Office Depot 2003 Annual Report Download - page 79

77 Office Depot 2003 / Proxy Statement
In April 2002, our shareholders voted to amend the Plan to
provide for certain changes in the Plan that included allowing
for the grant to our executive officers and members of our
Board, as an alternative to traditional stock options (“ TSO’s”),
certain performance-accelerated stock options (“ PSO’s”),
which have a longer vesting period and a shorter term than
TSO’s, but as to which the vesting may be accelerated upon
the occurrence of certain positive performance achievements
by our Company. The creation of PSO’s by our Board (and
approval by our shareholders) was, in part, a response to the
fact that in recent years, a number of companies have imple-
mented various types of performance-based stock options.
Some of these plans utilize stock options granted at exercise
prices that are at a fixed amount or a fixed percentage above
the market price of the issuer’s stock on the date of grant.
Others use so-called performance-contingent options, where
the stock option is forfeited if a certain level of stock price
performance is not achieved. Yet others use what are referred
to as performance-accelerated stock options. These stock
options are issued at the market price on the date of grant, but
have a significantly longer vesting schedule than traditional
stock options. Vesting may be accelerated, however, if speci-
fied company performance criteria are met.
Our Compensation Committee and Board determined, and our
shareholders approved, Plan amendments to utilize the third
of these alternatives, or performance-accelerated stock
options, as a component of the stock option grants to our
Chairman and Chief Executive Officer, our Division
Presidents, our Executive Vice Presidents and our Directors.
Why Do We Need an Increase in the Number of Shares
Available for Awards Under the Plan?
Our Company has enjoyed considerable growth in the period
since 2000, when we last requested an increase in the number
of authorized shares under the Plan. For example, in 2003, we
substantially expanded our operations in Europe through the
acquisition of Guilbert, S.A., virtually doubling the size of our
business in Europe and establishing the Company as the lead-
ing reseller in the office supplies business in many key coun-
tries in Europe. In the same four-year period, our e-commerce
business worldwide has enjoyed spectacular growth to over
$2.6 billion in annual sales in 2003. With these expansions of
our business, we have added a number of key personnel,
including new country management leadership in Europe, e-
commerce management, and we anticipate continuing to add
personnel, particularly in Europe and in technical areas, such
as our IT organization and our rapidly expanding e-commerce
business. In addition, our contract business continues to grow,
and we expect to continue to add key managers in this area.
This dramatic increase in our overall business size, coupled
with ambitious plans for the future growth of our Company,
requires that we have sufficient shares authorized for issuance
to new key managers and other employees. If we do not add
sufficient capacity to the Plan, we may be unable to attract the
right caliber of personnel to our Company or to retain the serv-
ices of key managers currently with our Company, including
key executives in recently-acquired businesses, which could
jeopardize the future growth prospects of our Company.
As a result of these factors, we have determined that we do
not currently have available a sufficient number of shares
authorized under the Plan to cover normally anticipated needs.
We believe at this time that an increase of 15 million shares,
from 47,068,750 shares to 62,068,750 authorized shares under
the Plan will be sufficient to cover our anticipated needs under
the Plan for the next several years, possibly until 2008. This is
consistent with our commitment to shareholders in 2000 that
the increase approved at that time would be sufficient for at
least three (3) years, which has turned out to be the case.
Steps Taken to Counter Dilution
Our Company is aware of the potential for dilution under the
Plan, as more shares are issued. To help counter this dilutive
effect, our Board has authorized in recent years a series of
stock repurchase plans, of approximately $50 million annu-
ally, to offset dilution due to issuance of shares under the
Plan. In 2001–2002, we repurchased 3,154,031 of our shares
for this purpose, and in 2003, we repurchased 3,222,635 of
our shares for the same purpose. While future repurchases are
in the discretion of our Board of Directors, they have author-
ized an additional $50 million in repurchases in 2004, to
counter dilution by additional awards under the Plan.
Description of the Plan
General. The Plan, which our shareholders first approved
effective October 1, 1997, allows us to grant stock options,
stock appreciation rights (“ SARs”) in tandem with options,
restricted stock, performance awards and any combination of
the foregoing to directors, officers, key employees, and certain
other key individuals who perform services for our Company.
Stock options, as discussed above, now include either TSO’s
or PSO’s. The original purpose of adopting the Plan was to
incentivize eligible individuals to maximize shareholder value
and otherwise contribute to the success of our Company. The
Plan also enables us to attract, retain and reward the best
available persons for positions of substantial responsibility.
The Plan is administered by the Compensation Committee of
our Board. Because grants awarded under the Plan are made
entirely at the discretion of this Committee, the recipients,
amounts and values of future benefits to be received pursuant
to the Plan are not determinable. The shares of our Common
stock reserved for issuance pursuant to the Plan are subject to
adjustment in the event of a reorganization, recapitalization,
stock split, stock dividend or similar change in our corporate
structure or the outstanding shares of our common stock. Such
shares may be authorized and unissued or reacquired and held
as treasury shares.