Dollar General 2007 Annual Report Download - page 96

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Company’ s Board of Directors. In addition, pursuant to that Compensation Committee action,
the vesting of all outstanding options granted on or after August 2, 2005 but prior to January 24,
2006, other than options granted during that time period to the officers of the Company at the
level of Executive Vice President or above, accelerated effective as of the date that is six months
after the applicable grant date. Certain options granted on January 24, 2006 to certain newly
hired officers below the level of Executive Vice President were granted with a six-month vesting
period. The decision to accelerate the vesting of these stock options resulted in compensation
expense of $0.9 million, before income taxes, recognized during the fourth quarter of 2005, and
was made primarily to reduce non-cash compensation expense to be recorded in future periods
under the provisions of SFAS 123(R). The future expense eliminated as a result of the decision
to accelerate the vesting of these options was approximately $28 million, or $17 million net of
income taxes, over the four-year period during which the stock options would have vested,
subject to the impact of additional adjustments related to certain stock option forfeitures. The
Company also believed this decision benefited employees.
On July 6, 2007, the Company’ s Board of Directors adopted the 2007 Stock Incentive
Plan for Key Employees (the “Plan”). The Plan provides for the granting of stock options, stock
appreciation rights, and other stock-based awards or dividend equivalent rights to key
employees, directors, consultants or other persons having a service relationship with the
Company, its subsidiaries and certain of its affiliates. The number of shares of Company
common stock authorized for grant under the Plan is 24,000,000. As of February 1, 2008,
3,470,200 of such shares are available for future grants.
During the Successor period ended February 1, 2008, the Company granted options that
vest solely upon the continued employment of the recipient (“Time Options”) as well as options
that vest upon the achievement of predetermined annual or cumulative financial-based targets
that coincide with the Company’ s fiscal year (“Performance Options”). According to the award
terms, 20% of the Time Options vest on each of the five successive anniversary dates of the
merger transaction, and 20% of the Performance Options vests at the end of each of the
successive five fiscal years in which the performance target is achieved. In the event the
performance target is not achieved in any given year, such options for that year will subsequently
vest upon the achievement of a cumulative performance target. Vesting of the Time Options and
Performance Options is also subject to acceleration in the event of an earlier change in control or
public offering. Each of these options, whether Time Options or Performance Options have a
contractual term of 10 years and an exercise price equal to the fair value of the stock on the date
of grant.
Both the Time Options and the Performance Options are subject to various provisions by
which the Company may require the employee, upon termination, to sell to the Company any
vested options or shares received upon exercise of the Time Options or Performance Options at
amounts that differ based upon the reason for the termination. In particular, in the event that the
employee resigns “without good reason” (as defined in the management stockholders
agreement), then any options whether or not then exercisable are forfeited and any shares
received upon prior exercise of such options are callable at the Company’ s option at an amount
equal to the lesser of fair value or the amount paid for the shares (i.e. the exercise price). In such
cases, because the employee would not benefit in any share appreciation over the exercise price,