Circuit City 2007 Annual Report Download - page 49

7. STOCK-BASED COMPENSATION PLANS
The Company currently has four equity compensation plans which reserve shares of common stock for issuance to key employees,
directors, consultants and advisors to the Company. The following is a description of these plans:
The 1995 Long-term Stock Incentive Plan - This plan, adopted in 1995, allowed the Company to issue qualified, non-
qualified and deferred
compensation stock options, stock appreciation rights, restricted stock and restricted unit grants, performance unit grants and other stock
based awards authorized by the Compensation Committee of the Board of Directors. Options issued under this plan expire ten years after
the options are granted. The ability to grant new awards under this plan ended on December 31, 2005 but awards granted prior to such date
continue until their expiration. A total of 862,867 options were outstanding under this plan as of December 31, 2007.
The 1995 Stock Option Plan for Non-Employee Directors - This plan, adopted in 1995, provides for automatic awards of non-qualified
options to directors of the Company who are not employees of the Company or its affiliates. All options granted under this plan will have a
ten year term from grant date and are immediately exercisable. A maximum of 100,000 shares may be granted for awards under this plan.
The ability to grant new awards under this plan ended on October 12, 2006 but awards granted prior to such date continue until their
expiration. A total of 39,000 options were outstanding under this plan as of December 31, 2007.
The 1999 Long-term Stock Incentive Plan, as amended (“1999 Plan”) - This plan was adopted on October 25, 1999 with substantially the
same terms and provisions as the 1995 Long-
term Stock Incentive Plan. A maximum of 5.0 million shares may be granted under this plan.
The maximum number of shares granted per type of award to any individual may not exceed 1,500,000 in any calendar year and 3,000,000
in total. No award shall be granted under this plan after December 31, 2009. Restricted stock grants and common stock awards reduce
stock options otherwise available for future grant. A total of 1,739,070 options and 600,000 restricted stock units were outstanding under
this plan as of December 31, 2007.
The 2006 Stock Incentive Plan For Non-Employee Directors — This plan, adopted by the Company’s stockholders on October 11, 2006,
replaces the 1995 Stock Option Plan for Non-Employee Directors. The Company adopted the plan so that it could offer directors of the
Company who are not employees of the Company or of any entity in which the Company has more than a 50% equity interest
(“independent directors”) an opportunity to participate in the ownership of the Company by receiving options to purchase shares of
common stock at a price equal to the fair market value at the date of grant of the option and restricted stock awards. Awards for a
maximum of 200,000 shares may be granted under this plan. A total of 15,000 options were outstanding under this plan as of
December 31 , 2007.
Shares issued under our share-based compensation plans are usually issued from shares of our common stock held in the treasury.
Adoption of SFAS 123(R)
Effective January 1, 2006, the Company adopted the provisions of SFAS 123(R), using the modified-prospective-transition method. Under
that transition method, compensation cost recognized for the year ended December 31, 2006 includes: (a) compensation cost for all share-
based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair value estimated in accordance with
the original provisions of SFAS 123, and (b) compensation cost for the vested portion of share-based payments granted subsequent to
January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). Results for prior periods
have not been restated.
The fair value of employee share options is recognized in expense over the vesting period of the options, using the graded attribution
method. The fair value of employee share options is determined on the date of grant using the Black-Scholes option pricing model. The
Company has used historical volatility in its estimate of expected volatility. The expected life represents the period of time (in years) for
which the options granted are expected to be outstanding. The Company used the simplified method for determining expected life as
permitted in SEC Staff Accounting Bulletin 107 for options qualifying for treatment (“plain-vanilla” options) due to the limited history the
Company currently has with option exercise activity. The risk-free interest rate is based on the U.S. Treasury yield curve.
Compensation cost related to non-qualified stock options recognized in operating results (selling, general and administrative expense) for
the years ended December 31, 2007 and 2006 was $3,435,000 and $1,756,000, respectively. The related future income tax benefits
recognized for the years ended December 31, 2007 and 2006 were $1,147,000 and $599,000, respectively.
47