UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Dollar General Corporation | ||||
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Dollar General Corporation 100 Mission Ridge Goodlettsville, Tennessee 37072 | ||
Dear Shareholder:
The 20112012 Annual Meeting of Shareholders of Dollar General Corporation will be held on Wednesday, May 25, 2011,Friday, June 1, 2012, at 9:00 a.m., Central Time, at Goodlettsville City Hall Auditorium, 105 South Main Street, Goodlettsville, Tennessee. All shareholders of record at the close of business on March 16, 201123, 2012 are invited to attend the annual meeting. For security reasons, however, to gain admission to the meeting you may be required to present photo identification and comply with other security measures.
At this year's meeting, you will have an opportunity to vote on the matters described in our accompanying Notice of Annual Meeting of Shareholders and Proxy Statement. Our 20102011 Annual Report and our Annual Report on Form 10-K for the fiscal year ended January 28, 2011February 3, 2012 also accompany this letter.
Your interest in Dollar General and your vote are very important to us. We encourage you to read the Proxy Statement and vote your proxy as soon as possible so your vote can be represented at the annual meeting. You may vote your proxy via the Internet or telephone, or if you received a paper copy of the proxy materials by mail, you may vote by mail by completing and returning a proxy card.
On behalf of the Board of Directors, I would like to express our appreciation for your continued interest in Dollar General.
Sincerely, | ||
/s/ Rick Dreiling | ||
Rick Dreiling Chairman & Chief Executive Officer |
April 5, 20112012
Dollar General Corporation 100 Mission Ridge Goodlettsville, Tennessee 37072 | ||
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
DATE: | ||||
TIME: | 9:00 a.m., Central Time | |||
PLACE: | Goodlettsville City Hall Auditorium 105 South Main Street Goodlettsville, Tennessee | |||
ITEMS OF BUSINESS: | 1) | To elect as directors the 7 nominees listed in the | ||
2) | To | |||
3) | To | |||
4) | To ratify the appointment of the independent registered public accounting firm for fiscal | |||
5) | To transact any other business that may properly come before the annual meeting and any adjournments of that | |||
WHO MAY VOTE: | Shareholders of record at the close of business on March | |||
By Order of the Board of Directors, | ||||
/s/ Christine L. Connolly | ||||
Goodlettsville, Tennessee April 5, | Christine L. Connolly Corporate Secretary |
Please vote your proxy as soon as possible even if you expect to attend the annual meeting in person. You may vote your proxy via the Internet or by phone by following the instructions on the notice of internet availability or proxy card, or if you received a paper copy of these proxy materials by mail, you may vote by mail by completing and returning the enclosed proxy card in the enclosed reply envelope. No postage is necessary if the proxy is mailed within the United States. You may revoke your proxy by following the instructions listed on page 43 of the proxy statement.
DOLLAR GENERAL CORPORATION
Proxy Statement for20112012 Annual Meeting of Shareholders
TABLE OF CONTENTS
General Information | 1 | ||
Voting Matters | |||
Proposal 1: Election of Directors | |||
Corporate Governance | |||
Director Compensation | |||
Director Independence | |||
Transactions with Management and Others | |||
Executive Compensation | |||
Compensation Discussion and Analysis | |||
Compensation Committee Report | |||
Summary Compensation Table | |||
Grants of Plan-Based Awards in Fiscal | |||
Outstanding Equity Awards at | |||
Option Exercises and Stock Vested During Fiscal | |||
Pension Benefits Fiscal | |||
Nonqualified Deferred Compensation Fiscal | |||
Potential Payments upon Termination or Change in Control as of | |||
Compensation Committee Interlocks and Insider Participation | |||
Compensation Risk Considerations | |||
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Security Ownership | |||
Security Ownership of Certain Beneficial Owners | |||
Security Ownership of Officers and Directors | |||
Proposal 2: Vote Regarding the Amended and Restated 2007 Stock Incentive Plan | 54 | ||
Proposal 3: Vote Regarding the Amended and Restated Annual Incentive Plan | 66 | ||
Audit Committee Report | |||
Proposal 4: Ratification of Appointment of Auditors | |||
Fees Paid to Auditors | |||
Section 16(a) Beneficial Ownership Reporting Compliance | 71 | ||
Shareholder Proposals for | |||
Appendix A: Amended and Restated 2007 Stock Incentive Plan | A-1 | ||
Appendix B: Amended and Restated Annual Incentive Plan | B-1 |
IMPORTANT NOTICE REGARDING AVAILABILITY OF PROXY MATERIALS
This Proxy Statement, our 20102011 Annual Report and a form of proxy card are available at www.proxyvote.com. You will need your Notice of Internet Availability or proxy card to access the proxy materials.
As permitted by rules adopted by the Securities and Exchange Commission ("SEC"), we are furnishing our proxy materials over the Internet to some of our shareholders. This means that some shareholders will not receive paper copies of these documents. Instead, these shareholders will receive only a Notice of Internet Availability containing instructions on how to access the proxy materials over the Internet. The Notice of Internet Availability also contains instructions on how each of those shareholders can request a paper copy of our proxy materials, including the Proxy Statement, our 20102011 Annual Report and a proxy card. Shareholders who do not receive a Notice of Internet Availability will receive a paper copy of the proxy materials by mail, unless they have previously requested delivery of proxy materials electronically. If you received only the Notice of Internet Availability and would like to receive a paper copy of the proxy materials, the notice contains instructions on how you can request copies of these documents.
What is this document?
This documentIt is the Proxy Statement of Dollar General Corporation for the Annual Meeting of Shareholders to be held on Wednesday, May 25, 2011.Friday, June 1, 2012. We will begin mailing printed copies of this document or the Notice of Internet Availability to our shareholders on or about April 5, 2011.2012. We are providing this document to solicit your proxy to vote upon certain matters at the annual meeting.
In this document weWe refer to our company as "we" or"we," "us" or "Dollar General." In addition, unlessUnless otherwise noted in this document or therequired by context, requires otherwise,"2012," "2011," "2010," "2009,""2009" and "2008" and "2007" refer to our fiscal years ending or ended February 1, 2013, February 3, 2012, January 28, 2011, January 29, 2010 and January 30, 2009, and February 1, 2008.2009.
What is a proxy?proxy, who is asking for it, and who is paying for the cost to solicit it?
ItA proxy is your legal designation of another person, called a "proxy," to vote the stock you own.your stock. The document that designates someone as your proxy is also called a proxy or a proxy card.
Who is paying the costs of this document and the solicitation of my proxy?
Dollar General will pay all expenses of this solicitation.
Who is soliciting my proxy, and will anyone be compensated to solicit my proxy?
Your proxy is being solicited by and on behalf of our Board of Directors. In addition to solicitation by useDollar General will pay all expenses of the mails, ourthis solicitation. Our directors, officers and employees may solicit proxies in person or by mail, telephone, telegram, electronic mail,e-mail, facsimile or other means of communication. Those personsmeans. They will not be additionally compensated, but may be reimbursed for out-of-pocket expenses in connection with any solicitation.they incur. We also may reimburse custodians nominees and fiduciariesnominees for their expenses in sending proxies and proxy material to beneficial owners.
Who may attend the annual meeting?
Only shareholders, their proxy holders and our invited guests may attend the meeting. If your shares are registered in the name of a broker, trust, bank or other nominee, you will need to bring a proxy or a letter from that record holder or your most recent brokerage account statement that confirms your ownership of those shares as of March 16, 2011.23, 2012. For security reasons, we also may require photo identification for admission.
Where can I find directions to the annual meeting?
You can find directionsDirections to Goodlettsville City Hall, where we will hold the annual meeting, are posted on the "Investor Information" portion of our web site located at www.dollargeneral.com.
What is Dollar General Corporation and where is it located?
We operate convenient-sized stores to deliver everyday low prices on products that families use every day. We are the largest discount retailer in the United States by number of stores with more than 9,4009,900 locations in 3539 states as of March 16, 2011.2, 2012. Our principal executive offices are located at 100 Mission Ridge, Goodlettsville, TN 37072. Our telephone number is 615-855-4000.
Where is Dollar General common stock traded?
Our common stock is traded and quoted on the New York Stock Exchange ("NYSE") under the symbol "DG."
Where can I find information regarding Dollar General's corporate governance practices?
We have posted Dollar General governance-related information on the "Investor Information—Corporate Governance" portion of our web site located at www.dollargeneral.com, including without limitation our Corporate Governance Guidelines, Code of Business Conduct and Ethics, the charter of each of the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee, and the names of the persons chosen to lead the executive sessions of the non-management directors and of the independent directors. This information is available in print to any shareholder who sends a request in writing to: Investor Relations, Dollar General Corporation, 100 Mission Ridge, Goodlettsville, TN 37072.
How can I communicate with the Board of Directors?
Our Board of Directors has approved a process for security holders and other interested parties to contact the Board, a particular director, or the non-management or the independent directors as a group. Such process is described on the "Investor Information—Corporate Governance" portion of our web site located at www.dollargeneral.com.
How many votes must be present to hold the annual meeting?
A quorum, consisting of the presence in person or by proxy of the holders of a majority of shares of our common stock outstanding on March 16, 2011,23, 2012, must exist to conduct any business.
What am I voting on?
You will be asked to vote on the election of 7 directors, to vote on an advisory basis on our executive compensation, to vote on an advisory basis on the frequency of holding future advisory votes on our executive compensation, and to vote on the ratification of the appointment of our independent registered public accounting firm for 2011.the:
• | election of 7 directors; | ||
• | approval of the Amended and Restated 2007 Stock Incentive Plan for Key Employees of Dollar General Corporation and its Affiliates (the "2007 Stock Incentive Plan") and the material terms of the performance-based compensation under the 2007 Stock Incentive Plan for purposes of compensation deductibility under Internal Revenue Code Section 162(m); | ||
• | approval of the Amended and Restated Dollar General Corporation Annual Incentive Plan (the "Annual Incentive Plan") and the material terms of the performance-based compensation under the Annual Incentive Plan for purposes of compensation deductibility under Internal Revenue Code Section 162(m); and | ||
• | ratification of the appointment of our independent registered public accounting firm for 2012. |
May other matters be raised at the annual meeting?
We currently are unaware of any other matters to be acted upon at the meeting. Under Tennessee law and our governing documents, no other non-procedural business may be raised at the meeting unless proper notice has been given to shareholders. If other business is properly raised, your proxies have authority to vote as they think best, including to adjourn the meeting.
Who is entitled to vote?
You may vote if you owned shares of Dollar General common stock at the close of business on March 16, 2011.23, 2012. As of that date, there were 341,521,858338,417,840 shares of Dollar General common stock outstanding and entitled to vote. Each share is entitled to one vote on each matter.
How do I vote?
If you are a shareholder of record, you may vote your proxy over the telephone or Internet or, if you received printed proxy materials, by marking, signing, dating and returning the printed proxy card in the enclosed envelope. Please refer to the instructions on the Notice of Internet Availability or proxy card, as applicable. Alternatively, you may vote in person at the meeting.
If you are a "street name" holder, your broker, bank, or other nominee will provide materials and instructions for voting your shares. You may vote in person at the meeting if you obtain a proxy from your broker, banker, trustee or other nominee giving you the right to vote the shares.
What is the difference between a "shareholder of record" and a "street name" holder?
You are a "shareholder of record" if your shares are registered directly in your name with Wells Fargo Shareowner Services, our transfer agent. You are a "street name" holder if your shares are held in the name of a brokerage, bank, trust or other nominee as custodian.
What if I receive more than one Notice of Internet Availability or proxy card?
You will receive multiple Notices of Internet Availability or proxy cards if you hold your shares in different ways (e.g., joint tenancy, trusts, custodial accounts, etc.) or in multiple accounts. If you are a street name holder, you will receive your Notice of Internet Availability or proxy card or other voting information, along with voting instructions, from your broker, and you will follow your broker's instructions for voting your shares. You shouldbroker. Please vote the shares represented by each Notice of Internet Availability or proxy card you receive.
How will my proxy be voted?
The persons named on the proxy card will vote your proxy as you direct on the proxy card. If your signed proxy card does not specify instructions, your proxy will be voted: "FOR" all directors nominated; "FOR" the approval on an advisory basis, of the compensation of our named executive officers as disclosed in this proxy statement pursuantmatters pertaining to the compensation disclosure rules2007 Stock Incentive Plan; "FOR" the approval of the SEC; formatters pertaining to the approval, on an advisory basis, of an advisory vote on executive compensation once every "3 YEARS;"Annual Incentive Plan; and "FOR" ratification of Ernst & Young LLP as our independent registered public accounting firm for 2011.2012.
Can I change my mind and revoke my proxy?
Yes. If you are a shareholder of record, to revoke a proxy given pursuant to this solicitation you must:
• | sign a later-dated proxy card and submit it so that it is received before the annual meeting in accordance with the instructions included in the proxy card; | ||
• | at or before the annual meeting, send to our Corporate Secretary a written notice of revocation dated later than the date of the proxy; | ||
• | submit a later-dated vote by telephone or Internet no later than 11:59 p.m. (ET) on May 31, 2012; or | ||
• | attend the annual meeting and vote in person. |
If you are a street name holder, to revoke a proxy given pursuant to this solicitation you must follow the instructions of the bank, broker, trustee or other nominee who holds your shares.
How many votes are needed to elect directors and approve other matters?
Directors are elected by a plurality of the votes cast by holders of shares entitled to vote at the meeting. YouThe matters pertaining to the 2007 Stock Incentive Plan will be approved if the votes cast for the proposal exceed the votes cast against it, as long as the total votes cast on the proposal represent over 50% of all shares entitled to vote on the proposal. The matters pertaining to the Annual Incentive Plan and the ratification of the appointment of the auditors for 2012 will be approved if the votes cast for the applicable proposal exceed the votes cast against it.
With respect to the director elections, you may vote for all nominees or you may withhold your vote on one or more nominees.
The vote on With respect to each of the compensation of our named executive officers is advisory and, therefore, not binding on Dollar General, our Board of Directors, or its Compensation Committee. The compensation of our named executive officers will be approved, on an advisory basis, if the votes cast for the proposal exceed the votes cast against it. Youother proposals, you may vote in favor of or against this proposal, or you may elect to abstain from voting your shares.
For the vote on the frequency of future votes on our executive compensation, the option of one year, two years or three years that receives the highest number of votes cast by shareholders will be the frequency that has been selected by shareholders. However, because this vote is advisory and not binding on Dollar General or our Board of Directors in any way, our Board may decide that it is in the best interests of our shareholders and Dollar General to hold such advisory votes more or less frequently than the option selected by our shareholders. You may vote by choosing the option of 1 year, 2 years, 3 years or abstain from voting when you vote on this proposal.
The ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2011 will be approved if the votes cast for the proposal, exceed the votes cast against it. You may vote in favor of or against this ratification, or you may elect to abstain from voting your shares.
How will abstentions and broker non-votes be treated?
Abstentions and broker non-votes, if any, will be treated as shares that are present and entitled to vote for purposes of determining whether a quorum is present butand, except as provided in the next sentence, will not be counted as votes cast either in favor of or against a particular proposal. With regard to the proposal pertaining to our 2007 Stock Incentive Plan, however, abstentions will have the same effect as votes cast against this proposal and broker non-votes (i) will have the same effect as votes cast against this proposal if 50% or less of the shares entitled to vote at the meeting are cast on this proposal, and (ii) will not have any effect on the result of the vote if more than 50% of the shares entitled to vote at the meeting are cast on this proposal.
What are broker non-votes?
YourAlthough your broker is the record holder of any shares that you hold in street name, but your brokerit must vote those shares pursuant to your instructions. If you do not provide instructions, your broker may exercise discretionary voting power over your shares for "routine" mattersitems but not for "non-routine" items. All matters described in this proxy statement, except for the ratification of the appointment of the independent registered public accounting firm, are considered to be non-routine matters.
"Broker non-votes" occur when shares held of record by a broker are not voted on a matter because the broker has not received voting instructions from the beneficial owner of the shares and either lacks or declines to exercise the authority to vote the shares in its discretion. To avoid giving them the effect of negative votes, except with respect to the proposal regarding our 2007 Stock Incentive Plan as discussed above, broker non-votes generally are disregarded for the purpose of determining the total number of votes cast with respect to a proposal.
Will my vote be confidential?
Proxy instructions, ballots and voting tabulations that identify individual shareholders are handled in a manner that is intended to protect your voting privacy. Your vote will not be intentionally disclosed either within Dollar General or to third parties, except (1) as necessary to meet applicable legal requirements; (2) in a dispute regarding authenticity of proxies and ballots; (3) in the case of a contested proxy solicitation, if the other party soliciting proxies does not agree to comply with the confidential voting policy; (4) to allow for the tabulation of votes and certification of the vote; (5) to facilitate a successful proxy solicitation; or (6) when a shareholder makes a written comment on the proxy card or otherwise communicates the vote to management.
PROPOSAL 1:
ELECTION OF DIRECTORS
What is the structure of the Board of Directors?
Our Board of Directors must consist of at least 1 but not more thanto 15 directors. Thedirectors, with the exact number, currently fixed at 7, is set by the Board pursuant to and in compliance with our shareholders' agreement with our controlling shareholder, Buck Holdings, L.P., and the sponsor shareholders indentifiedidentified in that agreement. All directors are elected annually by our shareholders.
Who are the nominees this year?
The nominees for the Board of Directors consist of 7 current directors. If elected, each nominee would hold office until the 20122013 annual meeting of shareholders or until his or her successor is elected and qualified. These nominees, their ages at the date of this document and the calendar year in which they first became a director are listed in the table below.
Name | Age | Director Since | Age | Director Since | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Raj Agrawal | 38 | 2007 | 39 | 2007 | |||||||
Warren F. Bryant | 65 | 2009 | 66 | 2009 | |||||||
Michael M. Calbert | 48 | 2007 | 49 | 2007 | |||||||
Richard W. Dreiling | 57 | 2008 | 58 | 2008 | |||||||
Adrian Jones | 46 | 2007 | 47 | 2007 | |||||||
William C. Rhodes, III | 45 | 2009 | 46 | 2009 | |||||||
David B. Rickard | 64 | 2010 | 65 | 2010 |
What are the backgrounds of this year's nominees?
Mr. Agrawaljoined Kohlberg Kravis Roberts & Co., L.P. ("KKR") in May 2006 and is a memberthe North American head of theKKR's Infrastructure team.business. He previously was a member of KKR's Retail and Energy and Natural Resources industry teams. From 2002 to May 2006, he was a Vice President with Warburg Pincus, where he was involved in the execution and oversight of a number of investments in the energy and infrastructure sector. Mr. Agrawal's prior experience also includes Thayer Capital Partners, where he played a role in the firm's business and manufacturing services investments, and McKinsey & Co., where he provided strategic and mergers and acquisitions advice to clients in a variety of industries. KKR's affiliates indirectly own a substantial portion of our outstanding common stock through their investment in Buck Holdings, L.P. and related entities. Mr. Agrawal is a director of Colonial Pipeline Company and El Paso Midstream Investment Corp.
Mr. Bryantserved as the President and Chief Executive Officer of Longs Drug Stores Corporation, a retail drugstore chain on the West Coast and in Hawaii, from 2002 through 2008 and as its Chairman of the Board from 2003 through his retirement in 2008. Prior to joining Longs Drug Stores, Mr. Bryanthe served as the Senior Vice President of The Kroger Co., a retail grocery chain, from 1999 to 2002. Mr. Bryant is a director of OfficeMax Incorporated and George Weston LtdLTD of Canada.
Mr. Calbertjoined KKR in 2000 and during that time has been directly involved with several portfolio companies. He heads the Retail industry team.team within KKR's Private Equity platform. He joined Randall's Food Marketsserved as the Chief Financial Officer of Randall's Food Markets beginning in 1994, ultimately taking the company through a transaction with KKR in June 1997. He left Randall's Food Markets after the companyit was sold in September 1999 and joined KKR. Mr. Calbert started his professional careeralso previously worked as a consultant with Arthur Andersen Worldwide, where his primary focus was on the retail/consumer industry. He served as our Chairman until December 2008. KKR's affiliates indirectly own a substantial portion of our outstanding common stock through their
common stock through their investment in Buck Holdings, L.P. and related entities. Mr. Calbert is currently on the board of directorsa director of Toys "R" Us, Inc., US Foods, Pets at Home and U.S. Foodservice.Academy, Ltd.
Mr. Dreilingjoined Dollar General in January 2008 as Chief Executive Officer and a member of our Board. He was appointed Chairman of the Board on December 2, 2008. Prior to joining Dollar General, Mr. Dreiling served as Chief Executive Officer, President and a director of Duane Reade Holdings, Inc. and Duane Reade Inc., the largest drugstore chain in New York City, from November 2005 until January 2008 and as Chairman of the Board of Duane Reade from March 2007 until January 2008. Prior to that, Mr. Dreiling, beginning in March 2005, he served as Executive Vice President—Chief Operating Officer of Longs Drug Stores Corporation, an operator of a chain of retail drug stores on the West Coast and Hawaii, after having joined Longs in July 2003 as Executive Vice President and Chief Operations Officer. From 2000 to 2003, Mr. Dreilinghe served as Executive Vice President—Marketing, Manufacturing and Distribution at Safeway, Inc., a food and drug retailer. Prior to that, Mr. Dreiling served from 1998 to 2000 as President of Vons, a Southern California food and drug division of Safeway. He currently serves as the Vice Chairman of the Retail Industry Leaders Association (RILA). Mr. Dreiling is a director of Lowe's Companies, Inc.
Mr. Joneshas been with Goldman, Sachs & Co. since 1994. He is a managing director in Principal Investment Area (PIA) in New York where he focuses on consumer-related and healthcare opportunities. Affiliates of Goldman, Sachs & Co. indirectly own a substantial portion of our outstanding common stock through their investment in Buck Holdings, L.P. and related entities. Mr. Jones is currently on the board of directorsa director of Biomet, Inc., Education Management Corporation, HealthMarkets, Inc., Signature Hospital, LLC and Michael Foods Inc. and Del Taco Holdings,Group, Inc. He also previously served on the board of directors of Burger King Holdings, Inc. from 2002 to 2008.
Mr. Rhodeswas elected Chairman of AutoZone, a specialty retailer and distributor of automotive replacement parts and accessories, in June 2007. He has served as President and Chief Executive Officer and as a director of AutoZone since 2005. Prior to his appointment as President and Chief Executive Officer, Mr. Rhodes was Executive Vice President—Store Operations and Commercial. Prior to 2005,2004, he had been Senior Vice President—Supply Chain and Information Technology since 2002, and prior thereto had been Senior Vice President—Supply Chain since 2001. Prior to that time, he served in various capacities with AutoZone, including Vice President—Stores in 2000, Senior Vice President—Finance and Vice President—Finance in 1999, and Vice President—Operations Analysis and Support.Support from 1997 to 1999. Prior to 1994, Mr. Rhodes was a manager with Ernst & Young, LLP.
Mr. Rickardserved as the Executive Vice President, Chief Financial Officer and Chief Administrative Officer of CVS Caremark Corporation, a retail pharmacy chain and provider of healthcare services and pharmacy benefits management, from September 1999 until his retirement in December 2009. Prior to joining CVS Caremark, Mr. Rickard was the Senior Vice President and Chief Financial Officer of RJR Nabisco Holdings Corporation from March 1997 to August 1999. Previously, he was Executive Vice President of International Distillers and Vintners Americas. Mr. Rickard is a director of Harris Corporation and Jones Lang LaSalle Incorporated. He served as a director of The May Companies from January 2005 to August 2005.
How are directors identified and nominated?
All persons nominatednominees for election as directors at the 2011 annual meeting are currently serving on our Board of Directors and were recommended for re-election by our Compensation, Nominating and Corporate Governance Committee. We established that Committee in connection with the initial public offering of our common stock in November 2009.(the "CNG Committee"). The Nominating and Corporate GovernanceCNG Committee is responsible for identifying, evaluating and recommending future director candidates, subject to the terms of the shareholders' agreement and Mr. Dreiling's employment agreement discussed below. Our Board is responsible for nominating the slate of directors for election by shareholders at the annual meeting.
The Nominating and Corporate GovernanceCNG Committee's charter and our Corporate Governance Guidelines require the CNG Committee to consider candidates timely submitted by our shareholders in accordance with the notice provisions and procedures set forth inof our Bylaws (as described below under(see "Can shareholders nominate directors?") below) and to apply the same criteria to the evaluation of those candidates as the Committeeit applies to other director candidates. The CNG Committee may also use a variety of other methods to identify potential director candidates, such as recommendations by our directors, management, or third party search firms. No third partyIn January 2012, the Board instructed the CNG Committee to initiate a search for additional director candidates. The CNG Committee has retained a third-party search firm is currently retained to assist in that process. Ouridentifying potential future Board is responsible for nominatingcandidates who meet our qualification and experience requirements, as well as compiling and evaluating information regarding the slatecandidates' qualifications, experience and independence.
Four of directors to be elected by our shareholders at the annual meeting, upon the Committee's recommendation.
Our directors, Messrs. Agrawal, Calbert, Dreiling and Jones, are managers of Buck Holdings, LLC, which serves as the general partner of Buck Holdings, L.P. The Second Amended and Restated Limited Liability Company Agreementlimited liability company agreement of Buck Holdings, LLC generally requires that Buck Holdings, LLC to cause anyshares of our common stock held by Buck Holdings, L.P. to be voted in favor of any person designated to be a member of our Board pursuant to our shareholders' agreement with Buck Holdings, L.P. described below.
Pursuant to our shareholders' agreement with Buck Holdings, L.P. and the sponsor shareholders identified in that agreement, certain of our shareholders have the right to designate nominees to our Board, subject to their election by our shareholders at the annual meeting. Specifically, KKR 2006 Fund L.P., KKR PEI Investments, L.P., KKR Partners III, L.P., 8 North America Investor LP, and their respective permitted transferees (collectively, the "KKR Shareholders") have the right to designate the following percentage of the number of total directors comprising our Board soas long as Buck Holdings, L.P. beneficially owns the following specified amount of the then outstanding shares of our common stock:
% of Directors KKR may Designate | Beneficial Ownership of Dollar General Common Stock by Buck Holdings, L.P. | |||
---|---|---|---|---|
Up to a majority | >50% | |||
Up to 40% | >40% but < or equal to 50% | |||
Up to 30% | >30% but < or equal to 40% | |||
Up to 20% | >20% but < or equal to 30% | |||
Up to 10% | At least 5% |
Any fractional amount that results from determining the percentage of the total number of directors will be rounded up to the nearestnext whole number (for example, if the applicable percentage would result in 2.1 directors, the KKR Shareholders will have the right to designate 3 directors).number. In addition, in the event that the KKR Shareholders only have the right to designate only one director, they also have the right to designate one person to serve as a non-voting observer to the Board.Board observer.
In addition, pursuant to the shareholders' agreement, GS Capital Partners VI Fund, L.P., GS Capital Partners VI Parallel, L.P., GS Capital Partners VI GmbH & Co. KG, GS Capital Partners VI Offshore Fund, L.P., GSUIG, L.L.C., Goldman Sachs DGC Investors, L.P. and Goldman Sachs DGC Investors Offshore Holdings, L.P., and their permitted transferees (collectively, the "Goldman Shareholders") have the right, to designate (i) one director soas long as they beneficially own at least 5% of the then outstanding shares of our common stock, to designate one director and (ii) one person to serve as a non-voting Board observer.
Each of the KKR Shareholders and the Goldman Shareholders have the right to remove and replace their director-designees at any time and for any reason and to fill any vacancies otherwise resulting in such director positions.
Pursuant to the shareholders' agreement, the KKR Shareholders have nominated Messrs. Calbert and Agrawal, and the Goldman Shareholders have nominated Mr. Jones. These nominees, like all of our director nominees, are subject to election by our shareholders at ourthe annual meeting.
Given current beneficial ownership by Buck Holdings, L.P. of our common stock, we are a "controlled company" under New York Stock Exchange ("NYSE") listing standards. For as long as we continue to qualify as a "controlled company" under NYSE listing standards and subject to applicable law, (i) theThe KKR Shareholders have the right to designate a majority of the members of our Nominating and Corporate Governance Committee and up to two members of our Compensation Committee and (ii) the Goldman Shareholdersalso have the right to designate one member to each such committee, as long as the Goldman Shareholders have the right to designate one director to our Board. If we do not qualify as a "controlled company" under NYSE listing standards, the KKR Shareholders have the right to designate one member to each of our Nominating and Corporate Governance Committee and CompensationCNG Committee for as long as they have the right to designate at least one director to our Board.Board, as long as such right is permitted under applicable NYSE listing standards. Under current NYSE listing standards, this right is anticipated to cease on April 2, 2013.
In addition, our employment agreement with Mr. Dreiling provides thatrequires Dollar General to (1) our Nominating and Corporate Governance Committee shall nominate him to serve as a member of our Board each year that he is slated for reelection to the Board; and (2) Dollar General shall also recommend to the Board that Mr. Dreiling serve as Chairman of the Board. FailureOur failure to nominate Mr. Dreiling for election by our shareholders to our Boarddo so would give rise to a breach of contract claim.
Our CEO initially recommended Messrs. Bryant and Rhodes to our Board for consideration, while Mr. Rickard was initially recommended by certain of our non-management directors.
How are nominees evaluated; what are the minimum qualifications?
Subject to the shareholders' agreement and Mr. Dreiling's employment agreement discussed above, the Nominating and Corporate GovernanceCNG Committee is charged with identifying, recruiting and recommending to the Board only those candidates that the Committeeit believes are qualified to become Board members consistent with the criteria for selection of new directors adopted from time to time by the Board. We have a written policy to strive to have a Board representing diverse experience at policy-making levels in business, education or other areas that are relevant to our business. To implement this policy, the CNG Committee assesses diversity inby evaluating each candidate's individual qualifications in the context of how that candidate would relate to the Board as a whole. The CNG Committee will periodically assess the effectiveness of this policy by considering whether the Board as a whole represents such diverse experience and recommending to the Board changes to the criteria for selection of new directors as appropriate. In connection with the ongoing director search, the CNG Committee will continue to assess the diversity of experience of the Board and any newly-identified director candidate. The CNG Committee recommends candidates, including those submitted by shareholders, only if the Committeeit believes the candidate's knowledge, experience and expertise would strengthen the Board and that the candidate is committed to representing the long-term interests of all Dollar General shareholders.
For as long as we continue to qualify as a "controlled company" under NYSE listing standards, we do not have to comply with the general NYSE rule that a majority of the Board be independent.
The Nominating and Corporate GovernanceCNG Committee assesses a candidate's independence, background and experience, as well as the current Board's skill needs and diversity. With respect to incumbent directors selected for re-election, the CNG Committee assesses each director's meeting attendance record and the suitability of continued service. In addition, individual directors and any nominee should be in a position to devote an adequate amount of time to the effective performance of director duties and possess the following characteristics: integrity and accountability, informed judgment, financial literacy, a cooperative approach, a record of achievement, loyalty, and the ability to consult with and advise management.
What particular experience, qualifications, attributes or skills led the Board of Directors to conclude that each nominee should serve as a director of Dollar General?
Our Board of Directors believes that each of this year'sthe nominees is in a position tocan devote an adequate amount of time to the effective performance of director duties and has concluded that each nominee possesses the minimum qualifications identified under "How are nominees evaluated; what are the minimum qualifications" above. In considering the Board as a whole, theThe Board has determined that this year'sthe nominees, as a whole, complement each other, meet the Board's skill needs, and represent diverse experience at policy-making levels in areas relevant to our business.
In addition, the The Board believes that the nominees possess the following experience, qualifications, attributes and skills andalso considered the following in determining that the nominees should serve as directors of Dollar General:
Retail and Energy industry teams, he gained significant experience advising retail companies. In addition, his experience as a director of companies outside the retail industry enables Mr. Agrawal to contribute a different perspective to Board discussions. Mr. Agrawal also has invaluable risk assessment experience.
public retail company and his 10 years of practice as a certified public accountant. Our Board has chosen Mr. Calbert to lead the executive sessions of the non-management directors.
leadership, consensus-building, strategic planning and budgeting skills, as well as extensive understanding of both short- and long-term issues confronting the retail industry. Mr. Rhodes also has a strong financial background and our Board has determined that he qualifies as an audit committee finance expert.
Acting upon the recommendation of the Nominating and Corporate GovernanceCNG Committee and in accordance with the shareholders' agreement, our Board has concluded that these nominees possess the appropriate experience, qualifications, attributes and skills to serve as directors of Dollar General and has nominated these individuals to be elected by our shareholders at our annual meeting.
Can shareholders nominate directors?
The KKR Shareholders and the Goldman Shareholders may nominate directors pursuant to the shareholders' agreement discussed above under "How are directors identified and nominated." Other shareholders can nominate directors by following the procedures set forth in our Bylaws. In short, the shareholder must timely deliver a written notice to our Corporate Secretary at 100 Mission Ridge, Goodlettsville, TN 37072. To be timely, the notice must be received no earlier than the close of business on the 120th day and not later than the close of business on the 90th day prior to the first anniversary of the preceding year's annual meeting. However, if the meeting is held more than 30 days before or more than 60 days after such anniversary date, the notice must be received no earlier than the close of business on the 120th day and not later than the close of business on the 90th day prior to the date of such annual meeting. If the first public announcement of the annual meeting date is less than 100 days prior to the date of such annual meeting, the notice must be received by the 10th day following the day on which the public announcement was made.
For example, to be considered for the 2012 annual shareholders' meeting, if the 2012 annual meeting is held not more than 30 days before and not more than 60 days after May 25, 2012, the
notice must be received no earlier than the close of business on January 26, 2012 and no later than the close of business on February 25, 2012. The notice must contain all information required by our Bylaws about the shareholder proposing the nominee and about the nominee, which generally includes:
You should consult our Bylaws for more detailed information regarding the process by which shareholders may nominate directors. Our Bylaws are posted on the "Investor Information—Corporate Governance" portion of our web site located at www.dollargeneral.com. No shareholder nominees have been proposed for this year's meeting, other than the nominees designated pursuant to the shareholders' agreement as discussed above.
What if a nominee is unwilling or unable to serve?
That is not expected to occur. If it does, the persons designated as proxies on your proxy card are authorized to vote your proxy for a substitute designated by our Board of Directors.
Are there any familial relationships between any of the nominees?
There are no familial relationships between any of the nominees or between any of the nominees and any of our executive officers.
What does the Board of Directors recommend?
Our Board recommends that you voteFORthe election of each of the director nominees.
Does Dollar General combine the positions of Chairman and CEO?
Yes. Our CEO, Mr. Dreiling serves as theCEO and Chairman of our Board of Directors. Mr. Dreiling's employment agreement with us provides that Dollar General shall recommend to the Board that he serve as the Chairman of the Board for as long as he is employed under such agreement.
The Board believes combining these roles provides an efficient and effective leadership model for Dollar General because, given Mr. Dreiling'shis day-to-day involvement with and intimate understanding of our specific business, industry and management team, Mr. Dreiling is particularly suited to effectively identify strategic priorities, lead the discussion and execution of strategy, and facilitate information flow between management and the Board. The Board further believes that combining these roles fosters clear accountability, effective decision-making, and alignment on the development and execution of corporate strategy. To promote effective independent oversight, the Board has adopted a number of governance practices, including:
The Board recognizes that no single leadership model is right for all companies and at all times, and the Board will review its leadership structure as appropriate to ensure it continues to be in the best interests of Dollar General and our shareholders.
Does Dollar General have a management succession plan?
Yes. Our Corporate Governance Guidelines require our Board of Directors to coordinate with our CEO to ensure that a formalized process governs long-term management development and succession, including succession in the event of an emergency or the retirement of our CEO. Our Board formally reviews our management succession plan at least annually. Our comprehensive program encompasses not only our CEO and other executive officers but all employees through the front-line supervisory level. The program focuses on key succession elements, including identification of potential successors for positions where it has been determined that internal succession is appropriate, assessment of each potential successor's level of readiness, and preparation of individual growth and development plans. With respect to CEO succession planning, the Company's long-term business strategy is also considered. In addition, we maintain at all times, and review with the Board periodically, a confidential procedure for the timely and efficient transfer of the CEO's responsibilities in the event of an emergency or his sudden incapacitation or departure.
Does the Board have standing Audit, Compensation and Nominating Committees?
Yes. Our Board of Directors has a standing Audit Committee and, in 2011, a Compensation Committee and a Nominating and Corporate Governance Committee. In January 2012, we combined the Compensation Committee and the Nominating and Corporate Governance Committee into the
CNG Committee. The Board has determined that all members of the Audit Committee and two members of the CompensationCNG Committee are independent as defined in the NYSE listing standards and in our Corporate Governance Guidelines. In addition, the Board has established (1) a sub-committeesubcommittee of our CompensationCNG Committee consisting of Messrs. Bryant and Rhodes for purposes of approving any compensation that may otherwise be subject to Section 162(m) of the Internal Revenue Code of 1986, as amended. Noneamended; and (2) a subcommittee of our CNG Committee consisting of Messrs. Bryant and Calbert for purposes of overseeing the members of the Nominating and Corporate Governance Committee are independent as defined in the NYSE listing standards and in our Corporate Governance Guidelines.search for additional directors.
The Board has adopted a written charter for each of these committees. All such charters are available on the "Investor Information—Corporate Governance" portion of our web site located at www.dollargeneral.com.
Current information regarding the Audit Committee and the CNG Committee is set forth below. From the beginning of 2011 until January 26, 2012, the separate Compensation Committee was comprised of Messrs. Agrawal, Bryant, Calbert, Jones and Rhodes and the separate Nominating and Corporate Governance Committees is set forth below.Committee was comprised of Messrs. Agrawal, Calbert and Jones.
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Does Dollar General have an audit committee financial expert serving on its Audit Committee?
Yes. Our Board has designated Messrs. Rhodes and Rickard as audit committee financial experts and has determined that each is independent as defined in NYSE listing standards and in our Corporate Governance Guidelines. Audit committee financial experts have the same responsibilities as the other Audit Committee members. They are not our auditors or accountants, do not perform "field work" and are not employees. The SEC has determined that designation as an audit committee financial expert will not cause a person to be deemed to be an "expert" for any purpose.
What is the Board's role in risk oversight?
Our Board of Directors and its committees have an important role in our risk oversight process. Our Board regularly reviews with management our financial and business strategies, which reviews include a discussion of relevant material risks as appropriate. Our General Counsel also periodically reviews with the Board our insurance coverage and programs as well as litigation risks.
The Audit Committee discusses our policies with respect to risk assessment and risk management, primarily through review and oversight of our enterprise risk management program. Our Internal Audit department coordinates that program, which entails review and documentation of our comprehensive risk management practices, including an assessment of internal and external risks. The program evaluates each risk, identifies mitigation strategies, and assesses the remaining residual risk. The program is updated through interviews with senior management, review of strategic initiatives, evaluation of the fiscal budget, review of upcoming legislative or regulatory changes, and review of other outside information concerning
business, financial, legal, reputational, and other risks. Semi-annually the results are presented to the Audit Committee andCommittee. Quarterly, the categories with high residual risk, along with their mitigation strategies, are discussed individually.
Our CompensationCNG Committee is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements. In addition, as discussed under "Executive Compensation—Compensation Risk Considerations" below, the CompensationCNG Committee also participates in periodic assessments of the risks relating to our overall compensation programs.
While the Audit Committee and the CompensationCNG Committee oversee the management of the risk areas identified above, the entire Board is regularly informed through committee reports about such risks. This enables the Board and its committees to coordinate the risk oversight role, particularly with respect to risk interrelationships. Our Board believes the division of risk management responsibilities described above is an effective approach for addressing the risks facing Dollar General. Accordingly, the risk oversight role of our Board and its committees has not had any effect on our Board's leadership structure.
How often did the Board and its committees meet in 2010?2011?
During 2010,2011, our Board, Audit Committee, and Compensation Committee, each met 5 times and our Nominating and Corporate Governance Committee met once.7, 5, 8, and 1 times, respectively. Each director attended at least 75% of the total of all meetings of the Board and all committees (including ad hoc committees) on which he served.
What is Dollar General's policy regarding Board member attendance at the annual meeting?
Our Board of Directors has adopted a policy that all directors should attend annual shareholders' meetings unless attendance is not feasible due to unavoidable circumstances. All 7 of our Board members attended the 20102011 annual shareholders' meeting.meeting either in person or telephonically.
How can I communicate with the Board of Directors?
Our Board of Directors has approved a process for security holders and other interested parties to contact the Board, a particular director, or the non-management directors or the independent directors as a group. Such process is described on the "Investor Information—Corporate Governance" portion of our web site located at www.dollargeneral.com.
Where can I find more information about Dollar General's corporate governance practices?
Dollar General governance-related information is posted on the "Investor Information—Corporate Governance" portion of our web site located at www.dollargeneral.com, including our Corporate Governance Guidelines, Code of Business Conduct and Ethics, the charter of each of the Audit Committee and the CNG Committee, and the names of the persons chosen to lead the executive sessions of the non-management directors and of the independent directors. This information is available in print to any shareholder who sends a request in writing to: Investor Relations, Dollar General Corporation, 100 Mission Ridge, Goodlettsville, TN 37072.
The following table and text discuss the compensation of persons who served as a memberpaid to each of our non-employee Board of Directors during all or part of 2010, other thanmembers for 2011. Mr. Dreiling whosewas not separately compensated for his service on the Board; his compensation for service as our CEO is discussed under "Executive Compensation" below and who was not separately compensated for Board service.below. We have omitted from this table the columns pertaining to non-equity incentive plan compensation and nonqualified deferred compensation earnings because they are inapplicable.
Fiscal 20102011 Director Compensation
Name | Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2) | Option Awards ($)(3) | All Other Compensation ($)(4) | Total ($) | |||||||||||
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Raj Agrawal | 81,000 | 34,420 | 45,402 | — | 160,822 | |||||||||||
Warren F. Bryant | 90,000 | 34,420 | 45,402 | — | 169,822 | |||||||||||
Michael M. Calbert | 106,000 | 34,420 | 45,402 | — | 185,822 | |||||||||||
Adrian Jones | 81,000 | 34,420 | 45,402 | — | 160,822 | |||||||||||
William C. Rhodes, III | 90,000 | 34,420 | 45,402 | — | 169,822 | |||||||||||
David B. Rickard | 95,500 | 34,420 | 45,402 | — | 175,322 |
Name | Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2) | Option Awards ($)(3) | All Other Compensation ($)(4) | Total ($) | |||||||||||
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Raj Agrawal | 75,000 | — | — | — | 75,000 | |||||||||||
Warren F. Bryant | 79,500 | — | — | — | 79,500 | |||||||||||
Michael M. Calbert | 100,000 | — | — | — | 100,000 | |||||||||||
Adrian Jones | 75,000 | — | — | — | 75,000 | |||||||||||
William C. Rhodes, III | 79,697 | — | — | — | 79,697 | |||||||||||
David B. Rickard | 91,461 | — | — | — | 91,461 |
The CNG Committee is responsible for recommending the form and amount of director compensation for our Board of Directors' consideration and approval. The CNG Committee may consult with Meridian Compensation Partners, its independent consultant ("Meridian"), regarding the form and amount of director compensation. The CNG Committee also welcomes the input of our CEO and our Chief People Officer, but the CNG Committee and the Board retain and exercise ultimate decision-making authority regarding director compensation. With certain exceptions described below, our 2011 director compensation program remained unchanged from 2010. We do not compensate for Board service any director who simultaneouslyalso serves as a Dollar General employee. We will reimburse directors for certain fees and expenses incurred in connection with continuing education seminars and for travel and related expenses related to Dollar General business. We may allow directors to travel on the Dollar General airplane for those purposes.
EachFor 2011, each non-employee director receivesreceived quarterly payment of the following cash compensation, as applicable:
In addition, to the director compensation described above, each non-employee director received in our 2009 fiscal year an equity award with an estimated value of $75,000 on the grant date. Sixty percent of the value of the equity grant consisted of non-qualified stock options to purchase shares ofunder our common stock ("Options") and 40% consisted of restricted stock units ultimately payable in shares of our common stock ("RSUs"). The Options vest as to 25% of the Option on each of the first four anniversaries of the grant date and the RSUs vest as to 331/3% of the award on each of our first three annual shareholders' meetings following the grant date, each subject to the director's continued service on our Board. Our directors may elect to defer receipt of shares under the RSUs. We did not grant an annual equity award to our non-employee directors in fiscal 2010.
Beginning in our 2011 fiscal year, each non-employee director will receive an annual equity award2007 Stock Incentive Plan with an estimated value of $75,000 on the grant date as determined by the Compensation Committee's consultantMeridian using economic variables such as the trading price of our common stock, expected volatility of the stock trading prices of similar companies, and the terms of the awards. We anticipate that 60%Sixty percent of thethis value consisted of the annual equity award will consistnon-qualified stock options to purchase shares of Optionsour common stock ("Options") and 40% will consistconsisted of RSUs. We expect that therestricted stock units payable in shares of our common stock ("RSUs"). The Options will vest as to 25% of the Option on each of the first four anniversaries of the grant date and that the RSUs will vest as to 331/3% of the award on each of the Company's first four and three annual shareholders' meetings followinganniversaries of the grant date, respectively, in each case subject to the director's continued service on our Board. The directorsDirectors may elect to defer receipt of shares underlying the RSUs.
The effective date of the annualWe anticipate granting similar equity awards (the "grant date") is expectedannually to be the date on which the quarterly Board meeting is held in conjunction with the Company's annual shareholders' meeting, and such awards shall be made to those non-employee directors who are elected or reelected at sucheach applicable shareholders' meeting. Any new director appointed after the annual shareholders' meeting but before February 1 of a given year will receive a full equity award no later than the first CompensationCNG Committee meeting following the date on which he or she is elected.appointed. Any new director appointed on or after February 1 of a given year but before the next annual shareholders' meeting shall not receive a full or pro-rated equity award, but rather shall be eligible to receive the next regularly scheduled annual award.
In 2011, after reviewing with Meridian our Board compensation program relative to our market comparator group, the CNG Committee determined that total compensation was approximately 29% below the market median, with all of the shortfall in the equity component. Accordingly, the CNG Committee recommended, and the Board approved, a $50,000 increase in the estimated value of the equity component of Board compensation effective on the next scheduled grant date (June 2012) and that we maintain the 60/40 split between Option and RSU awards. In addition, as a result of the combination of the Compensation Committee and the Nominating and Corporate Governance Committee into one committee effective January 26, 2012, the chairman of the combined CNG Committee will receive a $17,500 annual retainer for fiscal year 2012.
Is Dollar General subject to the NYSE governance rules regarding director independence?
Prior to April 2, 2012, Buck Holdings, L.P. controlscontrolled a majority of our outstanding common stock. As a result, we arewere a "controlled company" within the meaning of the NYSE corporate governance standards. Under the NYSE rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a "controlled company" and may elect not to comply with certain NYSE corporate governance standards, including:including the requirements that:
WeControlled companies are, however, subject to the NYSE and SEC rules that require full independence of ourthe Audit Committee. As a result, our Audit Committee is entirely comprised of independent directors, but we do not have a majority of independent directors on our Board, and our CompensationCNG Committee and our Nominating and Corporate Governance Committee dodoes not consist entirely of independent directors.
As a result of a secondary offering of our common stock that was completed on April 2, 2012, Buck Holdings, L.P. no longer holds more than 50% of our common stock and we may no longer rely upon the exemption for controlled companies. Accordingly, applicable NYSE rules provide that we must achieve majority independence of the membership of our CNG Committee by July 1, 2012 and majority independence of the membership of our Board and full independence of the membership of our CNG Committee by April 2, 2013.
How does the Board determine director independence?
The Board of Directors affirmatively determines the independence of each director and director nominee in accordance with guidelines it has adopted, which include all elements of independence set forth in the NYSE listing standards as well as certain Board-adopted categorical independence standards. These guidelines are contained in our Corporate Governance Guidelines which are posted on the "Investor Information—Corporate Governance" portion of our web site located at www.dollargeneral.com.
The Board first analyzes whether any director has a relationship covered by the NYSE listing standards that would prohibit an independence finding for Board or Audit Committee purposes. The Board then analyzes any relationship of a directorthe remaining eligible directors to Dollar General or to our management that does not fall withinfalls outside the parameters set forth inof the Board's separately adopted categorical independence standards to determine whether or not that relationship is material. The Board may determine that a director who has a relationship that falls outside of the parameters of the categorical independence standards is nonetheless independent (to the extent that the relationship would not constitute a bar to independence under the NYSE listing standards). Any director who has a material relationship is not considered to be independent.
Are all of the current directors and nominees independent?
No. Our Board of Directors consists of Raj Agrawal, Warren Bryant, Mike Calbert, Richard Dreiling, Adrian Jones, Bill Rhodes and Dave Rickard. Messrs. Bryant, Rhodes and Rickard serve on our Audit Committee. Messrs. Agrawal, Bryant, Calbert, Jones and Rhodes serve on our Compensation Committee. Messrs. Agrawal, Calbert and Jones serve on our Nominating and Corporate GovernanceCNG Committee.
Our Board of Directors has affirmatively determined that Messrs. Bryant, Rhodes and Rickard, but not Messrs. Agrawal, Calbert, Dreiling or Jones, are independent from our management under both the NYSE's listing standards and our additional standards. Any relationship between an independent director and Dollar General or our management fell within the Board-adopted categorical standards and, accordingly, was not reviewed or considered by our Board.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Does the Board have a policy for the review, approval or ratification of related-party transactions?
Yes. Our Board of Directors has adopted a written policy for the review, approval or ratification of "related party" transactions. For purposes ofA "related party" for this policy, a "related party"purpose includes our directors and executive officers, and greater than 5% shareholders, as well as their immediate family members, and greater than 5% shareholders, and a "transaction" includes one in which (1) the total amount may exceed $100,000, (2) Dollar General is a participant, and (3) a related party will have a direct or indirect material interest (other than as a director or a less than 10% owner of another entity, or both).
Pursuant to this policy and subject to certain exceptions identified below, all known related party transactions require prior Board approval. In addition, at least annually after receiving a list of immediate family members and affiliates from our directors, executive officers and overgreater than 5% shareholders, the Corporate Secretary inquires of relevant internal departments to determine whether any transactions were unknowingly entered into with a related party and presents a list of such transactions, subject to certain exceptions identified below, to the Board for review.
This policy authorizes Mr. Dreiling is authorized to approve a related party transaction in which he is not involved if the total amount is expected to be less than $1 million and ifhe informs the Board is informed of transactions approved in this manner. In addition, thesuch transactions. The following transactions are deemed automatically pre-approved and require no furtherwithout Board review or approval:
The policy prohibits the related party from participating in any discussion or approval of the transaction and requires the related party to provide to the Board all material information concerning the transaction.
Were there any related-party transactions in 20102011 or are any planned for 2011?2012?
We describe below the transactions that have occurred since the beginning of 2010,2011, and any currently proposed transactions, that involve Dollar General and exceed $120,000, and in which a related party had or has a direct or indirect material interest. In addition, we describe below certain other relationships between Dollar General and related parties in which a related party has an interest that may not be material.
Relationships with Management. Simultaneously with the closing of our 2007 merger and thereafter in connection with our offering equity awards to our employees under our 2007 Stock Incentive Plan,through May 2011, we, Buck Holdings L.P. and certain of our employees who hold shares of common stock, or who were granted options to acquire shares of common stock or who were granted shares of restricted common stock, of Dollar General (collectively, "management shareholders") entered into shareholder's agreements (each, a "Management Stockholder's Agreement"). The Management Stockholder's Agreement imposes that impose significant restrictions on transfer of covered shares of our common stock held by the management shareholders that are subject to the agreement.shareholders. Generally, shares will beare nontransferable by any means at any time prior to the fifth anniversary of either the closing date of our July 6, 2007 merger or a later specified date (depending uponon the terms of the Management Stockholder's Agreement),applicable agreement) except (i) sales pursuant to an effective registration statement filed by us under the Securities Act of 1933 (the "Securities Act") in accordance with the Management Stockholder's Agreement, (ii) a sale to certain permitted transferees, or (iii) as otherwise permitted by our Board of Directors or pursuant to a waiver of the restrictions on transfers;transfer restrictions; provided, that, in the event KKR or its affiliates transfer their limited partnership units owned by them to a third party, such transfer restrictions shall lapse with respect to the same proportion of shares of common stock owned by a management shareholder as the proportion of limited partnership units transferred by KKR and such affiliates relative to the aggregate number of limited partnership units they owned by them prior to such transfer. Following our initial public offering in November 2009, we amended the Management Stockholder's Agreements so thatto exclude from the transfer restrictions any shares acquired in the open market or through the directed share program administered as part of the initial public offering are not subject to the transfer restrictions of the Management Stockholder's Agreement. However, sharesoffering. Shares acquired by executive officers in the open market or through the directed share program will still be subject to any lock-up arrangements with the underwriters of any public offering of shares. Limited waivers of the transfer restrictions on a limited percentage of the shares subject to the Management Stockholder's Agreement have been granted since 2009.
In the event that a registration statement is filed with respect to our common stock, the Management Stockholder's Agreement prohibits management shareholders from selling shares not included in the registration statement from the time of receipt of notice that we have filed or intend to file such registration statement until 180 days (in the case of an initial public offering) or 90 days (in the case of any other public offering) of the effective date of the registration statement.statement, unless the underwriters, if any, agree to a shorter period. The Management Stockholder's Agreement also provides forenables the management shareholder's abilityshareholder to cause us to repurchase his outstandingor her covered stock and vested options (and vested restricted stock, with respect to Mr. Dreiling) subject to the Management Stockholder's Agreement in the event of the management shareholder's death or disability, and for our abilityenables us to cause the management shareholder to sell his covered stock or options subject to the Management Stockholder's Agreement back to us upon certain termination events.events, all for the period of time specified in the Management Stockholder's Agreement. These transfer restrictions and put and call rights are scheduled to expire for a significant number of the management shareholders, including some of our executive officers, in July 2012.
Certain members of senior management, including the executive officers (the "Senior Management Shareholders"), will have limited "piggyback" registration rights with respect to their shares of our common stock in the event that certain investors sell, or cause to be sold, shares of our common stock in a public offering. Such rights may be voluntarily extended to other members of management as determined by our Board in connection with any given future such sale by certain investors. See the description of the registration rights agreement under "Relationships with the Investors" below. During 2010, we amended these rights to allow for the accumulation of such rights by any employee entitled, to exercise, but who elects not, to so exercise such rights in a given offering. In connection with our initial public offering in November 2009, theThe Senior Management Shareholders agreed to waivewaived their piggyback registration rights arising from thatour initial public offering in 2009 in consideration of our
releasing them from the transfer restrictions contained in the Management Stockholder's Agreements after the expiration of thea 180-day restricted period contained in the underwriting agreement with respect to thata number of shares of our common stock equal to the number of shares of our common stock that such Senior Management Shareholders could have required us to register in connection with our initial public offering.
In connection with his promotion to Executive Vice President in April 2010, Mr. Flanigan was offered the opportunity, and elected, to purchase 5,388 shares of Dollar General common stock under our 2007 Stock Incentive Plan. The shares were purchased at a per share price that equaled the closing price of our common stock on the NYSE on the effective date of purchase ($29.38), for an aggregate purchase price of $158,299. Without such purchase, the stock options granted to Mr. Flanigan in March 2010, as disclosed in the Grants of Plan-Based Awards table under "Executive Compensation" below, would not be eligible to become exercisable. The shares purchased by Mr. Flanigan are subject to certain transfer limitations and repurchase rights by Dollar General as set forth in a Management Stockholder's Agreement between us and Mr. Flanigan.
Interlocks. Mr. Dreiling serves as a manager of Buck Holdings, LLC for which Messrs. Calbert, Agrawal and Jones (three of our CompensationCNG Committee members) serve as managers.
Relationships with the Investors. In connection with our initial public offering in November 2009, we entered into a shareholders' agreement with affiliates of each of KKR and Goldman, Sachs & Co. Among its other terms, the shareholders' agreement establishes certain rights with respect to our corporate governance, including the designation of directors. For additional information regarding those rights, see "How are directors identified and nominated" elsewhere in this document. The shareholders' agreement also provides that, as long as Buck Holdings, L.P. owns at least 35% of our outstanding shares of common stock, the following actions require the approval of the KKR shareholders party to the shareholders' agreement: hiring and firing of our CEO, any change of control as defined in the shareholders' agreement, entering into any agreement providing for the acquisition or divestiture of assets for aggregate consideration in excess of $1 billion, and any issuance of equity securities for an aggregate consideration in excess of $100 million.
OnIn July 6, 2007, we and Buck Holdings, L.P. entered into an indemnification agreement with KKR and Goldman, Sachs & Co. pursuant to which we agreed to provide customary indemnification to such parties and their affiliates in connection with certain claims and liabilities incurred in connection with certain transactions involving such parties, including the financing for our 2007 merger and pursuant to services provided under theour sponsor advisory agreement with such parties that was entered into between usin 2007 and such parties in connection with our 2007 merger (which agreement was terminated in connection with our initial public offering in November 2009).2009.
In connection with our 2007 merger, we entered into a registration rights agreement with Buck Holdings, L.P., Buck Holdings, LLC, (the general partner of Buck Holdings, L.P.), KKR and Goldman, Sachs & Co. (and certain of their affiliated investment funds), among certain other parties. Pursuant to this agreement, investment funds affiliated with KKR have an unlimited number of demand registration rights and investment funds affiliated with Goldman, Sachs & Co. have two demand registration rights which can be exercised once a year commencing 180 days after our initial public offering in November 2009.year. Pursuant to such demand registration rights, we are required to register with the SEC the shares of common stock beneficially owned by them through Buck Holdings L.P. with the SEC for sale by them to the public, provided that each of them hold at least $100 million in registrable securities and such registration is reasonably expected to result in aggregate gross proceeds of $50 million. We are not obligated to file a registration statement relating to any request to register shares pursuant to such demand registration rights without KKR's consent within a period of 180 days after the effective date of any other registration statement we file pursuant to such demand registration rights. In addition, in
the event that we are registering additional shares of common stock for sale to the public, whether on our own behalf or on behalf of us or the investment funds as described above, we are required tomust give notice of such registration to all parties to the registration rights agreement, including certain senior management members,the Senior Management Shareholders, and such persons have piggyback registration rights providing them the right to have us include the shares of common stock owned by them in any such registration. In each such event, we are required to pay the registration expenses.
Pursuant to this registration rights agreement and the demand registration rights thereunder, secondary offerings of our common stock were completed in September 2011, December 2011 and April 2010 and December 20102012 for which affiliates of KKR and of Goldman, Sachs & Co. served as underwriters. Dollar General did not sell shares of common stock, receive proceeds, or pay any underwriting fees in connection with eitherany of these secondary offering,offerings, but paid resulting aggregate expenses of approximately $1.1 million.$0.8 million in connection with the September and December 2011 secondary offerings and expects to pay resulting aggregate expenses of approximately $0.4 million with respect to the April 2012 offering. Certain members of our management, including certain of our executive officers, exercised registration rights in connection with such offerings.
As part of an overall Board-authorized share repurchase program, concurrent with the closing of the December 2011 secondary offering and pursuant to a Share Repurchase Agreement between Dollar General and Buck Holdings L.P., dated December 4, 2011, Dollar General purchased 4,915,637 shares of Common Stock from Buck Holdings, L.P. for an aggregate purchase price of $185 million, or $37.635 per share which represents the per share price to the public in the secondary offering less
underwriting discounts and commissions. Of such shares, affiliates of KKR and Goldman, Sachs & Co. sold to Dollar General 2,561,745 and 1,065,912 shares for proceeds of $96.4 million and $40.1 million, respectively. This transaction was specifically reviewed and approved by a special committee of our Board made up entirely of independent directors.
In addition, concurrent with the closing of the April 2012 secondary offering and pursuant to a Share Repurchase Agreement between Dollar General and Buck Holdings L.P., dated March 25, 2012, Dollar General purchased 6,817,311 shares of Common Stock from Buck Holdings L.P. for an aggregate purchase price of $300 million, or $44.00562 per share which represents the per share price to the public in the secondary offering less underwriting discounts and commissions. Of such shares, affiliates of KKR and Goldman, Sachs & Co. sold to Dollar General 3,552,787 and 1,478,274 shares for proceeds of $156.3 million and $65.1 million, respectively. This transaction was specifically reviewed and approved by a special committee of our Board made up entirely of independent directors.
Affiliates of KKR and Goldman, Sachs & Co. (among other entities) may be lenders under our senior secured term loan facility, which had a $2.3 billion principal amount at inception and a principal balance as of January 28, 2011February 3, 2012 of approximately $1.964 billion. Goldman Sachs Credit Partners L.P. also served as syndication agent for the term loan facility. This term loan facility was entered into in the ordinary course of business, was made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to the lender and did not involve more than the normal risk of collectability or present other unfavorable features. We paid approximately $53.4$66.4 million of interest on the term loan during fiscal 2010.2011. We recently amended this term loan facility to, among other things, extend the maturity of a portion of such facility from 2014 to 2017. An affiliate of each of KKR and Goldman, Sachs & Co., along with a third unaffiliated entity, acted as a joint lead arranger for the term loan facility extension which closed on March 30, 2012. In connection therewith, the Company paid each such affiliate an arrangement fee of approximately $440,000.
Goldman, Sachs & Co. is a counterparty to an amortizing interest rate swap with a notional amount totaling $323.3$116.7 million as of January 28, 2011,February 3, 2012, entered into in connection with the senior secured term loan facility. We paid Goldman, Sachs & Co. approximately $12.9$13.9 million in fiscal 20102011 pursuant to this swap.
In May 2010 and September 2010,March 2012, we repurchasedamended our senior secured asset-based revolving credit facility to, among other things, increase the maximum total commitment to $1.2 billion. An affiliate of Goldman, Sachs & Co. (among other entities) serves as a lender under the amended revolving credit facility. This amended revolving credit facility was entered into in the open market $50.0 millionordinary course of business, was made on substantially the same terms, including interest rates and $65.0 million, respectively, aggregate principal amountcollateral, as those prevailing at the time for comparable loans with persons not related to the lender and did not involve more than the normal risk of 10.625% senior notes due 2015 at a price of 111.0% and of 110.75%, respectively, plus accrued and unpaid interest. KKR Capital Markets LLC, an affiliate of KKR, received in the aggregate approximately $125,000 acting as an agent for Fidelity Capital Markets, which served as broker/dealer in connection with such repurchases.collectability or present other unfavorable features.
From time to time, affiliatesEach of KKR and Goldman, Sachs & Co., either directly or through affiliates, has ownership interests in a broad range of companies ("Portfolio Companies") with whom we may investfrom time to time enter into commercial transactions in indebtedness issued by us.the ordinary course of business, primarily for the purchase of goods and services. We believe that none of our transactions or arrangements with Portfolio Companies are significant enough to be considered material to KKR or Goldman, Sachs & Co. or to our business or shareholders. In 2011, the largest amount paid to a Portfolio Company was approximately $88.3 million paid to a KKR Portfolio Company in the ordinary course of business for the purchase of merchandise for resale. This amount represented less than 2.5% of the vendor's revenues for its last completed fiscal year and less than 1.0% of our revenues for 2011.
Our Board members, Messrs. Calbert and Agrawal, serve as executives of KKR, while our Board member, Mr. Jones, serves as a Managing Director of Goldman, Sachs & Co. KKR and certain affiliates of Goldman, Sachs & Co. indirectly own, through their investment in Buck Holdings, L.P., a substantial portion of our common stock.
We refer to the persons included in the Summary Compensation Table below as our "named executive officers." References to "2011," "2010," "2009," "2008," and "2007" mean, respectively, our fiscal years ending or ended February 3, 2012, January 28, 2011, January 29, 2010, January 30, 2009, and February 1, 2008. References to the "merger" or the "2007 merger" mean our merger that occurred on July 6, 2007 as a result of which substantially all of our common stock became owned by Buck Holdings, L.P. ("Buck"Buck LP"), a Delaware limited partnership controlled by investment funds affiliated with Kohlberg Kravis Roberts & Co. L.P. ("KKR").KKR. Buck LP continues to own in excess of 70%a substantial percentage of our outstanding common stock.
Compensation Discussion and Analysis
Executive Overview
The overarching goal of our executive compensation program is to serve the long-term interests of our shareholders. A competitive executive compensation package is critical for us to attract, retain and motivate persons who we believe have the ability and desire to deliver superior shareholder returns. We strive to balance the short-term and long-term components of our executive compensation program to incent achievement of both our annual and long-term business strategies, to pay for performance and to maintain our competitive position in the market in which we compete for executive talent. We believe the success of our program is evidenced by the following key financial and operating results for 2010:2011 (2011 was a 53-week year and 2010 was a 52-week year):
WhileFor the first time, in 2011 our executiveshareholders voted on an advisory basis with respect to our compensation program for named executive officers. Of the total votes cast (excluding abstentions and broker non-votes), 96.5% were cast in 2010 remained relatively unchanged fromsupport of the last several years,program. We view this vote as supportive of our compensation policies and decisions and, accordingly, do not believe the following identifies material itemsresults required consideration of changes to our compensation program.
The most significant compensation-related actions or achievements in 2011 pertaining to our named executive officers:officers include:
appropriate return
Our Compensation Committee will continue to evaluate our executive compensation program and make changes when it believes it to be appropriate and in the best interests of our shareholders.
Executive Compensation Philosophy and Objectives
We strive to attract, retain and motivate persons with superior ability, to reward outstanding performance, and to align the interests of our named executive officers with the long-term interests of our shareholders. The material compensation principles applicable to the 20102011 and 20112012 compensation of our named executive officers included the following, all of which are discussed in more detail in "Elements of Named Executive Officer Compensation" below:
The Compensation Committee utilizesWe utilize employment agreements with the named executive officers which, among other things, set forth minimum levels of certain compensation components. The Committee believesWe believe such arrangements are a common protection offered to named executive officers at other companies and help to ensure continuity and aid in retention. The employment agreements also provide for standard protections to both the executive and to Dollar General should the executive's employment terminate. In 2010, after achieving tremendous financial results, we entered into an amended and restated employment agreement with Mr. Dreiling, described under "Compensation of Mr. Dreiling" below.
Named Executive Officer Compensation Process
Oversight. Our Board of Directors has delegated responsibility for executive compensation to a Board committee which we will refer to throughout this Compensation Discussion and Analysis as our "Compensation Committee" or the "Committee." The Compensation Committee of our Board of Directors approves the compensation of our named executive officers, while its subcommittee consisting entirely of independent directors (the "162(m) Subcommittee") approves any portion that is intended to qualify as "performance-based compensation" under Section 162(m) of the Internal Revenue Code or that is intended to be exempt for purposes of Section 16(b) of the Securities Exchange Act of 1934. Messrs. Calbert, Agrawal, Jones, Rhodes, and Bryant serve on our Compensation Committee, and Messrs. Rhodes and Bryant make up the 162(m) Subcommittee.
Table of Contents In January 2012 the Compensation Committee was combined with the Nominating and Corporate Governance Committee to form the CNG Committee, which has assumed the Compensation Committee's responsibilities.
Use of Outside Advisors. In March 2010, theThe Compensation Committee entered intohas selected Meridian Compensation Partners ("Meridian"), a new written agreement withspin-off of Hewitt Associates, ("Hewitt") and reaffirmed the selection ofto serve as its independent compensation consultant. Meridian (including its predecessor Hewitt which hadAssociates) has served as the Committee's consultant since our 2007 merger, as its compensation consultant. In December 2010, after Meridian Compensation Partners ("Meridian") was formed as a spin-off of Hewitt's executive compensation consulting business and after undertaking an independence analysis pertaining to Meridian, the Committee entered into amerger. The written agreement with Meridian and selected Meridian to serve as its independent compensation consultant. The written agreement details the terms and conditions under which Meridian will provide independent advice to the Committee in connection with matters pertaining to executive and director compensation. Under the agreement, the Committee (or its chairman) shall determine the scope of Meridian's services, which is anticipated to include but not be limited toservices. The approved scope generally includes attendance at select Committee meetings and associated preparation work, risk assessment assistance, guiding the Committee's decision making with respect to executive and Board of Directors compensation matters, providing advice on our executive pay philosophy, compensation peer group, and incentive plan design and employment agreement design, providing competitive market studies, and apprising the Committee about emerging best practices and changes in the regulatory and governance environment. Throughout this document, when we referIn 2012, the Committee intends to decrease the amount of work performed by its consultant, primarily with respect to benchmarking and risk assessment assistance, which work will instead be performed by management.
Meridian did not provide any other services to the Committee's consultant we are referring to either Hewitt or Meridian, depending upon the applicable time period.
In addition to services relating to director and executive compensation, from time to time Hewitt has provided consulting services to management for various projects and assignments pertaining to general employee compensation, benefits, and other matters. Under the agreement with Meridian, Committee approval would be required before Meridian could provide such additional services to management. Fees incurred for services and products provided by Meridian and/or HewittCompany in 2011 unrelated to director and executive compensation did not exceed $120,000 in 2010.compensation.
The Committee's consultantA Meridian representative attends such Committee meetings and private sessions as requested by the Committee. The Committee's members also are authorized to consult directly with the Committee's consultant at other times as desired. During 2010,2011, the Committee's Chairman periodically consulted directly with the Committee's consultant,Meridian, as did Mr. Dreiling and Mr. Bob Ravener, our Executive Vice President and Chief People Officer, and other non-executive members of our human resources group, in connection
with named executive officer compensation (as described below under "Management's Role"). The Committee reviewed benchmark information provided by its consultantMeridian regarding 20102011 executive compensation and discussed with Messrs. Dreiling and Ravener their executive compensation recommendations. WithIn an effort to decrease costs, the Committee chose to rely more heavily upon management to provide benchmarking data and resulting recommendations with respect to 2011 executive compensation decisions thus far,2012 annual base salary and short-term cash incentive decisions. However, Meridian, has met directlyalong with management, assisted the Committee to reviewin developing the 2010 compensation benchmark studynew long-term annual incentive program and its applicationprovided detailed data from the market comparator group upon which the Committee relied in 2011.determining the size of the grants under the program.
Management's Role. Messrs. DreilingMr. Ravener and Ravener, along with non-executive members of the human resources group assist the Compensation Committee's consultanthave assisted Meridian in gathering and analyzing relevant competitive data and identifying and evaluating various alternatives for named executive officer compensation (including theirhis own). At the Committee's request, management's role in collecting this type of data is anticipated to expand beginning in 2012, including increased reliance on management with respect to recommendations for certain portions of 2012 executive compensation. Messrs. Dreiling and Ravener also discuss with the Committee their recommendations regarding named executive officer pay components, typically based on benchmarking data compiled by the Committee's consultant;data; however, Mr. Dreiling does not participate in the Committee's discussionsdeliberations of his own compensation. Mr. Dreiling subjectively assesses performance of each of the other named executive officers (see "Use of Performance Evaluations" below).
Although the Committee values and welcomes such input from management, it retains and exercises sole authority to make decisions regarding named executive officer compensation.
Use of Performance Evaluations. At the end of each fiscal year,Annually, the Committee assesses the performance of Mr. Dreiling, and Mr. Dreiling assesses the performance of each of the other named executive officers. These evaluations are designedofficers, in each case to determine each such officer's overall success in meeting or exhibiting certain enumerated factors, including our four publicly disclosed operating priorities and certain core attributes on which all of our employees are evaluated. These evaluations are
entirely subjective; no objective criteria or relative weighting is assigned to any individual factor considered in the evaluation.factor.
The Committee uses the performance evaluation results as an eligibility threshold for annual base salary increases and Teamshare bonus payments. In other words, a determination of unsatisfactorypayments for named executive officers. A performance rating below "good" (i.e., "unsatisfactory" or "needs improvement") performance for the last completed fiscal year would generally preclude a named executive officer from receiving any annual base salary increase or Teamshare bonus payment (although the Committee would haveretains discretion to approve a Teamshare bonus payment in the event of a "needs improvement" performance rating). Otherwise, theThe performance evaluation results of the performance evaluations have not been used to determine the amount of the Teamshare bonus payment;payment for any named executive officer; rather, suchthe Teamshare bonus amount is determined solely based upon the Company's level of achievement of pre-established financial performance measures.measures and the terms of the Teamshare program (see discussion below). Each named executive officer received a satisfactory (i.e., "good," "very good," or "outstanding") overall subjective performance evaluation with respect to each of 20092010 and 2010.2011.
Beginning with the March 2010 process, theThe performance evaluation results are also partly used to determinemay impact the amount of thean officer's annual base salary increases.increase. Any named executive officer who receives a satisfactory performance rating is given a percentage base salary increase that equals the overall budgeted amountincrease for the Company's U.S.-based employee population unless:
Actual annual base salary determinations are discussed under "Elements of Named Executive Compensation—Base Salary" below.
Use of Market Benchmarking Data. We must pay compensation that is competitive with the external market for executive talent in order to attract and retain named executive officers who we believe will enhance our long-term business results. We believe that this primary talent market consists of retail companies with revenues both larger and smaller than ours and with similar business models similar to ours because those companies are likely to have executive positions similarcomparable in breadth, complexity and scope of responsibility to ours. For 2010, the Committee's consultant provided data regarding total and individual compensation elements from its proprietary salary survey database and from the proxy statements of selected retail companies that met these criteria. We refer to this combined group, which is approved by the Committee, as theOur market comparator group. In 2010, the market comparator group for 2011 compensation decisions consisted of 7-Eleven, AutoZone, Big Lots, Collective Brands, Family Dollar, Genuine Parts, McDonald's, Nordstrom, OfficeMax, PetSmart, Staples, J.C. Penney, The Gap, Macy's, Blockbuster, The Pantry, Ross Stores and Yum Brands.
The Committee may also consider summary market data from all retail companiesFor the reasons discussed in the compensation consultant's database and from the proxy statement information"Executive Overview", we modified this market comparator group for certain other significantly larger retail companies2012 compensation decisions, replacing 7-Eleven, Collective Brands, Genuine Parts, Nordstrom, Blockbuster, and The Pantry with TJX Companies, Kohls, Starbucks, Limited Brands, Dollar Tree, Foot Locker and Safeway. However, we continued to help gainuse the 2011 market comparator group as a general understanding of overall retail compensation trends. The Committee did not use such additional summary market data as reference points upon which topoint in our 2012 base justify or provide a frameworksalary and short-term incentive decisions (other than for the 2010 or 2011 compensation decisions.CEO), as described below.
For 2011 compensation decisions, the Committee requested that Meridian obtain updated CEO benchmarkbenchmarking data from the same2011 market comparator group to be certain the Committee was aware of any significant movement in CEO compensation levels within the market comparator group. However,
for all other named executive officer 2011 compensation decisions, the Committee relied upon information from the 2010 market comparator group (the composition of which was the same as the composition of the 2011 market comparator group) that had been increased or "aged,""aged" by 2.5% upon Meridian's advice that common public company practice is to conduct a full benchmark review only once every two or three years and that 2.5% was a reasonable estimate of the degree of movement in officer salaries in the retail industry from 2010 to 2011. The Committee determined that this was an acceptablea reasonable method for estimating market salaries for officer positions, while reducing the cost associated with an annual benchmark study.
For 2012 base salary and short-term cash incentive compensation decisions for the named executive officers, the Company averaged market data obtained from the most recently available proxies of the 2012 market comparator group, from a survey of our 2012 market comparator group conducted by Equilar and from a similar "aging" process of the data obtained in 2010 from the 2011 market comparator group, aged an additional 2.7%, consistent with the Company's overall 2012 budget for merit increases. However, in the case of the CEO, the 2011 market comparator group data was not used; instead, Meridian provided AON Hewitt survey data from the 2012 market comparator group. These three market data sources were averaged in order to reduce reliance on any one data source and to smooth out anomalies that might exist in the actual individual position data reported by the market data source.
The Committee believes that the median of the competitive market generally is the appropriate target for a named executive officer's total compensation. However, the Committee recognizes that, because of liquidity and other comparability issues, it is difficult to compare equity awards that were granted to our named executive officers as a controlled company and under an equity structure more common to private companies with transfer restrictions and similar features to equity granted to named executive officers of a more typical public company. As a result, through 2011 the Committee has focused primarily on total cash compensation in comparing our executive compensation program with companies in the market comparator group. This lack of comparability will be lessened as a result of the new long-term equity incentive program implemented in March 2012 described below.
Elements of Named Executive Officer Compensation
We provide compensation in the form of base salary, short-term cash incentives, long-term equity incentives, benefits and perquisites. The Compensation Committee believesWe believe that each of these elements is a necessary component of the total compensation package and is consistent with compensation programs at competing companies.
Base Salary. Base salary generally promotes the recruiting and retention functions of our compensation principlesprogram by reflecting the salaries for comparable positions in the competitive marketplace, by rewarding strong performance, and by providing a stable and predictable income source of income for our executives. Because the Compensation Committee believes that we likely would be unable to attract or retain quality named executive officers in the absence of competitive base salary levels, this component constitutes a significant portion of a named executive officer'sthe total compensation. Thecompensation package. Our employment agreements between Dollar General andwith the named executive officers set forth minimum base salary levels, but the Compensation Committee retains sole discretion to increase these levels from time to time.
In 2010 and 2011, to determine annual base salary increases for each named executive officer other (a) Named Executive Officers Other than Mr. Dreiling,Dreiling. In each of 2011 and 2012, the Committee determined, uponwith Mr. Dreiling's recommendation, that the named executive officers' performance assessments relative to other executives supported a percentage increase equal to that which was budgeted for our entire U.S.-based employee population (see "Use of Performance Evaluations" above)). In addition, after reviewing the benchmarking data of the market comparator group (see "Use of Market Benchmarking Data" above), the Committee determined that market adjustments were not necessary for any named executive officer in 2010 or for any named executive officer other than Mr. Ravener in 2011. Accordingly, each of the named executive officers received the budgeted 2.5% annual base salary increase in each of 2010 and 2011. Mr. Ravener received a further 0.82%2.7% annual base salary increase in 2011 and 2012, respectively, except that Ms. Guion did not receive a base salary increase in 2012 as a result of theher pending retirement. In 2011, Ms. Lanigan received an additional 9.57% annual base salary increase, for a total increase of 12.07%, as a result of a market adjustment arising from a review of the benchmarking data (see "Use of Market Benchmarking Data") in order to more closely align hisher total cash compensation to the median of the market comparator group. All such increases were effective as of April 1 of the applicable year.
With respect to 2010 annual base salary, (b) Mr. Dreiling. In each of Messrs. Flanigan2011 and Ravener received a base salary increase of 3.5% effective March 24, 2010, in addition to the 2.5% budgeted increase discussed above, in connection with his promotion to an executive vice president level position. The amounts of the salary increases were determined necessary to more closely align total cash compensation within the median of the market comparator group for the applicable new position and to recognize each such officer's greater responsibility level.
Mr. Dreiling's 2010 annual base salary increase was negotiated in connection with the renewal of his employment agreement. The 2.5% salary increase was effective April 1, 2010, and was settled upon after considering Mr. Dreiling's performance assessment and our annual base salary budget for all U.S.-based employees. However, because the benchmarking data indicated that Mr. Dreiling's total cash compensation was below the median of the market comparator group, the Committee increased his Teamshare bonus target for fiscal 2010 as discussed under "Short-Term Cash Incentive Plan" below.
To determine Mr. Dreiling's annual base salary increase for 2011,2012, the Committee took into account Mr. Dreiling's performance assessment, the amount budgeted for our entire U.S.-based employee population (see "Use of Performance Evaluations" above)), and the benchmarking data of the market comparator group (see "Use of Market Benchmarking Data" above)). SuchThe benchmarking data used in connection with decisions pertaining to Mr. Dreiling's 2011 compensation indicated that Mr. Dreiling's total cash compensation was below the median of the market comparator group. Accordingly, the Committee approved a 5% annual base salary increase effective as of April 1, 2011, which consistsconsisted of the budgeted 2.5% increase and thean additional 2.5% market adjustment intended to more closely align Mr. Dreiling's total cash compensation with the median of the market comparator group.adjustment. Mr. Dreiling's target bonus percentage for the 2011 short-term cash incentive plan was also increased as discussed further below. With respect to Mr. Dreiling's 2012 base salary increase, the Committee determined that Mr. Dreiling should receive the same 2.7% increase that was awarded to each of the other named executive officers which, along with the other components of Mr. Dreiling's 2012 compensation, maintained his total compensation at the median range of the market comparator group.
Short-Term Cash Incentive Plan. Our short-term cash incentive plan, called Teamshare, motivates named executive officers to achieve pre-established, objective, annual financial goals. Teamshare, provides an opportunity for each named executive officer to receive a cash bonus payment equal to a certain percentage of base salary based upon Dollar General's achievement of one or more pre-established financial performance measures. For our named executive officers, theThis Teamshare program is established pursuant to our Annual Incentive Plan, under which "covered employees" under Section 162(m) of the Internal Revenue Code, any of our executive officers, and such other of ourcertain employees, as the Committee may select (includingincluding our named executive officers),officers, may earn up to $5 million (up to $2.5($10 million prior to 2010)after 2012 if the amended Annual Incentive Plan is approved by shareholders at this meeting) in respect of a given fiscal year, subject to the achievement of certain performance targets based on any of the following performance measures: net earnings or net income (before or after taxes), earnings per share, net sales or revenue growth, gross or net operating profit, return measures (including, but not limited to, return on assets, capital, invested capital, equity, sales, or revenue), cash flow (including, but not limited to, operating cash flow, free cash flow, and cash flow return on capital), earnings before or after taxes, interest, depreciation, and/or amortization, gross or operating margins, productivity ratios, share price (including, but not limited to, growth measures and total shareholder return), expense targets, margins, operating efficiency, customer satisfaction, working capital targets, economic value added, volume, capital expenditures, market share, costs, regulatory ratings, asset quality, net worth, or safety. The Committee administerslisted in the Annual Incentive Plan and can amend or terminate it at any time.described in Proposal 3.
As a threshold matter, a named executive officer's eligibility to receive a bonus under the Teamshare program depends upon his or her receiving an overall subjective individual performance rating of satisfactory (see "Use of Performance Evaluations" above)). Accordingly, Teamshare fulfills an important part of our pay for performance philosophy while aligning the interests of our named executive officers and our shareholders. Teamshare also helps us meet our recruiting and retention objectives by providing compensation opportunities that are consistent with those prevalent in our market comparator group.
(a) 20102011 Teamshare Structure. The Committee selected adjusted EBITDA as calculated below, for the primary financial performance measure and addedadjusted return on invested capital ("ROIC"), calculated as set forth below, as an additionalthe financial performance measuremeasures for officer-level employees to reflect the importance of achieving an appropriate return on our invested capital and the management of and level of investments necessary to achieve superior business performance.2011 Teamshare program. The Committee weighted the adjusted ROIC measure at 10% and the adjusted EBITDA measure at 10% and 90%, respectively, of the
total Teamshare bonus, recognizing that EBITDA is the most critical measure of our current performance, enables the payment of debt repayment, and funds our growth and day-to-day operation, while ROIC reflects the importance of achieving an appropriate return on our day-to-day operations.invested capital and the management and level of investments necessary to achieve superior performance.
For purposes of the 20102011 Teamshare program, adjusted EBITDA is computed in accordance with our credit agreements, and adjusted ROIC is calculated as total return (calculated as the sum of operating income, depreciation and amortization and minimum rentals, less taxes) divided by average invested capital of the most recent five quarters (calculated as the sum of total assets and accumulated depreciation and amortization, less cash, goodwill, accounts payable, other payables, accrued liabilities, plus 8x minimum rentals). Each of the adjusted EBITDA and adjusted ROIC calculations shall:shall be further adjusted to exclude the impact of:
The Committee established threshold (below which no bonus may be paid) and target performance levels, discussed below, for each of the adjusted EBITDA and adjusted ROIC performance measures. Since fiscal year 2008, there has not been a maximum level of adjusted EBITDA or adjusted ROIC performance associated with the Teamshare program, although any individual payout is capped at $5 million, in order to avoid discouraging employees from striving to achieve performance results beyond the maximum levels.
We did not achieve the threshold Teamshare performance level in fiscal years 2005 or 2006. We achieved Teamshare performance levels between target and maximum in fiscal year 2007. For fiscal years 2008, 2009 and 2009,2010, we achieved an adjusted EBITDA performance level of approximately 112.47% (or $916.6 million), 111.88% (or $1.278 billion) and 111.88%105.47% (or $1.561 billion) of the target, respectively. For 2010, we achieved an adjusted ROIC performance level of 100.9% of the target or 22.31%.
The target adjusted EBITDA performance level for the 20102011 Teamshare program was $1.48$1.815 billion which, consistent with prior practice, was the same level as our 20102011 annual financial plan
objective. The Committee considered that level to be challenging and somewhat more difficult to achieve than performance targets for prior years. Theyears, requiring superior execution and success on many of our new business initiatives. As it has done since 2008, the Committee also established the adjusted EBITDA threshold at 95% of target, which was consistent with the Committee's 2008 determination that such threshold level was more consistent with other companies within the KKR portfolio than the threshold level used prior to 2008.target.
The Committee established the thresholdtarget adjusted ROIC performance level for the 20102011 Teamshare program at 21.9% which was the 2009same level as our 2011 annual financial plan objective. Again, the Committee viewed the target as challenging to achieve The threshold adjusted ROIC year-end actual result of 21.78% because it believed that result was strong and that 2010 results should be as good or better for that metric. The Committee established the ROIC target performance level by determiningwas set at 21.83%, or 7 basis points lower than the expected level of improvement over the 2009 ROIC year-end actual result based on expected productivity enhancements. Specifically, the Company
determined the ROIC level that would result if we were to achieve 110% of the adjusted EBITDA target performance level. We then divided the difference between that ROIC level, and the threshold ROIC200% achievement level described above over pro rata increments between those levels to arrivewas set at 22.83%, or 100 basis points higher than the ROIC target performancethreshold level.
The bonus payable to each named executive officer if we reached the 20102011 target performance levels for each of the adjusted EBITDA and ROIC financial performance measures is equal to the applicable percentage of each executive's salary as set forth in the chart below. Except forFor all named executive officers other than Mr. Dreiling, such payout percentages which are consistent with Teamshare payout percentagesthose for prior years and continued to fall within the median of the payout percentages for the market comparator group. As discussed under "Base Salary" above, the Committee increased Mr. Dreiling's bonus target from 100% to 125% of his base salary in 2010 and to 130% in 2011 in order to more closely align Mr. Dreiling's bonus target and total cash compensation with the median of the market comparator group.group, the Committee increased Mr. Dreiling's 2011 bonus target from 125% of his base salary to 130%.
Name | Target Payout Percentage | |||
---|---|---|---|---|
Mr. Dreiling(1) | ||||
Mr. Tehle | 65% | |||
Ms. Guion | 65% | |||
Mr. | 65% | |||
| 65% |
Bonus payments for financial performance below or above the applicable target levels are prorated on a graduated scale commensurate with performance levels in accordance with the schedule below.below:
Adjusted EBITDA | Adjusted EBITDA | ROIC | Total | Adjusted EBITDA | ROIC | Total | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
% of Performance Target | % of Performance Target | % of Bonus Payable | % of Performance Target | % of Bonus Payable | Bonus at Target | % of Performance Target | % of Bonus Payable | % of Performance Target | % of Bonus Payable | Bonus at Target (%) | ||||||||||||||||||
95% | 45% | 98.5% | 5% | 50% | 95 | 45 | 99.68 | 5 | 50 | |||||||||||||||||||
96% | 54% | 98.8% | 6% | 60% | 96 | 54 | 99.74 | 6 | 60 | |||||||||||||||||||
97% | 63% | 99.1% | 7% | 70% | 97 | 63 | 99.81 | 7 | 70 | |||||||||||||||||||
98% | 72% | 99.4% | 8% | 80% | 98 | 72 | 99.87 | 8 | 80 | |||||||||||||||||||
99% | 81% | 99.7% | 9% | 90% | 99 | 81 | 99.94 | 9 | 90 | |||||||||||||||||||
100% | 90% | 100.0% | 10% | 100% | 100 | 90 | 100.00 | 10 | 100 | |||||||||||||||||||
101% | 99% | 100.3% | 11% | 110% | 101 | 99 | 100.42 | 11 | 110 | |||||||||||||||||||
102% | 108% | 100.6% | 12% | 120% | 102 | 108 | 100.85 | 12 | 120 | |||||||||||||||||||
103% | 117% | 100.9% | 13% | 130% | 103 | 117 | 101.27 | 13 | 130 | |||||||||||||||||||
104% | 126% | 101.2% | 14% | 140% | 104 | 126 | 101.70 | 14 | 140 | |||||||||||||||||||
105% | 135% | 101.5% | 15% | 150% | 105 | 135 | 102.12 | 15 | 150 | |||||||||||||||||||
106% | 144% | 101.8% | 16% | 160% | 106 | 144 | 102.55 | 16 | 160 | |||||||||||||||||||
107% | 153% | 102.1% | 17% | 170% | 107 | 153 | 102.97 | 17 | 170 | |||||||||||||||||||
108% | 162% | 102.4% | 18% | 180% | 108 | 162 | 103.40 | 18 | 180 | |||||||||||||||||||
109% | 171% | 102.7% | 19% | 190% | 109 | 171 | 103.82 | 19 | 190 | |||||||||||||||||||
110% | 180% | 103.0% | 20% | 200% | 110 | 180 | 104.25 | 20 | 200 |
For each 1% adjusted EBITDA increase between the threshold performance level and 110% of the target performance level, the corresponding payout increases by 9% of the target payout amount (based upon the officer's target payout percentage). For each 1% adjusted EBITDA increase above
110% of the target performance level, the corresponding payout increases by 10.24%11.67% of the target payout amount (based upon the officer's target payout percentage). For adjusted ROIC, each 0.67%.014% increase in performance between the threshold performance level and the target performance level increases the payout percentage by 1%. For each 0.67%.093% increase in adjusted ROIC performance above the target performance level, the bonus payout increases by 1%, and above 200% of the target payout level, the bonus payout increases by 1.14%1.3%. Payout percentages greater than 200% of the target payout levels are based on an approximate sharing between Dollar General (80%) and the Teamshare participants (20%) of the incremental adjusted EBITDA dollars earned above the 110% of the adjusted EBITDA performance level, split 90% to adjusted EBITDA and 10% to adjusted ROIC.
This proration schedule, through 110% of the target performance level, is consistent with the schedule approved by the Committee in 2007 in reliance upon benchmarking data which, at that time, indicated that the typical practice was to set the threshold payout percentage at half of the target and the maximum payout percentage at twice the target. The Committee determined in 2008 that the proration schedule for adjusted EBITDA performance above 110% of target should approximate a sharing between Dollar General (80%) and the Teamshare participants (20%) of the adjusted EBITDA dollars earned above that level.
(b) 20102011 Teamshare Results. The Committee approved the adjusted EBITDA/EBITDA and adjusted ROIC performance results at 105.5%$1.848 billion (101.79% of target) and 100.9%22.07% (100.78% of target,target), respectively, which equate to a payout of 152.24%117.98% of individual bonus targets under the 20102011 Teamshare program. Accordingly, a 20102011 Teamshare payout was made to each named executive officer at the following percentages of base salary earned: Mr. Dreiling, 190.30%153.37%; and each of Mr. Tehle, Ms. Guion, Mr. FlaniganVasos and Mr. Ravener, 98.96%Ms. Lanigan, 76.69%. Such amounts are reflected in the "Non-Equity Incentive Plan Compensation" column of the Summary Compensation Table.
(c) 20112012 Teamshare Structure. The Committee has approved a 20112012 Teamshare structure similar to that which was approved for 2010.2011. The Committee approved certain changes to the items that are to be excluded from the calculation of the ROIC performance measure and made adjustments to the graduated scale of payouts pertaining to ROIC. All of these changesadjusted ROIC which will be further discussed in detail in our proxy statement for the 20122013 annual meeting.
The applicable percentage of each named executive officer's salary upon which his or her bonus is based for the 20112012 Teamshare plan is also the same as in 2010, except for Mr. Dreiling whose target, as discussed above, was increased to 130% of base salary.2011. Those percentages continue to approximate the median of the payout percentages for the 2012 market comparator group. Ms. Guion is not eligible to participate in the 2012 Teamshare program per the terms of her retirement agreement.
Long-Term Equity Incentive Program. Long-term equity incentives motivate named executive officers to focus on long-term success for shareholders. These incentives help provide a balanced focus on both short-term and long-term goals and are also important to our compensation program's recruiting and retention objectives because most of the companies in our market comparator group offer them. Our long-term equityobjectives. Such incentives are designed to compensate named executive officers for a long-term commitment to us, while motivating sustained increases in our financial performance and shareholder value. We believe that our long-term equity incentive program provides significant motivation and retention value to us for many reasons, most notably:
Equity awards are made under our Amended and Restated 2007 Stock Incentive Plan for Key Employees of Dollar General Corporation and its Affiliates (the "2007 Stock Incentive Plan") and are always granted with a per share exercise price equal to the fair market value of one share of our common stock on the date of the grant.
The 2007 Stock Incentive Plan generally providesUntil March 2012, the Committee the authority to grant equity-based awards, including stock options, stock appreciation rights, restricted stock, restricted stock units, and other equity-based awards (including dividend equivalent rights), to any of our employees, non-employee members of our Board of Directors, any consultant or other person having a service relationship with our company. The 2007 Stock Incentive Plan is administered by the Committee, which has the power to amend any awards outstanding under the 2007 Stock Incentive Plan in any manner (unless de minimis) that is not adverse to the holder of such award. Upon any stock split, spin-off, share combination, reclassification, recapitalization, liquidation, dissolution, reorganization, merger, change in control of our company (as defined in the 2007 Stock Incentive Plan), payment of a dividend (other than a cash dividend paid as part of a regular dividend program) or other similar transaction or occurrence that affects the equity securities of Dollar General or the value thereof, the Committee must adjust awards then outstanding under the 2007 Stock Incentive Plan (including the number and kind of securities subject to the award and, if applicable, the exercise price), in each case as it deems reasonably necessary to address, on an equitable basis, the effect of the applicable corporate event on the 2007 Stock Incentive Plan and any outstanding awards. In the event of a change in control of Dollar General (as defined in the 2007 Stock Incentive Plan), the Committee may accelerate the vesting of any outstanding awards, cancel for fair value (as determined in its sole discretion) outstanding awards, substitute new awards that will substantially preserve the otherwise applicable terms and value of the awards being substituted, or provide for a period of at least 10 business days prior to the change in control that any stock option or stock appreciation right will be fully exercisable, and then shall terminate upon the change in control. The Board has the power to amend or terminate the 2007 Stock Incentive Plan, except that shareholder approval is required to increase the aggregate number of shares available for awards, to decrease the exercise price of outstanding stock options or stock appreciation rights, to change the requirements relating to the Committee, or to extend the term of the 2007 Stock Incentive Plan. The 2007 Stock Incentive Plan currently expires July 6, 2017, although awards made on or before its expiration may extend beyond the expiration date. As of March 16, 2011, there were 31,142,858 shares authorized for issuance under the 2007 Stock Incentive Plan (no more than 4,500,000 of which may be granted in the form of stock options and stock appreciation rights, and no more than 1,500,000 of which may be granted in the form of other stock-based awards, in each case to any one participant in a given fiscal year), approximately 17,869,260 of which remained available for future grants.
Since our 2007 merger, a personal financial investment in Dollar General stock generally has been a prerequisite to eligibility to receive an option grant under the 2007 Stock Incentive Plan. All named executive officers (other than Mr. Dreiling) met that personal investment at the time of our merger in 2007 or upon their hire or promotion date in one or more of the following three forms: (a) cash; (b) rollover of stock issued prior to our 2007 merger; and/or (c) rollover of in-the-money options issued prior to our 2007 merger. Accordingly, each such named executive officer received an option grant under the 2007 Stock Incentive Plan at the time he or she met the personal investment
requirement. Mr. Dreiling received an option agreement upon commencement of his employment with us pursuant to the negotiated terms of his employment agreement.
The Committee hashad not made annual equity awards since our 2007 merger as it believes thatbecause the long-term equity previously granted at the time of that merger or for named executive officers who were later employed by us, at the time of hire havehas been sufficiently retentive and otherwise have adequately met our current compensation objectives. The Committee has, however, made special one-time equity grants to certain of our named executive officersHowever, in connection with promotions or, with respect to Mr. Dreiling, in connection withthe amendment of his employment agreement and is contemplating the implementation ofin April 2010, Mr. Dreiling also received a new long-term equity programspecial one-time stock option grant that incorporates an annual grant component (discussed further below).
With respect to the promotion-related grants to Messrs. Flanigan and Ravener, the Committee used a mathematical formula to determine both the number of options awarded and whether any additional investment would be required by such officers to be eligible to receive the options awards. That formula applied a mathematical proration of the level of investment and number of options generally granted under the existing program to personsfully vested in senior vice president and executive vice president positions over the period of time each such officer had served as a senior vice president and will serve as an executive vice president during the five-year transfer restriction period that initially began upon their respective employment dates. As a result of the application of such formula, Mr. Flanigan made an additional investment of $158,299 as a condition to the exercisability of his option award, while Mr. Ravener had already invested the minimum amount required to be eligible for the promotion-related option award.
April 2011. The options granted to the named
executive officers (other than Mr. Dreiling's April 2010 option award) are divided so that half are time-vested (generally over 4 or(over 5 years) and half are performance-vested (generally over 5 or 6 years) 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 criteria is designed to compensate executives for long-term commitment to us, while motivating sustained increases in our financial performance. See "Grants of Plan-Based Awards in Fiscal 2010" and "Outstanding Equity Awards at 2010 Fiscal Year-End" below.
The vesting of the performance-based options granted prior to March 2012 is subject to continued employment with us over the performance period and the Board's determination that we have achieved for each of the relevant fiscal years the specified annual performance target based on EBITDA and adjusted as described below. For fiscal years 2007, 2008, 2009 and 2010,2008-2011, those adjusted EBITDA targets were $700 million, $828 million, $961 million, and $1.139 billion respectively (except for Mr. Flanigan and Mr. Ravener's March 2010 promotion-related grants discussed below),$1.35 billion, respectively, which were based on the long-term financial plan, at the time of our 2007 merger, less any anticipated permissible adjustments, primarily to account for unique expenses related to our 2007 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, a specified cumulative adjusted EBITDA performance target is achieved. The annual and cumulative adjusted EBITDA performance targets are based on our long-term financial plans in existence at the time of grant. Accordingly, in each case at the time of grant, we believed those levels, while attainable, would require strong performance and execution. Although Messrs. Flanigan and Ravener joined us during fiscal 2008 after the original performance targets had been set for fiscal 2008, 2009, 2010 and 2011, the Committee decided to grant their performance awards at the same performance targets as had been set for the other officers since the long-term financial plans in place at that time had been determined relatively recently and to avoid having different sets of performance levels for one member of the team applying to the same fiscal years.
For Mr. Flanigan and Mr. Ravener's promotion-related option grants in 2010, the Committee determined that the EBITDA targets for the performance-based options should be set based on the updated adjusted EBITDA forecast in our long-term business plan. The target for fiscal year 2010 was $1.4 billion. At the time of grant, we believed the annual adjusted EBITDA levels, while attainable, would require strong performance and execution.
For purposes of calculating the achievement of performance targets for our long-term equity incentive program,grants prior to March 2012, "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 equity incentive program. Adjustments to EBITDA for purposes of calculating performance targets for our long-term equity incentive program may not in all circumstances be identical to adjustments to EBITDA for other purposes, including our Teamshare program targets and the covenants contained in our principal financial agreements. Accordingly, comparability of such measures is limited.
All performance-based options and 80% of the time-based options granted to the named executive officers prior to 2012, except for those granted to Mr. Vasos, are vested. We have surpassed the cumulative adjusted EBITDA performance targets through fiscal 2010,2011, and we anticipate surpassing the cumulative adjusted EBITDA performance target through fiscal 2011,2012, for all options except for the promotion-related option grants awarded to Messrs. Flanigan and Ravener. For such promotion-related awards, we exceeded the 2010 annual adjusted EBITDA performance target.Mr. Vasos' options.
Over the last year,two years, the Committee has been workingworked with its consultant and with management to develop a new long-term equity incentive structure under the 2007 Stock Incentive Plan that is more in line with typical public company equity structures. We expect that theThe new structure will contain an annual grant componentwas finalized and not retain the mandatory investment feature or the transfer restrictions, put rights, call rights, and piggyback registration rights contained in the Management Stockholder's Agreement. We anticipate that the new structure will be partly implemented in May 2011 for new hire equity awards and fully implemented in March 2012. Under the new program, each of the named executive officers (other than Ms. Guion) received a grant of time-based stock options and a grant of performance share units. The combination of time and performance-based vesting criteria is designed to compensate executives for long-term commitment to us, while motivating sustained increases in our shareholder value and financial performance.
Consistent with our compensation philosophy and objectives, the Committee believes that the value of the long-term equity awards should approximate the median values of our competitive market. As a result, the value of the long-term incentive awards was determined based on the long-term equity target values of our 2012 market comparator group. The market value for annual equityeach named executive officer's position other than the CEO was blended to establish a single long-term incentive value on which awards are based for all named executive officers other than the CEO. This blending practice is similar to that which we used in establishing the short-term cash incentive where the targets for each of the named executive officers' positions (other than the CEO) are also the same.
The long-term incentive values were awarded 75% in time-based stock options and 25% in performance share units recognizing that splits between performance and time-based awards and between options and units are common within our 2012 market comparator group. The Committee believes this is the appropriate allocation to achieve both the retention and incentive goals of the awards. The structureactual number of stock options and performance share units awarded were determined by applying a Black Scholes formula provided by Meridian to the selected long-term incentive values.
The options will vest 25% on each of the first four anniversaries of the grant date, subject to the executive officer's continued employment with us and certain accelerated vesting provisions.
The performance share units awarded are equal to a target number of performance share units that can be earned if certain performance measures are achieved during the performance period (which is fiscal year 2012) and if certain additional vesting requirements are met. The performance measures are goals related to adjusted EBITDA (weighted 90%) and adjusted ROIC (weighted 10%) as established by the Committee on the grant date, using the same adjusted EBITDA/ROIC-based performance criteria used to determine performance under the Teamshare program discussed under "Short-Term Cash Incentive Plan" above. The number of performance share units earned will vary between 0% and 200% of the target number based on actual performance compared to target performance on the same graduated scale that determines incentive payouts under our Teamshare program discussed above. One-third of the performance share units earned based on 2012 financial performance will vest on the last day of the one-year performance period, and the timingremaining two-thirds of the program remainperformance share units will vest on the second and third anniversaries of the grant date, subject to change untilthe officer's continued employment with us and certain accelerated vesting provisions. All vested performance share units will be settled in shares of our common stock.
In addition, in March 2012 the Committee awarded Mr. Dreiling a retention grant of 326,037 performance-based restricted shares of our common stock which he can earn if certain earnings per share ("EPS") performance targets are met for fiscal years 2014 and 2015. This award is designed to retain Mr. Dreiling, whose 2008 stock option award is anticipated to fully vest, and whose transfer restrictions on shares of our common stock are scheduled to expire, in July 2012, while simultaneously incenting him to continue to drive superior financial performance. In structuring the award, the Committee reviewed retention grant practices of the 2012 market comparator group and determined that a grant value equivalent to 1.5 times the value of the annual long-term incentive award would approximate the median range of retention grants are approvedawarded by the 162(m) Subcommittee.market comparator group. The EPS goals were established by the Committee on the grant date based upon EPS forecasts contained in our long-term strategic plan. Half of the performance-based restricted stock will vest after the end of our 2014 fiscal year if the EPS goal for that year is achieved, and the other half will vest after the end of our 2015 fiscal year if the EPS goal for that year is achieved, in each case subject to continued employment with us and certain accelerated vesting provisions. For purposes of calculating the achievement of the EPS targets for each of 2014 and 2015, EPS shall be calculated as the quotient of (x) net income earned in the applicable fiscal year (as calculated in accordance with generally accepted accounting principles applicable to the Company at the relevant time), with such net income calculation to exclude the items identified below, by (y) the weighted average number of shares of our common stock outstanding during the applicable fiscal year. The net income calculation will exclude the impact of the items that are excluded from the EBITDA calculation for Teamshare purposes identified above under "Short-Term Cash Incentive Program" except that adjustments relating to any tax, legislation or accounting changes enacted after the beginning of the 2012 fiscal year must be material and demonstrable and must not have been contemplated in our 2012-2016 financial plan.
Benefits and Perquisites. Along with certain benefits offered to named executive officers on the same terms that are offered to all of our salaried employees (such as health and welfare benefits and matching contributions under our 401(k) plan), we provide our named executive officers with certain additional benefits and perquisites 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 we believe to be consistent and competitive with benefits and perquisites provided to executives with similar positions in our market comparator group and in our industry.
The named executive officers have the opportunity to participate in the Compensation Deferral Plan (the "CDP") and, other than Mr. Ravener,Vasos, the defined contribution Supplemental Executive Retirement Plan (the "SERP", and together with the CDP, the "CDP/SERP Plan"). The Compensation Committee previously determined to no longer offer SERP participation is not available to persons to whom employment offers are made after May 28, 2008, including newly hired executive officers.Mr. Vasos.
We provide each named executive officer a life insurance benefit equal to 2.5 times his or her base salary up to a maximum of $3 million. We pay the premiums and gross up each named executive officer's income to pay the tax costs associated with this benefit. We also provide each named executive officer a disability insurance benefit that provides income replacement of 60% of base salary up to a maximum monthly benefit of $20,000. We pay the cost of this benefit and gross up such executive's
income to pay the tax costs associated with the premiums for this benefit to the extent necessary to provide a comparable cost for this benefit to the named executive officer as the cost applicable to all salaried employees.
We also provide a relocation assistance program to named executive officers under a policy applicable to officer-level employees, which policy is similar to that offered to certain other employees. In 2010,2011, we did not incur any relocation expenses for any named executive officer in accordance with this policy. The significant differences between the relocation assistance available to officers from the relocation assistance available to non-officers are as follows:
We provide through a third party a personal financial and advisory service benefit to all executive officers who report directly to the CEO, including the named executive officers. This program provides each named executive officer with various personal financial support services,officers, including financial planning, estate planning and tax preparation services, in an annual amount of up to $20,000 per person (plus an individual tax gross-up and payment of the advisor's related travel expenses by the third party provider)expenses). The Committee approved the program to reducereduces the amount of time and attention that executives must spend on these matters, furthering their ability to focus on their responsibilities to us, and to maximizemaximizes the executive's net financial reward to the executive of compensation received from us. The Committee also believed this benefit is commonly provided to executives within our market comparator group.
Compensation of Mr. Dreiling
The Compensation Committee approved an amended and restated employment agreement, effective April 23, 2010, with Mr. Dreiling is entitled to assure Dollar Generalcertain additional perquisites as a result of Mr. Dreiling's continued services in light of tremendous financial performance in 2008 and 2009. Thethe terms of his amended and restated employment agreement as summarized below, were settled after negotiation with Mr. Dreiling and were considered by our Committee to be fair and appropriate given CEO compensation and benefits at comparable companies and given Mr. Dreiling's experience, leadership ability, and proven performance. The Board firmly believes he is the right leader for Dollar General as we move forward.
The amended and restated agreement provides for a five-year term, with automatic one-year renewals thereafter. Key compensatory provisions include:us, including:
In addition, effective April 23, 2010, the 162(m) Subcommittee granted Mr. Dreiling a non-qualified stock option to purchase 100,000 shares of our common stock. While the option and the common stock underlying the option are subject to the terms of the existing Management Stockholder's Agreement between us and Mr. Dreiling, they are not subject to the transfer restrictions and put and call provisions set forth in Sections 3, 5 and 6 thereof. The Committee believed this award was of a sufficient size to appropriately reward Mr. Dreiling for Dollar General's tremendous performance results while continuing to incent future performance.
Severance Arrangements
As noted above, we have an employment agreement with each of our named executive officers that, among other things, provides for such executive's rights upon a termination of employment. We believe that reasonable severance benefits are appropriate to protect the named executive officer against circumstances over which he or she does not have control and as consideration for the promises of non-disclosure, non-competition, non-solicitation and non-interference that we require in our employment agreements.
A change in control, by itself, does not trigger any severance provision applicable to our named executive officers, except for the provisions related to long-term equity incentives under our 2007 Stock Incentive Plan. As required by applicable securities laws, we have included
Retirement Agreement with Ms. Guion
Ms. Guion intends to retire from employment with the Company effective July 31, 2012 (the "Retirement Date"). We entered into a summaryRetirement Agreement with Ms. Guion, dated as of July 20, 2011 (the "Retirement Agreement"), in order to set forth the terms of her employment through the Retirement Date, the transition of her current duties, and her role and responsibilities with the Company through the Retirement Date. Key compensatory provisions of the Retirement Agreement include:
Table of January 28, 2011" below.Contents
Considerations Associated with Regulatory Requirements
Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to any publicly held corporation for individual compensation over $1 million paid in any taxable year to each of the persons who were, at the end of the fiscal year, Dollar General's CEO or one of the other named executive officers (other than our Chief Financial Officer). Section 162(m) specifically exempts certain performance-based compensation from the deduction limit.
If our CompensationCNG Committee determines that our shareholders' interests are best served by the implementation of compensation policies that are affected by Section 162(m), our policies will not restrict the Committee from exercising discretion to approve compensation packages even though that flexibility may result in certain non-deductible compensation expenses.
We believe that our 2007 Stock Incentive Plan currently satisfies, and if Proposal 2 is approved, will continue to satisfy the requirements of Section 162(m), so that compensation expense realized in connection with stock options and stock appreciation rights, if
any, and in connection with performance-based restricted stock and restricted stock unit awards, if any, will be deductible. However, restricted stock or restricted stock units granted to executive officers that solely vest over time are not "performance-based compensation" under Section 162(m), so that compensation expense realized in connection with those time-vested awards to executive officers covered by Section 162(m) will not be deductible by Dollar General. We currently do not grant restricted stock or restricted stock unit awards to executive officers.
In addition, any salary, signing bonuses or other annual compensation paid or imputed to the executive officers covered by Section 162(m) that causes non-performance-based compensation to exceed the $1 million limit will not be deductible by Dollar General.
The Committee administers our executive compensation program with the good faith intention of complying with Section 409A of the Internal Revenue Code, which relates to the taxation of nonqualified deferred compensation arrangements.
The CompensationCNG Committee of our Board of Directors has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K and, based on such review and discussions, the CompensationCNG Committee recommended to the Board that the Compensation Discussion and Analysis be included in this document.
This report has been furnished by the members of the CompensationCNG Committee:
The above Compensation Committee Report does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Dollar General filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent Dollar General specifically incorporates this report by reference therein.
The following table summarizes compensation paid to or earned by our named executive officers in each of fiscal 2010,2011, fiscal 20092010 and fiscal 2008.2009. We have omitted from this table the columns for Bonus, Stock Awards, and Change in Pension Value and Nonqualified Deferred Compensation Earnings as no amounts are required to be reported in such columns for any named executive officer.
Name and Principal Position(1) | Year | Salary ($)(2) | Option Awards ($)(3) | Non-Equity Incentive Plan Compensation ($)(4) | All Other Compensation ($) | Total ($) | Year | Salary ($)(2) | Option Awards ($)(3) | Non-Equity Incentive Plan Compensation ($)(4) | All Other Compensation ($) | Total ($) | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Richard W. Dreiling, | 2010 | 1,143,231 | 1,193,210 | 2,186,595 | 640,293 | (5) | 5,163,329 | 2011 | 1,196,947 | — | 1,850,386 | 785,036 | (5) | 3,832,369 | ||||||||||||||||||||||||
Chairman & | 2009 | 1,100,876 | — | 2,434,924 | 887,800 | (6) | 4,423,600 | 2010 | 1,143,231 | 1,193,210 | 2,186,595 | 640,293 | 5,163,329 | |||||||||||||||||||||||||
Chief Executive Officer | 2008 | 1,000,038 | — | 2,176,300 | 343,397 | 3,519,735 | 2009 | 1,100,876 | — | 2,434,924 | 887,800 | 4,423,600 | ||||||||||||||||||||||||||
David M. Tehle, | 2010 | 642,299 | — | 638,125 | 219,450 | (7) | 1,499,874 | 2011 | 658,356 | — | 506,906 | 220,278 | (6) | 1,385,540 | ||||||||||||||||||||||||
Executive Vice President & | 2009 | 626,884 | — | 888,258 | 278,263 | (6) | 1,793,405 | 2010 | 642,299 | — | 638,125 | 219,450 | 1,499,874 | |||||||||||||||||||||||||
Chief Financial Officer | 2008 | 612,358 | — | 870,431 | 153,431 | 1,636,220 | 2009 | 626,884 | — | 888,258 | 278,263 | 1,793,405 | ||||||||||||||||||||||||||
Kathleen R. Guion, | 2010 | 621,087 | — | 617,050 | 186,161 | (8) | 1,424,298 | 2011 | 636,614 | 124,446 | 490,165 | 198,993 | (7) | 1,450,218 | ||||||||||||||||||||||||
Executive Vice President, | 2009 | 606,180 | — | 858,922 | 246,806 | (6) | 1,711,908 | 2010 | 621,087 | — | 617,050 | 186,561 | 1,424,698 | |||||||||||||||||||||||||
Division President, | 2008 | 581,689 | — | 841,684 | 141,333 | 1,564,706 | ||||||||||||||||||||||||||||||||
Store Operations & Store Development | ||||||||||||||||||||||||||||||||||||||
Strategic Planning & Real Estate | 2009 | 606,180 | — | 858,922 | 247,206 | 1,712,308 | ||||||||||||||||||||||||||||||||
John W. Flanigan, | 2010 | 403,156 | 1,131,072 | 402,176 | 112,667 | (9) | 2,049,071 | |||||||||||||||||||||||||||||||
Executive Vice President, Global Supply Chain | ||||||||||||||||||||||||||||||||||||||
Todd J. Vasos, | 2011 | 636,614 | — | 490,165 | 71,712 | (8) | 1,198,491 | |||||||||||||||||||||||||||||||
Executive Vice President, | 2010 | 618,855 | — | 617,050 | 57,839 | 1,293,744 | ||||||||||||||||||||||||||||||||
Division President, Chief Merchandising Officer | 2009 | 595,023 | — | 840,021 | 91,609 | 1,526,653 | ||||||||||||||||||||||||||||||||
Robert D. Ravener, | 2010 | 441,599 | 1,220,382 | 440,525 | 63,505 | (10) | 2,166,011 | |||||||||||||||||||||||||||||||
Executive Vice President & Chief People Officer | ||||||||||||||||||||||||||||||||||||||
Susan S. Lanigan, | 2011 | 530,326 | — | 414,102 | 122,171 | (9) | 1,066,599 | |||||||||||||||||||||||||||||||
Executive Vice President & General Counsel |
$370,086 which represents the aggregate incremental cost of providing certain perquisites, including $254,886$333,406 for costs associated with personal airplane usage, by Mr. Dreiling and his guests, $20,174$21,298 for costs associated with financial and estate planning services, and other amounts which individually did not equal or exceed the greater of $25,000 or 10% of total perquisites, including expenses related to attendance by Mr. Dreiling and his guests at entertainment events, a directed charitable donation, event participation, appreciation and appreciationother nominal gifts, costs incurred in connection with a medical physical examination, and minimal incremental travelentertainment expenses incurred by Mr. Dreiling's spouse while accompanying him on Dollar General business. The aggregate incremental cost related to the personal airplane usage was calculated using costs we would not have incurred but for the personal usage (including costs incurred as a result of "deadhead" legs of personal flights), including fuel costs, variable maintenance costs, crew expenses, landing, parking and other associated fees, supplies and catering costs.
Grants of Plan-Based Awards in Fiscal 20102011
The table below sets forth information regarding grants of plan-based awards to our named executive officers in fiscal 2010. The grants include non-qualified stock options granted pursuant to our 2007 Stock Incentive Plan. See "Long-Term Equity Incentive Program" and "Compensation of Mr. Dreiling" in "Compensation Discussion & Analysis" above for further discussion of these grants. We have omitted the columns for Threshold and Maximum Estimated Future Payouts under Equity Incentive Plan Awards and the column for All Other Stock Awards: Number of Shares or Stock Units because they are inapplicable.
Eacheach named executive officer's annual Teamshare bonus opportunity established for fiscal 2010 is also set forth in the table below.2011. Actual bonus amounts earned by each named executive officer for fiscal 2010 as a result of our financial performance2011 are set forth in the Summary Compensation Table above and represent prorated payments on a graduated scale for financial performance above the target performance levels, but at or below the maximum payout cap of $5.0 million, for each of the named executive officers.cap. See "Short-Term Cash Incentive Plan" in "Compensation Discussion and Analysis" above for further discussion of the fiscal 20102011 Teamshare program.
| | | | | | Estimated Future Payouts Under Equity Incentive Plan Awards | | | | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/Sh)(3) | Grant Date Fair Value of Stock and Option Awards ($)(4) | ||||||||||||||||||||||
Name | Grant Date | Date of Board Action(1) | Threshold ($) | Target ($) | Maximum ($) | Target (#)(2) | ||||||||||||||||||||||
Mr. Dreiling | — | — | 718,141 | 1,436,281 | 5,000,000 | — | — | — | — | |||||||||||||||||||
4/23/10 | 4/22/10 | — | — | — | — | 100,000 | (5) | 29.38 | 1,193,210 | |||||||||||||||||||
Mr. Tehle | — | — | 209,591 | 419,182 | 5,000,000 | — | — | — | — | |||||||||||||||||||
Ms. Guion | — | — | 202,669 | 405,339 | 5,000,000 | — | — | — | — | |||||||||||||||||||
Mr. Flanigan | — | — | 132,094 | 264,189 | 5,000,000 | — | — | — | — | |||||||||||||||||||
3/24/10 | 3/24/10 | — | — | — | — | 49,759 | (6) | 25.25 | 565,536 | |||||||||||||||||||
3/24/10 | 3/24/10 | — | — | — | 49,759 | — | 25.25 | 565,536 | ||||||||||||||||||||
Mr. Ravener | — | — | 144,690 | 289,380 | 5,000,000 | — | — | — | — | |||||||||||||||||||
3/24/10 | 3/24/10 | — | — | — | — | 53,688 | (6) | 25.25 | 610,191 | |||||||||||||||||||
3/24/10 | 3/24/10 | — | — | — | 53,688 | — | 25.25 | 610,191 |
| Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Grant Date Fair Value of Stock and Option Awards ($)(1) | ||||||||||||
Name | Threshold ($) | Target ($) | Maximum ($) | ||||||||||
Mr. Dreiling | 784,209 | 1,568,419 | 5,000,000 | — | |||||||||
Mr. Tehle | 214,831 | 429,662 | 5,000,000 | — | |||||||||
Ms. Guion | 207,736 | 415,472 | 5,000,000 | — | |||||||||
— | — | — | 124,446 | ||||||||||
Mr. Vasos | 207,736 | 415,472 | 5,000,000 | — | |||||||||
Ms. Lanigan | 175,500 | 351,000 | 5,000,000 | — |
Outstanding Equity Awards at 20102011 Fiscal Year-End
The table below sets forth information regarding outstanding equity awards granted under our 2007 Stock Incentive Plan and held by our named executive officers as of the end of fiscal 2010, including (1) equity awards granted under our 2007 Stock Incentive Plan; and (2) Rollover Options, as defined and discussed following the table, granted under our 1998 Stock Incentive Plan.2011. We have omitted from this table the columns pertaining to stock awards under equity incentive plans because they are inapplicable.
| Option Awards | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)(1) | Option Exercise Price ($) | Option Expiration Date | |||||||||||
Mr. Dreiling | 428,571 | (2) | 285,714 | (3) | — | 7.9975 | 07/06/2017 | |||||||||
571,428 | (4) | — | 142,857 | 7.9975 | 07/06/2017 | |||||||||||
— | 100,000 | (5) | — | 29.38 | 04/23/2020 | |||||||||||
Mr. Tehle | 10,188 | (6) | — | — | 2.1875 | 08/09/2014 | ||||||||||
188,571 | (2) | 125,714 | (3) | — | 7.9975 | 07/06/2017 | ||||||||||
204,786 | (4) | — | 62,857 | 7.9975 | 07/06/2017 | |||||||||||
Ms. Guion | 150,000 | (2) | 100,000 | (3) | — | 7.9975 | 07/06/2017 | |||||||||
163,641 | (4) | — | 50,000 | 7.9975 | 07/06/2017 | |||||||||||
Mr. Flanigan | 36,572 | (7) | 54,856 | (8) | — | 7.9975 | 08/28/2018 | |||||||||
48,762 | (9) | — | 42,666 | 7.9975 | 08/28/2018 | |||||||||||
9,144 | (7) | 13,713 | (10) | — | 12.1975 | 05/28/2019 | ||||||||||
12,191 | (11) | — | 10,666 | 12.1975 | 05/28/2019 | |||||||||||
— | 49,759 | (12) | — | 25.25 | 03/24/2020 | |||||||||||
10,367 | (13) | — | 39,392 | 25.25 | 03/24/2020 | |||||||||||
Mr. Ravener | 22,858 | (14) | 34,284 | (15) | — | 7.9975 | 08/28/2018 | |||||||||
27,620 | (16) | — | 29,522 | 7.9975 | 08/28/2018 | |||||||||||
22,858 | (14) | 34,284 | (15) | — | 7.9975 | 12/19/2018 | ||||||||||
27,620 | (16) | — | 29,522 | 7.9975 | 12/19/2018 | |||||||||||
— | 53,688 | (17) | — | 25.25 | 03/24/2020 | |||||||||||
11,185 | (13) | — | 42,503 | 25.25 | 03/24/2020 |
options with an exercise price of $12.1975; and (f) 12,440 shares per year on February 3, 2012 and February 1, 2013, 12,439 shares on January 31, 2014 and 2,073 shares on January 30, 2015 for Mr. Flanigan with respect to options with an exercise price of $25.25. If an annual adjusted EBITDA-based target is not met, these options may still vest on a "catch up" basis if the applicable cumulative adjusted EBITDA-based target is achieved at the end of fiscal years (1) 2011 or 2012prices set forth in the case of Mr. Dreiling, Mr. Tehle and Ms. Guion; (2) 2011, 2012, 2013, or 2014table below reflect an adjustment made in the case of Mr. Ravener's options identified in (b) above and Mr. Flanigan's options identified in (d) and (e) above; and (3) 2011, 2012, 2013, 2014, or 2015 in the case of Mr. Ravener's and Mr. Flanigan's options identified in (c) and (f), respectively, above. These options also are subject to certain accelerated vesting provisions as described in "Potential Payments upon Termination or Change in Control" below.
In connection with our 2007 merger, certain named executive officers elected to roll over all or a portion of their options held prior to our 2007 merger (the "Rollover Options") rather than receive in exchange for each such option the cash merger consideration, without interest and less applicable withholding taxes, equal to $22.00 less the exercise price of each option. The exercise price of the Rollover Options and the number of shares underlying the Rollover Options were adjusted as a result of our 2007 merger to provide their pre-merger value equivalents. The Rollover Options are fully vested and were originally granted, and otherwise continue, under the terms of our 1998 Stock Incentive Plan.
In connection with the special dividend paid to our shareholders onin September 11, 2009 our Compensation Committee (1) approved a payment in substitution for the dividend adjustment with respect to Rollover Options as permitted thereunder to reflect the effects of the specialsuch dividend on such Rollover Options and (2) adjusted the exercise price of options, granted under the terms of our 2007 Stock Incentive Plan as required by the terms of such options to reflect the effects of the special dividend on such options. The exercise prices listed in the table above reflect the exercise price adjustments for the options granted under our 2007 Stock Incentive Plan in connection with the special dividend.
OnIn October 12, 2009, we completed a reverse stock split of 1 share for each 1.75 shares of common stock outstanding. The exercise prices of, and number of shares outstanding under, our equity awards existing at the time of the reverse stock split were retroactively adjusted to reflect the reverse stock split and are reflected in the table above.below.
See "Long-Term Equity Incentive Program" in "Compensation Discussion and Analysis" above for additional discussion
| Option Awards | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | |||||||||||
Mr. Dreiling | 362,033 | (1) | 142,857 | (1) | — | 7.9975 | 07/06/2017 | |||||||||
428,571 | (2) | — | — | 7.9975 | 07/06/2017 | |||||||||||
100,000 | (3) | — | — | 29.38 | 04/23/2020 | |||||||||||
Mr. Tehle | 134,743 | (1) | 62,857 | (1) | — | 7.9975 | 07/06/2017 | |||||||||
188,571 | (2) | — | — | 7.9975 | 07/06/2017 | |||||||||||
Ms. Guion | 100,965 | (1) | 50,000 | (1) | — | 7.9975 | 07/06/2017 | |||||||||
150,000 | (2) | — | — | 7.9975 | 07/06/2017 | |||||||||||
Mr. Vasos | 113,383 | (1) | 100,000 | (1) | — | 7.9975 | 12/19/2018 | |||||||||
150,000 | (4) | — | 91,667 | (4) | 7.9975 | 12/19/2018 | ||||||||||
Ms. Lanigan | 80,972 | (1) | 38,571 | (1) | — | 7.9975 | 07/06/2017 | |||||||||
115,713 | (2) | — | — | 7.9975 | 07/06/2017 |
Option Exercises and Stock Vested During Fiscal 20102011
We have omitted the columns pertaining to stock awards because they are inapplicable.
| Option Awards | ||||||
---|---|---|---|---|---|---|---|
Name | Number of Shares Acquired on Exercise (#)(1) | Value Realized on Exercise ($)(2) | |||||
Mr. Dreiling | 495,109 | 14,056,152 | |||||
Mr. Tehle | 205,945 | 6,158,687 | |||||
Ms. Guion | 162,676 | 4,811,072 | |||||
Mr. Vasos | 44,950 | 1,421,881 | |||||
Ms. Lanigan | 126,531 | 3,745,689 |
| Option Awards | ||||||
---|---|---|---|---|---|---|---|
Name | Number of Shares Acquired on Exercise (#)(1) | Value Realized on Exercise ($)(2) | |||||
Mr. Dreiling | — | — | |||||
Mr. Tehle | 146,172 | 3,917,203 | |||||
Ms. Guion | 112,236 | 3,004,596 | |||||
Mr. Flanigan | — | — | |||||
Mr. Ravener | — | — |
Pension Benefits
Fiscal 2010
2011
We have omitted the Pension Benefits table as it is inapplicable.
Nonqualified Deferred Compensation
Fiscal 20102011
Information regarding each named executive officer's participation in our CDP/SERP Plan is included in the following table. The material terms of the CDP/SERP Plan are described after the table. Please also see "Benefits and Perquisites" in "Compensation Discussion and Analysis" above. We have omitted from this table the column pertaining to aggregate withdrawals/distributions during the fiscal year because it is inapplicable.
Name | Executive Contributions in Last FY ($)(1) | Registrant Contributions in Last FY ($)(2) | Aggregate Earnings in Last FY ($)(3) | Aggregate Balance at Last FYE ($)(4) | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mr. Dreiling | 59,847 | 368,340 | 50,462 | 1,273,669 | |||||||||
Mr. Tehle | 32,918 | 143,639 | (171 | ) | 1,103,508 | ||||||||
Ms. Guion | 68,854 | 113,443 | 44,395 | 1,215,496 | |||||||||
Mr. Vasos | 34,494 | 19,516 | 1,625 | 58,230 | |||||||||
Ms. Lanigan | 26,516 | 59,126 | 27,217 | 587,458 |
Name | Executive Contributions in Last FY ($)(1) | Registrant Contributions in Last FY ($)(2) | Aggregate Earnings in Last FY ($)(3) | Aggregate Balance at Last FYE ($)(4) | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mr. Dreiling | 57,161 | 312,981 | 66,149 | 795,020 | |||||||||
Mr. Tehle | 32,115 | 165,078 | 119,026 | 927,122 | |||||||||
Ms. Guion | 79,692 | 129,647 | 116,523 | 988,804 | |||||||||
Mr. Flanigan | 1,694 | 61,284 | 5,403 | 99,313 | |||||||||
Mr. Ravener | 22,051 | 9,696 | 11,136 | 86,733 |
Pursuant to the CDP, each named executive officersofficer may annually elect to defer up to 65% of base salary if theirhis or her compensation is in excess of the Internal Revenue Service limit set forth in Section 401(a)(17) of the Internal Revenue Code, of 1986, as amended (the "Internal Revenue Code"), and up to 100% of bonus pay if theirhis or her compensation equals or exceeds the Internal Revenue Service highly compensated limit under Section 414(q)(1)(B) of the Internal Revenue Code. We currently match base pay deferrals at a rate of 100%, up to 5% of annual salary, with annual salary offset by the amount of match-eligible salary under the 401(k) plan. All named executive officers are 100% vested in all compensation and matching deferrals and earnings on those deferrals.
Pursuant to the SERP, we make an annual contribution equal to a certain percentage of a participant's annual salary and bonus to all participants who are actively employed in an eligible job grade on January 1 and continue to be employed as of December 31 of a given year. Persons hired after May 27, 2008 (the "Eligibility Freeze Date"), including Mr. Ravener,Vasos, are not eligible to participate in the SERP. The contribution percentage is based on age, years of service and job grade. The fiscal 20102011 contribution percentage for each eligible named executive officer was 7.5%9.5% for Mr. Dreiling and Mr. Tehle, 7.5% for Ms. Guion, and Mr. Flanigan and 9.5%4.5% for Mr. Tehle.Ms. Lanigan.
As a result of our 2007 merger, which constituted a change-in-control under the CDP/SERP Plan, all previously unvested SERP amounts vested on July 6, 2007. For newly eligible SERP participants after July 6, 2007 but prior to the Eligibility Freeze Date, SERP amounts vest at the earlier of the participant's attainment of age 50 or the participant's being credited with 10 or more "years of service", or upon termination of employment due to death or "total and permanent disability" or upon a "change-in-control", all as defined in the CDP/SERP Plan. See "Potential Payments upon Termination or Change in Control as of January 28, 2011—February 3, 2012—Payments After a Change in Control" below for a general description of our change in control arrangements.
The amounts deferred or contributed to the CDP/SERP Plan are credited to a liability account, which is then invested at the participant's option in an account that mirrors the performance of a fund or funds selected by the CompensationCNG Committee or its delegate. Beginning on August 2, 2008, these funds are identical to the funds offered in our 401(k) Plan.
A participant who ceases employment with at least 10 years of service or after reaching age 50 and whose CDP account balance or SERP account balance exceeds $25,000 may elect for that account balance to be paid in cash by (a) lump sum, (b) monthly installments over a 5, 10 or 15-year period or (c) a combination of lump sum and installments. Otherwise, payment is made in a lump sum. The vested amount will be payable at the time designated by the Plan upon the participant's termination of employment. A participant's CDP/SERP benefit normally is payable in the following February if employment ceases during the first 6 months of a calendar year or is payable in the following August if employment ceases during the last 6 months of a calendar year. However, participants may elect to receive an in-service lump sum distribution of vested amounts credited to the CDP account, provided that the date of distribution is no sooner than 5 years after the end of the year in which the amounts were deferred. In addition, a participant who is actively employed may request an "unforeseeable emergency hardship" in-service lump sum distribution of vested amounts credited to the participant's CDP account. Account balances are payable in cash.
As a result of our 2007 merger, the CDP/SERP Plan liabilities through July 6, 2007 were fully funded into an irrevocable rabbi trust. We also funded into the rabbi trust deferrals into the CDP/SERP Plan between July 6, 2007 and October 15, 2007. All CDP/SERP Plan liabilities incurred on or after October 15, 2007 are unfunded.
Potential Payments upon Termination or Change in Control as of January 28, 2011February 3, 2012
The tables below reflect potential payments to each of our named executive officers in various termination and change in control scenarios based on compensation, benefit, and equity levels in effect on, January 28, 2011. The amounts shown assume thatand assuming the termination or change in control eventscenario was effective as of, January 28, 2011.February 3, 2012. For stock valuations, we have assumed thatused the closing price per share is the fair market value of our stock on January 28, 2011 ($28.40), which was the closing price on the NYSE on such date.February 3, 2012 ($41.94). The tables report only amounts shownthat are merely estimates. We cannot determine the actual amounts to beincreased, accelerated or otherwise paid untilor owed as a termination or change in control scenario occurs.
Payments Regardless of Manner of Termination
Regardlessresult of the terminationapplicable scenario and, as a result, exclude options and CDP/SERP Plan benefits that had vested prior to the named executive officers will receiveevent and earned but unpaid base salary through the employment termination date, along with any other payments or benefits owed under any of our plans or agreements covering the named executive officer as governed by the terms of those plans or agreements. These benefits include vested amounts in the CDP/SERP Plan discussed under "Nonqualified Deferred Compensation" above.
date. The tables belowalso exclude any amounts payable to the named executive officer to the extent that they are available generally to all salaried employees and do not discriminate in favor of our executive officers. The amounts shown are merely estimates. We cannot determine actual amounts to be paid until a termination or change in control scenario occurs.
Payments Upon Termination Due to Death or Disability
In the event of death or disability, with respect to each named executive officer:
In the event of death, each named executive officer's beneficiary will receive payments under our group life insurance program in an amount, up to a maximum of $3 million, equal to 2.5 times the named executive officer's annual base salary. We have excluded from the tables below amounts that the named executive officer would receive under our disability insurance program since the same benefit level is provided to all of our salaried employees. The named executive officer's CDP/SERP Plan benefit also becomes fully vested (to the extent not already vested) upon his or her death and is payable in a lump sum within 60 days after the end of the calendar quarter in which the named executive officer's death occurs.
In the event of disability, each named executive officer's CDP/SERP Plan benefit becomes fully vested (to the extent not already vested) and is payable in a lump sum within 60 days after the end of the calendar quarter in which we receive notification of the disability determination of the named executive officer's disability by the Social Security Administration.
In the event of Mr. Dreiling's termination of employment terminates due to disability, he will also be entitled to receive any incentive bonus accrued in respect offor any of our previously completed fiscal years but unpaid as of thehis termination date, of his termination. He will also receiveas well as a lump sum cash payment, payable at the time annual bonuses are paid to our other senior executives, equal to a pro rata portion of his annual incentive bonus, if any, that he would
have been entitled to receive, if such termination had not occurred, for the fiscal year in which his termination occurred.
For purposes of the named executive officers' employment agreements, other than Mr. Dreiling's, "disability" means (1) the employee must be disabled for purposes of our long-term disability insurance plan or (2) the employee has an inability to perform the duties under the agreement in accordance with our expectations because of a medically determinable physical or mental impairment that (x) can reasonably be expected to result in death or (y) has lasted or can reasonably be expected to last longer than ninety (90) consecutive days. For purposes of Mr. Dreiling's employment agreement, "disability" means (1) he must be disabled for purposes of our long-term disability insurance plan or for purposes of his portable long-term disability insurance policy, or (2) if no such plan or policy is in effect or in the case of the plan, the plan is in effect but no longer applies to him, he has an inability to perform the duties under the agreement in accordance with our expectations because of a medically determinable physical or mental impairment that (x) can reasonably be expected to result in death or (y) has lasted or can reasonably be expected to last longer than ninety (90) consecutive days. For purposes of the CDP/SERP Plan, "disability" means total and permanent disability for purposes of entitlement to Social Security disability benefits. For purposes of each named executive officer's stock option agreement(s), "disability" has the same definition as that which is set forth in such officer's employment agreement, or (for each named executive officer other than Mr. Dreiling), in the absence of such an agreement or definition, "disability" shall be as defined in our long-term disability plan.
Payments Upon Termination Due to Retirement
Retirement is not treated differently from any other voluntary termination without good reason (as defined under the relevant agreements, as discussed below under "Payments Upon Voluntary Termination") under any of our plans or agreements for named executive officers, except that all Rollover Options will remain exercisable for a period of 3 years following the named executive officer's retirement unless the options expire earlier. To be entitled to the extended exercise period for the Rollover Options, the retirement must occur on or after the named executive officer reaches the age of 65 or, with our express consent, prior to age 65 in accordance with any applicable early retirement policy then in effect or as may be approved by our Compensation Committee.officers.
Payments Upon Voluntary Termination
The payments to be made to a named executive officer upon voluntary termination vary depending upon whether the named executive officerhe or she resigns with or without "good reason" or after our failure to offer to renew, extend or replace the named executive officer'shis or her employment agreement under certain circumstances. For purposes of each named executive officer, "good"Good reason" generally means (as more fully described in the applicable employment agreement):
consent. For all named executive officers other than Mr. Dreiling, such acts will not constitute good reason if it results from our restructuring or realignment of duties and responsibilities for business reasons that leaves the named executive officerhim or her at the same rate of base salary, annual target bonus opportunity, and officer level and with similar responsibility levels or results from the named executive officer'shis or her failure to meet pre-established and objective performance criteria.
No event (in(but in the case of Mr. Dreiling, no isolated, insubstantial and inadvertent event not in bad faith) will constitute "good reason" if we cure the claimed event within 30 days (10 business days in the case of Mr. Dreiling) after receiving notice from the named executive officer.
Voluntary Termination with Good Reason or After Failure to Renew the Employment Agreement. If any named executive officer resigns with good reason, all then unvested option grants held by that officer will be forfeited. Unless we purchase any then vested options (including Rollover Options) in total at a price equal to the fair market value of the shares underlying the vested options, less the aggregate exercise price, of the vested options, the named executive officer generally may exercise vested options for the following periods from the termination date: 180 days in the case of options granted to Mr. Dreiling, Mr. Tehle, Ms. Guion and Ms. GuionLanigan on or before January 21, 2008; 3 months in the case of Rollover Options; or 90 days in the case of options granted to Messrs. Dreiling Flanigan and RavenerVasos after January 21, 2008. We do not have a repurchase, or call, right with respect to the option granted to Mr. Dreiling in April 2010 and the shares underlying such option.
In the event any named executive officer (other than Mr. Dreiling) resigns under the circumstances described in (2) below, or in the event we fail to extend the term of Mr. Dreiling's employment as provided in (3) below, the relevant named executive officer's equity will be treated as described under "Voluntary Termination without Good Reason" below.
Additionally, if the named executive officer (1) resigns with good reason, or (2) in the case of named executive officers (otherother than Mr. Dreiling),Dreiling, resigns within 60 days of our failure to offer to renew, extend or replace the named executive officer'shis or her employment agreement before, at or within 6 months after the end of the agreement's term (unless we enter into a mutually acceptable severance arrangement or the resignation is a result of the named executive officer's voluntary retirement or termination), or (3) in the case of Mr. Dreiling, in the event we elect not to extend thehis term of his employment by providing 60 days prior written notice before the applicable extension date, then in each case the named executive officer will receive the following benefits generally on or beginning on the 60th day after termination of employment but contingent upon the execution and effectiveness of a
release of certain claims against us and our affiliates in the form attached to the named executive officer's employment agreement:
Note that any amounts owed to a named executive officer (other than Mr. Dreiling) in the form of salary continuation that would otherwise have been paid during the 60 day period after the named executive officer'shis or her employment termination will instead be payable in a single lump sum as soon as administratively practicable after the 60th day after such termination date and the remainder will be paid in the form of salary continuation payments as set forth above.
Subject to any applicable prohibition on acceleration of payment under Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), we may, at any time and in our sole discretion, elect to make a lump-sum payment of all these amounts (other than Mr. Dreiling's severance benefits, which shall be provided over 24 months), or all other earned but unpaid amounts due as a result of this type of termination.
The named executive officer will forfeit any unpaid severance amounts upon a material breach of any continuing obligation under the employment agreement or the release (the "Continuing Obligations"), which include:
Wal-Mart, Sam's Club, Target, Costco, K-Mart, Big Lots, BJ's Wholesale Club, Walgreens, Rite-Aid, CVS, Family Dollar Stores, Fred's, the 99 Cents Stores, and Dollar Tree Stores (and,and (1) with respect to Mr. Dreiling and Mr. Vasos, Casey's General Stores and The Pantry, Inc. Sam'sand (2) with respect to Mr. Vasos, Circle K and 7-11 Stores (Sam's Club, Big Lots, Walgreens, Rite-Aid and CVS are not specifically listed in Mr. Dreiling's employment agreement), or any person then planning to enter the deep discount consumable basics retail business, if the named executive officer is required to perform services for that person which are substantially similar to those he or she provided or directed at any time while employed by us.
Voluntary Termination without Good Reason. If the named executive officer resigns without good reason, he or she will forfeit all unvested equity grants and all vested but unexercised options. If Ms. Guion remains employed through her scheduled July 31, 2012 retirement date, we have agreed to amend her stock option agreement at such time to allow her to exercise all vested but unexercised options (other than Rollover Options). Rollover Options are fully exercisablefor a period up to and generally may be exercised forincluding July 31, 2015. However, because SEC rules require us to prepare the tables below assuming a termination scenario as of February 3, months from the termination date unless they expire earlier or unless we repurchase them, on a per share basis,2012, if Ms. Guion had resigned without good reason at a per share price equal to the lesserthat time, she would have forfeited her vested options.
Table of (1) the fair market value of one of our shares, minus the per share exercise price of a Rollover Option or (2) the sum of (x) $8.75 per share (the "Base Price") plus (y) the applicable percentage (e.g., 20% for each anniversary of July 6, 2007) of the excess of the fair market value of one of our shares over the per share Base Price, minus (z) the per share exercise price of a Rollover Option.Contents
Payments Upon Involuntary Termination
The payments to be made to a named executive officer upon involuntary termination vary depending upon whether termination is with or without "cause". For purposes of each named executive officer, "cause""Cause" generally means (as more fully described in the applicable employment agreement):
parent entity of Dollar General) or reduces our or our affiliates' good name and standing or would bring Dollar General or its affiliates into public contempt or ridicule; or
For purposes of Mr. Tehle, Ms. Guion, Mr. FlaniganVasos and Mr. Ravener,Ms. Lanigan, "cause" also means:
For purposes of determining treatment of a named executive officer's Rollover Options, "cause" means, to the extent that our Compensation Committee determines that it is directly and materially harmful to our business or reputation:
Involuntary Termination for Cause. If the named executive officer is involuntarily terminated for cause, he or she will forfeit all unvested equity grants, as well as all vested but unexercised options. However, we may repurchase any Rollover Options, that by their terms do not terminate immediately upon a termination for cause, at a per share price equal to the lesser of (x) Base Price over the per share exercise price of these options and (y) the fair market value of one of our shares underlying these options over the per share exercise price of these options.
Involuntary Termination without Cause. If the named executive officer is involuntarily terminated without cause, the named executive officer's equity grants will be treated, and the named executive officerher or she will receive the same severance payments and benefits, as described under "Voluntary Termination with Good Reason or After Failure to Renew the Employment Agreement" above.
Payments After a Change in Control
Upon a change in control (as defined under each applicable governing document), regardless of whether the named executive officer's employment terminates:
If the named executive officer is involuntarily terminated without cause or resigns for good reason, he or she will receive the same severance payments and benefits as described above under "Voluntary Termination with Good Reason or After Failure to Renew the Employment Agreement" above.Agreement."
If any payments or benefits in connection with a change in control (as defined in Section 280G of the Internal Revenue Code) would be subject to the "golden parachute" excise tax under federal income tax rules, we will pay an additional amount to the named executive officer to cover the excise tax and any other excise and income taxes resulting from this payment. However, other than with respect to Mr. Dreiling, if after receiving this payment the named executive officer's after-tax benefit would not be at least $50,000 more than it would be without this payment, then this payment will not be made and the severance and other benefits due to the named executive officer will be reduced so that the golden parachute excise tax is not incurred.
For purposes of the CDP/SERP Plan, a change in control generally is deemed to occur (as more fully described in the plan document):
For purposes of the treatment of equity discussed above, a change in control generally means (as more fully described in the Management Stockholder's Agreement between us and the named executive officers) one or a series of related transactions described below which results in us, KKR and its affiliates or an employee benefit plan referenced below ceasing to hold the ability to elect (or cause to be elected) a majority of our Board members:
The following tables summarize the potential payments to our named executive officers upon the occurrence of various termination of employment events as of the end of our most recently completed fiscal year (i.e., January 28, 2011).
Potential Payments to Named Executive Officers Upon Occurrence of
Various Termination Events As of January 28, 2011February 3, 2012
Name/Item | Death ($) | Disability ($) | Voluntary Without Good Reason ($) | Involuntary Without Cause or Voluntary with Good Reason ($) | Involuntary With Cause ($) | Change in Control ($) | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mr. Dreiling | ||||||||||||||||
Option Vesting Due to Event | 4,848,924 | 4,848,924 | n/a | n/a | n/a | 4,848,924 | ||||||||||
Cash Severance | — | 1,850,386 | n/a | 7,400,176 | n/a | 7,400,176 | ||||||||||
Health Continuation(1) | n/a | 25,274 | n/a | 25,274 | n/a | 25,274 | ||||||||||
Outplacement(2) | n/a | n/a | n/a | 10,000 | n/a | 10,000 | ||||||||||
280(G) Excise Tax and Gross-Up | n/a | n/a | n/a | n/a | n/a | — | ||||||||||
Life Insurance Proceeds | 3,016,190 | n/a | n/a | n/a | n/a | n/a | ||||||||||
Total | 7,865,114 | 6,724,584 | — | 7,435,450 | — | 12,284,374 | ||||||||||
| ||||||||||||||||
Mr. Tehle | ||||||||||||||||
Option Vesting Due to Event | 2,133,524 | 2,133,524 | n/a | n/a | n/a | 2,133,524 | ||||||||||
Cash Severance | n/a | n/a | n/a | 2,909,421 | n/a | 2,909,421 | ||||||||||
Health Payment | n/a | n/a | n/a | 23,602 | n/a | 23,602 | ||||||||||
Outplacement(2) | n/a | n/a | n/a | 10,000 | n/a | 10,000 | ||||||||||
280(G) Excise Tax and Gross-Up | n/a | n/a | n/a | n/a | n/a | — | ||||||||||
Life Insurance Proceeds | 1,652,545 | n/a | n/a | n/a | n/a | n/a | ||||||||||
Total | 3,786,069 | 2,133,524 | — | 2,943,023 | — | 5,076,547 | ||||||||||
| ||||||||||||||||
Ms. Guion | ||||||||||||||||
Option Vesting Due to Event | 1,697,125 | 1,697,125 | n/a | n/a | n/a | 1,697,125 | ||||||||||
Cash Severance | n/a | n/a | n/a | 2,813,338 | n/a | 2,813,338 | ||||||||||
Health Payment | n/a | n/a | n/a | 14,897 | n/a | 14,897 | ||||||||||
Outplacement(2) | n/a | n/a | n/a | 10,000 | n/a | 10,000 | ||||||||||
280(G) Excise Tax and Gross-Up | n/a | n/a | n/a | n/a | n/a | — | ||||||||||
Life Insurance Proceeds | 1,597,970 | n/a | n/a | n/a | n/a | n/a | ||||||||||
All Other Compensation(3) | — | 35,295 | 35,295 | 35,295 | 35,295 | 35,295 | ||||||||||
Total | 3,295,095 | 1,732,420 | 35,295 | 2,873,530 | 35,295 | 4,570,655 | ||||||||||
| ||||||||||||||||
Mr. Vasos | ||||||||||||||||
Option Vesting Due to Event | 3,394,250 | 3,394,250 | n/a | n/a | n/a | 6,505,657 | ||||||||||
Cash Severance | n/a | n/a | n/a | 2,813,338 | n/a | 2,813,338 | ||||||||||
Health Payment | n/a | n/a | n/a | 14,163 | n/a | 14,163 | ||||||||||
Outplacement(2) | n/a | n/a | n/a | 10,000 | n/a | 10,000 | ||||||||||
280(G) Excise Tax and Gross-Up | n/a | n/a | n/a | n/a | n/a | 1,727,260 | ||||||||||
Life Insurance Proceeds | 1,597,970 | n/a | n/a | n/a | n/a | n/a | ||||||||||
Total | 4,992,220 | 3,394,250 | — | 2,837,501 | — | 11,070,418 | ||||||||||
| ||||||||||||||||
Ms. Lanigan | ||||||||||||||||
Option Vesting Due to Event | 1,309,196 | 1,309,196 | n/a | n/a | n/a | 1,309,196 | ||||||||||
Cash Severance | n/a | n/a | n/a | 2,376,770 | n/a | 2,376,770 | ||||||||||
Health Payment | n/a | n/a | n/a | 15,268 | n/a | 15,268 | ||||||||||
Outplacement(2) | n/a | n/a | n/a | 10,000 | n/a | 10,000 | ||||||||||
280(G) Excise Tax and Gross-Up | n/a | n/a | n/a | n/a | n/a | — | ||||||||||
Life Insurance Proceeds | 1,350,000 | n/a | n/a | n/a | n/a | n/a | ||||||||||
Total | 2,659,196 | 1,309,196 | — | 2,402,038 | — | 3,711,234 |
Name/Item | Death ($) | Disability ($) | Retirement ($)(1) | Voluntary Without Good Reason ($)(1) | Involuntary Without Cause or Voluntary with Good Reason ($) | Involuntary With Cause ($) | Change in Control ($)(2) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mr. Dreiling | ||||||||||||||||||
Vested Options Prior to Event | 20,402,480 | 20,402,480 | — | — | 20,402,480 | — | 20,402,480 | |||||||||||
Option Vesting Due to Event | 2,914,640 | 2,914,640 | n/a | n/a | n/a | n/a | 8,743,920 | |||||||||||
SERP Benefits Prior to Event | 552,146 | 552,146 | 552,146 | 552,146 | 552,146 | 552,146 | 552,146 | |||||||||||
SERP Benefits Due to Event | n/a | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||
Deferred Comp Plan Balance Prior to and After Event | 242,874 | 242,874 | 242,874 | 242,874 | 242,874 | 242,874 | 242,874 | |||||||||||
Cash Severance | — | 2,186,595 | n/a | n/a | 7,357,208 | n/a | 7,357,208 | |||||||||||
Health Continuation(3) | n/a | 23,106 | n/a | n/a | 23,106 | n/a | 23,106 | |||||||||||
Outplacement(4) | n/a | n/a | n/a | n/a | 10,000 | n/a | 10,000 | |||||||||||
280(G) Excise Tax and Gross-Up | n/a | n/a | n/a | n/a | n/a | n/a | — | |||||||||||
Life Insurance Proceeds | 2,872,563 | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||
Total | 26,984,702 | 26,321,840 | 795,020 | 795,020 | 28,587,813 | 795,020 | 37,331,733 | |||||||||||
| ||||||||||||||||||
Mr. Tehle | ||||||||||||||||||
Vested Options Prior to Event | 8,292,519 | 8,292,519 | 267,053 | 267,053 | 8,292,519 | — | 8,292,519 | |||||||||||
Option Vesting Due to Event | 1,282,440 | 1,282,440 | n/a | n/a | n/a | n/a | 3,847,320 | |||||||||||
SERP Benefits Prior to Event | 574,344 | 574,344 | 574,344 | 574,344 | 574,344 | 574,344 | 574,344 | |||||||||||
SERP Benefits Due to Event | n/a | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||
Deferred Comp Plan Balance Prior to and After Event | 352,778 | 352,778 | 352,778 | 352,778 | 352,778 | 352,778 | 352,778 | |||||||||||
Cash Severance | n/a | n/a | n/a | n/a | 3,112,565 | n/a | 3,112,565 | |||||||||||
Health Payment(3) | n/a | n/a | n/a | n/a | 21,157 | n/a | 21,157 | |||||||||||
Outplacement(4) | n/a | n/a | n/a | n/a | 10,000 | n/a | 10,000 | |||||||||||
280(G) Excise Tax and Gross-Up | n/a | n/a | n/a | n/a | n/a | n/a | — | |||||||||||
Life Insurance Proceeds | 1,612,240 | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||
Total | 12,114,321 | 10,502,081 | 1,194,175 | 1,194,175 | 12,363,364 | 927,122 | 16,210,684 | |||||||||||
| ||||||||||||||||||
Ms. Guion | ||||||||||||||||||
Vested Options Prior to Event | 6,399,061 | 6,399,061 | — | — | 6,399,061 | — | 6,399,061 | |||||||||||
Option Vesting Due to Event | 1,020,125 | 1,020,125 | n/a | n/a | n/a | n/a | 3,060,375 | |||||||||||
SERP Benefits Prior to Event | 494,484 | 494,484 | 494,484 | 494,484 | 494,484 | 494,484 | 494,484 | |||||||||||
SERP Benefits Due to Event | n/a | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||
Deferred Comp Plan Balance Prior to and After Event | 494,320 | 494,320 | 494,320 | 494,320 | 494,320 | 494,320 | 494,320 | |||||||||||
Cash Severance | n/a | n/a | n/a | n/a | 3,009,771 | n/a | 3,009,771 | |||||||||||
Health Payment(3) | n/a | n/a | n/a | n/a | 13,326 | n/a | 13,326 | |||||||||||
Outplacement(4) | n/a | n/a | n/a | n/a | 10,000 | n/a | 10,000 | |||||||||||
280(G) Excise Tax and Gross-Up | n/a | n/a | n/a | n/a | n/a | n/a | — | |||||||||||
Life Insurance Proceeds | 1,558,995 | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||
Total | 9,966,985 | 8,407,990 | 988,804 | 988,804 | 10,420,962 | 988,804 | 13,481,337 | |||||||||||
|
Name/Item | Death ($) | Disability ($) | Retirement ($)(1) | Voluntary Without Good Reason ($)(1) | Involuntary Without Cause or Voluntary with Good Reason ($) | Involuntary With Cause ($) | Change in Control ($)(2) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mr. Flanigan | ||||||||||||||||||
Vested Options Prior to Event | 2,119,363 | 2,119,363 | — | — | 2,119,363 | — | 2,119,363 | |||||||||||
Option Vesting Due to Event | 486,328 | 486,328 | n/a | n/a | n/a | n/a | 2,665,519 | |||||||||||
SERP Benefits Prior to Event | 97,629 | 97,629 | 97,629 | 97,629 | 97,629 | 97,629 | 97,629 | |||||||||||
SERP Benefits Due to Event | n/a | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||
Deferred Comp Plan Balance Prior to and After Event | 1,683 | 1,683 | 1,683 | 1,683 | 1,683 | 1,683 | 1,683 | |||||||||||
Cash Severance | n/a | n/a | n/a | n/a | 1,961,686 | n/a | 1,961,686 | |||||||||||
Health Payment(3) | n/a | n/a | n/a | n/a | 13,326 | n/a | 13,326 | |||||||||||
Outplacement(4) | n/a | n/a | n/a | n/a | 10,000 | n/a | 10,000 | |||||||||||
280(G) Excise Tax and Gross-Up | n/a | n/a | n/a | n/a | n/a | n/a | 857,290 | |||||||||||
Life Insurance Proceeds | 1,016,110 | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||
Total | 3,721,114 | 2,705,004 | 99,313 | 99,313 | 4,203,688 | 99,313 | 7,726,497 | |||||||||||
| ||||||||||||||||||
Mr. Ravener | ||||||||||||||||||
Vested Options Prior to Event | 2,094,988 | 2,094,988 | — | — | 2,094,988 | — | 2,094,988 | |||||||||||
Option Vesting Due to Event | 508,599 | 508,599 | n/a | n/a | n/a | n/a | 2,906,605 | |||||||||||
SERP Benefits Prior to Event | n/a | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||
SERP Benefits Due to Event | n/a | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||
Deferred Comp Plan Balance Prior to and After Event | 86,733 | 86,733 | 86,733 | 86,733 | 86,733 | 86,733 | 86,733 | |||||||||||
Cash Severance | n/a | n/a | n/a | n/a | 2,148,740 | n/a | 2,148,740 | |||||||||||
Health Payment(3) | n/a | n/a | n/a | n/a | 8,512 | n/a | 8,512 | |||||||||||
Outplacement(4) | n/a | n/a | n/a | n/a | 10,000 | n/a | 10,000 | |||||||||||
280(G) Excise Tax and Gross-Up | n/a | n/a | n/a | n/a | n/a | n/a | 1,007,772 | |||||||||||
Life Insurance Proceeds | 1,113,000 | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||
Total | 3,803,320 | 2,690,320 | 86,733 | 86,733 | 4,348,972 | 86,733 | 8,263,350 |
Compensation Committee Interlocks and Insider Participation
Each of Messrs. Agrawal, Bryant, Calbert, Jones and Rhodes was a member of our Compensation Committee during 2010.2011. None of these persons was at any time during 20102011 an officer or employee of Dollar General or any of our subsidiaries or an officer of Dollar General or any of our subsidiaries at any time prior to fiscal 2010.2011. Messrs. Calbert and Agrawal, due to their relationships with KKR, and Mr. Jones, due to his relationship with Goldman, Sachs & Co., all of whom continue to serve on the CNG Committee, may be viewed as having an indirect material interest in certain of our relationships and transactions with KKR and Goldman, Sachs & Co. discussed under "Certain Transactions with Management and Others" above. Mr. Dreiling serves as a manager of Buck Holdings, LLC, for which Messrs. Calbert, Agrawal and Jones serve as managers.
Compensation Risk Considerations
In March 2010, our Compensation Committee, with the assistance of its compensation consultant and management, reviewed our compensation policies and practices for all employees, including executive officers, to assess the risks that may arise from our compensation programs. The assessment included a review of our compensation programs for certain design features which could potentially encourage excessive risk-taking or otherwise generate risk to Dollar General. As a result of that assessment, management and the Compensation Committee concluded, after considering the degree to which identified risk-aggravating factors were offset by risk-mitigating factors, that the net risks created by our overall compensation program were not reasonably likely to have a material adverse effect on Dollar General. Several of the design features that were noted as reducing the likelihood of excessive risk-taking or otherwise mitigating risk included:
Throughout 2010 and 2011, the Committee continued to discuss risks pertaining to various compensation programs during meetings at which changes to any such programs were discussed.discussed as well as the risk mitigating or risk aggravating impact on the overall risks created by our compensation program. In addition, in November 2011 and again in March 20112012 the Committee reviewed and discussed a management presentation confirming thatanalyzing changes to our compensation programs have undergone few changes, analyzing those changes, and determining that the risk profile identified in the March 2010 risk assessment has not significantly changed. As a result of this reviewthese reviews and discussion,discussions, which included identification of further risk-mitigating factors, such as the use of an additional company-wide performance measure for the short-term cash incentive plan and the comprehensive management succession plan, the Committee again determined that the net risks created by our overall compensation program are not reasonably likely to have a material adverse effect on Dollar General.
PROPOSAL 2:ADVISORY VOTE ON EXECUTIVE COMPENSATION
As required by SEC rules, we are providing our shareholders the opportunity to vote to approve, on an advisory (nonbinding) basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with SEC rules, which includes the disclosures under "Compensation Discussion and Analysis," and the accompanying compensation tables and related narrative discussion in the "Executive Compensation" section above.
As discussed in "Compensation Discussion and Analysis" above, our compensation programs are designed to attract, retain and motivate persons with superior ability, to reward outstanding performance, and to align the interests of our named executive officers with the long-term interests of our shareholders. Under these programs, our named executive officers are rewarded for the achievement of specific annual and long-term goals and the realization of increased shareholder value. We firmly believe that our compensation programs have been effective at attracting and retaining the executive talent necessary to guide Dollar General during a period of significant growth and transformation, and have been instrumental in helping us achieve strong financial performance in the last three fiscal years.
We are asking our shareholders to indicate their support for our named executive officer compensation as described in this proxy statement in accordance with SEC rules by voting for this proposal. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers. This advisory vote is not a vote on the compensation of our Board or our compensation policies as they relate to risk management, as described under "Compensation Risk Considerations" in the "Executive Compensation" section above.
Although the vote we are asking shareholders to cast is non-binding, our Board and the Compensation Committee value the views of our shareholders and intend to consider the outcome of the vote when making future compensation decisions for our named executive officers.
Our Board recommends that you voteFOR the approval of the compensation of our named executive officers, as disclosed in this proxy statement pursuant to the compensation disclosure rules of the SEC.
PROPOSAL 3:ADVISORY VOTE ON THE FREQUENCY OF HOLDING FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION
As required by SEC rules, we are seeking your input with regard to the frequency of future shareholder advisory votes on our named executive officer compensation, specifically whether they should occur once every 1, 2 or 3 years. We ask that you support a frequency period of every 3 years.
Our Board believes that a 3-year period for holding this vote:
Our Board believes that anything less than a 3-year frequency period will yield a short-term mindset, detract from our long-term interests and goals, would not allow for changes to our executive compensation program to be in place long enough to evaluate whether the changes were effective.
Although the vote we are asking you to cast is non-binding, our Board and the Compensation Committee value the views of our shareholders and will consider the outcome of the vote when determining the frequency of future say-on-pay votes. Furthermore, our Board welcomes input from shareholders with respect to our executive compensation program even in years when the advisory vote does not occur.
Our Board recommends that you vote to conduct a non-binding, advisory vote on named executive officer compensation once every3 YEARS.
SECTION 16(a) BENEFICIAL OWNERSHIPREPORTING COMPLIANCE
The United States securities laws require our executive officers, directors, and greater than 10% shareholders to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC. Based solely upon a review of these reports furnished to us during and with respect to 2010, or written representations that no Form 5 reports were required, we believe that each of those persons filed, on a timely basis, the reports required by Section 16(a) of the Securities Exchange Act of 1934, except that (1) Mr. John Flanigan filed 1 late Form 4 to report a purchase of Dollar General common stock directly from the Company and filed an amended Form 3 to report a holding inadvertently omitted from his original Form 3; (2) Mr. Todd Vasos filed 1 late Form 4 to report the acquisition of a stock option to purchase shares of Dollar General common stock resulting from the accelerated vesting in connection with a secondary offering of shares of our common stock by certain of our shareholders in December 2010; and (3) each of Mr. Adrian Jones and Goldman, Sachs & Co. filed 1 late Form 4 to report 1 open market sale of Dollar General common stock by Goldman, Sachs & Co. Both Mr. Jones and Goldman, Sachs & Co. disclaim beneficial ownership of the shares involved in the transaction.
For purposes of the tables below, a person is a "beneficial owner" of a security ifover which that person has or shares voting or investment power over the security or which that person has the right to acquire beneficial ownership within 60 days. Unless otherwise noted, to our knowledge these persons have sole voting and investment power over the shares listed. Percentage computations are based on 341,521,858338,417,840 shares of our common stock outstanding as of March 16, 2011.23, 2012.
Security Ownership of Certain Beneficial Owners
The following table shows the amount of our common stock beneficially owned as of March 16, 201123, 2012 by those known by us to beneficially own more than 5% of our common stock.
Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class | |||||
---|---|---|---|---|---|---|---|
Buck Holdings, L.P.(1) | 181,172,991(1) | 53.5% | |||||
T. Rowe Price Associates, Inc.(2) | 18,440,008(2) | 5.4% |
Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class | |||||
---|---|---|---|---|---|---|---|
Buck Holdings, L.P.(1) | 241,997,057 | (1) | 70.9 | % | |||
T. Rowe Price Associates, Inc.(2) | 25,898,013 | (2) | 7.6 | % |
each has disclaimed beneficial ownership of such shares. The address for all entities noted above and for Mr. Kravis is c/o Kohlberg Kravis Roberts & Co. L.P., 9 West 57th Street, Suite 4200, New
York, NY 10019. The address for Mr. Roberts is c/o Kohlberg Kravis Roberts & Co. L.P., 2800 Sand Hill Road, Suite 200, Menlo Park, CA 94025.
Security Ownership of Officers and Directors
The following table shows the amount of our common stock beneficially owned as of March 16, 201123, 2012 by our directors and named executive officers individually and by our directors and all of our executive officers as a group. Unless otherwise noted, these persons may be contacted at our executive offices.
Name of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class | |||
---|---|---|---|---|---|
Raj Agrawal(1)(2)(4) | * | ||||
Warren F. Bryant(2)(4) | * | ||||
Michael M. Calbert(1)(2)(4) | * | ||||
Adrian Jones(2)(3)(4) | * | ||||
William C. Rhodes, III(2)(4) | * | ||||
David B. Rickard(2)(4) | * | ||||
Richard W. Dreiling(4)(5) | * | ||||
David M. Tehle(4) | * | ||||
Kathleen R. Guion(4) | * | ||||
| * | ||||
| * | ||||
All directors and executive officers as a group | * |
PROPOSAL 2:
VOTE REGARDING THE AMENDED AND RESTATED 2007 STOCK INCENTIVE PLAN
What are shareholders being asked to approve?
Our Board of Directors is asking you to approve our Amended and Restated 2007 Stock Incentive Plan, along with the material terms of the performance-based compensation under the plan for purposes of compensation deductibility under Internal Revenue Code Section 162(m). In this proxy statement, we sometimes refer to this amended and restated plan as the "2007 Stock Incentive Plan." On November 30, 2011, upon the recommendation of our Compensation Committee, our Board of Directors approved the plan described in this proposal, subject to shareholder approval at the annual meeting. The plan will not become effective unless and until it is approved by shareholders. A copy of the proposed 2007 Stock Incentive Plan is attached asAppendix A to this proxy statement.
Why are shareholders being asked to approve the 2007 Stock Incentive Plan?
NYSE rules generally require companies to submit material revisions of equity-compensation plans to shareholders for approval. Among other changes, the 2007 Stock Incentive Plan extends the term of the plan to the tenth anniversary of the date of shareholder approval, which is considered a material revision of the plan under NYSE rules.
Why are shareholders being asked to approve the material terms of the performance-based compensation under the 2007 Stock Incentive Plan?
Section 162(m) of the Internal Revenue Code limits our ability to deduct from our U.S. federal corporate income taxes compensation in excess of $1 million per year paid to "covered employees" unless the compensation qualifies as "performance-based." Compensation cannot qualify as "performance-based" unless the plan under which it is paid is approved by shareholders. "Covered employees" generally include each of the persons who are our Chief Executive Officer or one of the other named executive officers (other than our Chief Financial Officer).
The 2007 Stock Incentive Plan is designed to permit Dollar General to grant awards that qualify as performance-based compensation for purposes of satisfying the requirements of Section 162(m). The Section 162(m) deduction limit does not apply for certain grants made during any period during which our securities are not publicly-traded and during a transition reliance period after our securities become publicly-traded. Our Section 162(m) transition reliance period ends in 2013. Thus, in order for us to continue to have flexibility to pay performance-based compensation that meets the requirements for deductibility under Section 162(m), we need to obtain shareholder approval of the 2007 Stock Incentive Plan no later than the 2013 annual meeting of shareholders. We decided to submit the plan to our shareholders in 2012 because (1) we wanted to determine the availability of making deductible awards in 2013 before the 2013 annual meeting of shareholders; and (2) an Internal Revenue Service proposed regulation could eliminate the deductibility of all or a portion of the March 2012 performance share unit awards absent approval of the plan by our shareholders at the 2012 annual meeting.
Why should shareholders approve this proposal?
We believe the 2007 Stock Incentive Plan is important to our continued growth and success. The purpose of the plan is to attract and retain management and other personnel and key service providers, to motivate management personnel by means of growth-related incentives to achieve long-range goals, and to further align the interests of plan participants with those of our shareholders.
Approval of the 2007 Stock Incentive Plan will, among other things, extend the term of the plan to the tenth anniversary of the date of shareholder approval, which will preserve what we believe is an essential tool to provide an incentive for management and other personnel and key service providers to contribute to our future growth and success. If this proposal is not approved at the annual meeting, the plan will expire by its terms on July 6, 2017.
In addition, if this proposal is not approved at the annual meeting:
How does the 2007 Stock Incentive Plan compare to compensation best practices?
The 2007 Stock Incentive Plan includes a number of important provisions, summarized below, that are designed to protect our shareholders' interests and that reflect our commitment to best practices and effective management of equity compensation:
How does the 2007 Stock Incentive Plan work?
A description of the plan's provisions is set forth below. This summary is qualified in its entirety by reference to the 2007 Stock Incentive Plan attached asAppendix A.
Administration. The plan is administered by the CNG Committee, which may delegate some or all of its authority to a subcommittee consisting solely of at least two directors who qualify as "non-employee directors" for purposes of Rule 16b-3 of the Securities Exchange Act of 1934 (or any
successor rule), "independent directors" within the meaning of NYSE listing standards, and "outside directors" within the meaning of Section 162(m) (or any successor section). If at any time Dollar General has not appointed such a committee, the Board itself may administer the plan. We refer to the individuals administering the plan as the "Committee." Subject to the terms of the plan, the Committee may select participants to receive awards, determine the types, terms and conditions of awards, adopt rules for the plan's administration, and interpret plan provisions.
Shares of Common Stock Reserved for Issuance under the Plan. This proposal does not increase the number of shares available for issuance under the plan. Subject to adjustment in connection with certain significant corporate events, the maximum number of shares that may be issued under the plan is 31,142,858. As of March 23, 2012, awards relating to 13,763,730 shares have been issued or are subject to outstanding awards granted under the plan, and 17,379,128 shares remain available for awards under the plan. As of March 23, 2012, the closing price per share of our common stock as reported on the NYSE was $47.13.
The common stock issued or to be issued under the plan consists of authorized but unissued shares or issued shares that we have reacquired. The issuance of shares or the payment of cash in consideration of the substitution, cancellation or termination of an award will reduce the total number of shares available under the plan to the extent of the number of shares subject to such substituted, cancelled or terminated award, provided that shares subject to awards that are either repurchased by Dollar General or withheld or tendered to satisfy tax withholding obligations, the exercise price of a stock option or the purchase price for any other award will immediately become available for new awards to be granted under the plan. In addition, if any shares covered by an award under the plan are forfeited, or if an award expires unexercised, then the number of shares relating to such forfeited or expired awards will, to the extent of any such forfeiture or expiration, immediately become available for new awards to be granted under the plan.
Eligibility. Awards may be made under the plan to any of our employees, non-employee members of our Board of Directors, any consultant or other person having a service relationship with Dollar General and any of our subsidiaries and affiliates. On March 23, 2012, there were 9 executive officers, 6 non-employee members of our Board of Directors, 1,473 employees and no consultants or other service providers eligible to participate in the plan.
Stock Options and Stock Appreciation Rights. The plan permits the grant of stock options intended to qualify as incentive stock options under the Internal Revenue Code as well as stock options that do not qualify as incentive stock options.
The per share exercise price of a stock option may not be less than 100% of the fair market value of one share of our common stock on the date of grant. The fair market value is generally determined as the closing price of our common stock on the date of grant. In the case of shareholders who own 10% or more of our outstanding common stock and who receive incentive stock options, the per share exercise price may not be less than 110% of the fair market value of one share of our common stock on the date of grant.
The Committee determines the term of each stock option, which may not exceed ten years from the date of grant. If the grantee is a shareholder who owns 10% or more of our outstanding common stock, a stock option intended to be an incentive stock option must expire five years following the grant date. Subject to these limitations, the Committee determines the time or times each stock option may be exercised, vesting requirements, and such other terms, conditions or restrictions on the grant or exercise of the option as the Committee deems appropriate, including whether a participant will receive dividend equivalent rights on vested stock options.
In general, a participant may pay the exercise price of a stock option in cash, through the withholding of shares underlying the option, or, with the Committee's consent, by delivering shares that the participant has held for at least six months, or by a combination of these methods that complies
with the terms of the 2007 Stock Incentive Plan, the stock option agreement, and any applicable Committee guidelines in effect at the time. When a participant is permitted to pay the exercise price in shares held for at least six months, the participant may, subject to procedures accepted by the Committee, satisfy the delivery requirement by presenting proof that the participant beneficially owns sufficient shares to pay the exercise price, in which case we will treat the stock option as exercised. We will then withhold from the shares acquired upon exercise the number of shares to be delivered in payment of the exercise price, subject to our actual receipt of such shares beneficially owned by the participant.
Any participant who disposes of shares acquired upon the exercise of an incentive stock option either within two years after the date of grant of the incentive stock option or within one year after the exercise of the incentive stock option must notify Dollar General of such disposition and of the amount realized upon the disposition.
The plan permits the Committee to grant stock appreciation rights, either independent of or in connection with stock options. A stock appreciation right entitles the participant to receive an amount equal to the product of (i) the excess of the fair market value of one share of our common stock on the date of exercise over the exercise price of the stock appreciation right, multiplied by (ii) the number of shares covered by the stock appreciation right. The exercise price per share of a stock appreciation right granted independent of a stock option may not be less than the fair market value of one share of our common stock on the date of grant. The per share exercise price of a stock appreciation right granted in connection with a stock option will be the per share exercise price of the related stock option. The exercise of a stock appreciation right granted in connection with a stock option shall cause a reduction in the number of shares subject to the stock option equal to the number of shares with respect to which the stock appreciation right is exercised. Conversely, the exercise of a related stock option shall cause a reduction in the number of shares subject to the stock appreciation right equal to the number of shares with respect to which the related option is exercised. A participant may pay the exercise price of a stock appreciation right in shares, in cash, or in a combination of shares and cash, all as the Committee shall determine. The Committee will also determine the other terms of any stock appreciation right.
No amendment or modification may be made to an outstanding stock option or stock appreciation right if it would be treated as a repricing under the rules of the stock exchange on which the shares of our common stock are listed (currently the NYSE), including replacement with cash or another award type, without the prior approval of our shareholders.
Unless the Committee provides otherwise, stock options and stock appreciation rights granted under the plan may not be sold, transferred, pledged or assigned other than by will or under applicable laws of descent and distribution.
Subject to adjustment in connection with certain significant corporate events, the maximum number of shares of our common stock that can be awarded in the form of stock options and stock appreciation rights under the plan to any participant is 4.5 million per fiscal year.
Other Stock-Based Awards. The Committee may also grant or sell to participants:
In this proxy statement, we sometimes refer to these awards as "Other Stock-Based Awards." The Committee will determine the form, terms and conditions of Other Stock-Based Awards, including vesting provisions and whether such awards will be settled in shares, in cash, or in a combination of shares and cash. Other Stock-Based Awards may be granted alone or in connection with any other awards under the plan, and may provide for vesting upon the completion of a specified period of service, the occurrence of an event, and/or the attainment of performance objectives.
Other Stock-Based Awards may be granted in a manner intended to qualify as performance-based compensation meeting the requirements of Section 162(m). To qualify as performance-based:
Under the Internal Revenue Code, a director is an "outside director" if he or she is not a current employee of Dollar General; is not a former employee who receives compensation for prior services (other than under a qualified retirement plan); has not been an officer of Dollar General; and does not receive, directly or indirectly (including amounts paid to an entity that employs the director or in which the director has at least a 5% ownership interest), remuneration from Dollar General in any capacity other than as a director.
Under the 2007 Stock Incentive Plan, the Committee may base the objective performance goals on one or more of the following business criteria, which may relate to Dollar General, to one or more of our affiliates, to one or more of our or our affiliates' divisions or units, or to any combination of the foregoing:
• net earnings or net income (before or after taxes) | • expense targets | |
• earnings per share | • margins | |
• net sales or revenue growth | • operating efficiency | |
• gross or net operating profit | • customer satisfaction | |
• return measures (including, but not limited to, | • working capital targets | |
• return on assets, capital, invested capital, equity, | • economic value added | |
• sales, or revenue) | • volume | |
• cash flow (including, but not limited to, operating | • capital expenditures | |
• cash flow, free cash flow, and cash flow | • market share | |
• return on capital) | • costs | |
• earnings before or after taxes, interest, | • regulatory ratings | |
• depreciation, and/or amortization | • asset quality | |
• gross or operating margins | • net worth | |
• productivity ratios | • safety | |
• share price (including, but not limited to, growth measures and total shareholder return) |
The criteria listed above may be measured on an absolute basis, on a basis relative to one or more peer group companies or indices, or any combination of the foregoing, all as the Committee shall determine. In addition, to the extent consistent with Section 162(m) (or any successor section), the performance goals may be calculated without regard to extraordinary or non-recurring items, as the Committee may determine in its sole discretion.
Subject to adjustment in connection with certain significant corporate events, the maximum number of shares of our common stock that can be awarded under the plan in the form of Other Stock-Based Awards to any participant is 1.5 million per fiscal year. In addition, Other Stock-Based Awards granted in a manner intended to qualify for the exemption from the compensation deductibility limitation imposed by Section 162(m) are considered "performance-based awards." The maximum amount of a "performance-based award" denominated in shares of our common stock that may be granted during a calendar year to any participant is 24 million.
The list of objective performance goals on which "performance-based awards" may be based under the 2007 Stock Incentive Plan must be approved by our shareholders at least every five years (or earlier if the goals are changed) in order for compensation based on these goals to be considered performance-based compensation under Section 162(m). Approval of the material terms will restart the period for re-approval for an additional five-year period.
The foregoing notwithstanding, in its discretion, the Committee may also use other performance goals for awards under the plan that are not intended to qualify as performance-based compensation under Section 162(m).
Dividend Equivalent Rights. The Committee may grant to participants, either alone or in connection with the grant of another award (other than unearned performance shares), and determine the terms of, dividend equivalent rights. A dividend equivalent right is the right to receive a payment in respect of one share of our common stock that is equal to the amount of any dividend paid in respect of one share of our common stock held by a Dollar General shareholder.
Amendment or Termination of the Plan. The Board of Directors generally may terminate the 2007 Stock Incentive Plan at any time and for any reason. The Board of Directors may amend the plan, except that shareholder approval will be required for any such amendment to become effective if (1) required by the Internal Revenue Code or other applicable law, rule or regulation; or (2) the amendment increases the aggregate number of shares available for awards under the plan, decreases the exercise price of outstanding stock options or stock appreciation rights, changes the requirements relating to the Committee or extends the term of the plan. No termination or amendment of the plan may, without the participant's consent, adversely affect a participant in more than a minimal manner with respect to any awards then outstanding.
Amendments of Awards. The Committee may amend the terms and conditions of any outstanding awards consistent with the terms of the plan, except that a participant's consent would be required to modify an outstanding award in a manner that adversely impacts, other than in a de minimis manner, a participant (other than adjustments pursuant to a change in control of Dollar General (as defined in the plan) or pursuant to certain corporate events affecting our equity securities or the value of our equity securities or changes made pursuant to Section 409A of the Internal Revenue Code), unless such modification is provided for or contemplated in the terms of the award agreement or the plan.
Effect of Certain Corporate Transactions. In the event of a change in control of Dollar General, the Committee may accelerate the vesting of any outstanding awards, cancel outstanding awards for fair value (as determined in its sole discretion), substitute new awards that will substantially preserve the otherwise applicable terms and value of the awards being substituted, or provide for a period of at least 10 business days prior to the change in control in which any stock option or stock appreciation right
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.
If the Committee permits such a transfer, a participant who has transferred a non-qualified stock option to a family member by gift will realize taxable income at the time the non-qualified stock option is exercised by the family member. The participant will be subject to withholding of income and employment taxes at that time. The family member's tax basis in the shares of common stock will be the fair market value of the shares of common stock on the date the option is exercised. The transfer of vested non-qualified stock options will be treated as a completed gift for gift and estate tax purposes. Once the gift is completed, neither the transferred options nor the shares acquired on exercise of the transferred options will be includable in the participant's estate for estate tax purposes.
Stock Appreciation Rights. There are no immediate tax consequences of receiving an award of stock appreciation rights under the plan. Upon exercising a stock appreciation right, 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 of exercise. 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.
Other Stock-Based Awards. The Committee may grant or sell to participants Other Stock-Based Awards, the form and terms of which will be determined by the Committee. Other Stock-Based Awards may include unrestricted shares, restricted shares, and other awards that are valued by reference to the fair market value of or a number of shares of our common stock, awards that are otherwise based on the fair market value of or a number of shares of our common stock, and awards that are in any way payable in the form of shares of our common stock (which may include, without limitation, restricted stock units, performance shares, performance share units, and bonus stock). The federal income tax consequences of Other-Stock Based Awards will depend on the form and terms of those awards. The summary below describes the federal income tax consequences of some of the Other-Stock Based Awards the Committee has granted or sold or may be likely to grant or sell to participants.
Unrestricted Shares. Participants who are awarded unrestricted shares of common stock will be required to recognize ordinary income in an amount equal to the fair market value of the shares of our common stock on the date of the award, reduced by the amount, if any, paid for such shares. 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.
Restricted Shares. A participant who is awarded restricted shares of common stock will not recognize any taxable income for federal income tax purposes in the year of the award, provided that the shares of common stock are subject to restrictions (that is, the restricted stock is nontransferable and subject to a substantial risk of forfeiture). However, the participant may elect under Section 83(b) of the Internal Revenue Code to recognize compensation income in the year of the award in an amount equal to the fair market value of the common stock on the date of the award (less the purchase price, if any), determined without regard to the restrictions. If the participant does not make such a Section 83(b) election, the fair market value of the common stock on the date the restrictions lapse (less the purchase price, if any) will be treated as compensation income to the participant and will be taxable in the year the restrictions lapse and dividends paid while the common stock is subject to restrictions will be subject to withholding taxes. 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.
Restricted Stock Units. There are no immediate tax consequences of receiving an award of restricted stock units under the plan. A participant who is awarded restricted stock units will be required to recognize ordinary income in an amount equal to the fair market value of shares issued to
such participant at the end of the restriction period or, if later, the payment date. 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.
Performance Share Units. There are no immediate tax consequences of receiving an award of performance share units under the plan. A participant who is awarded performance share units will be required to recognize ordinary income in an amount equal to the fair market value of shares issued to such participant on the payment date. 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.
Dividend Equivalent Rights. A participant generally will not recognize taxable income when a dividend equivalent right is granted. The participant, however, will generally recognize ordinary income upon receiving payment of cash and/or shares for the dividend equivalent right. The amount included in the participant's income will equal the amount of cash and the fair market value of the shares received. Dollar General generally will be entitled to a corresponding tax deduction at the time the participant recognizes ordinary income with respect to a dividend equivalent right.
Section 280(G). To the extent payments that are contingent on a change in control are determined to exceed certain Internal Revenue Code limitations, they may be subject to a 20% nondeductible excise tax, and Dollar General's deduction with respect to the associated compensation expense may be disallowed in whole or in part.
Section 409A. The plan is intended to comply with Section 409A of the Internal Revenue Code to the extent that such section would apply to any award under the plan. Section 409A governs the taxation of deferred compensation. Any participant granted an award that is deemed to be deferred compensation, such as a grant of restricted stock units, that does not qualify for an exemption from Section 409A, and does not comply with Section 409A, could be subject to immediate taxation on the award as soon as the award is no longer subject to a substantial risk of forfeiture (even if the award is not exercisable) and an additional 20% tax (and a further additional tax based upon an amount of interest determined under Section 409A) on the value of the award.
Have any awards been granted under the amended and restated terms of the 2007 Stock Incentive Plan prior to the annual meeting?
On March 20, 2012, the Committee approved awards of performance share units to certain employees, subject to shareholder approval of the 2007 Stock Incentive Plan. If this proposal is not approved at the annual meeting, these performance share units will be automatically forfeited. Additionally, in connection with the annual meeting, we anticipate awarding stock options and restricted stock units to the non-employee directors under the 2007 Stock Incentive Plan. If this proposal is not approved at the annual meeting, these stock options and restricted stock units will still be granted, but they will be granted pursuant to the 2007 Stock Incentive Plan as in effect prior to the annual meeting. Information regarding the March 20, 2012 grants of performance share units and the planned award of options and restricted stock units to the non-employee directors is set forth in the table below.
| Non- Qualified Stock Options | | | | | | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Restricted Stock Units | Performance Share Units | |||||||||||||||||
| | | Dollar Value of Units Target ($)(2) | Dollar Value of Units Maximum ($)(2) | |||||||||||||||
Name and Principal Position | Dollar Value ($)(1) | Dollar Value ($)(1) | Number of Units Target (#) | Number of Units Maximum (#) | |||||||||||||||
Richard W. Dreiling, | — | — | 39,807 | 79,614 | 1,801,267 | 3,602,534 | |||||||||||||
Chairman & | |||||||||||||||||||
Chief Executive Officer | |||||||||||||||||||
David M. Tehle, | — | — | 6,530 | 13,060 | 295,483 | 590,965 | |||||||||||||
Executive Vice President & | |||||||||||||||||||
Chief Financial Officer | |||||||||||||||||||
Kathleen R. Guion, | — | — | — | — | — | — | |||||||||||||
Executive Vice President, | |||||||||||||||||||
Strategic Planning & Real Estate | |||||||||||||||||||
Todd J. Vasos, | — | — | 6,530 | 13,060 | 295,483 | 590,965 | |||||||||||||
Executive Vice President, | |||||||||||||||||||
Division President, | |||||||||||||||||||
Chief Merchandising Officer | |||||||||||||||||||
Susan S. Lanigan, | — | — | 6,530 | 13,060 | 295,483 | 590,965 | |||||||||||||
Executive Vice President & | |||||||||||||||||||
General Counsel | |||||||||||||||||||
All current executive officers as a group (9 persons) | — | — | 80,843 | 161,686 | 3,658,146 | 7,316,292 | |||||||||||||
All current non-employee directors as a group (6 persons) | 75,000 | 50,000 | — | — | — | — | |||||||||||||
All non-executive officer employees as a group (268 persons) | — | — | 91,305 | 182,610 | 4,131,551 | 8,263,103 |
Future participation and the types of awards that may be granted under the 2007 Stock Incentive Plan are subject to the discretion of the Committee and have not been established. As a result, the specific benefits and amounts payable in the future to any participant or groups of participants if this proposal is approved are not currently determinable.
What awards have been granted under the 2007 Stock Incentive Plan as in effect prior to the annual meeting?
In addition to the March 20, 2012 grants of performance share units and the planned award of options and restricted stock units to the non-employee directors described above in the New Plan Benefits table, the following table sets forth as of March 23, 2012 the shares of common stock underlying awards that have been granted or shares of common stock that have been issued under the 2007 Stock Incentive Plan to the listed individuals:
Name and Principal Position | Number of Shares Underlying Restricted Stock/Restricted Stock Units(1) | Number of Shares Underlying Options(2) | Number of Shares of Purchased Stock(3) | Number of Shares of Common Stock(4) | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Richard W. Dreiling, | 834,609 | 1,670,448 | — | — | |||||||||
Chairman & Chief Executive Officer | |||||||||||||
David M. Tehle, | — | 666,010 | — | — | |||||||||
Executive Vice President & | |||||||||||||
Chief Financial Officer | |||||||||||||
Kathleen R. Guion, | — | 500,000 | — | — | |||||||||
Executive Vice President, | |||||||||||||
Strategic Planning & Real Estate | |||||||||||||
Todd J. Vasos, | — | 537,440 | 74,286 | — | |||||||||
Executive Vice President, | |||||||||||||
Division President, | |||||||||||||
Chief Merchandising Officer | |||||||||||||
Susan S. Lanigan, | — | 423,154 | — | — | |||||||||
Executive Vice President & | |||||||||||||
General Counsel | |||||||||||||
All current executive officers as a group (9 persons) | 834,609 | 4,812,615 | 156,122 | — | |||||||||
All current non-employee directors as a group (6 persons) | 15,312 | 52,215 | — | — | |||||||||
All non-executive officer employees as a group(5): | 311,220 | 11,320,530 | 882,415 | 173,039 | |||||||||
• Restricted stock units (1,186 persons) | |||||||||||||
• Stock options (386 persons) | |||||||||||||
• Purchased shares (285 persons) | |||||||||||||
• Common stock (423 persons) |
What does the Board recommend?
Our Board of Directors unanimously recommends that shareholders voteFOR approval of the 2007 Stock Incentive Plan and approval of the material terms of the performance-based compensation under the plan for purposes of compensation deductibility under Section 162(m), including (i) the participants eligible to receive such compensation, (ii) the business criteria that may be used as performance goals for awards, and (iii) the maximum amount of compensation which may be paid to any participant if the performance goals are achieved.
Equity Compensation Plan Table
The following table sets forth information about securities authorized for issuance under our compensation plans (including individual compensation arrangements) as of February 3, 2012:
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Equity compensation plans approved by security holders(1) | 8,456,979 | $ | 11.12 | 19,338,127 | ||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||
Total(1) | 8,456,979 | $ | 11.12 | 19,338,127 | ||||||
PROPOSAL 3:
VOTE REGARDING THE AMENDED AND RESTATED ANNUAL INCENTIVE PLAN
What am I being asked to approve?
Our Board of Directors is asking you to approve our Annual Incentive Plan, including the material terms of the performance goals under the plan, to preserve our ability under Section 162(m) of the Internal Revenue Code to deduct compensation associated with future performance-based incentive awards to be made under the plan. The disclosure below is a summary only. For a full description, you should read the entire text of the plan which is attached asAppendix B.
Why should I approve the Annual Incentive Plan?
Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to any publicly held corporation for individual compensation over $1 million paid in any taxable year to "covered employees," which term generally includes each of the persons who were, at the end of each fiscal year, our Chief Executive Officer or one of the other named executive officers (other than our Chief Financial Officer). Section 162(m) specifically exempts certain performance-based compensation from the deduction limit. In order to qualify for this exception, our shareholders must re-approve, every five years, the material terms of the performance goals of the plan under which compensation is to be paid. Our Annual Incentive Plan contains these performance goals, and therefore is the plan being proposed for approval by our shareholders.
If the Annual Incentive Plan is not approved at the Annual Meeting, then any bonuses paid to our "covered employees" will not qualify as "performance-based compensation" and therefore may not be fully deductible by Dollar General due to the compensation limit imposed by Section 162(m).
Who is eligible to participate in the Annual Incentive Plan?
The CNG Committee of our Board of Directors, or any subcommittee thereof which meets the requirements of Section 162(m)(4)(C) of the Internal Revenue Code, determines who is eligible to participate in the Annual Incentive Plan, including any of our "covered employees" under Section 162(m), any of our executive officers and any other of our employees. A total of 6,538 persons, including 8 executive officers, received awards under the plan with respect to fiscal 2011, and a total of 7,373 persons, including 8 executive officers, are participating in the plan as of March 23, 2012 with respect to fiscal 2012. We have no plans to significantly change the scope of the group who is eligible to earn incentive compensation awards under the plan.
How does the Annual Incentive Plan work?
The Annual Incentive Plan is designed to attract and retain executives and to motivate them to promote our profitability and growth by means of performance-based annual cash bonuses.
The plan authorizes the payment of cash bonuses based on our actual performance measured against established business and/or financial performance measures. Prior to the beginning of each performance period, or at a later time as may be permitted by applicable provisions of the Internal Revenue Code (which currently is not later than the earlier of (1) 90 days after the beginning of the period of service to which the performance goals(s) relate or (2) the first 25% of the period of service), the CNG Committee determines the participants in the plan, establishes for each participant a maximum award, and establishes the performance goal(s) and the performance measures applicable to, and the method for computing the amount payable upon achievement of, such performance goals(s). No participant can receive a bonus under the plan in excess of $5 million in any fiscal year ($10 million
if shareholders approve the plan at the Annual Meeting). The CNG Committee can base performance goals on one or more of the following performance measures which may related to Dollar General, one or more of our affiliates or one or more of our or our affiliates' divisions or units, or any combination thereof, and may be applied on an absolute basis and/or be relative to one or more peer group companies or indices, or any combination thereof:
• Net earnings or net income (before or after taxes) | • Earnings per share | |
• Net sales or revenue growth | • Gross or net operating profit | |
• Return measures (including, but not limited to, return on assets, capital, invested capital, equity, sales, or revenue) | • Cash flow (including, but not limited to, operating cash flow, free cash flow, and cash flow return on capital) | |
• Earnings before or after taxes, interest, depreciation, and/or amortization | • Share price (including, but not limited to, growth measures and total shareholder return) | |
• Productivity ratios | • Gross or operating margins | |
• Expense targets | • Margins | |
• Operating efficiency | • Customer satisfaction; | |
• Working capital targets | • Economic Value Added | |
• Volume | • Capital expenditures | |
• Market share | • Costs | |
• Regulatory ratings | • Asset quality | |
• Net worth | • Safety |
To the extent allowable under Section 162(m), the performance goals may be calculated without regard to extraordinary or non-recurring items, as the CNG Committee may determine in its sole discretion.
No award can be paid under the plan unless and until the CNG Committee certifies in writing that the previously established performance goal(s) have been satisfied. The CNG Committee may reduce or eliminate any award in its discretion despite achievement of the performance goal(s) but may not increase the amount of bonus payable to any participant. The plan allows a participant to elect in writing to defer the payment of his or her award in accordance with the terms of our CDP/SERP Plan as it exists from time to time. For a description of the CDP/SERP Plan, please see "Executive Compensation—Nonqualified Deferred Compensation." The plan does not limit our ability to make payments or awards to employees (including executive officers) under any other plan or arrangement.
What are the Federal income tax consequences of payments under the Annual Incentive Plan?
Payments made under the Annual Incentive Plan will be taxable to the recipients when paid as ordinary compensation income. If a participant properly elects to defer receipt of all or a portion of the bonus award under our CDP/SERP Plan, or any successor plan, the participant will generally be entitled to defer the recognition of income. As described above, we intend payments under the plan to qualify as "performance-based" compensation under Section 162(m). As a result, we will generally be entitled to a Federal income tax deduction corresponding to the amount of income recognized by the participant. Any bonuses payable under the Annual Incentive Plan that may be deferred under the CDP/SERP Plan must be deferred in a manner that complies with Section 409A of the Internal Revenue Code. Section 409A provides specific rules for deferral elections, distributions and funding mechanisms under non-qualified deferred compensation plans. Failure to comply would result in significant penalties and interest for the individual but would not impact our tax deduction for deferred compensation.
Who administers the Annual Incentive Plan?
The CNG Committee administers the Annual Incentive Plan. The CNG Committee has full authority to interpret the plan, to establish rules and regulations relating to the plan's operation, to
select the plan's participants, to determine amounts of awards under the plan and to make all other determinations with respect to the plan. The CNG Committee may terminate or amend the plan at any time. However, any amendment that would require shareholder approval pursuant to Section 162(m), the NYSE listing rules, or any other applicable law, rule or regulation will not be effective without shareholder approval. No amendment or termination of the plan shall adversely affect a participant's rights to or interest in an award granted prior to the date of the amendment without the participant's written consent.
What kind of benefits will be paid under the Annual Incentive Plan?
The amount that would be paid in the future or would have been paid for the last completed fiscal year to any particular person or group under the plan is not currently determinable. Information regarding our recent practices with respect to annual incentive awards under the Annual Incentive Plan is presented in the "Summary Compensation Table." In recent years, the CNG Committee has selected EBITDA-based and ROIC performance measures upon which to base the performance goals in connection with the Annual Incentive Plan. The CNG Committee has again selected such performance measures for 2012. In addition, the CNG Committee has determined that no executive officer is eligible to receive an award under the plan in 2012 unless that officer receives a satisfactory performance rating when evaluated against his or her individual performance goals. See "Use of Performance Evaluations" in Compensation Discussion & Analysis.
When is the Annual Incentive Plan effective?
The Amended and Restated Dollar General Annual Incentive Plan was initially approved by our Board of Directors on March 16, 2005 and adopted by our shareholders on May 24, 2005. It was further amended and approved by our shareholders on October 23, 2009. The amendments included in the proposed amended and restated Annual Incentive Plan being voted on at the annual meeting will be effective on June 1, 2012 if approved by shareholders.
What does the Board recommend?
Our Board of Directors unanimously recommends that shareholders voteFOR approval and adoption of the Annual Incentive Plan, in the form attached asAppendix B, and of the material terms of the performance measures under the plan.
The Audit Committee of our Board of Directors has:
Based on these reviews and discussions, the Audit Committee unanimously recommended to the Board of Directors that Dollar General's audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended January 28, 2011February 3, 2012 for filing with the SEC.
While the Audit Committee has the responsibilities and powers set forth in its charter, the Audit Committee does not have the duty to plan or conduct audits or to determine that Dollar General's financial statements are complete, accurate, or in accordance with generally accepted accounting principles. Dollar General's management and independent auditor have this responsibility. The Audit Committee also does not have the duty to assure compliance with laws and regulations or with the policies of the Board of Directors.
This report has been furnished by the members of the Audit Committee:
The above Audit Committee Report does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Dollar General filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent Dollar General specifically incorporates this report by reference therein.
PROPOSAL 4:
RATIFICATION OF APPOINTMENT OF AUDITORS
Who has the Audit Committee selected as the independent registered public accounting firm?
The Audit Committee has selected Ernst & Young LLP as our independent registered public accounting firm for the 20112012 fiscal year. Ernst & Young LLP has served in that capacity since October 2001.
Will representatives of Ernst & Young LLP attend the annual meeting?
Representatives of Ernst & Young LLP have been requested and are expected to attend the annual meeting. These representatives will have the opportunity to make a statement if they so desire and are expected to be available to respond to appropriate questions.
What does the Board of Directors recommend?
Our Board recommends that you voteFOR the ratification of Ernst & Young LLP as our independent registered public accounting firm for the 20112012 fiscal year. The Audit Committee is not bound by a vote either for or against the firm. If the shareholders do not ratify this appointment, our Audit Committee will consider that result in selecting our independent registered public accounting firm in the future.
What fees were paid to the independent registered public accounting firm in 20102011 and 2009?2010?
The following table sets forth the aggregate fees for professional services rendered to us by Ernst & Young LLP during the past two fiscal years:
Service | 2011 Aggregate Fees Billed ($) | 2010 Aggregate Fees Billed ($) | |||||
---|---|---|---|---|---|---|---|
Audit Fees(1) | 1,973,644 | 2,077,949 | |||||
Audit-Related Fees(2) | 29,500 | 29,500 | |||||
Tax Fees(3) | 1,547,980 | 1,220,411 | |||||
All Other Fees(4) | 6,000 | 6,000 |
Service | 2010 Aggregate Fees Billed ($) | 2009 Aggregate Fees Billed ($) | |||||
---|---|---|---|---|---|---|---|
Audit Fees(1) | 2,077,949 | 2,512,641 | |||||
Audit-Related Fees(2) | 29,500 | 28,500 | |||||
Tax Fees(3) | 1,220,411 | 1,310,650 | |||||
All Other Fees(4) | 6,000 | 6,000 |
How does the Audit Committee pre-approve services provided by the independent registered public accounting firm?
The Audit Committee pre-approves all audit and permissible non-audit services provided by our independent registered public accounting firm. Where feasible, the Committee considers and, when appropriate, pre-approves services at regularly scheduled meetings after disclosure by management and the independent registered public accounting firm of the nature of the proposed services, the estimated fees (when available), and their opinions that the services will not impair the independence of the independent registered public accounting firm. The Committee's chairperson (or any Committee member if the chairperson is unavailable) may pre-approve such services in between Committee meetings, and must report to the Committee at its next meeting with respect to all services so pre-approved. The Committee pre-approved 100% of the services provided by Ernst & Young LLP during 20102011 and 2009.2010.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
The United States securities laws require our executive officers, directors, and greater than 10% shareholders to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC. Based solely upon a review of these reports furnished to us during and with respect to 2011, or written representations that no Form 5 reports were required, we believe that each of those persons filed, on a timely basis, the reports required by Section 16(a) of the Securities Exchange Act of 1934.
SHAREHOLDER PROPOSALS
FOR 20122013 ANNUAL MEETING
To be considered for inclusion in our proxy materials relating to the 20122013 annual meeting of shareholders, proposals must be submitted by eligible shareholders who have compliedmust submit proposals that comply with the relevant regulations of the SEC and must be receivedregulations no later than December 7, 2011. In addition, if6, 2012. To introduce other new business at the 2013 annual meeting, you must provide written notice to us no earlier than the close of business on February 1, 2013 and no later than the close of business on March 3, 2013, and comply with the advance notice provisions of our Bylaws. If we are not notified of a shareholder proposal by February 25, 2012,March 3, 2013, then the proxies held by our management may provide the discretion to vote against such shareholder proposal, even though the proposal is not discussed in our proxy materials sent in connection with the 20122013 annual meeting of shareholders.
If you would like to introduce other new business at the 2012 annual meeting, you must provide written notice to us no earlier than the close of business on January 26, 2012 and no later than the close of business on February 25, 2012, and comply with the advance notice provisions of our Bylaws.
Shareholder proposals should be mailed to Corporate Secretary, Dollar General Corporation, 100 Mission Ridge, Goodlettsville, TN 37072. Shareholder proposals that are not included in our proxy materials will not be considered at any annual meeting of shareholders unless such proposals have complied with the requirements of our Bylaws.
AMENDED AND RESTATED 2007 STOCK INCENTIVE PLAN
FOR KEY EMPLOYEES OF DOLLAR GENERAL CORPORATION
AND ITS AFFILIATES
This Amended and Restated 2007 Stock Incentive Plan for Key Employees of Dollar General Corporation and its Affiliates (the "Plan") is effective as provided in Section 14 herein.
WHEREAS, the Board of Directors of Dollar General Corporation initially approved the 2007 Stock Incentive Plan for Key Employees of Dollar General Corporation and its Affiliates as of July 6, 2007, and the Board subsequently amended such plan on May 29, 2008, and the shareholders approved an amended and restated plan on October 23, 2009; and
WHEREAS, the Plan is hereby amended and restated in its entirety as follows:
The Plan is designed:
(a) to promote the long term financial interests and growth of Dollar General Corporation (the "Company") and its Subsidiaries by attracting and retaining management and other personnel and key service providers with the training, experience and ability to enable them to make a substantial contribution to the success of the Company's business;
(b) to motivate management personnel by means of growth-related incentives to achieve long range goals; and
(c) to further the alignment of interests of Participants with those of the shareholders of the Company through opportunities for increased stock or stock-based ownership in the Company.
As used in the Plan, the following words shall have the following meanings:
(a) "Affiliate" means with respect to any Person, any entity directly or indirectly controlling, controlled by or under common control with such Person.
(b) "Award" means an award made to a Participant pursuant to the Plan and described in Section 6, including, without limitation, an award of a Stock Option, Stock Appreciation Right, Other Stock-Based Award or Dividend Equivalent Right (as such terms are defined in Section 6), or any combination of the foregoing.
(c) "Award Agreement" means an agreement between the Company and a Participant that sets forth the terms, conditions and limitations applicable to an Award.
(d) "Beneficial Owner" means a "beneficial owner", as such term is defined in Rule 13d-3 under the Exchange Act (or any successor rule thereto).
(e) "Board" means the Board of Directors of the Company.
(f) "Change in Control" is defined either under clause (1) or (2) below:
(1) for as long as investment funds affiliated with Kohlberg Kravis Roberts & Co. L.P. (together the "Sponsors") and its Affiliates hold the ability to elect (or cause to be elected) a majority of the members of the Board, a "Change in Control" shall occur upon, whether in one or a series of related transactions, (i) the sale of all or substantially all of the assets of Buck Holdings, L.P. or the Company and its subsidiaries to any Person (or group of Persons acting in concert), other than to (x) the Sponsors or their Affiliates or (y) any employee benefit plan (or trust forming a part thereof) maintained by the Company, the Sponsors or their respective Affiliates or other
Person of which a majority of its voting power or other equity securities is owned, directly or indirectly, by the Company, the Sponsors or their respective Affiliates; or (ii) a merger, recapitalization or other sale by the Company, the Sponsors (indirectly) or any of their respective Affiliates, to a Person (or group of Persons acting in concert) of Common Stock or other voting securities of the Company that results in more than 50% of the Common Stock or other voting securities of the Company (or any resulting company after a merger) being held, directly or indirectly, by a Person (or group of Persons acting in concert) that is not Controlled by (x) the Sponsors or their Affiliates or (y) an employee benefit plan (or trust forming a part thereof) maintained by the Company, the Sponsors or their respective Affiliates or other person of which a majority of its voting power or other equity securities is owned, directly or indirectly, by the Company, the Sponsors or their respective Affiliates; in any event, which results in the Sponsors and its Affiliates or such employee benefit plan ceasing to hold the ability to elect (or cause to be elected) a majority of the members of the Board.
For purposes of this definition, "controlled by" means, with respect to the relationship between or among two or more Persons, the possession, directly or indirectly, of the power to direct or cause the direction of the affairs or management of a Person, whether through the ownership of voting securities, by contract or otherwise, including the ownership, directly or indirectly, of securities having the power to elect a majority of the board of directors or similar body governing the affairs of such Person.
(2) after such time as the Sponsors and their Affiliates hold the ability to elect (or cause to be elected) a majority of the members of the Board for any reason, the definition in clause (1) above shall cease to be applicable, and thereafter a "Change in Control" shall occur upon any of the following events: (i) the sale or disposition, in one or a series of related transactions, of all or substantially all, of the assets of the Company to any Person (or group of Persons acting in concert) other than any of the Company or its Affiliates (collectively, the "Permitted Holders"); (ii) any Person (or group of Persons acting in concert), other than the Permitted Holders, is or becomes the Beneficial Owner (except that a Person shall be deemed to be a "Beneficial Owner" of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the total voting power of the voting stock of the Company (or any entity which controls the Company), including by way of merger, consolidation, tender or exchange offer or otherwise; (iii) a reorganization, recapitalization, merger or consolidation (a "Corporate Transaction") involving the Company, unless securities representing 50% or more of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the Company or the entity resulting from such Corporate Transaction (or the parent of such entity) are held subsequent to such transaction by the Person or Persons who were the Beneficial Owners of the outstanding voting securities entitled to vote generally in the election of directors of the Company immediately prior to such Corporate Transaction; or (iv) during any rolling twenty-four (24) month period looking back from any given date, individuals who at the beginning of such period constituted the Board (together with any new directors whose election by such Board or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors of the Company, then still in office, who were either directors at the beginning of such period or whose election or nomination for election was previously so approved (any such director, an "Incumbent Director") cease for any reason to constitute a majority of the Board on the date of determination thereof; provided, that, no individual shall be an Incumbent Director who is elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any Person other than the Board. For purposes of this definition, the term "Beneficial Owner" is as defined in Rule 13d-3 under the Exchange Act.
(g) "Code" means the United States Internal Revenue Code of 1986, as amended.
(h) "Committee" means the Compensation Committee of the Board (or, if no such committee is appointed, the Board), or any authorized subcommittee of the Committee, as applicable.
(i) "Common Stock" or "Share" means the common stock, par value $0.875 per share, of the Company, which may be authorized but unissued, or issued and reacquired.
(j) "Employee" means a person, including an officer, in the regular employment of the Company or any other Service Recipient who, in the opinion of the Committee, has or is expected to have involvement in the management, growth or protection of some part or all of the business of the Company or any other Service Recipient.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(l) "Fair Market Value" means, on a per Share basis, the fair market value of the Common Stock on any given date determined as follows: (i) if there is a public market for the Shares on such date, the closing trading price of the Shares as reported on such date on the Composite Tape of the principal national securities exchange on which such Shares are listed or admitted to trading, or (ii) if there is no public market for the Shares on such date, the Fair Market Value shall be the fair market value of the Shares as determined reasonably and in good faith by the Board, which shall not take into account any minority interest discount or discount for the imposition of transfer restrictions.
(m) "ISO" means a Stock Option that is also an incentive stock option granted pursuant to Section 6(a)(ii) of the Plan.
(n) "Management Stockholder's Agreement" means that certain Management Stockholder's Agreement between the applicable Participant and the Company.
(o) "Other Stock-Based Awards" means Other Stock-Based Awards granted pursuant to Section 6(c) of the Plan.
(p) "Participant" means an Employee, non-employee member of the Board, consultant or other person having a service relationship with the Company or any other Service Recipient, to whom one or more Awards have been made and remain outstanding.
(q) "Performance-Based Awards" shall have the meaning set forth in Section 6(c) of the Plan.
(r) "Person" means "person," as such term is used for purposes of Section 13(d) or 14(d) of the Exchange Act.
(s) "Public Offering" means any registered public offering of the Common Stock on the New York Stock Exchange or the Nasdaq National Market or other nationally recognized stock exchange or listing system.
(t) "Service Recipient" means the Company, any Subsidiary of the Company, or any Affiliate of the Company that satisfies the definition of "service recipient" within the meaning ofTreasury Regulation Section 1.409A-1(g) (or any successor regulation), with respect to which the person is a "service provider" (within the meaning of Treasury Regulation Section 1.409A-1(f) (or any successor regulation).
(u) "Stock Appreciation Rights" means Stock Appreciation Rights granted under Section 6(b) of the Plan.
(v) "Stock Options" means Stock Options granted pursuant to Section 6(a) of the Plan.
(w) "Subsidiary" means any corporation or other entity in an unbroken chain of corporations or other entities beginning with the Company if each of the corporations or other entities, or group of commonly controlled corporations or other entities, other than the last corporation or other entity in the unbroken chain then owns stock or other equity interests possessing 50% or more of the total combined voting power of all classes of stock or other equity interests in one of the other corporations or other entities in such chain.
Subject to adjustment as provided for in Sections 8 and 9, the total number of Shares which may be issued under the Plan is 31,142,858, no more than 4,500,000 of which shall be available for grant to any one Participant in the form of Stock Options and Stock Appreciation Rights in any given fiscal year of the Company, and no more than 1,500,000 of which shall be available for grant to any one Participant in the form of Other Stock-Based Awards in any given fiscal year of the Company. The Shares may consist, in whole or in part, of unissued Shares or issued but reacquired Shares. The issuance of Shares or the payment of cash in consideration of the substitution, cancellation or termination of an Award shall reduce the total number of Shares available under the Plan, to the extent of the number of Shares subject to such substituted, cancelled or terminated Award; provided, however, that Shares subject to Awards that are (i) repurchased by the Company or (ii) withheld or tendered to satisfy (x) tax withholding obligations, (y) the exercise price of any Stock Option(s) or (z) the purchase price for any other Award, shall in all events immediately become available for new Awards to be granted under the Plan. Shares related to Awards or portions of Awards that are forfeited or that expire unexercised shall also immediately become available for new Awards to be granted under the Plan.
(a) The Plan shall be administered by the (i) Committee, which may delegate its duties and powers in whole or in part to any subcommittee thereof consisting solely of at least two individuals who are intended to qualify as "Non-Employee Directors" within the meaning of Rule 16b-3 under the Exchange Act (or any successor rule thereto), "independent directors" within the meaning of the New York Stock Exchange's listed company rules and "outside directors" within the meaning of Section 162(m) of the Code (or any successor section thereto), or (ii) Board acting on behalf of the Committee, in each case to the extent permitted by applicable law. The Committee may adopt its own rules of procedure, and action of a majority of the members of the Committee taken at a meeting, or action taken without a meeting by unanimous written consent, shall constitute action by the Committee. Subject to Section 10 of the Plan, the Committee shall have the power and authority to administer, construe and interpret the Plan, to make rules for carrying it out and to make changes in such rules, and to make any other determinations that it deems necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan and any Award Agreement in the manner and to the extent the Committee deems necessary or desirable. Any such interpretations, rules, and administration shall be consistent with the basic purposes of the Plan. The Committee shall have the full power and authority to establish the terms and conditions of any Award consistent with the provisions of the Plan and to waive any such terms and conditions at any time (including, without limitation, accelerating or waiving any vesting conditions). At the time an Award is made or amended in accordance with the terms of the Plan, or the terms or conditions of an Award are changed in accordance with the terms of the Plan or the Award Agreement, the Committee may provide for limitations or conditions on such Award. Any decision of the Committee (including a duly authorized subcommittee thereof) in the interpretation and administration of the Plan, as described herein, shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned (including, but not limited to, Participants and their beneficiaries or successors).
(b) Subject to the limitations imposed under Section 7(h) below, Awards may, in the discretion of the Committee, be made under the Plan in assumption of, or in substitution for, outstanding awards previously granted by the Company or its Affiliates or a company acquired by the Company or with which the Company combines.
(c) The Committee may employ counsel, consultants, accountants, appraisers, brokers or other persons. The Committee, the Company, and the officers and directors of the Company shall be
entitled to rely upon the advice, opinions or valuations of any such persons. No member of the Committee, nor employee or representative of the Company shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Awards, and all such members of the Committee, employees and representatives shall be fully protected and indemnified to the greatest extent permitted by applicable law by the Company with respect to any such action, determination or interpretation.
The Committee may from time to time make Awards under the Plan to such Employees, or other persons having a relationship with the Company or any other Service Recipient, and in such form and having such terms, conditions and limitations as the Committee may determine. The terms, conditions and limitations of each Award under the Plan shall be set forth in an Award Agreement, in a form approved by the Committee, consistent, however, with the terms of the Plan.
From time to time, the Committee will determine the forms and amounts of Awards for Participants. Such Awards may take the following forms in the Committee's sole discretion:
(a) Stock Options.
(i) Stock Options. These are options to purchase Common Stock ("Stock Options"). At the time of Award the Committee shall determine, and shall include in the Award Agreement, the option exercise period, the option exercise price, vesting requirements, and such other terms, conditions or restrictions on the grant or exercise of the option as the Committee deems appropriate including, without limitation, the right to receive dividend equivalent payments on vested options. Notwithstanding the foregoing, the exercise price per Share of a Stock Option shall in no event be less than the Fair Market Value on the date the Stock Option is granted (subject to later adjustment pursuant to Sections 8 and 9 hereof). In addition to other restrictions contained in the Plan, a Stock Option granted under this Section 6(a) may not be exercised more than 10 years after the date it is granted. Payment of the Stock Option exercise price shall be made (i) in cash, (ii) with the consent of the Committee, in Shares (any such Shares valued at Fair Market Value on the date of exercise) that the Participant has held for at least six months (or such other period of time as may be required by the Company's accountants), (iii) through the withholding of Shares (any such Shares valued at Fair Market Value on the date of exercise) otherwise issuable upon the exercise of the Stock Option in a manner that is compliant with applicable law, or (iv) a combination of the foregoing methods, in each such case in accordance with the terms of the Plan, the Award Agreement and of any applicable guidelines of the Committee in effect at the time.
(ii) ISOs. The Committee may grant Stock Options under the Plan that are intended to be ISOs. Such ISOs shall comply with the requirements of Section 422 of the Code (or any successor section thereto). No ISO may be granted to any Participant who at the time of such grant, owns more than ten percent of the total combined voting power of all classes of stock of the Company or of any Subsidiary, unless (i) the option exercise price for such ISO is at least 110% of the Fair Market Value of a Share on the date the ISO is granted and (ii) the date on which such ISO terminates is a date not later than the day preceding the fifth anniversary of the date on which the ISO is granted. Any Participant who disposes of Shares acquired upon the exercise of an ISO either (i) within two years after the date of grant of such ISO or (ii) within one year after the transfer of such Shares to the Participant, shall notify the Company of such disposition and of the amount realized upon such disposition. All Stock Options granted under the Plan are intended to be nonqualified stock options, unless the applicable Award agreement expressly states that the Stock Option is intended to be an ISO. If a Stock Option is intended to be an ISO, and if for any reason such Option (or portion thereof) shall not qualify as an ISO, then, to the extent of such nonqualification, such Stock Option (or
portion thereof) shall be regarded as a nonqualified stock option granted under the Plan; provided that such Stock Option (or portion thereof) otherwise complies with the Plan's requirements relating to nonqualified stock options. In no event shall any member of the Committee, the Company or any of its Affiliates (or their respective employees, officers or directors) have any liability to any Participant (or any other Person) due to the failure of a Stock Option to qualify for any reason as an ISO.
(iii) Attestation. Wherever in this Plan or any agreement evidencing an Award a Participant is permitted to pay the Stock Option exercise price of a Stock Option or taxes relating to the exercise of a Stock Option by delivering Shares, the Participant may, subject to procedures satisfactory to the Committee, satisfy such delivery requirement by presenting proof of Beneficial Ownership of such Shares, in which case the Company shall treat the Stock Option as exercised without further payment and shall withhold such number of Shares from the Shares acquired by the exercise of the Stock Option, subject to actual receipt of such Shares (whether of the actual Share certificate or electronic delivery of such Shares).
(b) Stock Appreciation Rights. The Committee may grant "Stock Appreciation Rights" (as hereinafter defined) independent of, or in connection with, the grant of a Stock Option or a portion thereof. Each Stock Appreciation Right shall be subject to such other terms as the Committee may determine. The exercise price per Share of a Stock Appreciation Right shall in no event be less than the Fair Market Value on the date the Stock Appreciation Right is granted or, in the case of a Stock Appreciation Right granted in conjunction with a Stock Option, or a portion thereof, the Stock Option exercise price of the related Stock Option. Each "Stock Appreciation Right" granted independent of a Stock Option shall be defined as a right of a Participant, upon exercise of such Stock Appreciation Right, to receive an amount equal to the product of (i) the excess of (A) the Fair Market Value on the exercise date of one Share over (B) the exercise price per Share of such Stock Appreciation Right, multiplied by (ii) the number of Shares covered by the Stock Appreciation Right. Payment of the Stock Appreciation Right shall be made in Shares or in cash, or partly in Shares and partly in cash (any such Shares valued at the Fair Market Value on the date of the payment), all as shall be determined by the Committee. Stock Appreciation Rights may be exercised from time to time upon actual receipt by the Company of written notice of exercise stating the number of Shares with respect to which the Stock Appreciation Right is being exercised. The date a notice of exercise is received by the Committee shall be the exercise date. No fractional Shares will be issued in payment for Stock Appreciation Rights, but instead cash will be paid for a fraction or, if the Committee should so determine, the number of Shares will be rounded downward to the next whole Share.
(c) Other Stock-Based Awards.
(i) Generally. The Committee may grant or sell awards of Shares, awards of restricted Shares and awards that are valued in whole or in part by reference to, or are otherwise based on the Fair Market Value or number of, or are in any way payable in the form of, Shares (including, without limitation, restricted stock units and bonus stock). Such "Other Stock-Based Awards" shall be in such form, and dependent on such conditions, as the Committee may determine, including, without limitation, the right to receive, or vest with respect to, one or more Shares (or the equivalent cash value of such Shares) upon the completion of a specified period of service, the occurrence of an event and/or the attainment of performance objectives. Other Stock-Based Awards may be granted alone or in addition to any other Awards under the Plan. Subject to the provisions of the Plan, the Committee shall determine to whom and when Other Stock-Based Awards will be made; the number of Shares to be awarded under (or otherwise related to) such Other Stock-Based Awards; whether such Other Stock-Based Awards shall be settled in cash, Shares or a combination of cash and Shares; and all other terms and conditions of such awards (including, without limitation, the vesting provisions thereof and provisions ensuring that all Shares so awarded and issued shall be fully paid and non-assessable).
(ii) Notwithstanding anything to the contrary herein, certain Other Stock-Based Awards granted under this Section 6(c) may be granted in a manner which is intended to qualify for the exemption from the limitation on deductibility imposed by Section 162(m) of the Code that is set forth in Section 162(m)(4)(C) of the Code or any successor provision thereto ("Performance-Based Awards"). A Participant's Performance-Based Award shall be determined based on the attainment of written performance goals approved by the Committee for a performance period established by the Committee within the time period prescribed by Section 162(m) of the Code. The performance goals, which must be objective, shall be based upon one or more of the following criteria: (a) net earnings or net income (before or after taxes); (b) earnings per share; (c) net sales or revenue growth; (d) gross or net operating profit; (e) return measures (including, but not limited to, return on assets, capital, invested capital, equity, sales, or revenue); (f) cash flow (including, but not limited to, operating cash flow, free cash flow, and cash flow return on capital); (g) earnings before or after taxes, interest, depreciation, and/or amortization; (h) gross or operating margins; (i) productivity ratios; (j) share price (including, but not limited to, growth measures and total shareholder return); (k) expense targets; (l) margins; (m) operating efficiency; (n) customer satisfaction; (o) working capital targets; (p) economic value added; (q) volume; (r) capital expenditures; (s) market share; (t) costs; (u) regulatory ratings; (v) asset quality; (w) net worth; and (x) safety. The foregoing criteria may relate to the Company, one or more of its Affiliates or one or more of its or their divisions or units, or any combination of the foregoing, and may be applied on an absolute basis and/or be relative to one or more peer group companies or indices, or any combination thereof, all as the Committee shall determine. In addition, to the degree consistent with Section 162(m) of the Code (or any successor section thereto), the performance goals may be calculated without regard to extraordinary or non-recurring items, as the Committee may determine in its sole discretion. The maximum amount of a Performance-Based Award granted during a calendar year to any Participant shall be, with respect to Performance-Based Awards that are denominated in Shares, 24 million. The Committee shall determine whether, with respect to a performance period, the applicable performance goals have been met with respect to a given Participant and, if they have, shall so certify and ascertain the amount of the applicable Performance-Based Award. No Performance-Based Awards will be paid for such performance period until such certification is made by the Committee. The amount of the Performance-Based Award actually paid to a given Participant may be less than the amount determined by the applicable performance goal formula, at the discretion of the Committee. The amount of the Performance-Based Award determined by the Committee for a performance period shall be paid to the Participant at such time as determined by the Committee in its sole discretion after the end of such performance period; provided, however, that a Participant may, if and to the extent permitted by the Committee and consistent with the provisions of Section 162(m) of the Code, elect to defer payment of a Performance-Based Award.
(d) Dividend Equivalent Rights. The Committee may grant Dividend Equivalent Rights either alone or in connection with the grant of an Award. A "Dividend Equivalent Right" shall be the right to receive a payment in respect of one Share (whether or not subject to a Stock Option) equal to the amount of any dividend paid in respect of one Share held by a shareholder in the Company; provided, however, that the Company shall not grant any Dividend Equivalent Right in respect of any unearned performance Shares. Each Dividend Equivalent Right shall be subject to such terms as the Committee may determine.
(a) No Award may be granted under the Plan after the tenth anniversary of the Effective Date, but Awards theretofore granted may extend beyond that date.
(b) Nothing contained herein shall affect the right of the Company or any other Service Recipient to terminate any Participant's employment or other service relationship at any time or for any reason.
(c) Unless otherwise permitted by the Committee at or after the time of grant of any Award, and except as shall be otherwise transferable or assignable by the Participant by will or the laws of descent and distribution, no benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to do so shall be void. No such benefit shall, prior to receipt thereof by the Participant, be in any manner liable for or subject to the debts, contracts, liabilities, engagements, or torts of the Participant. No election as to benefits or exercise of any Award may be made during a Participant's lifetime by anyone other than the Participant except by a legal representative appointed for or by the Participant or, after a Participant's death, by the legatees, personal representatives of the Participant or distributees of the Participant.
(d) Participants shall not be, and shall not have any of the rights or privileges of, shareholders of the Company in respect of any Shares purchasable or deliverable in connection with any Award unless and until certificates representing any such Shares have been issued by the Company to such Participants (or book entry representing such Shares has been made and such Shares have been deposited with the appropriate registered book-entry custodian).
(e) Absent express provisions to the contrary, any Award under this Plan shall not be deemed compensation for purposes of computing benefits or contributions under any retirement or severance plan of the Company or other Service Recipient and shall not affect any benefits under any other benefit plan of any kind now or subsequently in effect under which the availability or amount of benefits is related to level of compensation. This Plan is not a "Retirement Plan" or "Welfare Plan" under the Employee Retirement Income Security Act of 1974, as amended.
(f) Unless the Committee determines otherwise, no benefit or promise under the Plan shall be secured by any specific assets of the Company or any other Service Recipient, nor shall any assets of the Company or any other Service Recipient be designated as attributable or allocated to the satisfaction of the Company's obligations under the Plan.
(g) The Plan shall be binding on all successors and assigns of the Company and a Participant, including without limitation, the estate of such Participant and the executor, administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the Participant's creditors.
(h) Notwithstanding any provision herein to the contrary, other than as permitted under Section 8 or 9 below, the repricing of any Stock Option or Stock Appreciation Right, once granted hereunder, is prohibited without prior approval of the Company's shareholders. For this purpose, a "repricing" means any of the following (or any other action that has the same effect as any of the following): (i) changing the terms of any Stock Option or Stock Appreciation Right to lower the exercise price thereof; (ii) any other action that is treated as a "repricing" under generally accepted accounting principles; and (iii) repurchasing for cash or canceling any Stock Option or Stock Appreciation Right in exchange for another Award at a time when the exercise price per Share is greater than the Fair Market Value of the underlying Shares, unless the cancellation and exchange occurs in connection with an event described in Section 8 or 9 below.
In the event of any Share dividend, Share split, spin-off, share combination, reclassification, recapitalization, liquidation, dissolution, reorganization, merger, Change in Control, payment of a dividend (other than a cash dividend paid as part of a regular dividend program), exchange of Shares or other corporate exchange, any equity restructuring (as defined under Financial Accounting Standards Board (FASB) Accounting Standards Codification 718), or other similar transaction or occurrence which affects the equity securities of the Company or the value thereof, the Committee shall (i) adjust the number and kind of shares subject to the Plan and available for or covered by Awards, (ii) adjust the share and/or exercise prices related to outstanding Awards, and/or (iii) take such other action
(including, without limitation providing for 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, and to the extent applicable, without adverse tax consequences under Section 409A of the Code. Any such adjustment made or action taken by the Committee in accordance with the preceding sentence shall be final and binding upon holders of Awards and upon the Company.
Notwithstanding Section 8 above, in the event of a Change in Control: (a) if determined by the Committee in the applicable Award Agreement or otherwise determined by the Committee in its sole discretion, any outstanding Awards then held by Participants which are unexercisable or otherwise unvested or subject to lapse restrictions may automatically be deemed exercisable or otherwise vested or no longer subject to lapse restrictions, as the case may be, as of immediately prior to such Change in Control and (b) the Committee may, to the extent determined by the Committee to be permitted under Section 409A of the Code, but shall not be obligated to: (i) cancel such Awards for fair value (as determined in the sole discretion of the Committee) which, in the case of Stock Options and Stock Appreciation Rights, may equal the excess, if any, of the value of the consideration (as determined in the sole discretion of the Committee) to be paid in the Change in Control transaction to holders of the same number of Shares subject to such Stock Options or Stock Appreciation Rights over the aggregate exercise price of such Stock Options or the aggregate exercise price of such Stock Appreciation Rights, as the case may be; (ii) provide for the issuance of substitute awards that will substantially preserve the otherwise applicable terms and value of any affected Awards previously granted hereunder, as determined by the Committee in its sole discretion; or (iii) provide that for a period of at least ten business days prior to the Change in Control, any Stock Options or Stock Appreciation Rights shall be exercisable, to the extent applicable, as to all Shares subject thereto and that upon the occurrence of the Change in Control, such Awards shall terminate and be of no further force and effect. For the avoidance of doubt, the Committee may apply any of the foregoing to any given outstanding Award or group or type of Awards, and shall not be required to apply any of the foregoing uniformly to all outstanding Awards.
(a) The Committee shall have the authority to make such amendments to any terms and conditions applicable to outstanding Awards as are consistent with this Plan,provided that no such action shall modify any Award in a manner that adversely impacts, other than in ade minimis manner, a Participant with respect to any outstanding Awards, other than pursuant to Sections 8, 9 or 10(c) hereof, without the Participant's consent, except as such modification is provided for or contemplated in the terms of the Award or this Plan (including Section 4(a) above).
(b) The Board may amend, suspend or terminate the Plan,except that no such action, other than an action under Sections 8, 9 or 10(c) hereof, may be taken which would, without shareholder approval, increase the aggregate number of Shares available for Awards under the Plan, decrease the exercise price of outstanding Stock Options or Stock Appreciation Rights, change the requirements relating to the Committee, or extend the term of the Plan. However, no such Board action shall adversely impact, other than in ade minimis manner, a Participant with respect to any outstanding Awards, other than pursuant to Sections 8, 9 or 10(c) hereof, without the Participant's consent, except as otherwise contemplated in the terms of the Award or the Plan (including Section 4(a) above).
(c) This Plan is intended to comply with Section 409A of the Code and will be interpreted in a manner intended to comply with Section 409A of the Code. Notwithstanding anything herein to the contrary, (i) if, at the time of the Participant's termination of service with any Service Recipient, the Participant is a "specified employee" as defined in Section 409A of the Code, and the deferral of
the commencement of any payments or benefits otherwise payable hereunder as a result of such termination of service is necessary in order to prevent the imposition of any accelerated or additional tax under Section 409A of the Code, then the Company will defer the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to the Participant) until the date that is six months and one day following the Participant's termination of service with all Service Recipients (or the earliest date as is permitted under Section 409A of the Code), if such payment or benefit is payable upon a termination of service and (ii) if any other payments of money or other benefits due to the Participant hereunder would cause the application of an accelerated or additional tax under Section 409A of the Code, such payments or other benefits shall be deferred, if deferral will make such payment or other benefits compliant under Section 409A of the Code, or otherwise such payment or other benefits shall be restructured, to the extent possible, in a manner, reasonably determined by the Board in consultation with the Participant, that does not cause such an accelerated or additional tax or result in an additional cost to the Company (without any reduction in such payments or benefits ultimately paid or provided to the Participant). Each payment made under the Plan shall be designated as a "separate payment" within the meaning of Section 409A of the Code and all references to "termination of employment" or "termination of service" shall be deemed to refer to a "separation from service" within the meaning of Section 409A of the Code.
(d) The Committee shall specify in, or in respect of, any Award granted hereunder on or subsequent to the Effective Date, that as a condition of receiving payment of such Award, the Participant's rights, payments, and benefits with respect to such Award shall be subject to any reduction, cancellation, forfeiture or recoupment, in whole or in part, upon the occurrence of certain specified events, as may be required by the Securities and Exchange Commission or any applicable national exchange, law, rule or regulation.
(a) This Plan shall be governed by and construed in accordance with the laws of the State of Delaware applicable therein.
(b) With respect to Participants who reside or work outside the United States of America, the Committee may, in its sole discretion, amend the terms of the Plan or awards with respect to such Participants in order to conform such terms with the requirements of local law or to obtain more favorable tax or other treatment for a Participant, the Company or any other Service Recipient.
For purposes of the Plan, unless the Committee determines otherwise: (a) a transfer of a Participant's employment without an intervening period of separation among the Company and any other Service Recipient shall not be deemed a termination of employment, and (b) a Participant who is granted in writing a leave of absence or who is entitled to a statutory leave of absence shall be deemed to have remained in the employ of the Company (and other Service Recipient) during such leave of absence.
The Company shall have the right to deduct from any payment made under the Plan any federal, state or local income or other taxes required by law to be withheld with respect to such payment. It shall be a condition to the obligation of the Company to deliver Shares upon the exercise of a Stock Option that the Participant pays to the Company such amount as may be requested by the Company for the purpose of satisfying any liability for such withholding taxes.
This Plan as amended and restated shall be effective on the date on which the Company's shareholders approve the Plan (the "Effective Date").
AMENDED AND RESTATED
DOLLAR GENERAL CORPORATION
ANNUAL INCENTIVE PLAN
This Amended and Restated Dollar General Corporation Annual Incentive Plan (the "Plan"), initially approved by the Board of Directors of Dollar General Corporation (the "Company") on March 16, 2005 and adopted by the shareholders of the Company on May 24, 2005, as further amended and approved by the shareholders of the Company on October 23, 2009, is hereby amended and restated in its entirety, effective as of the date set forth in Section 9 of the Plan below, as follows:
The purpose of the Dollar General Corporation Annual Incentive Plan is to permit the Company, through awards of annual incentive compensation that satisfy the requirements for performance-based compensation under Section 162(m) of the Internal Revenue Code, to attract and retain executives and to motivate these executives to promote the profitability and growth of the Company.
"Award" shall mean the amount granted to a Participant by the Committee for a Performance Period.
"Board" shall mean the Board of Directors of the Company or the successor thereto.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" shall mean the Compensation Committee of the Board or any subcommittee thereof which meets the requirements of Section 162(m)(4)(C) of the Code.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Executive" shall mean any "covered employee" (as defined in Section 162(m) of the Code), any executive officer of the Company or its Subsidiaries and, in the discretion of the Committee, any other employee of the Company or its Subsidiaries.
"Participant" shall mean, for each Performance Period, each Executive who has been selected by the Committee to participate in the Plan.
"Performance Period" shall mean the Company's fiscal year or any shorter or longer period designated by the Committee (not to exceed five years) with respect to which an Award may be granted.
"Plan" shall mean this Amended and Restated Dollar General Corporation Annual Incentive Plan, as amended from time to time.
"Qualified Performance-Based Award" means an Award that is intended to qualify for the Section 162(m) Exemption and is made subject to performance goals based on Qualified Performance Measures.
"Qualified Performance Measures" means one or more of the performance measures listed below upon which performance goals for certain Qualified Performance-Based Awards may be
established from time to time by the Committee within the time period prescribed by Section 162(m) of the Code:
"Section 162(m) Cash Maximum" means $10,000,000.
"Section 162(m) Exemption" means the exemption from the limitation on deductibility imposed by Section 162(m) of the Code that is set forth in Section 162(m)(4)(C) of the Code or any successor provision thereto.
"Service Recipient" means the Company, any subsidiary of the Company, or any affiliate of the Company that satisfies the definition of "service recipient" within the meaning of Treasury Regulation Section 1.409A-1 (or any successor regulation), with respect to which the person is a "service provider" (within the meaning of Treasury Regulation Section 1.409A-1(or any successor regulation)).
The Plan shall be administered by the Committee, which shall have full authority to interpret the Plan, to establish rules and regulations relating to the operation of the Plan, to select Participants, to determine the maximum Awards and the amounts of any Awards and to make all determinations and take all other actions necessary or appropriate for the proper administration of the Plan. The Committee's interpretation of the Plan, and all actions taken within the scope of its authority, shall be final and binding on the Company, its shareholders and Participants, Executives, former Executives and their respective successors and assigns. No member of the Committee shall be eligible to participate in the Plan.
SECTION 4
DETERMINATION OF AWARDS
(a) Prior to the beginning of each Performance Period, or at such later time as may be permitted by applicable provisions of the Code (which, in the case of any Qualified Performance-Based Award, currently is not later than the earlier of (i) 90 days after the beginning of the period of service to which the performance goal(s) relate or (ii) the first 25% of the period of service), the Committee shall establish: (1) the Executives or class of Executives who will be Participants in the Plan; (2) for each Participant a maximum Award, which shall not exceed the Section 162(m) Cash Maximum; and (3) the performance goal(s) and Qualified Performance Measure(s) applicable to, and the method for computing the amount payable upon achievement of such performance goal(s) in connection with, any Qualified Performance-Based Award. The Qualified Performance Measures may relate to the Company, one or more of its Affiliates or one or more of its or their divisions or units, or any combination of the foregoing, and may be applied on an absolute basis and/or be relative to one or more peer group companies or indices, or any combination thereof, all as the Committee shall determine. In addition, to the degree consistent with Section 162(m) (or any successor section thereto), the performance goals may be calculated without regard to extraordinary or non-recurring items, as the Committee may determine in its sole discretion.
(b) Following the end of each Performance Period, and before any payments are made under the Plan, the Committee shall certify in writing the satisfaction of the performance goal(s) for any Qualified Performance Measure(s) applicable to any Qualified Performance-Based Award in a manner intended to satisfy the requirements of Section 162(m).
(c) The Committee may reduce or eliminate the Award granted to any Participant based on factors determined by the Committee, including but not limited to, performance against budgeted financial goals and the Participant's personal performance, provided, however, that any such reduction or elimination shall not operate to increase a Qualified Performance-Based Award, or amount payable thereunder, to any Participant who is an Executive. The Committee may not increase a Qualified Performance-Based Award, or amount payable thereunder, granted to a Participant who is an Executive.
Each Participant shall be eligible to receive payment of the Award in cash, as soon as practicable after the amount of such Participant's Award for a Performance Period has been determined, but in no event later than the 15th day of the third calendar month following the end of the fiscal year in respect of which such Awards were earned. Subject to the provisions of Section 8(g) hereof, payment of the award may be deferred in accordance with a written election by the Participant
in accordance with the terms of the Company's CDP/SERP Plan, as such Plan may be amended and/or restated from time to time.
The Committee may amend the Plan at any time and from time to time, provided that no such amendment that would require the consent of the shareholders of the Company pursuant to Section 162(m) of the Code, NYSE listing rules or the Exchange Act, or any other applicable law, rule or regulation, shall be effective without such consent. No amendment which adversely affects a Participant's rights to, or interest in, an Award granted prior to the date of the amendment shall be effective unless the Participant shall have agreed thereto in writing.
The Committee may terminate this Plan at any time but in no event shall the termination of the Plan adversely affect the rights of any Participant to a previously granted Award without such Participant's written consent.
(a) No Executive or other person shall have any claim or right to be granted an Award under this Plan until such Award is actually granted. Neither the establishment of this Plan, nor any action taken hereunder, shall be construed as giving any Executive any right to be retained in the employ of the Company. Nothing contained in this Plan shall limit the ability of the Company to make payments or awards to Executives under any other plan, agreement or arrangement.
(b) The rights and benefits of a Participant hereunder are personal to the Participant and, except for payments made following a Participant's death, shall not be subject to any voluntary or involuntary alienation, assignment, pledge, transfer, encumbrance, attachment, garnishment or other disposition.
(c) Awards under this Plan shall not constitute compensation for the purpose of determining participation or benefits under any other plan of the Company unless specifically included as compensation in such plan.
(d) The Company shall have the right to deduct from Awards any taxes or other amounts required to be withheld by law.
(e) All questions pertaining to the construction, regulation, validity and effect of the provisions of the Plan shall be determined in accordance with the laws of the State of Tennessee without regard to principles of conflict of laws.
(f) No member of the Committee or the Board, and no officer, employee or agent of the Company shall be liable for any act or action hereunder, whether of commission or omission, taken by any other member, or by any officer, agent, or employee, or, except in circumstances involving bad faith, for anything done or omitted to be done in the administration of the Plan.
(g) The Plan is intended to comply with Section 409A of the Code and will be interpreted in a manner intended to comply with Section 409A of the Code ("Section 409A"). Notwithstanding anything herein to the contrary, if at the time of the Participant's termination of employment with any Service Recipient the Participant is a "specified employee" as defined in Section 409A, and the deferral of the commencement of any payments or benefits otherwise payable hereunder as a result of such
termination of service is necessary in order to prevent the imposition of any accelerated or additional tax under Section 409A, then the Company will defer the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to the Participant) to the minimum extent necessary to satisfy Section 409A until the date that is six months and one day following the Participant's termination of employment with all Service Recipients (or the earliest date as is permitted under Section 409A), if such payment or benefit is payable upon a termination of employment. Each payment made under the Plan shall be designated as a "separate payment" within the meaning of Section 409A.
(h) The Committee shall specify in, or in respect of, any Award granted hereunder on or after the Effective Date, that as a condition of receiving payment of the Award, the Participant's rights, payments, and benefits with respect to such Award shall be subject to any reduction, cancellation, forfeiture or recoupment, in whole or in part, upon the occurrence of certain specified events, as may be required by the Securities and Exchange Commission or any applicable national exchange, law, rule or regulation.
The Plan shall be effective upon the date the Plan is approved by the shareholders of the Company (the "Effective Date").
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