Big Lots 2007 Annual Report Download - page 57

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increase in available common shares under the 2005 Incentive Plan is necessary for us to (i) grant future
Awards to our outside directors, (ii) continue to attract, retain and motivate director and employee
participants, and (iii) continue to align the interests of participants with the interests of our shareholders.
• Ensure that any Award made under the 2005 Incentive Plan that constitutes deferred compensation for
purposes of Section 409A of the IRC is paid in accordance with the requirements of Section 409A.
• Require that equitable antidilutive adjustments be made in the event of certain changes affecting us
(e.g., a merger, spin-off or reorganization) or our capital structure (e.g., a stock split, stock dividend
or recapitalization). Under FAS 123R, any change to the terms of an equity award constitutes
a modification for which companies are: (i) required to calculate the incremental fair value of
the modified award; (ii) reassess the probability of vesting; and (iii) recognize any incremental
compensation cost over the remaining service period. For example, modification accounting may apply
if, after a 2-for-1 stock split, a company elects (but is not required) to double the number of common
shares underlying a preexisting stock option and reduce by one-half the exercise price of the stock
option in order to preserve the value of the stock option after the stock split. Because the potential
incurrence of incremental compensation cost under FAS 123R depends on whether these adjustments
are required (as opposed to permitted) by the antidilution provisions of the equity compensation
plan, we believe it is advisable to add a mandatory antidilution provision to the 2005 Incentive Plan.
While the 2005 Incentive Plan possesses an antidilution provision, equitable adjustments thereunder
are discretionary. We believe amending the 2005 Incentive Plan to make the antidilution provision
mandatory, we will avoid potential compensation costs we may incur under the modification accounting
guidance of FAS 123R in the event of certain changes affecting us or our capital structure. We are not
presently contemplating a reorganization, recapitalization, merger, spin-off, stock split or other change
relating to us or our capital structure that would trigger antidilution adjustments.
• Allow participants one year from the date of their termination of service to exercise all vested NQSOs
and SARs. Currently, a participant may exercise his or her vested NQSOs and SARs for (i) one year
after termination of service if he or she terminates service because of death or disability and (ii) 90
days after termination of service if he or she terminates service for any other reason (in each case,
subject to the expiration date of the Award). The proposed amendments will allow a participant, under
all circumstances, one year after the date of his or her termination of service to exercise all vested
NQSOs and SARs (in each case, subject to the expiration date of the Award). We believe this change is
necessary to provide equity awards that are competitive with those companies with whom we compete
for talent.
• Change the way we administer Awards. The proposed amendments will modify the way in which we
administer the settlement of Awards, the payment of stock option exercise prices, and the satisfaction of
tax withholding obligations after the exercise or vesting of Awards. We believe these modifications are
necessary to allow us to more efficiently administer the 2005 Incentive Plan.
• Update and clarify certain performance criteria and adjustment categories and add a new adjustment
category. The proposed amendments to Article X (Performance-Based Awards) of the 2005 Incentive
Plan principally consist of (i) updates to reflect current authoritative literature referenced in, and to
further clarify, the performance criteria and adjustment categories, and (ii) the inclusion of a new
adjustment category to account for the tax effect of any tax laws or regulations, or amendments
thereto, that become effective after the beginning of the applicable period during which the Committee
measures whether or not Awards intended to qualify as “performance based compensation” under
Section 162(m) are earned (“Performance Period”). We believe the updates and clarifications facilitate
a better understanding of the plan’s terms by participants, shareholders, administrators and us. We
believe the addition of the new adjustment category is appropriate to account for changes in tax laws or
regulations that are not effective, and therefore not included in the performance measures established by
the Committee, at the beginning of the Performance Period.
The proposed amendments to the 2005 Incentive Plan will become effective if and when approved by our
shareholders at the Annual Meeting. In the event that our shareholders do not approve the proposed amendments to
the 2005 Incentive Plan, Awards previously granted by us under the 2005 Incentive Plan will remain valid and the
2005 Incentive Plan will remain in effect.