard to such amendment. Such election must be made within 60 days from the later of (i) the date the amendment was adopted, (ii) the date the amendment became effective, or (iii) the date the Participant is issued written notice of such amendment by the Committee. Notwithstanding the preceding sentence, no election need be provided for any Participant whose nonforfeitable percentage in his Accounts derived from Employer contributions under the Plan, as amended at any time, cannot be less than such percentage determined without regard to such amendment. 10.3 ACTION BY COMPANY. Any action by the Company under this Plan shall be by a duly adopted resolution of the Board of Directors, or by any person or persons duly authorized by a duly adopted resolution of that Board to take such action. Any company that has adopted this Plan with approval of the Board of Directors shall be deemed, by the continuing participation of such company in the Plan to accept any action of the Board of Directors. XI: SUCCESSOR EMPLOYER AND MERGER OR CONSOLIDATION OF PLANS 11.1 SUCCESSOR EMPLOYER. In the event of the dissolution, merger, consolidation or reorganization of the Employer, provision may be made by which the Plan and Trust will be continued by the successor; and, in that event, such successor shall be substituted for the Employer under the Plan. The substitution of the successor shall constitute an assumption of Plan liabilities by the successor, and the successor shall have all of the powers, duties and responsibilities of the Employer under the Plan. 11.2 PLAN ASSETS. There shall be no merger or consolidation of the Plan with, or transfer of assets or liabilities of the Trust Fund to, any other plan of deferred compensation maintained or to be established for the benefit of all or some of the Participants of the Plan, unless each Participant would (if either this Plan or the other plan then terminated) receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation or transfer (if this Plan had then terminated), and unless a duly adopted resolution of the Board of Directors of the Company authorizes such merger, consolidation or transfer of assets. XII: PLAN TERMINATION 12.1 RIGHT TO TERMINATE. In accordance with the procedures set forth herein, the Company may terminate the Plan at any time in whole or in part. To the extent permitted by section 401(k) of the Code and regulations thereunder, in the event of the dissolution, merger, consolidation or reorganization of the Employer, the Plan shall terminate and the Trust Fund shall be liquidated unless the Plan is continued by a successor to the Employer in accordance with Section 11.1. 12.2 LIQUIDATION OF THE TRUST FUND. Upon the complete or partial termination of the Plan, the Accounts of all Participants affected thereby shall become fully vested and nonforfeitable, to the extent funded, and the Committee shall direct the Trustee to distribute the assets remaining in the Trust Fund, after payment of any expenses properly chargeable thereto, to Participants, Former Participants and Beneficiaries in proportion to their respective Account balances. 12.3 MANNER OF DISTRIBUTION. To the extent that no discrimination in value results, any distribution after termination of the Plan may be made, in whole or in part, in cash, or in securities or other assets in kind, as the Committee may determine. All non-cash distributions shall be valued at fair market value at date of distribution. XIII: DETERMINATION OF TOP-HEAVY STATUS 13.1 GENERAL. Notwithstanding any other provision of the Plan to the contrary, for any Plan Year in which the Plan is a Top-Heavy Plan or Super Top-Heavy Plan, as defined below, the provisions of this Article shall apply, but only to the extent required by section 416 of the Code and the regulations thereunder. 13.2 TOP-HEAVY PLAN. This Plan shall be Top-Heavy and an Aggregation Group shall be a Top-Heavy Group if as of the Determination Date for such Plan Year the sum of the Cumulative Accrued Benefits and Cumulative Accounts of Key Employees for the Plan Year exceeds 60% of the aggregate of all the Cumulative Accounts and Cumulative Accrued Benefits. The Cumulative Accrued Benefits and Cumulative Accounts of those Participants who have not performed any service for the Employer during the five year period ending on the Determination Date, shall be disregarded. (a) If the Plan is not included in a Required Aggregation Group with other plans, then it shall be Top-Heavy only if (i) when considered by itself it is a Top-Heavy Plan and (ii) it is not included in a Permissive Aggregation Group that is not a Top-Heavy Group. (b) If the Plan is included in a Required Aggregation Group with other plans, it shall be Top-Heavy only if the Required Aggregation Group, including any permissively aggregated plans, is Top-Heavy. 13.3 SUPER TOP-HEAVY PLAN. This Plan shall be a Super Top-Heavy Plan if it would be a Top-Heavy Plan under Section 13.2, but substituting 90% for 60%. 13.4 CUMULATIVE ACCRUED BENEFITS AND CUMULATIVE ACCOUNTS. The determination of the Cumulative Accrued Benefits and Cumulative Accounts under the Plan shall be made in accordance with section 416 of the Code and the regulations thereunder. The determination of the Plan's Top-Heavy status shall relate to the proper Determination Date and Valuation Date. 13.5 DEFINITIONS. (a) "Aggregation Group" means either a Required Aggregation Group or a Permissive Aggregation Group. (b) "Determination Date" means with respect to any Plan Year, the last day of the preceding Plan Year or in the case of the first Plan Year of any plan, the last day of such Plan Year or such other date as permitted by the Secretary of the Treasury or his delegate. (c) "Employer" means the Company and each Participating Employer that adopts this Plan and all members of a controlled group of corporations (as defined in Section 414(b) of the Code), all commonly controlled trades or businesses (as defined in Section 414(c) of the Code) or affiliated service groups (as defined in Section 414(m) of the Code) of which the Company is a part. (d) "Key Employee" means those individuals described in Section 416(i)(l) of the Code and the regulations hereunder. (e) "Non-Key Employee" means those individuals who are not Key Employees and includes former Key Employees. (f) "Permissive Aggregation Group" means a Required Aggregation Group plus any other plans selected by the Company provided that all such plans when considered together satisfy the requirements of Sections 401(a)(4) and 410 of the Code. (g) "Required Aggregation Group" means a plan maintained by the Employer in which a Key Employee is a participant or which enables any plan in which a Key Employee is a participant to meet the requirements of Code Section 401(a)(4) or Code Section 410. (h) "Valuation Date" means the first day of each Plan Year. 13.6 VESTING. For each Plan Year in which the Plan is Top-Heavy or Super Top-Heavy, the minimum vesting requirements of Code Section 416(b) shall be satisfied as set forth in Section 6.3. 13.7 MINIMUM CONTRIBUTIONS. For each Plan Year in which the Plan is Top-Heavy or Super Top-Heavy, minimum Employer contributions for a Participant who is a Non-Key Employee shall be required to be made on behalf of each Participant who is employed by the Employer on the last day of the Plan Year, regardless of his level of Compensation and regardless of the number of Hours of Service he has completed during such Plan Year. The amount of the minimum contribution shall be the lesser of the following percentages of compensation (as defined in Section 2.1 for purposes of Annual Additions): (i) Three percent, or (ii) The highest percentage at which Company contributions are made under the Plan for the Plan Year on behalf of any Key Employee. (A) For purposes of subparagraph (ii), all defined contribution plans included in a Required Aggregation Group shall be treated as one plan. (B) This paragraph (ii) shall not apply if the Plan is included in a Required Aggregation Group and the Plan enables a defined benefit plan included in the Required Aggregation Group to meet the requirements of Section 401(a)(4) or 410 of the Code. For purposes of the minimum contribution requirement, any Pre-Tax Contributions made on behalf of a Key Employee shall be counted as Employer contributions with respect to such Key Employee, but any Pre-Tax Contributions made on behalf of a Non-Key Employee shall not be counted as Employer contributions with respect to such Non-Key Employee. This Section shall not apply to the extent a Participant other than a Key Employee is covered by another qualified plan(s) of the Employer and the Employer has provided that the minimum contribution requirements applicable to this Plan will be satisfied by the other plan(s). 13.8 DEFINED BENEFIT AND DEFINED CONTRIBUTION PLAN FRACTIONS. For any Plan Year in which the Plan is Super Top-Heavy, or for any Plan Year in which the Plan is Top-Heavy and the additional minimum contributions or benefits required under section 416(h) of the Code are not provided, the dollar limitations in the denominator of the defined benefit plan fraction and defined contribution plan fraction as defined in Section 415(e) of the Code shall be multiplied by 100 percent rather than 125 percent. If the application of the provisions of this Section 13.8 would cause any Participant to exceed 1.0 for any Limitation Year, then the application of this Section 13.8 shall be suspended as to such Participant until such time as he no longer exceeds 1.0. During the period of such suspension, there shall be no Employer contributions, forfeitures or voluntary nondeductible contributions allocated to such Participant under this Plan or under any other defined contribution plan of the Employer and there shall be no benefit accruals for such Participant under any defined benefit plan of the Employer. APPENDIX A THE PEP BOYS SAVINGS PLAN PARTICIPATING EMPLOYERS The Pep Boys - Manny, Moe & Jack The Pep Boys - Manny, Moe & Jack of California EX-10.27 4 THE PEP BOYS - MANNY, MOE & JACK EXECUTIVE INCENTIVE BONUS PLAN (as amended and restated as of March 30, 1994) The Pep Boys - Manny, Moe & Jack, a Pennsylvania corporation (the "Company") established, effective January 29, 1989, an Executive Incentive Bonus Plan for the benefit of officers of the Company who are eligible to participate as provided herein. By action of its Board of Directors on March 31, 1992, the said plan was amended in numerous respects. By action of its Board of Directors on March 30, 1944, the said plan was further amended to read in its entirety as hereinafter set forth, said plan being hereinafter referred to as the "Plan". 1. Purpose. The Plan is intended to increase the profitability of the Company by giving the officers of the Company a financial stake in the growth and profitability of the Company. The Plan has the further objective of enhancing the Company's executive compensation package, thus enabling the Company to attract and retain executive officers of the highest ability. The Plan is intended to supplement, not replace, any other bonus paid by the Company to its officers and is not intended to preclude the continuation of such arrangements or the adoption of additional bonus or incentive plans, programs, or contracts. 2. Definitions. (a) "Award Period" shall mean a measuring period of one Fiscal Year. (b) "Board of Directors" shall mean the Board of Directors of the Company. (c) "Bonus" shall mean a cash payment made by the Company to a Participant after an Award Period, based on increases in EBIT, all as calculated and as more fully set forth under paragraph 5 hereof. (d) "CEO" shall mean the person elected to the office of Chief Executive Officer of the Company by the Board of Directors. (e) "Company" shall mean The Pep Boys - Manny, Moe & Jack, a Pennsylvania corporation. (f) "Compensation Committee" shall mean the Compensation Committee of the Board of Directors. (g) "Covered Employee" shall mean any Participant that the Compensation Committee reasonably believes may be a "covered employee" within the meaning of Section 162(m) of the Internal Revenue Code for the taxable year of the Company in which a Bonus would be deductible. (h) "EBIT" shall have the meaning set forth in Paragraph 5 hereof. (i) "Fiscal Year" shall mean the Fiscal Year of the Company which ends on the Saturday nearest January 31 in each year. (j) "Participant" shall have the meaning set forth in Paragraph 4 hereof. (k) "President" shall mean the person elected to the office of President of the Company by the Board of Directors. (l) "Salary" shall mean the base salary of an officer of the Company for a Fiscal Year, including amounts which Participant elects to forego to provide benefits under a plan which satisfies the provisions of Section 401(k) or Section 125 of the Internal Revenue Code, exclusive of all bonuses paid or accrued with respect to that Fiscal Year, whether or not pursuant to a plan or program. 3. Administration, Amendment and Termination. (a) The Plan shall be administered by the Compensation Committee acting by a majority vote of its members. The Compensation Committee shall have the power and authority to take all actions and make all determinations which it deems necessary or desirable to effectuate, administer or interpret the Plan. The Company's adoption and continuation of the Plan is voluntary. The Compensation Committee shall have the power and authority to extend, amend, modify or terminate the Plan at any time, including without limitation, to change Award Periods, to determine the time or times of paying Bonuses, to establish performance and EBIT goals, and to establish such other measures as may be necessary to meet the objectives of the Plan; provided, however, that, with respect to any Covered Employee, no amendment shall change the Bonus calculation formula, as set forth in Section 5 herein, so as to increase the amount of Bonus payable upon attainment of a goal for any Award Period after the beginning of such Award Period. An action to terminate or to substantively amend or modify the Plan shall become effective immediately upon its adoption or on such date as specified by the Compensation Committee, but not with respect to any Fiscal Year priort to the Fiscal Year in which the Compensation Committee so acts. (b) All actions taken and all determinations made by the Compensation Committee in accordance with the power and authority conferred upon the Compensation Committee under subsection (a) above shall be final, binding and conclusive on all parties, including the Company and all Participants. 4. Participants. Each officer of the Company elected by the Board of Directors to fill such office shall be entitled to participate in the Plan for each Fiscal Year or portion thereof in which such person serves an officer (the "Participants", or individually, "Participant"), unless excluded from participation by the Compensation Committee or as provided by paragraph 7 hereof. With respect to a Participant who became an officer during a Fiscal Year, such Participant shall be paid an amount equal to the amount which would have been paid if the Participant had been employed for the entire Award Period, multiplied by a fraction the numerator of which is the number of days during the Award Period that the Participant was an officer of the Company and the denominator of which is the number of days in the Award Period. 5. Calculation of Bonus. (a) Each Participant shall be entitled to payment from the Company of a Bonus equal to the applicable percentage of such Participant's Salary, as set forth in the tables below, for certain percentage increases in EBIT during an Award Period over EBIT for the fiscal year which precedes the Award Period. For purposes of the Plan, "EBIT" shall mean the consolidated earnings before income taxes of the Company, as determined in accordance with generally accepted accounting principles, and adjusted for any additions or reductions thereto that the President recommends and the Compensation Committee approves in order to eliminate the effect of extraordinary or non-recurring items of income or loss. In determining EBIT, there shall be included as an expense of the Company all bonuses, including, without limitation, those Bonuses paid or accrued under this Plan with respect to the Fiscal Year. For purposes of this Plan, the column in the table below entitled "EBIT Increase" measures EBIT for the Fiscal Year with respect to which the Bonus is being calculated, against EBIT for the immediately preceding Fiscal Year. Percentage of Salary for All Participants Percentage of EBIT Increase Except CEO Salary for CEO 20% 18.75% 30% 21% 19.50% 31% 22% 20.25% 32% 23% 21.00% 33% 24% 21.75% 34% 25% 22.50% 35% 26% 23.25% 36% 27% 24.00% 37% 28% 24.75% 38% 29% 25.50% 39% 30% 26.25% 40% 31% 27.25% 41% 32% 28.25% 42% 33% 29.25% 43% 34% 30.25% 44% 35% 31.25% 45% 36% 32.25% 46% 37% 33.25% 47% 38% 34.25% 48% 39% 35.25% 49% 40% 36.25% 50% 41% or more 37.50% 50% Except for EBIT increase calculations above 19.5% but less than 20%, calculations of percentage increases in EBIT shall be rounded to the nearest whole percentage. (b) Nothing in this Paragraph 5 shall be used to create any presumption that Bonuses under the Plan are the exclusive means of providing incentive compensation for officers, it being expressly understood and agreed that the Compensation Committee has the authority to recommend to the Board of Directors payments to the officers, in cash or otherwise, based on EBIT or otherwise, other than Bonuses under this Plan, to Participants. 6.Payment of Awards. Bonuses shall be paid in cash within fifteen days after the Company has publicly announced its consolidated earnings before income taxes for the Fiscal Year with respect to which the Bonus is payable; provided, however, that, with respect to any Covered Employee, no Bonus shall be paid unless and until the Compensation Committee has certified in writing that the EBIT goals as set forth in Section 5 have been met. 7.Termination of Employment. (a) Other than as set forth in subparagraph (b) below, a participant may not receive a Bonus for any Award Period if the Participant's employment by the Company has terminated, for any reason whatsoever, with or without cause, prior to the payment of the Bonus with respect to such Award Period. (b) If during an Award Period, a participant dies, becomes disabled or retires on or after his Early Retirement Date (as defined in the Company's defined benefit pension plan), such Participant (or the Participant's designated beneficiary) shall be paid an amount equal to the amount which would have been paid if the Participant had been an officer for the Award Period, multiplied by a fraction, the numerator of which is the number of days during the Award Period that the Participant was an officer of the Company and the denominator of which is the number of days in the Award Period. 8.Assignments and Alienation of Benefits. (a) To the maximum extent permitted by law, a Participant's right or benefits under this Plan shall not be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge the same shall be void. No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities or torts of the person entitled to such benefit. (b) If any Participant becomes bankrupt or attempts to anticipate, alienate, sell, assign, pledge, encumber, or charge any rights to a benefit hereunder, then such right or benefit, in the discretion of the Compensation Committee, may be terminated. In such event, the Company may hold or apply the same or any part thereof for the benefit of the Participant, his or her spouse, children or the dependents, or any of them, in such manner and portion as the Compensation Committee may deem proper. 9.Miscellaneous (a) The establishment of this Plan shall not be construed as granting any Participant the right to remain in the employ of the Company, nor shall this Plan be construed as limiting the right of the Company to discharge a Participant from employment at any time for any reason whatsoever, with or without cause. (b) Notwithstanding anything to the contrary herein, no Bonus shall be paid to any Covered Employee pursuant to the terms hereof unless and until the material terms of the performance goals as set forth in Section 5 are approved by the majority vote of the Company's shareholders in a manner which complies with the requirements of Section 162(m) of the Internal Revenue Code. (c) The paragraph headings in this Plan are for convenience only; they form no part of the Plan and shall not affect its interpretation. (d) This Plan shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. THE PEP BOYS - MANNY, MOE & JACK By:\s\ Mitchell G. Leibovitz ------------------------------- Chairman of the Board, Chief Executive Officer & President EX-11 5 THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES Exhibit 11 - Computation of Earnings per Share
(in thousands, except per share data) - ---------------------------------------------------------------------------------------------------------------------------------- Fiscal Year 1994 1993 1992 1991 1990 - ---------------------------------------------------------------------------------------------------------------------------------- (a) Earnings before cumulative effect of change in accounting principle $80,008 $65,512 $54,579 $38,872 $37,530 (b) Cumulative effect of change in accounting principle (4,300) - - - - - ---------------------------------------------------------------------------------------------------------------------------------- (c) Net earnings $75,708 $65,512 $54,579 $38,872 $37,530 - ---------------------------------------------------------------------------------------------------------------------------------- Average number of common shares outstanding during the year 59,252 60,805 59,297 55,675 55,558 Common shares assumed issued upon exercise of dilutive stock options, net of assumed repurchase, at the average market price, using the treasury stock method (1) 1,313 1,086 1,339 819 551 - ---------------------------------------------------------------------------------------------------------------------------------- (d) Average number of common shares outstanding during the year 60,565 61,891 60,636 56,494 56,109 - ---------------------------------------------------------------------------------------------------------------------------------- (e) Earnings per share before cumulative effect of change in accounting principle (a/d) $ 1.32 $ 1.06 $ .90 $ .69 $ .67 - ---------------------------------------------------------------------------------------------------------------------------------- (f) Cumulative effect of change in accounting principle (b/d) (.07) - - - - - ---------------------------------------------------------------------------------------------------------------------------------- (g) Net earnings per share (c/d) $ 1.25 $ 1.06 $ .90 $ .69 $ .67 - ---------------------------------------------------------------------------------------------------------------------------------- (1) The number of shares assumed issued upon exercise of dilutive stock options is essentially the same for fully diluted earnings per share.
EX-12 6 THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES Exhibit 12 - Statement Regarding Computation of Ratios Ratios of Earnings to Fixed Charges
(in thousands, except ratios) - ------------------------------------------------------------------------------------------------------------------------------------ January 28, January 29, January 30, February 1, February 2, Fiscal year 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------------------------ Interest $25,931 $19,701 $20,180 $25,071 $20,262 Interest factor in rental expense 6,157 5,595 4,698 3,456 3,091 Capitalized interest 1,850 1,254 852 602 1,252 - ------------------------------------------------------------------------------------------------------------------------------------ (a) Fixed charges, as defined $33,938 $26,550 $25,730 $29,129 $24,605 Earnings before income taxes and cumulative effect of change in accounting principle $126,482 $104,508 $85,615 $60,512 $58,777 Fixed charges 33,938 26,550 25,730 29,129 24,605 Capitalized interest (1,850) (1,254) (852) (602) (1,252) - ------------------------------------------------------------------------------------------------------------------------------------ (b) Earnings, as defined $158,570 $129,804 $110,493 $89,039 $82,130 - ------------------------------------------------------------------------------------------------------------------------------------ (c) Ratio of earnings to fixed charges (b/a) 4.7x 4.9x 4.3x 3.1x 3.3x - ------------------------------------------------------------------------------------------------------------------------------------
EX-21 7 SUBSIDIARIES OF THE COMPANY SUBSIDIARIES OF THE COMPANY % OF SHARES NAME WHERE INCORPORATED OWNED - ------------------------------- ------------------ ----------- The Pep Boys-Manny, Moe & Jack Jack of California 1122 W. Washington Blvd. Los Angeles, CA 90015 California 100% Pep Boys- Manny, Moe & Jack of Delaware, Inc. 3111 W. Allegheny Avenue Philadelphia, PA 19132 Delaware 100% Pep Boys- Manny, Moe & Jack of Puerto Rico, Inc. 3111 W. Allegheny Avenue Philadelphia, PA 19132 Delaware 100% Colchester Insurance Company 7 Burlington Square Burlington, VT 05401 Vermont 100% EX-23 8 INDEPENDENT AUDITORS' CONSENT INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Numbers 2-81733, 33-3420, 33-31765, 33-64248 and 33-35592 of The Pep Boys - Manny, Moe & Jack and subsidiaries on Form S-8 and Registration Statement Numbers 33-32857 , 33-39225 and 33-55115 of The Pep Boys - Manny, Moe & Jack and subsidiaries on Forms S-3 of our report dated March 20, 1995, appearing in the Annual Report on Form 10-K of The Pep Boys - Manny, Moe & Jack and subsidiaries for the year ended January 28, 1995. DELOITTE & TOUCHE LLP Philadelphia, Pennsylvania April 26, 1995 EX-27 9 ART. 5 FDS FISCAL 1994 10K
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF JANUARY 28, 1995 AND THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE FIFTY-TWO WEEK PERIOD ENDED JANUARY 28, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS JAN-28-1995 JAN-28-1995 11,748 0 3,930 126 366,843 411,309 1,104,975 243,065 1,291,019 289,451 380,787 0 0 61,502 524,751 1,291,019 1,211,536 1,406,985 847,158 1,010,190 0 0 25,931 126,482 46,474 80,008 0 0 (4,300) 75,708 1.25 1.25 -----END PRIVACY-ENHANCED MESSAGE-----