Document:

Exhibit
10.2

NITROMED, INC.

EXECUTIVE SEVERANCE BENEFIT PLAN and

SUMMARY PLAN DESCRIPTION

Section I:                                            Establishment
and Purpose of Plan

The NitroMed, Inc. (the “Company”) Executive Severance
Benefit Plan (“Plan”) is hereby established to provide severance benefits to
those categories of Company executives designated as Participants under the
Plan by the Company’s Board of Directors (the “Board”) or the Compensation
Committee thereof (the “Participants”), who are terminated on or after March
30, 2006 and prior to the termination of this Plan (“Covered Period”) and
entitled to benefits as provided herein. 
The Plan is intended to be a welfare benefit plan within the meaning of
Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”).

Section II:                                        Eligibility
for Severance

A Participant who is terminated during the Covered
Period without Cause (as defined below) is eligible to receive severance
benefits as described in Section III below (the “Severance Benefits”), except
as otherwise provided below.  A
Participant shall not be eligible to receive the Severance Payment if
he/she:  (1) voluntarily terminates
his/her employment; (2) refuses to accept other “Suitable Employment” (as
defined below) that is offered by the Company; (3) is terminated for “Cause”
(as defined below); (4) is eligible to receive severance pursuant to a
severance provision contained in an individual offer letter (and has not agreed
that the terms of this Plan shall supercede any such provision); or (5) is
terminated under circumstances governed by his/her individual written
change-of-control agreement.  This Plan
is not intended to, nor shall it, provide for any benefits in the event of
termination of employment in anticipation of, in connection with, or following
a Change in Control (as defined in the Company’s standard Change in Control
Agreement, which shall be the only source of such severance benefits).

For the purpose of this Plan:

“Cause” is determined by the Company in its sole
discretion, and can include, but is not limited to, (i) any act or omission by
the employee that may have an adverse effect on the Company’s business or on
the employee’s ability to perform services for the Company, including, without
limitation, the commission of any crime (other than ordinary traffic
violations); or (ii) any misconduct or neglect of duties by the employee in
connection with the business or affairs of the Company, including, but not
limited to, misappropriation of Company assets, or failure to perform
reasonable assigned duties. Nothing
in this Plan shall be construed to provide any employee with a guarantee of
employment and this Plan does not supersede the Company’s policy of at will
employment.

“Suitable Employment” means any position of a
comparable or higher base salary that
is located within 50 miles of the facility where the Participant performed
his/her principal duties for the Company immediately prior to termination.

 

 

Section III:                                    Severance
Benefits

Subject to the condition of execution of a Severance
Agreement described in Section IV below, the Severance Benefits provided to
eligible Participants who are terminated by the Company without Cause shall
consist of, for the period of time and as otherwise set forth on Schedule A:

1.                                       salary
continuation at the Participant’s base rate of pay (as in effect immediately
prior to termination, exclusive of any bonuses, commissions, overtime pay, or
other extra forms of compensation and less applicable taxes and withholdings)
(the “Severance Pay”); provided that the timing (although not the
aggregate amount) of such salary continuation payments shall be adjusted by the
Company to the extent necessary so that all payments shall be completed no
later than the fifteenth (15th) day of the third (3rd) month of the calendar
year following the calendar year in which termination of employment occurred;
and provided further that, if the Company determines it necessary in
order to ensure compliance with Section 409A, the Severance Pay may be paid in
a lump sum; and

2.                                       contributions to
the cost of COBRA (Consolidated Omnibus Budget Reconciliation Act) coverage on
the same basis as the Company’s contribution to Company-provided health and
dental insurance coverage immediately before the Participant’s termination,
except that if the employee secures new employment, the Company’s continued
contributions toward health and dental coverage shall end when the new
employment begins.  Participants will be
provided additional information regarding COBRA continuation costs and coverage
following termination.

The Severance Benefits shall commence within seven (7)
business days of the date on which by its terms the Severance Agreement becomes
a binding agreement between the Company and the Participant.  However, notwithstanding any provision of
this Plan to the contrary, if, at the time a Participant’s employment is
terminated, the Participant is a “specified employee” within the meaning of
Section 409A(a)(2)(B)(ii) of the Code and the regulations thereunder and the
Plan, then any payments under this Plan to the Participant that constitute “nonqualified
deferred compensation” within the meaning of Section 409A of the Code shall be
delayed by a period of six (6) months and (i) all payments that would have been
made to the Participant during such six (6) month period shall be made in a
lump sum in the seventh (7th) month following the date of termination and (ii)
all remaining payments shall commence in the seventh (7th) month following the
date of termination.

Section IV:                                   Severance
Agreement and Release

As a condition of receipt of a Severance Payment under
the Plan, a Participant shall be required to timely sign and return a severance
agreement and release in a form prepared by and satisfactory to, the Company
(the “Severance Agreement”) and to abide by the provisions of the Severance
Agreement.  Among other things, the
Severance Agreement shall contain a release and waiver of any claims the
employee or his/her representatives may have against the Company, its successors,
affiliates and/or representatives, and shall release those entities and persons
from any liability for such claims including, but not limited to, all
employment 

 

discrimination claims. 
Participants are entitled and advised to consult an attorney of their
own choosing prior to signing the Severance Agreement.

The Severance Agreement must be signed and returned to
the Company within seven (7) days from the date it is received (at which time
it shall become a binding and irrevocable agreement between the Participant and
the Company), except as otherwise provided below.  Exceptions to this requirement are:

A.                                   Participants
40 or older on the date they receive the Severance Agreement and who are
terminated pursuant to a group layoff shall have forty-five (45) days to
review, sign and return the Severance Agreement.

B.                                     Participants
40 or older on the date they receive the Severance Agreement and who are not
terminated pursuant to a group layoff shall have twenty-one (21) days to
review, sign and return the Severance Agreement.

C.                                     In
addition, all Participants 40 or older on the date they receive the Severance
Agreement shall have seven (7) days to revoke the Severance Agreement after
they sign it.  If the Participant does
not revoke the Severance Agreement within seven (7) days of signing it, the Severance
Agreement shall become a binding and irrevocable agreement between the
Participant and the Company.  Revocations
must be in writing and delivered to the Plan Administrator at:

NitroMed, Inc.

125 Spring Street

Lexington, Massachusetts 02421

Section V:                                       Income
Tax Withholding, Payroll Taxes, and Other Deductions

The Company may withhold from any payment under the
Plan: (1) any federal, state, or local income or payroll taxes required by law
to be withheld with respect to such payment; (2) such sum as the Company may
reasonably estimate is necessary to cover any taxes for which the Company may
be liable and which may be assessed with regard to such payment; and (3) such
other amounts as appropriately may be withheld under the Company’s payroll
policies and procedures from time to time in effect (including, where
applicable, the Participant’s contributions to the cost of COBRA continuation
coverage pursuant to Section III (2) above).

Section VI:                                   Section
409A

All payments and benefits provided under this Plan are
intended to either comply with or be exempt from Section 409A of the Code and
this Plan shall be administered and construed accordingly.  The Company makes no representations or
warranty and shall have no liability to any Participant or any other person if
any provisions of this Plan are determined to constitute deferred compensation
subject to Section 409A but not to satisfy the conditions of that section.

 

 

Section VII:                               Plan
Administration

1.          Plan
Administrator.  The Plan shall be
administered by the Board.  To the extent
permitted by applicable law, the Board may delegate any or all of its powers
under the Plan to one or more committees or subcommittees of the Board (a “Committee”).  All references in the Plan to the “Board”
shall mean the Board or a Committee of the Board to the extent that the Board’s
powers or authority under the Plan have been delegated to such Committee.  The Board shall serve as the Plan
Administrator.  The general
administration of the Plan and the responsibility for carrying out its
provisions shall be vested in the Plan Administrator.  The Plan Administrator shall be the “administrator”
within the meaning of Section 3(16) of ERISA and shall have all the
responsibilities and duties contained therein.

The Plan Administrator can
be contacted at the following address:

c/o Secretary

NitroMed, Inc.

125 Spring Street

Lexington, Massachusetts 02421

2.          Decisions,
Powers and Duties.  The Plan
Administrator’s decisions and determinations (including determinations of the
meaning and reference of terms used in the Plan) shall be binding on all
persons.  The Plan Administrator shall be
the Named Fiduciary for purposes of ERISA.

The Plan Administrator shall have such powers and
discretion as are necessary to discharge its duties, including, but not limited
to, interpretation and construction of the Plan, the determination of all
questions of eligibility, participation and benefits and all other related or
incidental matters, and such duties and powers of plan administration which are
not assumed from time to time by any other appropriate entity, individual or
institution.  The Plan Administrator
shall decide all such questions in its sole discretion and in accordance with
the terms of the controlling legal documents and applicable law, and its
decision will be final and binding on the Participant, the Participant’s spouse
or other dependent or beneficiary and all other interested parties.

The Plan Administrator may adopt rules and regulations
of uniform applicability in its interpretation and implementation of the Plan.

3.          Proof
of Information.  The Plan
Administrator may require that each Participant or other person submit, in such
form as it shall deem reasonable and acceptable, proof of any information which
the Plan Administrator finds necessary or desirable for the proper
administration of the Plan.

4.          Records
and Disclosures.  The Plan
Administrator shall maintain such records as are necessary to carry out the
provisions of the Plan.  The Plan
Administrator also shall make, or shall appoint one or more individuals
employed by the Company to make, all disclosures which are required by ERISA
and any subsequent amendments thereto.

 

 

5.          Mistakes.  If there has been a mistake in the amount of
a Participant’s benefits paid under the Plan, the mistake may be corrected by
the Plan Administrator or its designee when the mistake is discovered.  The mistake may be corrected in any
reasonable manner authorized by the Plan Administrator (e.g., by offset
against payments remaining to be paid or by payments between the Participant
and the Company).  In appropriate
circumstances (as determined in the Plan Administrator’s sole discretion), the
Plan Administrator may waive the making of any correction.

6.          Expenses.  All costs and expenses incurred by the Board
in administering the Plan.

7.          No
Liability.   No director shall be
liable for any action or determination relating to or under the Plan made in
good faith.

8.          Integration
with Statutory Pay or Benefits Requirements.  To the extent that any federal, state or
local law, including, without limitation, so-called “plant closing” laws,
requires the Company to give advance notice or make a payment of any kind to an
employee because of that employee’s involuntary termination due to a layoff,
reduction in force, plant or facility closing, sale of business, or similar
event, the benefits provided under this Plan or the other arrangement shall
either be reduced or eliminated to avoid any duplication of payment.  The Company intends for the benefits provided
under this Plan to satisfy any and all statutory obligations which may arise
out of an employee’s involuntary termination for the foregoing reasons and the
Plan Administrator shall so construe and implement the terms of the Plan.  The Plan Administrator will determine how to
apply this provision, and may override other provisions of this Plan in doing
so.

9.          Plan
Name and Type.  The name of the
severance program is the NitroMed, Inc. Executive Severance Benefit Plan.  The program is intended to constitute an “Employee
Welfare Benefits Plan” under Department of Labor Regulation Section 2510.3-2(b)
and other applicable regulations and statutes. 
Accordingly, benefits hereunder shall not be contingent on retirement,
shall not exceed twice the annual compensation of the employee participating in
the Plan, and shall be completed within twenty-four (24) months of termination
of employment.  The program shall be
construed and interpreted in a manner consistent with the foregoing intent.

10.    Funding.  Benefits shall be paid from the general
assets of the Company and shall not be funded by trust or otherwise.  Nothing herein shall be deemed to create a
trust of any kind.

11.    Duration of
Plan.  The Plan shall continue in
force until all benefits are paid.

12.    Name and
Address of Employer.  The Plan is
sponsored by:

NitroMed, Inc.

125 Spring Street

Lexington, Massachusetts 02421

13.         Claims
Procedure.  Any Participant who
believes he or she is entitled to severance benefits under the Plan which are
not being paid may submit a written claim for payment to the Plan 

 

                        Administrator,
care of the Company’s Vice President of Human Resources. Any Participant
otherwise entitled to benefits under this Plan must make such claim within
sixty (60) days of termination of employment in order to be eligible for
benefits. Any claim for benefits shall be in writing, addressed to the Plan
Administrator and must be sufficient to notify the Plan Administrator of the
benefit claimed.  If the claim of a
Participant is denied, the Plan Administrator shall within a reasonable period
of time provide a written notice of denial to the Participant.  The notice will include the specific reasons
for denial, the provisions of the Plan on which the denial is based, and the
procedure for a review of the denied claim. 
Where appropriate, it will also include a description of any additional
material or information necessary to complete or perfect the claim and an
explanation of why that material or information is necessary.  The Participant may request in writing a review
of a claim denied by the Plan Administrator and may review pertinent documents
and submit issues and comments in writing to the Administrator, care of the
Company’s Vice President of Human Resources. 
The Plan Administrator shall provide to the Participant a written
decision upon such request for review of a denied claim.  The decision of the Plan Administrator upon
such review shall be final.

14.         Drafting
Errors.  If, due to errors in
drafting, any Plan provision does not accurately reflect its intended meaning,
as demonstrated by consistent interpretations or other evidence of intent, or
as determined by the Plan Administrator in its sole and exclusive judgment, the
provision shall be considered ambiguous and shall be interpreted by the Plan
Administrator and all Plan fiduciaries in a fashion consistent with its intent,
as determined in the sole and exclusive judgment of the Plan
Administrator.  The Plan Administrator
shall amend the Plan retroactively to cure any such ambiguity.

Section VIII:                           Statement
of ERISA Rights

The following statement is required by federal law and
regulations.  ERISA provides that all
program participants shall be entitled to:

1.                                       Examine,
without charge at the Plan Administrator’s office and at other specified
locations, such as work sites, all program documents, and copies of all
documents filed by the program with the U.S. Department of Labor, such as
detailed annual reports and program descriptions.

2.                                       Obtain
copies of all Plan documents and the Plan information upon written request to
the Plan Administrator.  The Plan
Administrator may make a reasonable charge for copies.

3.                                       Receive
a copy of a summary of the program’s annual financial report.  The Plan Administrator is required by law to
furnish each participant with a copy of this Summary Annual Report.

4.                                       Obtain
a statement advising the employee whether he or she has a right to receive
benefits under the program and what benefits the employee may receive.  This statement must be requested in writing
and is not required to be given more than once a year.  The Plan Administrator must provide the
statement free of charge.

 

 

5.                                       In
addition to creating rights for Plan participants, ERISA imposes duties upon
the people who are responsible for the operation of the employee benefit
plan.  The people who operate the Plan,
called “fiduciaries” of the program, have a duty to do so prudently and in the
interest of program participants and beneficiaries.  Employers nor any other person may fire an
employee or otherwise discriminate against an employee in any way to prevent an
employee from obtaining a benefit under the Plan or exercising the employee’s
rights under ERISA.

6.                                       If
an employee’s claim for a benefit is denied in whole or in part, the employee
must receive a written explanation of the reason for the denial.  The employee has the right to have the Plan
Administrator review and reconsider the employee’s claim.  Under ERISA, there are steps an employee can
take to enforce the above rights.  For
instance, if the employee requests materials from the Plan Administrator and
does not receive them within thirty (30) days, the employee may file suit in a
federal court.  In such a case, the court
may require the Plan Administrator to provide the materials and pay the
employee up to $110 per day until you receive the materials, unless the
materials were not sent because of reasons beyond the control of the Plan
Administrator.

7.                                       If
an employee’s claim for benefits is denied or ignored, in whole or in part, the
employee may file suit in a state or federal court.  If the program fiduciaries misuse the program’s
funds, or if an employee is discriminated against for asserting his or her
rights, the employee may seek assistance from the U.S. Department of Labor, or
may file suit in a federal court.  The
court will decide who should pay court costs and legal fees.

8.                                       If
an employee is successful, the court may order the person sued to pay costs and
fees.  If the employee loses, the court
may order the employee to pay these fees (for example, if the claim is
frivolous).  Employees should contact the
Plan Administrator concerning questions about the program.  Employees who have any questions about this
statement or rights under ERISA should contact the nearest area office of the
Pension and Welfare Benefits Administration, U.S. Department of Labor listed in
your telephone directory or the Division of Technical Assistance and Inquiries,
Pension and Welfare Benefits Administration, U.S. Department of Labor, 200
Constitution Avenue, N.W., Washington, D.C. 20210.

Section IX:                                   Miscellaneous
Provisions

1.               No
Employment Rights.  Nothing in this
Plan shall be construed to provide any employee with a guarantee of employment
and does not supersede the Company’s policy of at will employment.

2.               Governing
Law.  The Plan and the rights of all
persons under the Plan shall be construed in accordance with and under
applicable provisions of ERISA, and the regulations thereunder, and the laws of
the Commonwealth of Massachusetts (without regard to conflict of laws provisions)
to the extent not preempted by federal law.

 

 

3.               No
Limitation Upon Rights of Company. 
The Plan shall not affect in any way the right or power of the Company
to make adjustments, reclassifications or changes of its capital or business
structure; to merge or consolidate; to dissolve or liquidate; or to sell or
transfer all or any part of its business or assets.

4.               Entire
Agreement.  This Plan is a
consolidation, amendment, and restatement of, and supersedes any and all
severance plans or separation policies applying to employees which may have
been in effect throughout the Company prior to the effective date of this Plan,
with the exception of individual written change in control agreements
applicable to individual executives.

5.               Severability.  In case any one or more of the provisions of
this Plan (or part thereof) shall be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect the other provisions hereof, and this Plan shall be construed
as if such invalid, illegal or unenforceable provisions (or part thereof) never
had been contained herein.

6.               Non-Assignability.  No right or interest of any Participant shall
be assignable or transferable in whole or in part either directly or by operation
of law or otherwise, including, but not limited to, execution, levy,
garnishment, attachment, pledge or bankruptcy, provided, however, that this
provision shall not be applicable in the case of obligations of a Participant
to the Company.

7.               Amendment
or Termination.  The Company reserves
the right to modify, amend or terminate the Plan in whole or in part at any
time.  Such amendment, modification or
termination shall be effected by a written instrument executed by an authorized
officer of the Company.  However, in no
event shall such amendment, modification or termination reduce or diminish any
severance benefits owing under the Plan for terminations of employment prior to
the date of such amendment or termination without the consent of the Participant
to whom the benefits are owed.

 

 

SCHEDULE
A

Severance benefits shall be provided to Participants
as described in the NitroMed Executive Severance Benefit Plan (the “Plan”) and
Summary Plan Description, as follows:

1.             Executives who have been designated at the level of
Senior Vice President or higher by the NitroMed Board of Directors or its
Compensation Committee shall be provided salary continuation and contributions
to the cost of COBRA coverage pursuant to Section III of the Plan, and subject
to the terms the Plan, for a period of twelve (12) months from a covered
termination of employment.

2.             Executives who have been designated at the level of Vice
President or higher by the NitroMed Board of Directors or its Compensation
Committee shall be provided salary continuation and contributions to the cost
of COBRA coverage pursuant to Section III of the Plan, and subject to the terms
the Plan, for a period of six (6) months from a covered termination of
employment.Exhibit
10.1

AGREEMENT

This Agreement,
dated as of August 2, 2006 (“Agreement”), is by and among The Pep Boys — Manny,
Moe & Jack, a Pennsylvania corporation (the “Company”), and the other
persons and entities that are signatories hereto (collectively, the “Barington
Group,” and each, individually, a “member” of the Barington Group) which
presently are or may be deemed to be members of a “group” with respect to the
common stock of the Company, par value $1.00 per share (the “Common Stock”),
pursuant to Rule 13d-5 promulgated by the Securities and Exchange Commission
(the “SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”).

WHEREAS, the Barington Group has publicly stated that
it intended to solicit proxies for the election of its own opposition slate of
nominees (the “Proxy Solicitation”) for election to the Company’s board of
directors (the “Board”) at the 2006 annual meeting of shareholders of the
Company (the “2006 Annual Meeting”);

WHEREAS, the Company and the members of the Barington
Group have determined that the interests of the Company and its shareholders
would be best served at this time by, among other things, avoiding the Proxy
Solicitation and the expense and disruption that may result therefrom; and

WHEREAS, on or prior to the date hereof, Lawrence
Stevenson, Benjamin Strauss and Malcolmn Pryor have resigned or retired from
the Board, resulting in three vacancies existing on the Board.

NOW, THEREFORE, in
consideration of the foregoing premises and the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto, intending
to be legally bound hereby, agree as follows:

1.             Representations
and Warranties of the Company.  The
Company hereby represents and warrants to the Barington Group that (a) this
Agreement has been duly authorized, executed and delivered by the Company, and
is a valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or similar laws generally affecting the rights of
creditors and subject to general equity principles; (b) neither the execution
of this Agreement nor the consummation of any of the transactions contemplated
hereby nor the fulfillment of the terms hereof, in each case in accordance with
the terms hereof, will conflict with, or result in a breach or violation of, or
result in the imposition of any lien, charge or encumbrance upon any property
or assets of the Company or any of its subsidiaries pursuant to the terms of,
any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement
or other agreement, obligation, condition, covenant or instrument to which the
Company or any of its subsidiaries is a party or bound or to which its or their
property is subject; (c) the execution and delivery by the Company of this
Agreement and the performance by the Company of its obligations hereunder do
not and will not violate the Articles of Incorporation of the Company, as
amended, the By-laws of the Company, as amended, or any policy, procedure,
charter or code of the Company; and (d) the 

 

execution and delivery by the Company of this
Agreement and the performance by the Company of its obligations hereunder do
not and will not (i) violate in any material respect any law, rule, regulation
or order of any court or other agency of government that is applicable to the
Company or (ii) have a material adverse effect on the enforceability of this
Agreement.

2.             Representations
and Warranties of the Barington Group. 
Each member of the Barington Group represents and warrants to the
Company that this Agreement has been duly authorized, executed and delivered by
such member, and is a valid and binding obligation of such member, enforceable
against such member in accordance with its terms, except as enforcement thereof
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or similar laws generally affecting the
rights of creditors and subject to general equity principles.

3.             Board
Matters.

(a)           Prior to the execution of this
Agreement (i) the Nominating and Governance Committee of the Board has reviewed
and approved the qualifications of  James
A. Mitarotonda, Max L. Lukens, Alan S. Bernikow and James A. Williams (each
individually, a “Barington Director” and collectively, the “Barington Directors”)
to serve as members of the Board and (ii) the Board has determined that each of
the Barington Directors are “independent” as defined by the listing standards
of the New York Stock Exchange (a person qualifying as independent, as so
defined, an “Independent Director”);

(b)           Concurrently with the execution of
this Agreement,

(i)            the
Company shall increase the size of the Board from nine (9) to ten (10)
directors;

(ii)           the
Barington Directors shall be appointed as members of the Board, to serve as
directors until the expiration of the term ending at the Company’s 2006 Annual
Meeting and until their successors have been duly elected and qualified or
until their earlier death, resignation or removal; provided, however, that the
appointment of Alan S. Bernikow to the Board is subject to the approval of Mr.
Bernikow’s prior employer; provided further that, if Mr. Bernikow does not
receive such approval, or if he is unable to serve for any other reason, then
the Barington Group will propose another person to fill the Board vacancy in
accordance with the provisions of Section 3(f);

(iii)          a
Barington Director shall be appointed to serve on each standing committee
(including, without limitation, the Audit Committee, the Nominating and
Governance Committee and the Human Resources Committee) and special committee
(including, without limitation, the Search Committee (as defined below)) of the
Board, in each case for the duration of the Standstill Period (as defined
below), and a Barington Director shall be appointed to serve on any new
standing or special committee created during the Standstill Period upon the
creation of such committee; provided, in each case, that a Barington Director
is then qualified to serve on any such committee under applicable legal
requirements and listing standards; and

 2
 

 

 

(iv)          James
A. Mitarotonda shall be appointed to serve on the special committee of the
Board that has been formed to search for a new chief executive officer of the
Company, which committee shall consist of one Barington Director and the
chairpersons of the Board’s Audit Committee, Nominating and Governance
Committee and Human Resources Committee (the “Search Committee”).

(c)           The Search Committee shall use its
reasonable best efforts to find, and the Board shall use its reasonable best efforts
to appoint, a new chief executive officer as promptly as practicable.  Only candidates for the chief executive
officer position that have been reviewed and unanimously approved by the Search
Committee will be considered by the Board. 
All members of the Search Committee shall be integrally involved in all
material aspects of the search for a new chief executive officer.  The size of the Board shall not be increased
or decreased during the Standstill Period without the prior written consent of
the Barington Group, provided, however, that upon the Board’s approval and the
Company’s hiring of a new chief executive officer, such individual may be added
to the Board as an eleventh director.

(d)           The Company shall include each
Barington Director in the Board’s slate of nominees for election as a director
of the Company and use its reasonable best efforts to cause the election of
each Barington Director at the Company’s 2006 and 2007 annual meetings of
shareholders including, without limitation, recommending that the Company’s
shareholders vote in favor of the election of the Barington Directors at each
such annual meeting and voting the shares of Common Stock represented by all
proxies granted by shareholders in connection with the solicitation of proxies
by the Board of Directors in connection with such meetings in favor of the
Barington Directors, except for such proxies that specifically indicate a vote
to withhold authority with respect to the Barington Directors.  Neither the Board nor the Company shall take
any position, make any statements or take any action inconsistent with such
recommendations.

(e)           The Barington Group agrees to vote in
favor of the Board’s slate of nominees for election as directors of the Company
at the 2006 and 2007 annual meetings of shareholders, provided that each such
slate includes the Barington Directors.

(f)            If at any time during the Standstill
Period there shall occur a vacancy in a Board seat either (x) previously
occupied by a Barington Director by reason of the resignation, removal, death
or incapacity of such Barington Director, or (y) as a result of the proviso set
forth in Section 3(b)(ii) above, then the Company shall take all necessary
action to promptly fill such vacancy by a person proposed by the Barington
Group that meets the qualifications of an Independent Director, unless the
Nominating and Governance Committee reasonably determines in good faith that
such person does not meet the qualifications of the Board as then in effect, in
which case the Barington Group shall promptly propose another person so
qualified to be appointed in accordance with the provisions of this Section
3(f).  If, as a result of the vacancy
described in the first sentence of this Section 3(f), any of the Board’s
standing or special committees does not include a Barington Director, the Board
shall immediately appoint another Barington Director to serve on such committee
or committees, provided that such Barington Director is then qualified to serve
on such committee under applicable legal requirements and 

 3
 

 

listing standards. 
Any replacement director appointed pursuant to this Section 3(f) shall
also be referred to as a “Barington Director.”

(g)           Concurrently with the execution of
this Agreement, the Company shall provide evidence, reasonably satisfactory to
the Barington Group, that the Board has authorized and approved this Agreement
and the execution and performance hereof and has performed each of the
covenants and agreements of the Company set forth herein that are required to
be performed prior to or concurrently with the execution of this Agreement.

4.             Corporate Governance.

(a)           At
the first meeting of the Board after the date of this Agreement, which shall
take place no later than the annual meeting of directors on the day of the 2006
Annual Meeting (the “Next Board Meeting”), the Company shall cause the Rights
Agreement, dated as of December 5, 1997, between the Company and First Union
National Bank, as Rights Agent (the “Rights Agreement”), to be amended to (i)
include a “TIDE” provision as further described below; and (ii) amend Section
23 of the Rights Agreement to permit the redemption of the Rights Agreement by
the Board rather than the Board’s “Independent Directors” (as such term is
defined in the Rights Agreement).   The
TIDE provision shall (x) be on such terms as shall be reasonably acceptable to
the Barington Group, (y) require a committee of the Board composed of
Independent Directors to meet not less than once every three years to review
the terms and conditions of the Rights Agreement, including whether the
termination or modification of the Rights Agreement is in the best interest of
the Company and its shareholders, and to make a recommendation based on such
review to the Board, and (z) provide that the first meeting of such committee
shall take place no later than one hundred twenty (120) days after the date
hereof.  In the event that the Rights
Agreement terminates or is terminated during the Standstill Period, any
successor rights agreement adopted by the Company during the Standstill Period
shall include provisions to substantially the same effect as set forth in this
Section 4(a).

(b)           Concurrently with the announcement of
the execution of this Agreement, the Company shall publicly announce the
scheduling of the 2006 Annual Meeting which shall be held no later than October
30, 2006.  The Company shall file a
preliminary proxy statement, if required, with the Securities and Exchange
Commission (the “SEC”) no later than September 10, 2006, shall respond to any
comments by the staff of the SEC as expeditiously as possible (copies of which
will be provided to the Barington Group) and shall mail the definitive proxy
statement immediately after resolving all comments of the SEC.  If a preliminary proxy statement is not
required, the Company shall file a definitive proxy statement with the SEC no
later than September 30, 2006.  No
adjournments, postponements, reschedulings or continuations of the 2006 Annual
Meeting shall be permitted without the prior written consent of the Barington
Group.

(c)           The
Company shall provide the Barington Group with true and complete copies of any
draft preliminary or definitive proxy statements for the 2006 and 2007 annual
meetings of shareholders as well as the Form 8-K being filed with respect to
this Agreement, not less than three (3) business days in the case of proxy
statements, and not less than two (2) business days in the case of the Form
8-K, prior to the filing thereof, in order to provide the Barington Group with
a reasonable opportunity to review and comment thereon.  The Company shall consider in good 

 4
 

 

faith any comments of the Barington Group and its
counsel.  The Company shall use the
language, or a summary thereof that is agreed upon in the foregoing filings, in
all other SEC filings that disclose, discuss, refer to or are being filed in
response to or as a result of this Agreement, provided that such language is
not altered in any material aspect without the prior written consent of the
Barington Group, which consent shall not be unreasonably withheld.

5.             Standstill Period.

(a)           Each
member of the Barington Group agrees that, from the date of this Agreement
until the earlier of June 30, 2008 and the Company’s 2008 annual meeting of
shareholders (such period, the “Standstill Period”), without the prior written
consent of the Board specifically expressed in a written resolution adopted by
a majority vote of the entire Board, neither it nor any of its Affiliates or
Associates under its control or direction will: (i) propose or publicly announce
or otherwise disclose an intent to propose or enter into or agree to enter
into, singly or with any other person, directly or indirectly, (x) any form of
business combination or acquisition or other transaction relating to a material
amount of assets or securities of the Company or any of its subsidiaries or (y)
any form of restructuring, recapitalization or similar transaction with respect
to the Company or any of its subsidiaries; (ii)(x) acquire, offer or propose to
acquire any voting securities (or beneficial ownership thereof), or rights or
options to acquire any voting securities (or beneficial ownership thereof) of
the Company, (y) effect any tender offer or exchange offer, merger, acquisition
or other business combination involving the Company or any of its subsidiaries,
or (z) engage in any solicitation of proxies or consents to vote any voting
securities of the Company in opposition to the recommendation of the Board with
respect to any matter; (iii) seek to influence any person with respect to the
voting or disposition of any securities of the Company; provided, however, that
any member of the Barington Group and any Affiliate or Associate of any such
member may disclose, publicly or otherwise, how it intends to vote or act with
respect to any securities of the Company, any Board-approved shareholder
proposal or other matter to be voted on by the shareholders of the Company
(other than the election of directors) and the reasons therefor; (iv) otherwise
act, alone or in concert with others, to seek to control or influence the
management, the Board or policies of the Company or initiate or take any action
to obtain representation on the Board, except as permitted expressly by this
Agreement; or (v) enter into any agreements with any third party with respect
to any of the foregoing, except, in each case, as contemplated by this
Agreement.  The foregoing
notwithstanding:

(A) any member of the Barington Group and any
Affiliate or Associate of any such member may (1) transfer any shares of Common
Stock to, or acquire any shares of Common Stock from, any other member of the Barington Group or any other
Affiliate or Associate of the foregoing, (2) form a “group” pursuant to Rule
13d-5 promulgated by the SEC under the Exchange Act with, or acquire additional
shares of Common Stock from, any party so long as after the formation of such
group or acquisition of such additional shares the members of the Barington
Group and their Affiliates and Associates, together with any other parties who,
together with the Barington Group and their Affiliates and Associates, may then
constitute a “group” (all such parties, the “Standstill Group”) do not
beneficially own in the aggregate at any time during the Standstill Period a
number of shares of Common Stock equal to more than (x) 14.99% of 

 5
 

 

the shares of Common Stock outstanding as of the date of this Agreement
plus (y) 14.99% of the shares of Common Stock, if any, issued by the Company
following the date of this Agreement (such amount, the “Standstill Amount”), or
(3) sell or otherwise dispose of shares of Common Stock in the open market, in
privately negotiated transactions or otherwise;

(B) the Barington Group, and its Affiliates and
Associates will not be in breach of this Section 5 if, upon learning of the
inadvertent acquisition of beneficial ownership of Common Stock increasing the
aggregate beneficial ownership of the Standstill Group above the Standstill
Amount, members of the Standstill Group immediately divest themselves of a
sufficient number of shares of Common Stock to decrease the aggregate
beneficial ownership of the Standstill Group to be equal to, or less than, the
Standstill Amount;

(C) nothing contained in this Agreement shall limit
any member of the Barington Group or the Associates or Affiliates of such member
from (i) taking any of the actions otherwise prohibited in this Agreement in
connection with the 2008 annual meeting of shareholders of the Company,
including without limitation, nominating directors or soliciting proxies for
the election of directors or other purposes, requesting a shareholder list and
related information, making public filings or announcements or taking any other
action, in each case, related to the solicitation of proxies at the 2008 annual
meeting of shareholders of the Company; (ii) making and consummating a proposal
or a tender offer or exchange offer to acquire all the shares of the Company’s
Common Stock, provided that such proposal or offer is made solely to, and
subject to the approval of, the Board; or (iii) voting shares of Common Stock
in any manner its sees fit at any annual or special meeting of shareholders of
the Company, subject to the limitations set forth in Section 3(e) of this
Agreement; and

(D) the provisions of this Section 5 shall not limit
in any respect the actions of any director of the Company in his or her
capacity as such, recognizing that such actions are subject to such director’s
fiduciary duties to the Company and its shareholders.

(b)           As
used in this Agreement, the terms “Affiliate” and “Associate” shall have the
respective meanings set forth in Rule 12b-2 promulgated by the SEC under the
Exchange Act; the terms “beneficial owner” and “beneficial ownership” shall
have the respective meanings as set forth in Rule 13d-3 promulgated by the SEC
under the Exchange Act; and the terms “person” or “persons” shall mean any
individual, corporation (including not-for-profit), general or limited
partnership, limited liability company, joint venture, estate, trust,
association, organization or other entity of any kind or nature.

(c)           In
the event that the Company breaches in any material respect any of its
representations, warranties or covenants contained in this Agreement, and, in
the case of its covenants, such breach is not cured within 30 days after notice
thereof to the Company by the Barington Group, then in addition to any other
remedies that the members of the Barington Group may have, the restrictions
contained in Section 5 of this Agreement applicable to the Barington Group  shall terminate, along with the obligation of
the Barington Group to vote for 

 6
 

 

the Board’s slate of nominees for election as
directors of the Company at the 2006 and 2007 annual meetings of shareholders
set forth in Section 3(e) of this Agreement.

(d)           Notwithstanding anything contained
herein to the contrary:

(i)  the provisions of Sections 3, 4 and 5 of this
Agreement shall automatically terminate upon the occurrence of a Change of
Control transaction (as defined below) involving the Company if the acquiring
or counter-party to the Change of Control transaction has conditioned the
closing of the transaction on the termination of such sections; and

(ii)  if the total number of shares of Common Stock
held in the aggregate by members of the Standstill Group falls below an amount
equal to 5% of the shares of Common Stock outstanding as of the date of this
Agreement, then the right of the Barington Group under Section 3(f) of this
Agreement, as it specifically relates to the ability of the Barington Group to
fill a vacancy in the Board during the Standstill Period caused by the
resignation from the Board of a Barington Director, shall automatically
terminate (without terminating or limiting in any respect any of the Barington
Group’s other rights under Section 3(f)).

For purposes of
this Agreement, a “Change of Control” transaction shall be deemed to have taken
place if (1) any person is or becomes a beneficial owner, directly or
indirectly, of securities of the Company representing more than 50% of the
equity interests and voting power of the Company’s then outstanding equity
securities or (2) the Company enters into a stock-for-stock transaction whereby
immediately after the consummation of the transaction the Company’s
shareholders retain less than 50% of the equity interests and voting power of
the surviving entity’s then outstanding equity securities.

6.             Confidentiality.  The members of the Barington Group (each, a “Recipient”)
each acknowledge the confidential and proprietary nature of the Confidential
Information (as defined below) and agree that the Confidential Information (a)
will be kept confidential by Recipient and Recipient’s Representatives (as
defined below) and (b) will not be disclosed by Recipient (except to other
Recipients and their Affiliates and Associates and such person’s
Representatives to the extent contemplated by this Agreement) or by Recipient’s
Representatives to any person except with the specific prior written consent of
the Company or except as expressly otherwise permitted by this Agreement.  It is understood that (i) Recipient may
disclose Confidential Information only to those of Recipient’s Representatives
who are informed by Recipient of the confidential nature of the Confidential
Information and the obligations of this Agreement, (ii) Recipient shall be responsible
for the breach of the provisions of this Section 6 by Recipient’s
Representatives and (iii) the provisions of this Section 6 shall not apply to
any director of the Company in his or her capacity as such.  As used in this Agreement, the term “Confidential
Information” means and includes any and all of the information concerning the
business and affairs of the Company that may hereafter be disclosed to
Recipient by the Company or by the directors, officers, employees, agents,
consultants, advisors or other representatives, including legal counsel,
accountants and financial advisors (“Representatives”) of the Company; provided
that “Confidential Information” shall not include information that (a) was in
or enters the public domain or was or becomes generally available to the public
other than as a result of disclosure by Recipient or any Representative
thereof, (b) was independently acquired by Recipient or its 

 7
 

 

Representatives without violating any of the
obligations of Recipient or its Representatives under this Agreement, or under
any other contractual, legal, fiduciary or binding obligation of Recipient or
its Representatives with or to the Company, (c) was available, or becomes
available, to Recipient or its Representatives on a nonconfidential basis other
than as a result of its disclosure to Recipient by the Company or any
Representative of the Company, but only if to the knowledge of Recipient the
source of such information is not bound by a confidentiality agreement with the
Company or is not otherwise prohibited from transmitting the information to
Recipient or Recipient’s Representatives by a contractual, legal, fiduciary or
other binding obligation with or to the Company, or (d) was independently
developed by Recipient or its Representatives.  The Company acknowledges that no member of the
Barington Group or its Affiliates, Associates or Representatives thereof shall
be deemed to be in possession of Confidential Information solely by reason of
receipt of such Confidential Information by any Barington Director.  The members of the Barington Group
acknowledge that they, as well as their Representatives, are aware that the
United States securities laws prohibit any person who has material non-public
information about a company from purchasing or selling securities of such
company, or from communicating such information to any other person under
circumstances in which it is reasonably foreseeable that such person is likely
to purchase or sell such securities.

7.              Expenses.  Within five (5) business days after receiving
documentation thereof, the Company shall reimburse Barington Capital Group,
L.P. for the actual documented expenses (up to a maximum of $200,000) incurred by the members of the Barington Group in
connection with its Schedule 13D filings, the contemplated proxy solicitation,
efforts to induce the Company to schedule its 2006 Annual Meeting, the
negotiation and execution of this Agreement and all of its other activities and
matters related to the foregoing.

8.             Public
Announcement.  The Barington Group
and the Company shall announce this Agreement and the material terms hereof
within two (2) business days of the date hereof by means of a joint press
release in the form attached as Exhibit A hereto.

9.             Specific
Performance.  Each of the members of
the Barington Group, on the one hand, and the Company, on the other hand,
acknowledges and agrees that irreparable injury to the other party hereto would
occur in the event any of the provisions of this Agreement were not performed
in accordance with their specific terms or were otherwise breached and that
such injury would not be adequately compensable in damages.  It is accordingly agreed that the members of
the Barington Group or any of them, on the one hand, and the Company, on the
other hand (the “Moving Party”), shall each be entitled to specific enforcement
of, and injunctive relief to prevent any violation of, the terms hereof, and
the other party hereto will not take action, directly or indirectly, in
opposition to the Moving Party seeking such relief on the grounds that any
other remedy or relief is available at law or in equity.

10.           Jurisdiction;
Applicable Law.  Each of the parties
hereto (a) consents to submit itself to the personal jurisdiction of the Court
of Chancery or other federal or state courts of the State of Delaware in the
event any dispute arises out of this Agreement or the transactions contemplated
by this Agreement, (b) agrees that it shall not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court,
(c) agrees that it shall not bring any action relating to this Agreement or the
transactions contemplated by this 

 8
 

 

Agreement in any court other than the Court of
Chancery or other federal or state courts of the State of Delaware, and each of
the parties irrevocably waives the right to trial by jury, (d) agrees to waive
any bonding requirement under any applicable law, in the case any other party
seeks to enforce the terms by way of equitable relief and (e) irrevocably consents
to service of process by first class certified mail, return receipt requested,
postage prepaid, to the address of such party’s principal place of business or
as otherwise provided by applicable law. THIS AGREEMENT SHALL BE GOVERNED IN
ALL RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE
STATE OF DELAWARE APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY
WITHIN SUCH STATE WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES OF SUCH
STATE.

11.            Representative.  Each member of the Barington Group hereby
irrevocably appoints James A. Mitarotonda, or Barington Capital Group, L.P. in
the event that Mr. Mitarotonda is no longer serving as the Chairman, President
or Chief Executive Officer of Barington Capital Group, L.P., as such member’s
attorney-in-fact and representative (the “Barington Representative”), in such
member’s place and stead, to do any and all things and to execute any and all
documents and give and receive any and all notices or instructions in
connection with this Agreement and the transactions contemplated hereby.  The Company shall be entitled to rely, as
being binding on each member of the Barington Group, upon any action taken by
the Barington Representative or upon any document, notice, instruction or other
writing given or executed by the Barington Representative.

12.           Counterparts.  This Agreement may be executed in two or more
counterparts which together shall constitute a single agreement.

13.           Entire
Agreement; Amendment and Waiver; Successors and Assigns.  This Agreement contains the entire
understanding of the parties hereto with respect to its subject matter.  There are no restrictions, agreements,
promises, representations, warranties, covenants or undertakings between the
parties other than those expressly set forth herein.  This Agreement may be amended only by a
written instrument duly executed by the parties hereto, or in the case of the
Barington Group, the Barington Representative, or their respective successors
or assigns.  No failure on the part of
any party to exercise, and no delay in exercising, any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of such right, power or remedy by such party preclude any other or
further exercise thereof or the exercise of any other right, power or
remedy.  All remedies hereunder are
cumulative and are not exclusive of any other remedies provided by law.  The terms and conditions of this Agreement
shall be binding upon, inure to the benefit of, and be enforceable by the
parties hereto and their respective successors, heirs, executors, legal
representatives, and assigns.

 9
 

 

 

IN WITNESS
WHEREOF, this Agreement has been duly executed and delivered by the duly
authorized signatories of the parties as of the date hereof.

/s/ THE PEP BOYS — MANNY, MOE & JACK

/s/ BARINGTON COMPANIES EQUITY PARTNERS, L.P.

/s/ BARINGTON INVESTMENTS, L.P.

/s/ BARINGTON COMPANIES ADVISORS, LLC

/s/ BARINGTON COMPANIES INVESTORS, LLC

/s/ BARINGTON COMPANIES OFFSHORE FUND, LTD.

/s/ BARINGTON OFFSHORE ADVISORS, LLC

/s/ BARINGTON CAPITAL GROUP, L.P.

/s/ LNA CAPITAL CORP.

/s/ James A. Mitarotonda

/s/ PARCHE, LLC

/s/ STARBOARD VALUE AND OPPORTUNITY MASTER FUND LTD.

/s/ RCG CARPATHIA MASTER FUND, LTD.

/s/ RCG AMBROSE MASTER FUND, LTD.

/s/ RCG HALIFAX FUND, LTD.

/s/ RAMIUS MASTER FUND, LTD.

/s/ RAMIUS FUND III, LTD

/s/ RAMIUS ADVISORS, LLC

/s/ ADMIRAL ADVISORS, LLC

/s/ RAMIUS CAPITAL GROUP, L.L.C.

/s/ C4S & CO., L.L.C.

/s/ Jeffrey M. Solomon

/s/ Peter A. Cohen

/s/ Morgan B. Stark

/s/ Thomas W. Strauss

/s/ RJG CAPITAL PARTNERS, L.P.

/s/ RJG CAPITAL MANAGEMENT, LLC

/s/ Ronald J. Gross

/s/ D.B. ZWIRN SPECIAL OPPORTUNITIES FUND, L.P.

/s/ D.B. ZWIRN SPECIAL OPPORTUNITIES FUND (TE), L.P.

/s/ D.B. ZWIRN SPECIAL OPPORTUNITIES
FUND, LTD.

/s/ HCM/Z SPECIAL OPPORTUNITIES LLC

/s/ D.B. ZWIRN & CO., L.P.

/s/ DBZ GP, LLC

/s/ ZWIRN HOLDINGS, LLC

/s/ Daniel B. Zwirn

 10

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