Dollar General 2007 Annual Report Download - page 126

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each option. Additionally, each NEO received in exchange for each RSU or share of restricted
stock an amount in cash, without interest and less applicable withholding taxes, equal to $22.00.
Certain NEOs elected to roll over their existing options in connection with the Merger (the
“Rollover Options”). The exercise price of the Rollover Options and the number of shares
underlying the Rollover Options were adjusted as a result of the Merger to provide their pre-
Merger value equivalents. The Rollover Options otherwise continue under the terms of the equity
plan under which they were issued.
On July 6, 2007, our Board adopted the 2007 Stock Incentive Plan for Key Employees
(the “2007 Plan”). For certain designated employees, including NEOs, the Board required a
personal financial investment in Dollar General in order for the employee to be eligible to
receive an option grant under the 2007 Plan. That investment could be made in the form of cash,
rollover of stock and/or rollover of in-the-money options issued prior to the Merger. Each NEO
(other than Mr. Perdue who resigned and Mr. Dreiling who is discussed separately below) met
the personal investment requirement and, accordingly, received option grants under the 2007
Plan.
The options granted under the 2007 Plan are divided so that half are time-vested and half
are performance-vested based on a comparison of an EBITDA-based performance metric, as
described below, against pre-set goals for that performance metric. The combination of time and
performance based vesting of these awards is designed to compensate executives for long-term
commitment to us, while motivating sustained increases in our financial performance. The
options have an exercise price of $5 per share, which was the fair market value on the grant date.
The time-vested options vest and become exercisable ratably on each of the five
anniversary dates of July 6, 2007 solely based upon continued employment with us over that
time period. The performance-vested options are eligible to vest and become exercisable ratably
if the Board determines in good faith that we achieve specified annual performance targets based
on EBITDA and adjusted as described below. For fiscal 2007 that target was $700 million,
which was based on our annual financial plan and anticipated permitted adjustments, primarily to
account for unique expenses related to the Merger and costs associated with Project Alpha. If a
performance target for a given fiscal year is not met, the performance-based options may still
vest and become exercisable on a “catch up” basis if, at the end of a subsequent fiscal year
through fiscal 2012, a specified cumulative EBITDA-based performance target is achieved.
Because the performance targets are based on our long-term financial plan, we believe these
levels, while attainable, require strong performance and execution. We consider these
performance targets to be slightly more difficult to achieve than financial performance targets
associated with Teamshare compensation in prior years.
For purposes of calculating performance targets for our long-term incentive program,
“EBITDA” means earnings before interest, taxes, depreciation and amortization plus transaction,
management and/or similar fees paid to KKR and/or its affiliates. In addition, the Board is
required to fairly and appropriately adjust the calculation of EBITDA to reflect, to the extent not
contemplated in our financial plan, the following: acquisitions, divestitures, any change required
by generally accepted accounting principles (“GAAP”) relating to share-based compensation or
for other changes in GAAP promulgated by accounting standard setters that, in each case, the