Big Lots 2007 Annual Report Download - page 63

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The participant’s basis in such common shares is equal to the sum of the stock option exercise price plus the
amount includible in his or her income as compensation upon exercise. Any gain (or loss) upon subsequent
disposition of the common shares will be a long-term or short-term gain (or loss), depending upon the holding
period of the common shares.
If a participant tenders previously owned common shares in payment of the NQSO exercise price, then, instead
of the treatment described above, the following generally will apply: a number of new common shares equal
to the number of previously owned common shares tendered will be considered to have been received in a tax-
free exchange; the participant’s basis and holding period for such number of new common shares will be equal
to the basis and holding period of the previously owned common shares exchanged; the participant will have
compensation income equal to the fair market value on the exercise date of the number of new common shares
received in excess of such number of exchanged common shares; the participant’s basis in such excess shares will
be equal to the amount of such compensation income; and the holding period in such common shares will begin on
the exercise date.
Stock Appreciation Rights
Generally, a participant that receives a stand-alone or tandem SAR will not recognize taxable income at the time
the SAR is granted. If a participant receives the appreciation inherent in either form of SAR in cash, the cash will
be taxed as ordinary income to the participant at the time it is received. If a participant receives the appreciation
inherent in either form of SARs in common shares, the spread between the then-current fair market value of the
common shares and the base price will be taxed as ordinary income to the participant at the time it is received. In
general, there will be no federal income tax deduction allowed to us upon the grant or termination of either form of
SAR. However, upon the settlement of either form of SAR, we will be entitled to a deduction equal to the amount
of ordinary income the participant is required to recognize as a result of the settlement.
Other Awards
The current United States federal income tax consequences of other Awards authorized under the 2005 Incentive
Plan are generally in accordance with the following: (i) the fair market value of restricted stock is generally subject
to ordinary income tax at the time the restrictions lapse, unless the participant elects to accelerate recognition
as of the grant date, and (ii) the amount of cash paid (or the fair market value of the common shares issued) to
settle restricted stock units and performance units is generally subject to ordinary income tax. In each of the
foregoing cases, we will generally be entitled to a corresponding federal income tax deduction at the same time the
participant recognizes ordinary income.
Section 162(m)
As described above, Awards granted under the 2005 Incentive Plan may qualify as “performance based
compensation” under Section 162(m) in order to preserve federal income tax deductions by us with respect to
annual compensation required to be taken into account under Section 162(m) that is in excess of $1,000,000 and
paid to our CEO or our three other highest compensated executives (excluding the principal financial officer)
employed at the end of the fiscal year. To qualify for this exception, Awards must be granted under the 2005
Incentive Plan by the Committee and satisfy the 2005 Incentive Plan’s limit on the total number of common
shares that may be awarded to any one participant during a year. In addition, for Awards other than stock options
to qualify as “performance based compensation,” the issuance or vesting of the Award, as applicable, must be
contingent upon satisfying one or more of the performance goals listed in the 2005 Incentive Plan, as established
and certified by the Committee.
Sections 280G and 4999
Section 280G of the IRC disallows deductions for excess parachute payments and Section 4999 of the IRC imposes
penalties on persons who receive excess parachute payments. A parachute payment is the present value of any
compensation amount that is paid to “disqualified individuals” (such as our and our subsidiaries’ officers and highly
paid employees) that are contingent upon or paid on account of a change in control – but only if such payments, in the
aggregate, are equal to or greater than 300% of the participant’s taxable compensation averaged over the five calendar