Exhibit 10.6


EMPLOYMENT
AGREEMENT


This EMPLOYMENT AGREEMENT
is made by and between THE PEP BOYS—MANNY, MOE & JACK, a Pennsylvania
corporation (the “Company”), and Jeffrey C. Rachor (the “Executive”), on the
date of the last signature below (the “Effective Date”).


W I T N E S S E T H :


WHEREAS, the Company desires to retain the employment
services of the Executive and the Executive desires to accept such employment
by entering into this Employment Agreement on the terms and conditions as set
forth herein (the “Agreement”);


NOW, THEREFORE, in
consideration of the representations, warranties and mutual covenants set forth
herein, the Company and the Executive agree as follows:


1.     Position and Duties.


(a)   The
Executive shall serve as the President & Chief Executive Officer (“CEO”)
of the Company and shall perform such duties and services incident to such
positions and such other reasonably related duties as may be assigned to him
from time to time by the Board of Directors of the Company (“Board”). On the
Effective Date, the Board shall appoint the Executive to be a member of the
Board and, thereafter, use its best efforts to have the Executive elected to
the Board annually during the Executive’s employment with the Company. During
Executive’s employment with the Company, the Executive shall report directly to
and take direction from the Board or its Chairman.


(b)   Excluding
periods of vacation, sick leave and disability to which the Executive is
entitled, the Executive agrees to devote his full time, attention and energy to
the business of the Company and to use his reasonable best efforts to perform
faithfully and efficiently such responsibilities. Executive shall not, without
the prior written consent of the Company, actively engage in any other business
or business activity during the Employment Period (as defined below). The
Executive may, however, (i) serve on civic or charitable boards or
committees, (ii) participate in appropriate professional organizations, (iii) deliver
lectures, fulfill speaking engagements or teach at educational institutions, (iv) manage
personal investments, and (v) serve on corporate boards with the
permission of the Board, so long as such activities do not significantly
interfere with the performance of the Executive’s responsibilities hereunder.


2.     Employment Period; Commencement of Employment.   The
term of this Agreement shall commence on the Effective Date and end on the
third anniversary of the Effective Date, as defined below (the “Initial
Employment Period”). Thereafter, the term of this Agreement shall automatically
renew for an indeterminate number of one-year periods unless, at least three
months prior to the expiration of the Initial Employment Period or any
succeeding one-year term, either party gives written notice to the other of its
election not to extend such term of the Agreement (the Initial Employment
Period and any succeeding one-year renewal is hereinafter referred to as the “Employment
Period”). The Executive shall commence employment services as soon as
reasonably practicable following the Effective Date, but no later than March 26,
2007 (the “Start Date”).


3.     Compensation.


(a)   Signing Bonus.   In consideration for the Executive
entering into this Agreement and agreeing to serve as the President &
CEO, the Company shall pay to the Executive a signing bonus equal to $1,200,000
(the “Signing Bonus”) within ten business days following the Start Date. The
Signing Bonus shall be conditioned on the Executive’s continued employment with
the Company for one year following the Start Date. To the extent that the
Executive’s employment with the Company is terminated by either the Executive
or the Company, for any or no reason, prior to the end of that one-year period,
the Signing Bonus shall be forfeited and the Executive agrees to repay the
Signing Bonus to the Company within five business days following such
termination. The Executive agrees that the Company shall have the right to set
off such repayment obligation against any amount then owed by the Company to
the Executive, 













including, without
limitation, the cancellation of stock options, restricted stock units and/or
other equity instrument in the Company having a fair market value equal to the
repayment obligation.


(b)   Inducement Grant.   On the Effective Date, the Company
shall grant to the Executive (i) a stock option to purchase 1,000,000
shares of the Company’s common stock (the “Inducement Option”) and (ii) 500,000
restricted stock units (the “Inducement RSUs” and together with the Inducement
Option, the “Inducement Grant”). The Inducement Option shall have an exercise
price per share equal to the fair market value of one share of the Company’s
common stock on the Effective Date ( i.e., the
average of the high and low of the price per share on the NY Stock Exchange on
the date of grant). The Inducement Grants shall be subject to the following
vesting schedule: 25% fully vested on the Start Date and 25% to vest on each of
the first, second and third anniversaries of the Effective Date. The Inducement
Grants shall have such other terms and conditions as set forth in separate
agreements to be entered into by the Company and the Executive and as
consistent with the terms of the Company’s 1999 Stock Incentive Plan.


(c)   Base Salary.   During the Employment Period, as
consideration for services rendered, the Company shall pay to the Executive a
base salary at an annual rate at least equal to $1,200,000 (“Base Salary”)
payable over each calendar year at the regular pay periods of the Company. During
the Employment Period, Base Salary shall be reviewed by the Board at least
annually and may be increased, but not decreased, at any time and from time to
time as shall be determined by the Board in its sole discretion.


(d)   Annual Bonus.   During the Employment Period, the
Executive shall be eligible to earn a bonus based upon performance objectives
established by the Board, with threshold, target, maximum and CAP bonus levels
of 75%, 150% 225% and 300% of Base Salary, under the Company’s Executive Annual
Incentive Bonus Plan (the “Bonus Plan”). If the target performance goals for
Fiscal 2007 are not attained such that the Executive would earn at least
$1,800,000, the Company shall pay to Executive a guaranteed bonus, without
regard to achievement of goals, for Fiscal 2007 equal to $1,800,000 (the “Guaranteed
Bonus”).


(e)   Annual Grants.   During the Employment Period, the
Executive shall be eligible for an annual equity grants (the “Annual Grants”),
at the discretion of the Board, with target grants of stock options to purchase
150,000 shares of the Company’s Common Stock and such number of restricted
stock units with a fair market value equal to the Executive’s then current
annual base salary, under the Company’s 1999 Stock Incentive Plan (or its
successor plan). The Annual Grants shall be subject to the following vesting
schedule: 25% fully vested on their grant date and 25% to vest on each of the
first, second and third anniversaries of their grant date.


(f)    Employee Benefit Plans.   In addition to the Base
Salary, Bonus and Annual Grants as hereinabove provided, the Executive shall be
entitled to participate during the Employment Period in all incentive programs,
savings, pension and retirement plans and programs generally available to other
senior executives of the Company from time to time other than those embodied in
separately negotiated agreements.


(g)   Welfare Benefit Plans.   During the Employment Period,
the Executive and the Executive’s family shall be eligible for participation
(to the same degree as other senior executives of the Company) in each welfare
benefit plan of the Company, including, without limitation, all medical,
prescription, dental, disability, salary continuance, life, accidental death
and travel accident insurance plan and programs of the Company and its
affiliated companies. The Executives annual automobile allowance, payable in
bi-monthly installments, shall be $30,000.


(h)   Vacation.   During the Employment Period, the Executive
shall be entitled to four weeks per calendar year of paid vacation.



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(i)    Business Expenses, Temporary Living, Travel and Relocation Expenses,
etc.   The Company shall promptly reimburse the Executive for
all reasonable employment, travel, entertainment and other business related
expenses incurred by the Executive in accordance with the policies, practices
and procedures of the Company in effect from time to time. The Company shall
reimburse the Executive for all reasonable and customary travel, commuting and
temporary living expenses during the first year of the Employment Period. Should
the Executive, at his sole discretion, relocate to the greater Philadelphia
metropolitan area during the Employment Period, the Company shall reimburse the
Executive for all reasonable and customary relocation costs and expenses
(including costs associated with the sale of his residence (including, without
limitation, sales commission and closing costs).


(j)    Executive Supplemental Retirement Plan.   The Executive
shall be immediately eligible to participate in the Company’s Executive
Supplemental Retirement Plan at a contribution level equal to 16% (of Base
Salary and Annual Bonus) fully vesting on (i) the fourth anniversary of
the Effective Date or (ii) the Executive’s earlier involuntary termination
without “Cause,” as defined below, or termination for “Good Reason,” as defined
below.


(k)   Controlling Document.   To the extent there is any
inconsistency between the terms of this Agreement and the terms of any plan or
program under which compensation or benefits are provided hereunder, this
Agreement shall control. Otherwise, the Executive shall be subject to the
terms, conditions and provisions of the Company’s plans and programs, as
applicable.


4.     Termination.   This Agreement and Executive’s employment
shall terminate under the following circumstances:


(a)   Death or Disability.   This Agreement shall terminate
automatically upon the Executive’s death. During the Employment Period, if, as
a result of physical or mental incapacity or infirmity, Executive shall be
unable to perform his duties under this Agreement for (i) a continuous
period of 90 days or more, or (ii) periods aggregating 120 days or more
during any period of 12 consecutive months (each a “Disability Period”), and at
the end of the Disability Period there is no reasonable probability that
Executive can promptly resume his duties hereunder, Executive shall be deemed
disabled (the “Disability”) and the Company, by notice to Executive, shall have
the right to terminate this Agreement and the Executive’s employment for
Disability at, as of or after the end of the Disability Period. The existence
of the Disability shall be determined by a reputable, licensed physician
selected by the Company in good faith, whose determination shall be final and
binding on the parties. Executive shall cooperate in all reasonable respects to
enable an examination to be made by such physician. Notwithstanding the
foregoing, the Company may conclusively determine Executive to have suffered a
Disability and terminate the Employment Period on account of such Disability at
any time after Executive has commenced receiving benefits under the Company’s
Long Term Disability Salary Continuation Plan.


(b)   With or Without Cause.   The Company may terminate this
Agreement and the Executive’s employment with or without “Cause.”  For purposes of this Agreement, “Cause” means
(i) the continued failure of Executive to comply with the lawful
directives of the Chairman or the Board (other than any such failure resulting
from Executive’s incapacity due to physical or mental illness or any such
failure subsequent to Executive being delivered a Notice of Termination without
Cause by the Company or delivering a Notice of Termination for Good Reason to
the Company) within 30 days after a written demand is delivered to the
Executive by the Company specifying the failure; (ii) any act by Executive
of illegality, dishonesty or fraud in connection with the Executive’s
employment; (iii) the willful engaging by Executive in gross misconduct
which is demonstrably and materially injurious to the Company or its
affiliates; (iv) Executive’s conviction of or pleading guilty or no
contest to a felony; or (v) a violation of Section 6
or 7 herein. For purpose of this paragraph (b), no act or failure to
act by Executive shall be considered “willful” unless done or omitted to be
done by Executive in bad faith and without reasonable belief that Executive’s
action or omission was in the best interests of the Company or its affiliates. Any
act, 



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or failure to act, based
upon authority given pursuant to a resolution duly adopted by the Board or
based upon the advice of counsel for the Company shall be conclusively presumed
to be done, or omitted to be done, by Executive in good faith and in the best
interests of the Company. Cause shall not exist unless and until the Company
has delivered to Executive, along with the Notice of Termination for Cause, a
copy of a resolution duly adopted by two-thirds (2¤3) of the
entire Board (excluding Executive if Executive is a Board member) at a meeting
of the Board called and held for such purpose, finding that in the good faith
opinion of the Board an event set forth in clauses (i) - (v) above
has occurred and specifying the particulars thereof in detail.


(c)   With or Without Good Reason.   This Agreement and the
Executive’s employment may be terminated by the Executive with or without Good
Reason. For purposes of this Agreement, “Good Reason” means:


(i)    any change
in the duties or responsibilities of Executive that is inconsistent in any
material and adverse respect with Executive’s position, duties,
responsibilities or status as President & CEO (including any material
and adverse diminution of such duties or responsibilities or change in his
reporting relationship so that he is to report to someone other than the Board
or its Chairman); provided, however,
that Good Reason shall not be deemed to occur upon (A) a change in duties
or responsibilities (other than reporting responsibilities) that is solely and
directly a result of the Company no longer being a publicly traded entity and
does not involve any other event set forth in this paragraph (c).


(ii)   any
substantial failure by the Company to comply with any of the provisions of Sections 3 or 8(c) of this Agreement;


provided, however,
that a termination by Executive for Good Reason shall be effective only if,
within 30 days following the delivery of a Notice of Termination for Good
Reason by Executive to the Company, the Company has failed to cure the circumstances
giving rise to Good Reason to the reasonable satisfaction of the Executive.


(d)   Notice of Termination.   Any termination by the Company
with or without Cause or by the Executive with or without Good Reason shall be
communicated by Notice of Termination to the other party hereto given in
accordance with Section 9(d) of this
Agreement. For purposes of this Agreement, a “Notice of Termination” means a
written notice which (i) indicates the specific termination provision in
this Agreement relied upon, (ii) sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive’s
employment under the provision so indicated, if applicable, and (iii) if
the termination date is other than the date of receipt of such notice,
specifies the proposed termination date.


(e)   Expiration of the Employment Period.   This Agreement
and the Executive’s employment shall terminate upon the delivery of a notice of
non-extension of the Employment Period by either the Executive or the Company
as set forth in Section 2.


(f)    Certain Modifications.   Notwithstanding anything to the
contrary contained in this Section 4
or in any other Section of this Agreement, Good Reason shall not be deemed
to occur, and the Company shall not be deemed in violation of any provision of
this Agreement, upon any change in duties or responsibilities of the Executive
that is a result of a modification of the organizational structure of the
Company.


5.     Obligations of the Company Upon Termination.


(a)   Death.   If the Executive’s employment is terminated by
reason of the Executive’s death, this Agreement shall terminate and the Company
shall pay the Executive’s estate his Base Salary through the date of
termination at the rate in effect at the time of death and any other benefits
(including death benefits and any bonus due under the terms of the Bonus Plan)
to which Executive is entitled to hereunder 



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as of the date of the
Executive’s death and shall have no further obligations to the Executive under
this Agreement.


(b)   Disability.   If the Executive’s employment is
terminated by reason of the Executive’s Disability, this Agreement shall
terminate and the Company shall pay the Executive his Base Salary through the
date of termination at the rate in effect at the time of Disability and any
other benefits (including Disability benefits) to which Executive is entitled
to hereunder at the date of the termination and shall have no further
obligations to the Executive under this Agreement.


(c)   With Cause, Without Good Reason or Non-Extension of Employment Period.   If
the Executive’s employment shall be terminated (i) by the Company with
Cause, (ii) by Executive without Good Reason or (iii) on account of
the delivery by either party of a notice of non-extension of the Employment
Period, the Company shall pay the Executive his Base Salary through the date of
termination at the rate in effect at the time Notice of Termination is given
and shall have no further obligations to the Executive under this Agreement.


(d)   Without Cause or With Good Reason.   If, during the
Employment Period, Executive’s employment shall be terminated (i) by the
Company without Cause, or (ii) by Executive for Good Reason, the Company
shall pay to the Executive or provide the following amounts and benefits, with
respect to which Executive shall have no duty of mitigation:


(A)  to the
extent not theretofore paid, the Company shall pay the Executive’s Base Salary
through the date of termination at the rate in effect on the date of
termination plus any Bonus amounts had been earned but had not yet been paid
and any vacation pay for accrued but unused vacation through the date of
termination in the calendar year which includes the date of termination (such
amount to be paid in a lump sum within 10 days of such termination);


(B)   the Company
shall pay to the Executive an amount equal to two times his then current Base
Salary (such amount to be paid in a lump sum within 10 days of such
termination);


(C)   if the date
of termination is prior to the payment of the Guaranteed Bonus, the Company
shall pay to the Executive an amount equal to the Guaranteed Bonus (such amount
to be paid in a lump sum within 10 days of such termination); and


(D)  to the
extent at least 333,333 of the Inducement RSUs are not fully vested as of the
termination date, the Company shall cause such additional number of the
Inducement RSUs to immediately vest as is equal to 333,333 minus such number of
the Inducement RSUs that have otherwise fully vested as of the termination
date.


All payments and
benefits to be provided to the Executive under this Section 5(d) shall
be subject to the Executive’s (x) compliance with the restrictions of Sections 6 and 7(a) herein and (y) execution of a
general release and waiver of claims against the Company in the form to be
determined by the Company at the time of termination. Anything herein to the
contrary notwithstanding, if the Executive becomes entitled to payments
pursuant to Section 5(d) hereof, Executive
agrees to waive payments under any severance plan or program of the Company.


(e)   Change of Control Agreement.   Notwithstanding the
foregoing, the Company shall have no obligation to provide, and the Executive
shall not be entitled to receive, the payments and benefits to be provided
under this Section 5, if the Executive’s
employment shall be terminated during such Executive’s Employment Period (as
defined in that certain Change of Control Employment Agreement, dated as of the
date hereof, between the Company and the Officer (the “Change in Control
Agreement”)). During the Employment Period (as defined in the Change of Control
Agreement), the Change of Control Agreement shall supercede this Agreement in
its entirety.



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6.     Confidential Information.   The Executive shall forever
hold in a fiduciary capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to the Company or any of
its affiliated companies, and their respective businesses, which shall have
been obtained by the Executive during the Executive’s employment by the Company
or any of its affiliated companies and which shall not be public knowledge. The
Executive shall not, without the prior written consent of the Company or except
as required by law or in a judicial or administrative proceeding with subpoena
powers, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it.


7.     Covenant Against Competition.


(a)  The
Executive shall not, during his employment with the Company, and for two years
thereafter, directly or indirectly, (a) induce or attempt to influence any
employee of the Company to terminate his employment with the Company or hire or
solicit for hire on behalf of another employer any person then employed or who
had been employed by the Company during the immediately preceding six months or
(b) engage in (as a principal, partner, director, officer, agent,
employee, consultant or otherwise) or be financially interested in any business
operating within the United States of America, if (i) such business’
primary business is the retail and/or commercial sale of automotive parts,
accessories, tires and/or automotive repair/maintenance services including, without
limitation, the entities (including their franchisees and affiliates) listed on
Schedule 7 hereto, or (ii) the
retail and/or commercial sale of automotive parts, accessories, tires and/or
repair/maintenance services is the primary focus of such engagement or
financial interest. However, nothing contained in this Section 7
shall prevent the Executive from (i) following his employment with the
Company, engaging in (as a principal, partner, director, officer, agent,
employee, consultant or otherwise) or be financially interested in any new or
used automotive dealership business (including an automotive repair and
maintenance service business that is ancillary thereto) or (ii) holding
for investment up to two percent (2%) of any class or equity securities of a
company whose securities are traded on a national or foreign securities
exchange.


(b) The Executive
acknowledges that the restrictions contained in Section 6
hereof and this Section 7, in view of the
nature of the business in which the Company is engaged, are reasonable and
necessary in order to protect the legitimate interests of the Company, and that
any violation thereof would result in irreparable injuries to the Company, and
the Executive therefore acknowledges that, in the event of his violation of any
of these restrictions, the Company shall be entitled to obtain from any court
of competent jurisdiction preliminary and permanent injunctive relief (without
the posting of any bond) as well as damages and an equitable accounting of all
earnings, profits and other benefits arising from such a violation, which
rights shall be cumulative and in addition to any other rights or remedies to
which the Company may be entitled.


(c)  If the
Executive violates any of the restrictions contained in this Section 7, the restrictive period shall be extended
from the time of the commencement of any such violation until such time as such
violation shall be cured by the Executive to the satisfaction of the Company.


(d) The
invalidity or unenforceability of any provision or provisions of this Section 7 shall not affect the validity or
enforceability of any other provision or provisions of this Section 7, which shall remain in full force and effect.
If any provision of this Section 7
is held to be invalid, void or unenforceable in any jurisdiction, any court or
arbitrator so holding shall substitute a valid, enforceable provision that
preserves, to the maximum lawful extent, the terms and intent of this Agreement
and shall correspondingly modify the Company’s obligations under Section 5(d). If any of the provisions of, or covenants
contained in, this Section 7
are hereafter construed to be invalid or unenforceable in any jurisdiction, the
same shall not affect the remainder of the provisions or the enforceability
thereof in any other jurisdiction, which shall be given full effect, without
regard to the invalidity or unenforceability in such other jurisdiction. Any
such holding shall affect such provision of this Section 2,
solely as to that jurisdiction, without rendering that or 



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any other provisions of
this Section 2 invalid, illegal, or
unenforceable in any other jurisdiction. If any covenant contained in this Section 2 should be deemed invalid, illegal or
unenforceable because its scope is considered excessive, such covenant will be
modified so that the scope of the covenant is reduced only to the minimum
extent necessary to render the modified covenant valid, legal and enforceable
and a corresponding reduction in the scope of the Company’s obligations under Section 5(d) shall also be made.


8.    Successors.


(a)   This
Agreement is personal to the Executive and without the prior written consent of
the Company shall not be assignable by the Executive otherwise than by will or
the laws of descent and distribution. This Agreement shall inure to the benefit
of and be enforceable by the Executive’s legal representatives.


(b)   This
Agreement shall inure to the benefit of and be binding upon the Company and its
successors.


(c)   The Company
will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. As used in this Agreement, “Company”
shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.


9.     Miscellaneous.


(a)   This
Agreement shall be governed by and construed in accordance with the laws of the
Commonwealth of Pennsylvania without reference to principles of conflict of
laws. The parties hereto agree that exclusive jurisdiction of any dispute
regarding this Agreement shall be the state courts located in Philadelphia,
Pennsylvania.


(b)   The
captions of this Agreement are not part of the provisions hereof and shall have
no force or effect.


(c)   This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.


(d)   All notices
and other communications hereunder shall be in writing and shall be given by
hand delivery to the other party or by registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:


If to the Executive, to:


the residence address of the Executive set forth in
the Company’s books and records


If to the Company, to:


The Pep Boys—Manny, Moe & Jack

3111 West Allegheny Avenue

Philadelphia, PA 19132

Attention:  Chairman of the Board

cc: General Counsel



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or to such other
address as either party shall have furnished to the other in writing in
accordance herewith. Notice and communications shall be effective when actually
received by the addressee.


(e)   The Company
may withhold from any amounts payable under this Agreement such Federal, state
or local taxes as shall be required to be withheld pursuant to any applicable
law or regulation.


(f)    This
Agreement, together with the Change of Control Agreement and the agreements
evidencing the Inducement Grants, contains the entire understanding of the
Company and the Executive with respect to the subject matter hereof.


(g)   If the
Executive is precluded from performing this employment by reason of any
pre-existing contractual restrictions, the terms and benefits of this Agreement
shall be null and void.


IN
WITNESS WHEREOF, the Executive has hereunto set his hand and the Company has
caused this Agreement to be executed in its name on its behalf, on the date(s) shown
below.




	
  

  	
  /s/ JEFFREY C. RACHOR

  
	
   

  	
  Dated: April 13,
  2007

  
	
   

  	
  THE
  PEP BOYS—MANNY, MOE & JACK

  
	
   

  	
  By:

  	
  /s/ WILLIAM LEONARD

  
	
   

  	
   

  	
  William Leonard

  	
   

  
	
   

  	
   

  	
  Chairman of the Board

  	
   

  
	
   

  	
   

  	
  Dated: April 13, 2007

  	
   

  






 



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