CarMax 2006 Annual Report Download - page 54

52 CARMAX 2006
STOCK AND STOCK-BASED INCENTIVE PLANS
(A) Shareholder Rights Plan and Undesignated Preferred Stock
In conjunction with the company’s shareholder rights plan, shareholders received preferred stock purchase
rights as a dividend at the rate of one right for each share of CarMax, Inc. common stock owned. The rights
are exercisable only upon the attainment of, or the commencement of a tender offer to attain, a 15% or greater
ownership interest in the company by a person or group. When exercisable, each right would entitle the holder
to buy one one-thousandth of a share of Cumulative Participating Preferred Stock, Series A, $20 par value, at
an exercise price of $140 per share, subject to adjustment. A total of 120,000 shares of such preferred stock,
which has preferential dividend and liquidation rights, have been authorized and designated. No such shares
are outstanding. In the event that an acquiring person or group acquires the specified ownership percentage of
CarMax, Inc. common stock (except pursuant to a cash tender offer for all outstanding shares determined to
be fair by the board of directors) or engages in certain transactions with the company after the rights become
exercisable, each right will be converted into a right to purchase, for half the current market price at that time,
shares of CarMax, Inc. common stock valued at two times the exercise price. The company also has an
additional 19,880,000 authorized shares of undesignated preferred stock of which no shares are outstanding.
(B) Stock Incentive Plans
The company maintains long-term incentive plans for management, key employees, and the non-employee
members of the board of directors. The plans allow for the grant of equity-based compensation awards,
including nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock awards,
stock grants, or a combination of awards. As of February 28, 2006, a total of 17,000,000 shares of CarMax
common stock have been authorized to be issued under the long-term incentive plans. The number of
unissued common shares reserved for future grants under the long-term incentive plans was 6,286,198 at
February 28, 2006.
Stock Options. Substantially all of the grants have been made as nonqualified stock options that vest
annually in equal amounts over periods of 3 years to 4 years. These options generally expire no later than ten
years after the date of grant.
STOCK OPTION ACTIVITY
Years Ended February 28 or 29
2006 2005 2004
Weighted Weighted Weighted
Average Average Average
(Shares in thousands) Shares Exercise Price Shares Exercise Price Shares Exercise Price
Outstanding at beginning
of year ..................................... 7,092 $17.45 5,676 $12.24 4,345 $10.25
Granted ........................................ 2,640 $26.53 2,126 $29.47 2,154 $14.59
Exercised ...................................... (651) $ 9.13 (522) $ 8.40 (693) $ 6.53
Cancelled...................................... (312) $24.37 (188) $21.50 (130) $14.88
Outstanding at end of year........... 8,769 $20.55 7,092 $17.45 5,676 $12.24
Exercisable at end of year ........... 3,627 $13.99 2,693 $ 9.93 1,839 $ 8.02
OUTSTANDING STOCK OPTIONS
As of February 28, 2006 Options Outstanding Options Exercisable
Weighted Average
(Shares in thousands) Number Remaining Weighted Average Number Weighted Average
Range of Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
$1.63 to $3.31............................ 501 1.0 $ 1.79 501 $ 1.79
$4.89........................................... 937 2.0 $ 4.89 937 $ 4.89
$6.06 ......................................... 245 0.3 $ 6.06 245 $ 6.06
$13.25 to $18.60........................ 1,711 7.0 $14.32 792 $14.34
$20.00 to $26.83........................ 3,241 7.6 $26.43 640 $26.67
$28.26 to $43.44........................ 2,134 8.0 $29.56 512 $29.97
Total ........................................... 8,769 6.4 $20.55 3,627 $13.99
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