Dollar General 2014 Annual Report Download - page 157

10-K
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Share-based payments
The Company accounts for share-based payments in accordance with applicable accounting
standards, under which 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.
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 allows 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 January 30, 2015, 19,025,398 of
such shares are available for future grants.
Since May 2011, most of share-based awards issued by the Company have been in the form of
stock options, restricted stock units and performance share units. The Company has also granted a
performance-based restricted stock award discussed in greater detail below. Stock options granted to
employees and board members generally vest ratably on an annual basis over a four-year and
three-year period, respectively. Restricted stock units generally vest ratably over a three-year period.
Performance share units generally vest ratably over a three-year period, provided that certain minimum
performance criteria are met in the year of grant. With limited exceptions, the performance share unit
and restricted stock unit awards are automatically converted into shares of common stock on the
vesting date.
From July 2007 through May 2011, a significant majority of the Company’s share-based awards
were stock options that vest solely upon the continued employment of the recipient (‘‘MSA Time
Options’’) and options that vest upon the achievement of predetermined annual or cumulative
financial-based targets (‘‘MSA Performance Options’’). MSA Time Options and MSA Performance
Options generally vest ratably on an annual basis over a period of approximately five years, with limited
exceptions.
Both the MSA Time Options and the MSA Performance Options are subject to various provisions
set forth in a management stockholder’s agreement (‘‘MSA’’) entered into with each option holder. The
MSA contains certain put and call rights and other provisions pertaining to both the option holder and
the Company which may, in certain scenarios, affect the holder’s ability to sell or realize market value
for these instruments and any shares acquired thereunder. Vesting of the MSA Performance Options is
contingent upon meeting specified annual or cumulative financial targets. The MSA Time Options and
MSA 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.
83