Dollar General 2009 Annual Report Download - page 108

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Share-based payments (Continued)
Both the Time Options and the Performance Options are subject to various provisions set forth in
a management stockholder’s agreement entered into with each option holder 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 stockholder’s 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, for accounting purposes such options are not considered vested
until the expiration of the Company’s call option, which is generally five years subsequent to the date
of grant. Accordingly, all references to the vesting provisions or vested status of the options discussed
in this note give effect to the vesting pursuant to these accounting provisions and may differ from
descriptions of the vesting status of the Time Options and Performance Options located elsewhere in
the Company’s Annual Report on Form 10-K. The Company records expense for Time Options on a
straight-line basis over the term of the management stockholder’s agreement (generally five years).
Each of the Company’s management-owned shares, Rollover Options, and vested new options
include certain provisions by which the holder of such shares, Rollover Options, or vested new options
may require the Company to repurchase such instruments in limited circumstances. Specifically, each
such instrument is subject to a put right for a period of 365 days after termination due to the death or
disability of the holder of the instrument that occurs generally within five years from the date of grant.
In such circumstances, the holder of such instruments may require the Company to repurchase any
shares at the fair market value of such shares and any Rollover Options or vested new options at a
price equal to the intrinsic value of such Rollover or vested new options. Because the Company does
not have control over the circumstances in which it may be required to repurchase the outstanding
shares or Rollover Options, such shares and Rollover Options, valued at $14.4 million and $4.1 million,
respectively, at January 29, 2010, and $9.7 million and $4.2 million, respectively, at January 30, 2009,
have been classified as Redeemable common stock in the accompanying consolidated balance sheets as
of these dates. The values of these equity instruments are based upon the fair value and intrinsic value
of the underlying stock and Rollover Options at the date of issuance. Because redemption of such
shares is uncertain, such shares are not subject to re-measurement until their redemption becomes
probable.
Subsequent to the Merger, the Company’s Board of Directors adopted an Equity Appreciation
Rights Plan, which plan was later amended and restated (as amended and restated, the ‘‘Rights Plan’’).
The Rights Plan provides for the granting of equity appreciation rights to nonexecutive managerial
employees. In 2009, the Rights Plan was modified such that certain equity appreciation rights vested as
a result of the Company’s initial public offering that otherwise would not have vested. At January 30,
2009, 571,678 equity appreciation rights were outstanding. During 2009, 763,495 equity appreciation
rights were granted, 515,817 of such rights, affecting 775 employees, vested in conjunction with the
Company’s initial public offering, 18,615 of such rights vested as a result of other provisions of the
Rights Plan, 102,979 of such rights were cancelled and 697,762 of such rights, with a base price of
$8.8725, remain outstanding at January 29, 2010. These rights will vest upon the occurrence of certain
stock offerings, change in control or employee termination events as defined in the Rights Plan.
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