Office Depot 2003 Annual Report Download - page 81

79 Office Depot 2003 / Proxy Statement
Performance Awards. Our Compensation Committee may
grant performance awards contingent upon achievement of set
goals and objectives with respect to specified performance cri-
teria, such as return on equity, over a specified performance
cycle, as designated by the Committee. Performance awards
may include specific dollar-value target awards, performance
units, (the value of which is established by our Compensation
Committee at the time of grant) and/or performance shares,
the value of which is equal to the fair market value of a share
of our common stock on the date of grant. The value of a per-
formance award may be fixed or may fluctuate on the basis of
specified performance criteria. The number of shares of our
common stock or the amount of cash that can be granted to a
participant to satisfy a performance award in any one year
cannot exceed 100,000 shares or $2.0 million, respectively.
Except as otherwise provided by our Compensation Commit-
tee, in the event of a change in control of our company, or if a
grantee ceases to be a director, officer or employee of, or oth-
erwise perform services for, Office Depot or its subsidiaries
due to death, or retirement, prior to completion of a perform-
ance cycle, the grantee will receive the portion of the perform-
ance award payable to him or her based upon the achievement
of the applicable performance criteria over the elapsed portion
of the performance cycle. If a grantee ceases to be a director,
officer or employee of, or otherwise perform services for us or
one of our subsidiaries for any other reason prior to comple-
tion of a performance cycle, the grantee will become ineligi-
ble to receive any portion of a performance award.
Vesting. The terms and conditions of each award made
under the Plan, including vesting requirements, will be set
forth, consistent with the Plan, in a written document provided
to each grantee. Unless our Compensation Committee deter-
mines otherwise, no award under the Plan may vest and
become exercisable within twelve months of the date of grant;
other than immediately prior to a change in control of our
Company and in certain other circumstances upon a partici-
pant’s termination of employment or performance of services
as described above.
Transferability. Unless our Compensation Committee deter-
mines otherwise, no award made pursuant to the Plan will be
transferable otherwise than by will or the laws of descent and
distribution, and each award may be exercised only by the
grantee or his or her guardian or legal representative.
Amendment and Termination of the Plan. No options may be
granted under the Plan after the close of business on September
30, 2007 and the Plan may be terminated by our Board at any
time. Our Compensation Committee, with concurrence of the
Board, may amend the Plan in its discretion, except that no
amendment will become effective without the approval of our
shareholders if such approval is necessary for continued com-
pliance with the performance-based compensation exception
of Section 162(m) of the Code or any stock exchange listing
requirements.
Certain Federal Income Tax Consequences of the Plan
The following discussion is intended only as a brief summary
of the federal income tax rules relevant to options or shares
issued under the Plan, as based upon the Code as currently in
effect. These rules are highly technical and subject to change
in the future. Because federal income tax consequences will
vary as a result of individual circumstances, grantees should
consult their personal tax advisors with respect to the tax con-
sequences associated with stock options. Moreover, the fol-
lowing summary relates only to grantees’United States federal
income tax treatment, and the state, local and foreign tax con-
sequences may be substantially different. Certain Plan partici-
pants are residents of foreign countries. These grantees are
provided country-specific tax summary information at the
time they receive grants under the Plan.
Non-Qualified Options. A grantee does not recognize any
taxable income, and we are not entitled to a tax deduction, upon
the grant of a non-qualified option. Upon the exercise of a
non-qualified option, the grantee recognizes ordinary income
(subject to wage and employment tax withholding) equal to
the excess of the fair market value of our common stock
acquired over the option exercise price. A grantee’s basis in
the stock received is equal to such stock’s fair market value on
the date of exercise. We are entitled to a tax deduction equal to
the compensation taxable to the grantee.
If a grantee sells our common stock acquired pursuant to the
exercise of a non-qualified option, the grantee will recognize
capital gain or loss equal to the difference between the selling
price of the stock and the grantee’s basis in the stock. Capital
gains are currently taxed at a maximum rate of 15% in the
case of stock held for more than 12 months, and 35% in the
case of stock held for not more than 12 months. The capital
gain holding period will begin on the exercise date. We are not
entitled to any tax deduction with respect to any capital gain
recognized by the grantee.
Capital losses on the sale of stock may be used to offset capi-
tal gains. If capital losses exceed capital gains, then up to
$3,000 of the excess losses may be deducted from ordinary
income. Remaining capital losses may be carried forward to
future tax years.
Incentive Options. An optionee does not recognize taxable
income on the grant or exercise of an incentive option.
However, the excess of the stock’s fair market value on the
exercise date over the option exercise price will be included in
the grantee’s alternative minimum taxable income and thereby
may subject the grantee to an alternative minimum tax. Such
alternative minimum tax may be payable even though the
grantee receives no cash upon the exercise of his or her incen-
tive option with which to pay such tax.
Upon the disposition of shares of our common stock acquired
pursuant to the exercise of an incentive option, if such shares
are held for (i) more than one year after the date of exercise,
and (ii) more than two years after the grant date (the “ Required