Dollar General 2011 Annual Report Download - page 68

Proxy
will be fully exercisable and then shall terminate upon the change in control. The Committee may take
any of the foregoing actions with respect to any given outstanding award or group or types of awards,
and shall not be required to take any of the foregoing actions uniformly with respect to all outstanding
awards.
Adjustments for Share Dividends, Share Splits and Similar Events. Upon any share dividend,
share split, spin-off, share combination, reclassification, recapitalization, liquidation, dissolution,
reorganization, merger, change in control of Dollar General, payment of a dividend (other than a cash
dividend paid as part of a regular dividend program), exchange of shares or other corporate exchange,
equity restructuring, or other similar transaction or occurrence that affects our equity securities or the
value of our equity securities, the Committee must adjust the number and kind of shares subject to and
available for issuance under the 2007 Stock Incentive Plan, including participant maximums, adjust
awards then outstanding under the plan (including the number and kind of securities subject to the
award and, if applicable, the share and/or exercise price), and/or take such other action (including,
without limitation, providing for the payment of a cash amount to holders of outstanding awards), in
each case as it deems reasonably necessary to address, on an equitable basis, the effect of the
applicable corporate event on the plan and any outstanding awards.
What are the federal income tax consequences of awards granted under the 2007 Stock Incentive Plan?
Incentive Stock Options. The grant of an incentive stock option will not be a taxable event for
the participant or for Dollar General. A participant will not recognize taxable income upon exercise of
an incentive stock option (except that the alternative minimum tax may apply), and any gain realized
upon a disposition of our common stock received pursuant to the exercise of an incentive stock option
will be taxed as long-term capital gain if the participant holds the shares of common stock for at least
two years after the date of grant and for one year after the date of exercise (the ‘‘holding period
requirement’’). Dollar General will not be entitled to any business expense deduction with respect to
the exercise of an incentive stock option, except as discussed below.
For the exercise of an option to qualify for the foregoing tax treatment, the participant
generally must be our employee or an employee of one of our subsidiaries from the date the option is
granted through a date within three months before the date on which the option is exercised.
If all of the foregoing requirements except the holding period requirement are met, the
participant will recognize ordinary income upon the disposition of the common stock in an amount
generally equal to the excess of the fair market value of our common stock at the time the option was
exercised over the option exercise price (but not in excess of the gain realized on the sale). The
balance of the realized gain, if any, will be capital gain. Dollar General will be allowed a business
expense deduction to the extent the participant recognizes ordinary income, subject to our compliance
with Section 162(m) and to certain reporting requirements.
Non-Qualified Stock Options. The grant of a non-qualified stock option will not be a taxable
event for the participant or Dollar General. Upon exercising a non-qualified option, a participant will
recognize ordinary income in an amount equal to the difference between the exercise price and the fair
market value of our common stock on the date on which the option is exercised. Upon a subsequent
sale or exchange of shares acquired pursuant to the exercise of a non-qualified option, the participant
will have taxable capital gain or loss, measured by the difference between the amount realized on the
disposition and the tax basis of the shares of common stock (generally, the amount paid for the shares
plus the amount treated as ordinary income at the time the option was exercised).
If Dollar General complies with applicable reporting requirements and with the restrictions of
Section 162(m), Dollar General will be entitled to a business expense deduction in the same amount
and generally at the same time as the participant recognizes ordinary income.
60