Dollar General 2008 Annual Report Download - page 141

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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
as determined by our Board of Directors.
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 and fiscal 2008 that target was
$700 million and $828 million, respectively, which targets were based on the long-term financial
plan at the time of the Merger and anticipated permitted adjustments, primarily to account for
unique expenses related to the Merger. 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.
For purposes of calculating the achievement of 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 Board in good faith determines require adjustment to the EBITDA
performance metric we use for our long-term incentive program. Adjustments to EBITDA for
purposes of calculating performance targets or our long-term incentive program may not in all
circumstances be identical to adjustments to EBITDA for other purposes, including our
Teamshare targets and the covenants contained in our principal financial agreements.
Accordingly, comparability of such measures is limited.
The specified adjusted EBITDA performance targets were achieved for both fiscal 2007
and fiscal 2008.
Benefits and Perquisites. We provide benefits and limited perquisites to named executive
officers for retention and recruiting purposes, to promote tax efficiency for such persons, and to
replace benefit opportunities lost due to regulatory limits. We also provide named executive
officers with benefits and perquisites as additional forms of compensation that are believed to be
consistent and competitive with benefits and perquisites provided to similar positions in our
market comparator group and our industry. Most of the perquisites were established prior to the
Merger by the former Compensation Committee, which believed these benefits and perquisites