Dollar General 2011 Annual Report Download - page 185

10-K
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Share-based payments
The Company accounts for share-based payments in accordance with applicable accounting
standards. Under these standards, the fair value of each award is separately estimated and amortized
into compensation expense over the service period. The fair value of the Company’s stock option grants
are estimated on the grant date using the Black-Scholes-Merton valuation model. Forfeitures are
estimated at the time of valuation and reduce expense ratably over the vesting period. The application
of this valuation model involves assumptions that are judgmental and highly sensitive in the
determination of compensation expense.
Prior to a merger transaction in 2007, the Company maintained various share-based compensation
programs which included options and other share-based awards. In connection with the merger
transaction, in limited circumstances, certain stock options held by Company management were
exchanged for new options to purchase common stock in the Company (the ‘‘Rollover Options’’).
Subject to certain adjustments to the number of options and the exercise price, the Rollover Options
generally continue under the terms of the equity plan under which the original options were issued.
On July 6, 2007, the Company’s Board of Directors adopted the 2007 Stock Incentive Plan for Key
Employees, which plan was subsequently amended (as so amended, 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 31,142,858. As of February 3, 2012, 19,338,127 of
such shares are available for future grants.
Under the Plan, the Company has granted options that vest solely upon the continued employment
of the recipient (‘‘Time Options’’), options that vest upon the achievement of predetermined annual or
cumulative financial-based targets (‘‘Performance Options’’) and other awards. Time and Performance
stock options generally vest ratably on an annual basis over either a four or a five-year period, while
other stock options awards vest over varying time periods.
Assuming specified financial targets are met, the Performance Options vest as of the Company’s
fiscal year end, and as a result the initial and final tranche of each Performance Option grant is
prorated based upon the date of grant. In the event the performance target is not achieved in any given
annual performance period, the Performance Options for that period may still subsequently vest,
provided that a cumulative performance target is achieved. Vesting of the Time Options and
Performance Options is also subject to acceleration in the event of an earlier change in control or
certain public offerings of the Company’s common stock. 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 underlying common stock on the date of grant.
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