Bed Bath & Beyond (BBBY)

Section 409A Remediation for Employee Stock Options

A special committee of two independent members of the Company’s Board of Directors, with the assistance of independent legal counsel and outside accounting advisors, conducted a review of the stock option grants and restricted stock awards made by the Company during the period from its initial public offering in 1992 through May 15, 2006.  The review identified various deficiencies in the process of granting and documenting stock options and shares of restricted stock.  As a result of these deficiencies, the special committee recommended, among other things, revised measurement dates for certain stock option grants.  The exercise price for most of these stock option grants was less than the fair market value of the Company’s common stock on the revised measurement date.

For purposes of Section 409A, a stock option granted with an exercise price that is deemed to be less than the fair market value of the underlying common stock on the date of grant, to the extent that it was not vested as of January 1, 2005, will be subject to adverse tax consequences for the grantee of the option unless brought into compliance with Section 409A (such stock options are referred to as the “Affected Options”).  On December 21, 2006, the Company’s Board of Directors (excluding the three directors who are officers of the Company) and the Compensation Committee jointly approved the following actions with respect to the named executive officers:

·      With respect to all outstanding Affected Options granted to Messrs. Eisenberg, Feinstein and Temares, the exercise price of such options was increased prior to the end of calendar 2006 to the fair market value of the Company’s common stock on the revised measurement dates.  Each of Messrs. Eisenberg, Feinstein and Temares had informed the Board that they declined to be considered for payment of the difference between the original exercise price and the fair market value of the Company’s common stock on the revised measurement date for each Affected Option or any other payment or consideration in respect of such adjustment to the exercise price of the Affected Options held by him, and had also informed the Board that they believed the appropriate remediation for their Affected Options was an increase in the exercise price rather than (as described below in the following bullet point) a restriction on their exercise period.

·      With respect to all outstanding Affected Options granted to Messrs. Stark and Castagna, each was given the choice, with respect to each grant of such Affected Options, either to (i) select a calendar year in which such Affected Options would be exercisable (with earlier limited exercise periods in the case of his separation from service under pre-existing employment agreements, subject to the six month delay to the extent required by Section 409A), or (ii) elect to increase the exercise price of such Affected Options to the fair market value of the Company’s common stock on the revised measurement dates, in which case he agreed he would not receive payment for the difference between the original exercise price and the fair market value of the Company’s common stock on the revised measurement date for each applicable Affected Option or any other payment or consideration in respect of such adjustment to the exercise price of the Affected Options held by him.

The above actions were taken and effective December 29, 2006.  The background and circumstances surrounding these actions are more fully disclosed in the Company’s Form 8-K, dated December 21, 2006.

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