CarMax 2011 Annual Report Download - page 78

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changes could have a significant impact on our funding costs. See Notes 4 and 5 for additional information on the
related securitized auto loan receivables.
12. STOCK AND STOCK-BASED INCENTIVE PLANS
(A) Shareholder Rights Plan and Undesignated Preferred Stock
In conjunction with our 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, and as adjusted for our March 2007 2-for-1 stock split, each right
would entitle the holder to buy one half of 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 300,000
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. We also have an additional
19,700,000 authorized shares of undesignated preferred stock of which no shares are outstanding.
(B) Stock Incentive Plans
We maintain long-term incentive plans for management, key employees and the nonemployee members of our 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- and cash-settled restricted
stock units, stock grants or a combination of awards. To date, we have not awarded any incentive stock options.
Prior to fiscal 2007, the majority of associates who received share-based compensation awards primarily received
nonqualified stock options. From fiscal 2007 through fiscal 2009, these associates primarily received restricted
stock instead of stock options, and beginning in fiscal 2010, these associates primarily received cash-settled
restricted stock units instead of restricted stock awards. Senior management and other key associates continue to
receive awards of nonqualified stock options and, starting in fiscal 2010, stock-settled restricted stock units.
Nonemployee directors continue to receive awards of nonqualified stock options and stock grants.
Nonqualified Stock Options. Nonqualified stock options are awards that allow the recipient to purchase shares of
our common stock at a fixed price. Stock options are granted at an exercise price equal to the fair market value of
our common stock on the grant date. Substantially all of the stock options vest annually in equal amounts over
periods of three to four years. These options are subject to forfeiture and expire no later than ten years after the date
of the grant.
Restricted Stock. Restricted stock awards are awards of our common stock that are subject to specified restrictions
and a risk of forfeiture. The restrictions typically lapse three years from the grant date. Participants holding
restricted stock are entitled to vote on matters submitted to holders of our common stock for a vote.
Stock-Settled Restricted Stock Units. Also referred to as market stock units, or MSUs, these are awards to eligible
key associates that are converted into between zero and two shares of common stock for each unit granted at the end
of a three-year vesting period. The conversion ratio is calculated by dividing the average closing price of our stock
during the final forty trading days of the three-year vesting period by our stock price on the grant date, with the
resulting quotient capped at two. This quotient is then multiplied by the number of MSUs granted to yield the
number of shares awarded. MSUs are subject to forfeiture and do not have voting rights.
Cash-Settled Restricted Stock Units. Also referred to as restricted stock units, or RSUs, these are awards that entitle
the holder to a cash payment equal to the fair market value of a share of our common stock for each unit granted at
the end of a three-year vesting period. However, the cash payment per RSU will not be greater than 200% or less
than 75% of the fair market value of a share of our common stock on the grant date. RSUs are liability awards that
are subject to forfeiture and do not have voting rights.
As of February 28, 2011, a total of 39,200,000 shares of our 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 5,815,552 as of February 28, 2011.