Big Lots 2009 Annual Report Download - page 69

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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 qualified 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 qualified 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 years ending before the change in control (or over the participant’s entire period of service if that period is
less than five calendar years). This average is called the “Base Amount.” An excess parachute payment is the amount
by which any parachute payment exceeds the portion of the Base Amount allocated to such payment.
Some participants in the 2005 Incentive Plan may receive parachute payments in connection with a change in
control. If this happens, the value of each participant’s parachute payment from the 2005 Incentive Plan must be
combined with other parachute payments the same participant is entitled to receive under other agreements or
arrangements with us or our subsidiaries, such as an employment agreement or a change in control agreement. If
the participant is a disqualified individual and the combined value of all parachute payments is an excess parachute
payment, the participant must pay an excise tax equal to 20% of the value of all parachute payments above
100% of the participant’s Base Amount. This tax is due in addition to other federal, state and local income, wage
and employment taxes. Also, neither we nor any of our subsidiaries would be able to deduct the amount of any
participant’s excess parachute payment and the $1,000,000 limit on deductible compensation under Section 162(m)
would be reduced by the amount of the excess parachute payment.
The 2005 Incentive Plan addresses excess parachute payment penalties. Generally, if a participant in the 2005
Incentive Plan receives an excess parachute payment, the value of the payment is reduced to avoid the excess
parachute penalties. However, the 2005 Incentive Plan also states that other means of dealing with these penalties
will be applied if required by the terms of another written agreement (whether currently in effect or adopted in
future) with us or any of our subsidiaries (such as an employment or a change in control agreement). Each named
executive officer has an employment agreement with us that provides that if the payments received by the named
executive officer in connection with a change in control constitute an excess parachute payment under Section
280G of the IRC, the named executive officer is entitled to reimbursement for any excise tax imposed under
Section 4999 of the IRC, or the executive’s benefits under his or her employment agreement will be reduced to the
extent necessary to become one dollar less than the amount that would generate such excise tax, if this reduction
results in a larger after-tax amount to the executive as compared to the excise tax reimbursement method. The
compensation payable on account of a change in control may be subject to the deductibility limitations of Sections
162(m) and 280G of the IRC.