OfficeMax 2014 Annual Report Download - page 100

Table of Contents
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
In addition, the Company assumed the share issuance plan formerly related to OfficeMax employee grants, the 2003 OfficeMax Incentive and Performance
Plan (the “2003 Plan”). Eight types of awards may be granted under the 2003 Plan, including stock options, stock appreciation rights, restricted stock,
restricted stock units, performance units, performance shares, annual incentive awards and stock bonus awards. Awards granted under this plan are of Office
Depot, Inc. common stock.
Each option to purchase OfficeMax common stock outstanding immediately prior to the effective time of the Merger was converted into an option to
purchase Office Depot common stock, on the same terms and conditions adjusted by the 2.69 exchange ratio provided for in the Merger Agreement. The fair
value of those options was measured using an option pricing model with the following assumptions: risk-free rate 0.42%; expected life 2.34; dividend yield
of zero; expected volatility 52.18% and forfeiture rate of 5%.
Similarly, each previously-existing OfficeMax restricted stock and restricted stock unit outstanding immediately prior to the effective time of the Merger was
converted into an Office Depot restricted stock or restricted stock unit, as appropriate, at the 2.69 exchange ratio. The fair value of these awards was allocated
to consideration and unearned compensation, based on the past and future service conditions. The assumed awards related to the Merger have been
identified, as applicable, in the tables that follow.
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The Company’s stock option exercise price for each grant of a stock option shall not be less than 100% of the fair market value of a share of common stock
on the date the option is granted. Options granted under the Plan and the 2003 Plan have vesting periods ranging from one to five years and from one to three
years after the date of grant, respectively, provided that the individual is continuously employed with the Company. Following the date of grant, all options
granted under the Plan and the 2003 Plan expire no more than ten years and seven years, respectively. No stock options were granted in 2014.
A summary of the activity in the stock option plans for the last three years is presented below.
 2013 2012
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


 Shares
Weighted
Average
Exercise
Price Shares
Weighted
Average
Exercise
Price
Outstanding at beginning of year     12,578,071 $ 5.25 19,059,176 $ 6.90
Granted     2,003,000 5.24 82,000 3.22
Assumed — Merger     13,142,351 3.62 — —
Forfeited     (2,072,560) 8.83 (4,512,372) 14.51
Exercised     (2,948,328) 1.40 (2,050,733) 0.88
Outstanding at end of year     22,702,534 $ 4.48 12,578,071 $ 5.25
The weighted-average grant date fair values of options granted during 2013 and 2012 were $3.00 and $1.86, respectively, using the following weighted
average assumptions for grants:
• Risk-free interest rates of 1.69% for 2013 and 0.94% for 2012
• Expected lives of six years for 2013 and 4.5 years for 2012
• A dividend yield of zero for both years
• Expected volatility ranging from 61% to 69% for 2013 and 72% to 74% for 2012
• Forfeitures are anticipated at 5% and are adjusted for actual experience over the vesting period
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