Pep Boys 2008 Annual Report Download - page 44

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Call a special shareholder meeting.
Act by written consent.
Decide all shareholder-voting issues by simple majority vote.
Reincorporation in North Dakota provides a way to switch to a vastly unproven system or governance in a single
step. And reincorporation in North Dakota does not require a major downsizing or layoffs to improve financial
performance.
I urge your support for Reincorporating in a Shareowner-Friendly State.
PEP BOYS’ STATEMENT IN OPPOSITION TO THE FOREGOING SHAREHOLDER PROPOSAL
Our Board of Directors is committed to continually assessing and improving Pep Boys’ corporate governance
practices. Over the past several years, the Board has implemented a wide variety of measures to improve the our
practices, including, declassifying our Board, separating the roles of Chairman of the Board and CEO, allowing our
shareholder rights plan (poison pill) to expire and adopting majority voting in uncontested Director elections. These
measures have contributed to RiskMetrics Group, a global leader in providing independent risk management and
corporate governance services, assigning Pep Boys a 99.3 corporate governance quotient (CGQ) rating, indicating
that we outperform 99.3% of the companies in the Standard & Poor’s 600 Index in corporate governance matters.
Notwithstanding, our strong governance rating, our Nominating and Governance Committee has carefully
reviewed and considered the shareholder proposal to change our state of incorporation to North Dakota. Based
upon the committee’s recommendation, our Board has concluded that such a change would not be in the best
interests of our shareholders for the following reasons:
Reincorporation is the wrong remedy for governance issues. We do not need to actually become a North
Dakota corporation in order to implement any aspects of the North Dakota law that could be in the interest of our
shareholders. Despite the proponent’s representations to the contrary, we have already adopted those aspects of the
North Dakota law that we believe are the most desirable for our shareholders. We have split the roles of Chairman
of the Board and CEO. We do not maintain a shareholder rights plan (poison pill), nor a classified board of
directors. We have implemented majority voting for directors through an amendment to our Articles of
Incorporation. And as we discuss under “EXECUTIVE COMPENSATION” in this Proxy Statement, our
approaches to annual incentive awards and stock-based compensation are intended to ensure that the interests of
management and the Board are aligned with the interests of shareholders. Our Board routinely evaluates current
trends in corporate governance and may adopt additional measures as circumstances dictate in the future. Each of
these corporate governances practices has contributed to RiskMetrics, a global leader in providing independent risk
management and corporate governance services, assigning Pep Boys a 99.3 corporate governance quotient (CGQ)
indicating that we outperform 99.3% of our peers in the S&P 600 in corporate governance matters. The proponent
cites to another independent research firm, The Corporate Library. We have provided additional information to The
Corporate Library who has informed us that they will be updating our rating upon the filing of this proxy statement.
We expect that our rating will improve as their two areas of concern “Compensation” and “Accounting” have
previously been addressed. Our Compensation rating was based upon the compensation paid to our former CEO.
As detailed in the “EXECUTIVE COMPENSATION” section of this Proxy Statement, our current CEO has a much
more modest compensation package. Our Accounting rating was based upon our previously disclosed material
weakness in internal controls over financial reporting, which was remediated as of January 31, 2009. Pep Boys
scored a “low concern” rating in their other two areas, Board and Takeover Defenses.
Prohibitive expense of reincorporation. Reincorporating in North Dakota would involve substantial expense to
us and would require a substantial investment of management’s time. We believe that incurring these expenses and
an additional administrative burden for our management team during a challenging economic environment would be
a poor use of our corporate resources. A reincorporation to North Dakota or any other state would generally be
accomplished by merging our existing Pennsylvania parent corporation into a newly formed corporation that was
incorporated in such other state. A merger would require us to analyze all of the agreements and governmental
permits involving Pep Boys and its subsidiaries in order to determine whether the reincorporation transaction was