Pep Boys 2010 Annual Report Download - page 41

35
Transferability. Neither payroll deductions credited to a participant nor any rights with regard to the exercise of a
purchase right under the ESPP may be assigned, transferred, pledged or otherwise disposed of in any way (other than
by will or the laws of descent and distribution) by the participant.
Change of Control. If we experience a Change of Control, as defined in the ESPP, while the ESPP is in effect,
unless the Benefits Committee determines otherwise, all outstanding options under the ESPP will automatically be
exercised immediately prior to the effective date of any Change of Control and the purchase price for each share of
Pep Boys Stock under the ESPP on such purchase date will be equal to eighty-five percent (85%) of the fair market
value of Pep Boys Stock immediately prior to the effective date of the Change of Control. If a Change of Control
occurs, the limitation on the aggregate number of shares that a participant may purchase on any given purchase date
will continue to apply.
Amendment. The Board of Directors may amend or terminate the ESPP at any time, with such amendment or
termination to become effective immediately following the close of an offering period. However, the Board of
Directors may not amend the ESPP without stockholder approval if such amendment increases the number of shares
of Pep Boys Stock issuable under the ESPP except for permissible adjustments in the event of changes in our
capitalization, if required to do so under Section 423 of the Internal Revenue Code, or if required to do so under
applicable stock exchange requirements.
Termination. Unless sooner terminated by the Board of Directors, the ESPP will terminate upon the earlier of (i)
the date all shares available for issuance under the ESPP have been issued or (ii) the date all options are exercised in
connection with a Change of Control.
Benefits Under the ESPP. The benefits to be received by our executive officers and employees under the ESPP
are not determinable because, under the terms of the ESPP, the amounts of future stock purchases are based upon
elections made by eligible employees subject to the terms and limits of the ESPP. Directors who are not employees
do not qualify as eligible employees and thus cannot participate in the ESPP. Future purchase prices are not
determinable because they will be based upon the closing selling price of Pep Boys Stock. No shares of Pep Boys
Stock have been issued with respect to the ESPP for which stockholder approval is being sought under this proposal.
On April 8, 2011, the closing price of a share of Pep Boys Stock on the New York Stock Exchange was $13.85.
Federal Income Tax Consequences
The following is a brief description of the U.S. federal income tax consequences generally arising with respect to
options that may be awarded under the ESPP. The ESPP is intended to qualify as an employee stock purchase plan
within the meaning of Section 423 of the Internal Revenue Code. The ESPP is not intended to qualify under Section
401 of the Internal Revenue Code and is not subject to the requirements of the Employee Retirement Income
Security Act of 1974, as amended. This description of the federal income tax consequences of the ESPP is not a
complete description. There may be different tax consequences under certain circumstances, and there may be
federal gift and estate tax consequences and state, local and foreign tax consequences. All affected individuals
should consult their own advisors regarding their own situation. This discussion is intended for the information of
the shareholders considering how to vote at the annual meeting and not as tax guidance to individuals who will
participate in the ESPP.
Under the Internal Revenue Code as currently in effect, a participant in the ESPP will not be deemed to have
recognized income, nor will we be entitled to a deduction, upon the participant’s purchase of Pep Boys Stock under
the ESPP. Instead, a participant will recognize income when he or she sells or otherwise disposes of Pep Boys Stock
or upon his or her death.
If a participant sells Pep Boys Stock purchased under the ESPP more than two years after the date on which the
option to purchase Pep Boys Stock was granted and more than one year after the purchase of Pep Boys Stock (the
holding period), a portion of the participant’s gain will be ordinary income and a portion will be capital gain. The
participant will be taxed at ordinary income tax rates on lesser of the excess of the fair market value of the shares at
the time the option was granted over the purchase price or the excess of the fair market value of the shares at the time
of disposition or death over the purchase price. The participant will have additional capital gain or loss equal to the