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TABLE OF CONTENTS
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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Dear Shareholder:
The 2005 Annual Report and the Notice of Annual Meeting and Proxy Statement for our 20062010 Annual Meeting of Shareholders are enclosed with this letter, which is first being mailed to shareholders on or about April 19, 2006. The annual meetingof Dollar General Corporation will be held on Wednesday, May 31, 2006,Thursday, June 3, 2010, at 10:9:00 a.m., Central Daylight Time, at Goodlettsville City Hall Auditorium, 105 South Main Street, Goodlettsville, Tennessee. All shareholders of record at the close of business on March 27, 200629, 2010 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’syear's meeting, you will have an opportunity to vote on the matters described in the enclosedour accompanying Notice of Annual Meeting of Shareholders. In addition to the formal voting, we will discuss Dollar General’s performance during the 2005 fiscal yearShareholders and take some time to answer your questions.Proxy Statement. Our 2009 Annual Report also accompanies this letter.
Your interest in Dollar General and your vote are very important to us. Please review the Annual Report andWe encourage you to read the Proxy Statement in detail and returnvote your proxy card 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.
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| Rick Dreiling Chairman & Chief Executive Officer |
April 16, 2010
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April 19, 2006
| Dollar General Corporation | |
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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| /s/ Christine L. Connolly | |||||
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Please vote your proxy as soon as possible even if you expect to physically attend the annual meeting.meeting in person. You may vote your proxy electronicallyvia the Internet or by phone according toby following the instructions on the enclosednotice of internet availability or proxy card, or sign, dateif you received a paper copy of these proxy materials by mail, you may vote by mail by completing and returnreturning 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 theyour proxy by following the instructions listed on page 4 of the proxy statement.
Proxy Statement for20062010 Annual Meeting of Shareholders
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What is this document?
This document is the Proxy Statement of Dollar General Corporation for the Annual Meeting of Shareholders to be held on Wednesday, May 31, 2006. A form of proxy card is included. This document is first being mailed to shareholders on or about April 19, 2006.
We refer to our company throughout this document as “we” or “us” or “Dollar General.” In addition, throughout this document, “2006” refers to our fiscal year ending February 2, 2007, “2005” refers to our fiscal year ended February 3, 2006, “2004” refers to our fiscal year ended January 28, 2005, and “2003” refers to our fiscal year ended January 30, 2004.
Why am I receiving this document?
We are sending this document and the form of proxy card to solicit your proxy to vote upon certain matters at the annual meeting.
What is a proxy?
It is your legal designation of another person, called a “proxy,” to vote the stock you own. 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, including the cost of preparing and mailing this document.
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 use of the mails, proxies may be solicited by our officers and employees in person or by telephone, telegram, electronic mail, facsimile transmission or other means of communication. Our officers and employees will not be additionally compensated, but may be reimbursed for out-of-pocket expenses in connection with any solicitation. We also may reimburse custodians, nominees and fiduciaries 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 you plan to attend the meeting, please check the box on the enclosed proxy card. If a broker, bank or other nominee holds your shares in street name, please bring a copy of the account statement reflecting your ownership as of March 27, 2006 so that we may verify your shareholder status, and check in at the registration desk at the meeting. For security reasons, we also may require photo identification for admission.
Will Board members attend the annual meeting?
Yes. Our Board has adopted a policy that all directors will attend the annual shareholders’ meetings, unless attendance is not feasible due to unavoidable circumstances. All of last year’s Board members attended the 2005 annual shareholders’ meeting, except for E. Gordon Gee who represented to us that his absence was unavoidable.
What if I have a disability?
If you are disabled and would like to participate in the annual meeting, we can provide reasonable assistance. Please write to our Corporate Secretary, Dollar General Corporation, 100 Mission Ridge, Goodlettsville, TN 37072, at least two weeks before the meeting.
What is Dollar General Corporation and where is it located?
We are a leading discount retailer of quality general merchandise at everyday low prices. As of March 31, 2006, we operated approximately 8,038 Dollar General stores in 33 states. Through conveniently located stores, we offer a focused assortment of basic consumable merchandise including health and beauty aids, packaged food and refrigerated products, home cleaning supplies, housewares, stationery, seasonal goods, basic clothing and domestics. Our stores serve primarily low-, middle- and fixed-income families. Our corporate 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 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 “Investing—Corporate Governance” portion of our web site located at www.dollargeneral.com, including without limitation our Corporate Governance Principles, Code of Business Conduct and Ethics and the charter of each standing committee of our Board of 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.
Does Dollar General have an audit committee financial expert serving on its Audit Committee?
Yes. Our Board has designated 2 of the 3 members of our Audit Committee (James D. Robbins and J. Neal Purcell) as audit committee financial experts and has determined that each is independent as defined in the NYSE listing standards and in our Corporate Governance Principles. 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.
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What am I voting on?
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Who is entitled to vote?
You may vote if you were the record owner of shares of Dollar General common stock at the close of business on March 27, 2006. Each share of stock is entitled to one vote. As of March 27, 2006, there were 315,671,527 shares of Dollar General common stock outstanding.
May other matters be raised at the annual meeting; how will the meeting be conducted?
We currently are not aware of any business to be acted upon at the annual meeting other than the 3 matters described above. Under Tennessee law and our governing documents, no other business aside from procedural matters may be raised at the annual meeting unless proper notice has been given to the shareholders. If other business is properly raised, your proxies have authority to vote as they think best, including to adjourn the meeting.
The Chairman has broad authority to conduct the annual meeting so that the business of the meeting is carried out in an orderly and timely manner. In doing so, he has broad discretion to establish reasonable rules for discussion, comments and questions during the meeting. The Board of Directors has decided that our annual meeting will be conducted in accordance with the American Bar Association’s “Handbook for the Conduct of Shareholders’ Meetings” published in 2000, including the supplemental rules thereto, as modified by our Board. The Chairman is also entitled to rely upon applicable law regarding disruptions or disorderly conduct to ensure that the annual meeting proceeds in a manner that is fair to all participants.
How do I vote?
Proxies may be voted by returning the printed proxy card or by voting via telephone or Internet. For more information about how to vote your proxy, please see the instructions on your proxy card.
In addition to voting by proxy, you may vote in person at the annual meeting. However, in order to assist us in tabulating votes at the annual meeting, we encourage you to vote by proxy even if you plan to be present at the annual meeting.
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How will my proxy be voted?
The individuals named on the proxy card will vote your proxy in the manner you indicate on the proxy card. If your proxy card is signed but does not contain specific instructions, your proxy will be voted: “FOR” all of the directors nominated, “FOR” approval of the amendments to our 1998 Stock Incentive Plan and “FOR” ratification of Ernst & Young LLP as our independent auditors for 2006.
Can I change my mind and revoke my proxy?
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What if I receive more than one proxy card?
Multiple proxy cards mean that you have more than one account with brokers or our transfer agent. Please vote all of your shares. We also recommend that you contact your broker and our transfer agent to consolidate as many accounts as possible under the same name and address. Our transfer agent is Registrar and Transfer Company, P.O. Box 1010, Cranford, New Jersey 07016-3572, and it may be reached at 1-800-368-5948.
How will abstentions and broker non-votes be treated?
Abstentions and broker non-votes will be treated as shares that are present and entitled to vote for purposes of determining whether a quorum is present, but will not be counted as votes cast either in favor of or against a particular proposal.
What are broker non-votes?
If you are the beneficial owner of shares held in “street name” by a broker, your broker is the record holder of the shares, however the broker is required to vote those shares in accordance with your instructions. If you do not give instructions to your broker, your broker may exercise discretionary voting power to vote your shares with respect to routine matters, but the broker may not exercise discretionary voting power to vote your shares with respect to “non-routine” items. All of the matters identified in this document to be voted upon at the meeting are considered to be “routine” items. In the case of non-routine items, the shares that cannot be voted by your broker would be treated as “broker non-votes.” To avoid giving them the effect of negative votes, broker non-votes are disregarded for the purpose of determining the total number of votes cast or entitled to vote with respect to a proposal.
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How many votes must be present to hold the annual meeting?
A quorum must be present at the annual meeting for any business to be conducted. A quorum exists when the holders of a majority of the 315,671,527 shares of Dollar General common stock outstanding on March 27, 2006 are present at the meeting, in person or by proxy.
How many votes are needed to elect directors and approve other matters?
Directors are elected by a plurality of the votes cast by the holders of shares entitled to vote at the annual meeting. This means that the director nominee with the most affirmative votes for a particular slot is elected for that slot. You may vote in favor of all nominees, withhold your vote as to all nominees or withhold your vote as to specific nominees.
The 1998 Stock Incentive Plan amendments and the ratification of the appointment of Ernst & Young LLP as our independent auditors for 2006 each will be approved if the votes cast for the proposal exceed the votes cast against it.
Will my vote be confidential?
Yes. We will continue our practice of keeping the votes of all shareholders confidential. Shareholder votes will not be disclosed to our directors, officers, employees or agents, except:
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PROPOSAL 1:ELECTION OF DIRECTORS
What is the structure of the Board of Directors?
Our Board of Directors must consist of at least 3 but not more than 15 directors. The exact number is set by the Board and is currently fixed at 10, effective at the time of the annual meeting. All directors are elected annually by our shareholders.
Who are the nominees this year?
The nominees for the Board of Directors consist of 10 current directors who were elected at our 2005 annual meeting. James L. Clayton is not standing for re-election in accordance with the mandatory retirement policy set forth in our Corporate Governance Principles. If elected, each nominee would hold office until the 2007 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 year in which they first became a director are set forth in the table below. The Board has affirmatively determined that each of these nominees, other than David A. Perdue, is independent as defined in the NYSE listing standards and in our Corporate Governance Principles:
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David L. Beré |
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Dennis C. Bottorff |
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Barbara L. Bowles |
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Reginald D. Dickson |
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E. Gordon Gee |
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Barbara M. Knuckles |
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David A. Perdue |
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J. Neal Purcell |
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James D. Robbins |
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David M. Wilds |
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What are the backgrounds of this year’s nominees?
David L. Beré served from December 2003 until June 2005 as Corporate Vice President of Ralcorp Holdings, Inc. and as the President and Chief Executive Officer of Bakery Chef, Inc., a leading manufacturer of frozen bakery products that was acquired by Ralcorp Holdings in December 2003. From 1998 until the acquisition, Mr. Beré was the President and Chief Executive Officer of Bakery Chef, Inc., and also served on its Board of Directors. Mr. Beré currently serves on the Board of Trustees of Fuller Theological Seminary, the Board of Directors of the Fuller Foundation, the Board of Directors of Greater Chicago Food Depository, and the Dean’s Advisory Council Indiana University – Kelly School of Business, all of which are non-profit entities.
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Dennis C. Bottorff has served as Chairman of Council Ventures, LLC, an investment firm, since January 2001. He previously served as Chairman of AmSouth Bancorporation, a bank holding company, and, prior to that, as Chief Executive Officer (1991-1999) and Chairman (1995-1999) of First American Corporation. Mr. Bottorff is a director of Ingram Industries, a privately held provider of wholesale distribution, inland marine transportation and insurance services, Appforge, a privately held developer of multi-platform mobile and wireless application solutions, and Lancope, Inc., a privately held developer of behavorial-based intrusion detection systems for network security, and serves on the Board of Trustees of Vanderbilt University. Mr. Bottorff serves as the Chairman of the Tennessee Education Lottery Corp. and as a director of the Tennessee Valley Authority.
Barbara L. Bowles has served as Vice Chairman of Profit Investment Management, a registered investment advisor, since January 2006. Prior to that, she served as Chairman and Chief Executive Officer of The Kenwood Group, Inc., a registered investment advisor that she founded in 1989, until its acquisition by Profit Investment Management in January 2006. She previously served as Vice President, Investor Relations of Kraft, Inc. from 1984 to 1989. Ms. Bowles is a director of Black & Decker Corporation and Wisconsin Energy Corporation and is a trustee of Fisk University.
Reginald D. Dickson serves as Chairman (since 1996) and Chief Executive Officer (since 2001) of Buford, Dickson, Harper & Sparrow, Inc., registered investment advisors. Mr. Dickson served as President and Chief Executive Officer of Inroads, Inc., a non-profit organization supporting minority education, from 1983 to 1993, and was subsequently designated President Emeritus. Mr. Dickson serves on the Board of Regents for Southeast Missouri State University.
E. Gordon Gee has served as Chancellor of Vanderbilt University since 2000. Dr. Gee previously served as President of Brown University from 1998 until 2000, and as President of The Ohio State University from 1990 until 1998. Dr. Gee is a director of The Limited, Inc., Hasbro, Inc., Massey Energy, Inc. and Gaylord Entertainment Company.
Barbara M. Knuckles has served as Managing Director of Development and Corporate Relations (since January 2006) and as Director of Development and Corporate Relations (1992-2006) for North Central College in Naperville, Illinois. From 1988 to 1992, Ms. Knuckles was a private investor managing several family businesses. Ms. Knuckles also served as a Corporate Vice President both for Beatrice Foods, Inc. (1978-1986) and for The Wirthlin Group (1986-1988). She currently serves as a director of Harris Bank of Naperville, Illinois.
David A.Perdue joined Dollar General on April 2, 2003 as Chief Executive Officer and as a member of the Board of Directors. He was elected Chairman on June 2, 2003. Prior to joining Dollar General, Mr. Perdue served as Chairman and Chief Executive Officer of Pillowtex Corporation, a producer and marketer of home textiles, from July 2002 through March 27, 2003. Pillowtex filed for bankruptcy in July 2003 after emerging from a previous bankruptcy in May 2002. Mr. Perdue was also with Reebok International Ltd. from September 1998 to July 2002 where he served as President and Chief Executive Officer (January 2001 to July 2002) of the Reebok Brand, Executive Vice President, Global Operating Units (October 1999 to January 2001) and Senior Vice President, Global Supply Chain (September 1998 to October 1999). Prior to Reebok, Mr. Perdue was Senior Vice President of Haggar, Inc. (1994 to September 1998). He gained additional international expertise while based in Hong Kong with Sara Lee Corporation where he served as Senior Vice President of Operations from 1992 to 1994. Earlier in his career, he spent 12 years in management consulting with Kurt Salmon Associates, an international management consulting firm. Mr. Perdue serves as a director of Alliant Energy Corporation.
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J. Neal Purcell served as the Southeast Area Managing Partner of KPMG from July 1993 to October 1998 and as the Vice Chairman in charge of National Audit Practice Operations from October 1998 until his retirement on January 31, 2002. Mr. Purcell is a director (and chairman of the audit committee) of Southern Company and Synovus Financial Corporation, as well as Kaiser Permanente Health Care and Hospitals, a non-public entity. Mr. Purcell, who the Dollar General Board of Directors has determined to be independent as defined in NYSE listing requirements and the Dollar General Corporate Governance Principles, has been designated as one of Dollar General’s audit committee financial experts.
James D. Robbins served as Managing Partner of the Columbus, Ohio office of PricewaterhouseCoopers L.L.P. from 1993 until his retirement in 2001. Mr. Robbins is a director (and chairman of the audit committee) of Huntington Preferred Capital, Inc. and DSW Inc. Mr. Robbins, who the Dollar General Board of Directors has determined to be independent as defined in NYSE listing requirements and the Dollar General Corporate Governance Principles, has been designated as one of Dollar General’s audit committee financial experts.
David M. Wilds has served as Managing Partner of 1st Avenue Partners, L.P., a private equity partnership, and as a senior advisor for The Family Office, a limited liability company, since 1998. From 1995 to 1998, Mr. Wilds was President of Nelson Capital Partners III, L.P., a merchant banking company. From 1990 to 1995, Mr. Wilds served as Chairman of Cumberland Health Systems, Inc., an owner and operator of psychiatric hospitals. Mr. Wilds currently serves as a director of Internet Pictures Corporation, iPayment, Inc. and Symbion Inc. Mr. Wilds, who the Dollar General Board of Directors has determined to be independent as defined in NYSE listing requirements and in the Dollar General Corporate Governance Principles, has been elected to serve as the Presiding Director of Dollar General’s Board of Directors. As Presiding Director, Mr. Wilds presides over the executive sessions of the Board’s non-management and independent directors and performs the other duties set forth in our Corporate Governance Principles.
What is the background of the retiring director?
James L. Clayton (72), who has served as a director of Dollar General since 1988, is Chairman and Chief Executive Officer of Clayton Bancorp, Inc., a bank holding company. He was a director of Branch Banking and Trust Co. of North Carolina and Regional Chairman of Branch Banking and Trust Co. of Tennessee from December 2000 until December 2004. Mr. Clayton served as Chairman (1956-2003) and Chief Executive Officer (1956-1999) of Clayton Homes, Inc., which manufactures, sells, finances and insures manufactured homes. Mr. Clayton serves as a director of MidCountry Financial Corp., a privately held company.
How are directors nominated?
The Nominating and Corporate Governance Committee of our Board of Directors is responsible for identifying, evaluating and recommending to the Board all persons to be nominated to serve as a director of Dollar General. The committee will consider director candidates timely submitted by our shareholders in accordance with the notice provisions and procedures set forth in our Bylaws (as described below under “Can shareholders nominate directors?”) and applies the same criteria to the evaluation of those candidates as the committee applies to other director candidates. Our Board is responsible for nominating the slate of directors for the annual meeting, upon the committee’s recommendation.
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How are nominees identified?
All director nominees are current directors who are standing for re-election, other than one current director who is retiring in accordance with our mandatory retirement policy. In 2003, the Nominating and Corporate Governance Committee retained a third-party search firm to assist in identifying potential future Board candidates. That search firm reported directly to the committee. The main functions served by the search firm, primarily during 2003 and 2004 but also during the earlier part of 2005, included identifying potential candidates who meet the qualification and experience requirements described below, as well as compiling information regarding the candidates’ qualifications, experience and independence and conveying that information to the committee. The Nominating and Corporate Governance Committee also considers potential director candidates submitted by other means, including without limitation any potential candidates submitted by other directors, by shareholders or by other third party search firms.
How are nominees evaluated; what are the minimum qualifications?
The committee identifies, recruits and recommends only those candidates that the committee believes are qualified to become Board members consistent with the criteria for selection of new directors adopted from time to time by the Board. Dollar General endeavors to have a Board representing diverse experience at policy-making levels in business, education and areas that are relevant to its business. The committee recommends candidates, including those submitted by shareholders, only if the committee 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. At least two-thirds of the Board must consist of independent directors. No person who has reached the age of 72 is eligible for appointment, election or re-election as a director.
The committee assesses a candidate’s independence, background and experience, as well as the current Board’s skill needs and diversity. The committee currently believes that an ideal future nominee will have retail experience and/or experience as a current or former CEO (or other position with policy-making responsibility) of a public company with an understanding of our customer base, although these are not mandatory requirements for consideration. With respect to incumbent directors selected for re-election, the committee also assesses each director’s contributions, attendance record at Board and applicable committee meetings and the suitability of continued service. In addition, individual directors and any person nominated to serve as a director 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, cooperative approach, record of achievement, loyalty, and ability to consult and advise.
Can shareholders nominate directors?
Shareholders can nominate persons to be directors by following the procedures set forth in our Bylaws. In short, these procedures require the shareholder to 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 later than 120 days in advance of the anniversary date of the proxy statement for the previous year’s annual meeting. For example, to be considered for the 2007 annual shareholder meeting, the notice must be received no later than December 20, 2006. The notice must contain the information required by our Bylaws about the shareholder proposing the nominee and about the nominee. In general, this information includes:
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You should consult our Bylaws for more detailed information regarding the process by which shareholders may nominate directors. Our Bylaws are posted on the “Investing—Corporate Governance” portion of our web site located at www.dollargeneral.com. No shareholder nominees have been proposed for this year’s meeting.
What if a nominee is unwilling or unable to serve?
That is not expected to occur. If it does, proxies will be voted 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.
How often did the Board meet in 2005?
Our Board of Directors met 8 times during 2005. Each director attended at least 75% of the total of all meetings of the Board and all committees on which he or she served.
What are the standing committees of the Board?
Our Board of Directors has the following standing committees: Audit, Compensation, Nominating and Corporate Governance, and Finance. Our Board has determined that all members of these committees are independent as defined in the NYSE listing standards and in our Corporate Governance Principles and has adopted a written charter for each of these committees. A copy of the Audit Committee’s charter is attached to this proxy statement as Appendix A. All committee charters are available on the “Investing—Corporate Governance” portion of our web site located at www.dollargeneral.com. Current information regarding these committees is set forth below.
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How are directors compensated?
Effective May 25, 2005, directors receive a $35,000 annual cash retainer (payable in quarterly installments) plus $1,250 for attending each Board meeting. Committee members also receive $1,250 for attending each committee meeting, other than Audit Committee members who receive $1,500 for attending each committee meeting. Directors are paid $625 for telephonic attendance at a Board or committee meeting rather than the higher in-person rate. The Audit Committee chairperson receives an additional $20,000 annual cash retainer, the other committee chairpersons receive a $10,000 additional cash retainer, and the presiding director receives an additional $15,000 cash retainer, all payable in quarterly installments. A director who also is a Dollar General employee does not receive any separate compensation for Board service. Directors also receive reimbursement for certain fees and expenses incurred in connection with continuing education seminars and travel expenses related to meeting attendance or company-requested appearances (directors also may travel on the Company plane for those purposes). In addition, each director was given a holiday gift in 2005 that cost approximately $220.
Prior to May 25, 2005, directors (other than a director who was also a Dollar General employee) received a $25,000 annual cash retainer (payable in quarterly installments) plus $1,250 for attending each Board or committee meeting and $625 for attending each telephonic Board or committee meeting. Committee chairpersons and the presiding director also received an additional annual cash retainer of $5,000 (payable in quarterly installments).
Any director who is not a Dollar General employee is entitled to receive an annual grant of 4,600 restricted stock units (“RSUs”) pursuant to our 1998 Stock Incentive Plan. The RSUs generally vest on the first anniversary of the grant date, if the director is still serving as a director on that date, subject to accelerated vesting provisions as provided in the plan (generally upon a change in control or upon termination due to death, disability or normal retirement); however, no common stock may be distributed, nor any amount paid, to any director in respect of RSUs until the director has ceased to be a member of the Board. Dividend equivalents on the RSUs are credited to the director’s restricted stock unit account in accordance with the terms of the plan.
Non-employee directors may defer all or a part of any fees normally paid by us to them pursuant to a voluntary nonqualified compensation deferral plan. The compensation eligible for deferral includes the annual retainer(s), meeting and other fees, as well as any per diem compensation for special assignments, earned by a director for service to the Board or one of its committees. The compensation deferred is credited to a liability account, which is then invested at the option of the director in either an account that mirrors the performance of a fund selected by the Compensation Committee or its delegate (the “Mutual Fund Options”) or in a phantom stock account which mirrors the performance of our common stock (the “Common Stock Option”). In accordance with a director’s election, the deferred compensation will be paid in a lump sum or in monthly installments over a 5, 10 or 15-year period, or a combination of both, at the time designated by the plan upon a director’s resignation or termination from the Board. However, a director may request to receive an “unforeseeable emergency hardship” in-service lump sum distribution of amounts credited to his account in accordance with the terms of the deferral plan. All deferred compensation will be immediately due and payable upon a “change in control” (as defined in the compensation deferral plan) of Dollar General. Effective January 1, 2005, account balances deemed to be invested in the Mutual Fund Options are payable in cash and account balances deemed to be invested in the Common Stock Option are payable in shares of Dollar General common stock and cash in lieu of fractional shares. Prior to January 1, 2005, all account balances were payable in cash.
13
The following table sets forth the actual fees paid to, earned by or granted to our non-employee directors in 2005:
Name |
| Annual |
| Other |
| Board Meeting |
| Committee |
| Restricted |
| Total 2005 |
| ||||||
|
|
|
|
|
|
| |||||||||||||
David Beré |
| $ | 30,000 |
|
| — |
| $ | 9,375 |
| $ | 7,500 |
| $ | 102,488 |
| $ | 149,363 |
|
Dennis Bottorff |
| $ | 30,000 |
| $ | 7,500 |
| $ | 9,375 |
| $ | 11,250 |
| $ | 102,488 |
| $ | 160,613 |
|
Barbara Bowles |
| $ | 30,000 |
| $ | 7,500 |
| $ | 9,375 |
| $ | 11,250 |
| $ | 102,488 |
| $ | 160,613 |
|
James Clayton |
| $ | 30,000 |
|
| — |
| $ | 8,125 |
| $ | 7,500 |
| $ | 102,488 |
| $ | 148,113 |
|
Reginald Dickson |
| $ | 30,000 |
|
| — |
| $ | 9,375 |
| $ | 7,500 |
| $ | 102,488 |
| $ | 149,363 |
|
Gordon Gee |
| $ | 30,000 |
| $ | 7,500 |
| $ | 8,125 |
| $ | 6,250 |
| $ | 102,488 |
| $ | 154,363 |
|
Barbara Knuckles |
| $ | 30,000 |
|
| — |
| $ | 9,375 |
| $ | 11,000 |
| $ | 102,488 |
| $ | 152,863 |
|
Neal Purcell |
| $ | 30,000 |
|
| — |
| $ | 9,375 |
| $ | 10,750 |
| $ | 102,488 |
| $ | 152,613 |
|
James Robbins |
| $ | 30,000 |
| $ | 12,500 |
| $ | 9,375 |
| $ | 11,625 |
| $ | 102,488 |
| $ | 165,988 |
|
David Wilds |
| $ | 30,000 |
| $ | 10,000 |
| $ | 9,375 |
| $ | 11,250 |
| $ | 102,488 |
| $ | 163,113 |
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What does the Board of Directors recommend?
Our Board of Directors recommends that you vote FOR the election of each of these nominees.
14
Has the Board adopted any categorical independence standards?
Yes. To assist in fulfilling its responsibility to affirmatively determine the independence of our directors, our Board has adopted the following categorical standards that set forth specific circumstances under which a director will be considered independent:
• Relationships with Vendors. A director who has a relationship with a vendor is independent if the amount we pay to the vendor or that the vendor pays to us in any of the vendor’s last 3 fiscal years does not exceed the greater of $1 million or 2% of the vendor’s consolidated gross revenues or if the director’s sole relationship with the vendor is the director’s or an immediate family member’s service on the vendor’s board of directors (or similar governing body).
• Relationships with Non-Profit Entities. A director (or immediate family member) who serves as an officer or employee of a tax-exempt entity to which we make donations is independent if the amount donated in the entity’s last fiscal year does not exceed the lesser of $100,000 or 2% of the entity’s consolidated gross revenues. A director (or immediate family member) who serves as a director or trustee of a tax-exempt entity to which we make donations is independent if the amount donated in the entity’s last fiscal year does not exceed the greater of $1 million or 2% of the entity’s consolidated gross revenues. The Board also believes that simultaneous service by a Dollar General director (or immediate family member) and a member of our management team (or immediate family member) on the board of a tax-exempt entity poses no independence concern (of course, Dollar General donations to that entity would still be evaluated under the previously mentioned donation rules). Accordingly, such simultaneous membership on the board of a tax-exempt entity, by itself, will not preclude a director’s independence.
• Relationships with Auditors. A director is independent if: (A) the director (or immediate family member) is not a current partner of our auditor; (B) the director is not a current employee of our auditor; (C) the director’s immediate family member is not a current employee of our auditor who participates in the auditor’s audit, assurance or tax compliance (but not tax planning) practice; and (D) the director (or immediate family member) was not within the last 3 years (and is no longer) a partner or employee of our auditor who personally worked on our audit within that time.
Are all of the current directors and nominees independent?
Our Board has affirmatively determined that Messrs. Beré, Bottorff, Clayton, Dickson, Gee, Purcell, Robbins and Wilds, Ms. Bowles and Ms. Knuckles, but not Mr. Perdue (our CEO), are independent from our management under both the NYSE’s listing standards and our additional standards. Any relationships between a director and Dollar General or our management were either encompassed by the categorical standards identified above or, in the case of Mr. Wilds discussed below, deemed to be immaterial.
Mr. Wilds is employed as a Senior Advisor to The Family Office, a company associated with Cal Turner, Jr., our former Chairman and CEO. Mr. Turner participates in determining Mr. Wilds’ compensation for services to The Family Office. Mr. Turner ceased service as our CEO in November 2002, as a director and Chairman in June 2003, and as an employee advisor to our Board in October 2005. Mr. Turner beneficially owned, as of March 27, 2006, less than 5% of our common stock. Our Board has determined that Mr. Wilds’ relationship with Mr. Turner is immaterial to Dollar General and does not impair Mr. Wild’s independence from current management. The Board based this decision on the fact that Mr. Turner no longer functions as an officer of Dollar General or as part of our management, nor does he have any control over or vested interest in members of our management other than as a shareholder.
15
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Except as disclosed under “Executive Compensation,” and except as set forth below, our executive officers, directors, director nominees and greater than 5% shareholders did not have significant business relationships with us in 2005 which would require disclosure under applicable SEC regulations and no other transactions which need to be disclosed are currently planned for 2006.
On October 14, 2005, we entered into a Letter Agreement with Cal Turner, Jr. regarding his retirement from the Company. Mr. Turner, who beneficially owned in excess of 5% of our common stock during part of 2005 but who has since decreased his beneficial ownership below 5%, served as an employee advisor to the Board from June 2003 through October 2005. Prior to that, he served as our Chairman (January 1989-June 2003) and Chief Executive Officer (1977-November 2002). The effective date of Mr. Turner’s retirement was October 31, 2005. Pursuant to the Letter Agreement:
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We also provided Mr. Turner with compensation and benefits during his tenure as employee advisor to our Board, which totaled in excess of $60,000 in 2005. Mr. Turner received base salary of approximately $206,258, certain benefits available to all part-time salaried employees generally, and other perquisites and benefits with an aggregate value in 2005 of approximately $78,943.
16
The following tables and text discuss the compensation earned or accrued in 2005, 2004 and 2003 by those persons who served during 2005 in the capacity as Chief Executive Officer or were one of our other four most highly compensated executive officers in 2005. We refer to these officers as our “named executive officers” throughout this document. In particular, the table entitled “Summary Compensation Table” sets forth all compensation earned or accrued by these officers during 2005, 2004 and 2003, the table entitled “Option Grants in Last Fiscal Year” sets forth all options to acquire Dollar General common stock granted to these officers during 2005 and the table entitled “Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values” sets forth the number and value of shares of Dollar General common stock with respect to which options were exercised by these officers in 2005 and the number and value of unexercised options held by these officers at the end of 2005. We granted no stock appreciation rights in 2005, and none of these officers holds any stock appreciation rights.
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| Annual Compensation |
| Long-term |
|
|
| ||||||||||||||
Name and |
| Year |
| Salary |
| Bonus |
| Other Annual |
| Restricted |
| Securities |
| All Other |
| |||||||
|
|
|
|
|
|
|
| |||||||||||||||
David A. Perdue, |
|
| 2005 |
|
| 988,371 |
|
| — |
|
| 28,107 |
|
| 2,200,000 |
|
| — |
|
| 98,423 | (4) |
Chairman and Chief |
|
| 2004 |
|
| 920,035 |
|
| 606,453 |
|
| 22,751 |
|
| — |
|
| — |
|
| 85,932 |
|
Executive Officer(3) |
|
| 2003 |
|
| 747,143 |
|
| 1,710,000 |
|
| 12,664 |
|
| 1,000,008 |
|
| 1,000,000 |
|
| 30,931 |
|
David M. Tehle, |
|
| 2005 |
|
| 480,019 |
|
| — |
|
| 10,939 |
|
| 145,275 |
|
| 63,000 |
|
| 117,748 | (6) |
Executive Vice |
|
| 2004 |
|
| 260,779 |
|
| 273,333 |
|
| 2,030 |
|
| 405,528 |
|
| 115,400 |
|
| 47,343 |
|
President and Chief |
|
| 2003 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Financial Officer(5) |
|
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Beryl J. Buley, |
|
| 2005 |
|
| 95,837 |
|
| 336,875 | (8) |
| — |
|
| 426,888 |
|
| 100,000 |
|
| 186,313 | (9) |
Division President, |
|
| 2004 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Merchandising, |
|
| 2003 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Marketing & Supply Chain(7) |
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Kathleen R. Guion, |
|
| 2005 |
|
| 426,683 |
|
| — |
|
| 9,952 |
|
| 116,220 |
|
| 50,300 |
|
| 53,830 | (11) |
Division President, |
|
| 2004 |
|
| 358,347 |
|
| 163,008 |
|
| 10,176 |
|
| 380,366 |
|
| 42,000 |
|
| 49,483 |
|
Store Operations and |
|
| 2003 |
|
| 100,965 |
|
| 191,667 |
|
| 1,218 |
|
| — |
|
| 62,800 |
|
| 24,959 |
|
Store Development(10) |
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Stonie R. O’Briant, |
|
| 2005 |
|
| 418,349 |
|
| — |
|
| 12,009 |
|
| 116,220 |
|
| 50,300 |
|
| 79,156 | (12) |
Executive Vice |
|
| 2004 |
|
| 381,223 |
|
| 174,328 |
|
| 10,334 |
|
| 97,916 |
|
| 42,000 |
|
| 86,659 |
|
President, Strategic |
|
| 2003 |
|
| 360,222 |
|
| 362,250 |
|
| 14,062 |
|
| — |
|
| 62,800 |
|
| 66,135 |
|
Initiatives |
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17
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|
| 39 | |
Grants of Plan-Based Awards in Fiscal 2009 |
| |||
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Outstanding Equity Awards at 2009 Fiscal Year-End | 42 |
18
Option Grants in Last Fiscal Year
|
| Individual Grants |
| Potential Realizable Value at |
| ||||||||||||||
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Name |
| Number of |
| % of Total |
| Exercise |
| Expiration |
| 5% ($) |
| 10% ($) |
| ||||||
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|
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David A. Perdue |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
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David M. Tehle |
|
| 63,000 | (1) |
| 2.66 |
|
| 22.35 |
|
| 03/15/2015 |
|
| 885,515 |
|
| 2,244,069 |
|
Beryl J. Buley |
|
| 100,000 | (2) |
| 4.23 |
|
| 16.94 |
|
| 01/24/2016 |
|
| 1,065,347 |
|
| 2,699,800 |
|
Kathleen R. Guion |
|
| 50,300 | (1) |
| 2.13 |
|
| 22.35 |
|
| 03/15/2015 |
|
| 707,006 |
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| 1,791,693 |
|
Stonie R. O’Briant |
|
| 50,300 | (1) |
| 2.13 |
|
| 22.35 |
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| 03/15/2015 |
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| 707,006 |
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| 1,791,693 |
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Aggregated Option Exercises in Lastand Stock Vested During Fiscal Year and2009
Pension Benefits Fiscal Year-End Option Values2009
|
| Shares |
| Value |
| Number of Securities |
| Value of Unexercised |
| ||||||||||
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Name |
|
|
| Exercisable |
| Unexercisable |
| Exercisable |
| Unexercisable |
| ||||||||
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David A. Perdue |
|
| — |
|
| — |
|
| 666,666 |
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| 333,334 |
|
| 3,013,330 |
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| 1,506,670 |
|
David M. Tehle |
|
| — |
|
| — |
|
| 115,400 |
|
| 63,000 |
|
| — |
|
| — |
|
Beryl J. Buley |
|
| — |
|
| — |
|
| — |
|
| 100,000 |
|
| — |
|
| 26,000 |
|
Kathleen R. Guion |
|
| — |
|
| — |
|
| 104,800 |
|
| 50,300 |
|
| — |
|
| — |
|
Stonie R. O’Briant |
|
| 13,781 |
|
| 204,097 |
|
| 629,642 |
|
| 50,300 |
|
| 747,405 |
|
| — |
|
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| 44 | |
19
The Dollar General Corporation 401(k) Savings and Retirement Plan became effective on January 1, 1998. Balances in two earlier plans were transferred into this plan. The plan covers all employees, including the named executive officers, subject to certain eligibility requirements. The plan is subject to the Employee Retirement Income Security Act (“ERISA”).
Participants currently are permitted to contribute between 1% and 25% of their annual salary, up to a maximum of $14,000 in calendar year 2005 and $15,000 in calendar year 2006. Employees who are over age 50 are permitted to contribute an additional $4,000 in catch-up contributions during 2005 and $5,000 during 2006. Dollar General currently matches employee contributions, including catch-up contributions, at a rate of 100% of employee contributions, up to 5% of annual salary, after an employee has been employed for one year and has completed a minimum of 1,000 hours of service.
A participant’s right to claim a distribution of his or her account balance is dependent on ERISA guidelines and Internal Revenue Service regulations. All active employees are fully vested in all contributions to the plan.
As of February 3, 2006, Messrs. Perdue, Tehle, Buley and O’Briant and Ms. Guion had 2, 1, 0, 14 and 2 years of credited service, respectively. Their account balances under the plan as of February 3, 2006, were approximately $65,560 (Perdue); $36,277 (Tehle); $0 (Buley); $54,369 (Guion); and $217,448 (O’Briant). Upon retirement, participants can receive a lump sum distribution of their account balances either directly or as a rollover to an eligible retirement plan or individual retirement account. Mr. O’Briant also has the option of receiving an annuity payment for specific money sources attributable to the prior plan as defined in the current plan document.
We offer a Compensation Deferral Plan (the “CDP”) and Supplemental Executive Retirement Plan (the “SERP” and together with the CDP, the “CDP/SERP Plan”) to certain key employees who are determined to be eligible by the Compensation Committee.
Pursuant to the CDP, participants may make annual elections to defer up to 65% of base pay, reduced by any deferrals to the 401(k) plan, and up to 100% of bonus pay. All participants are 100% vested for all compensation deferrals. Dollar General currently matches 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 in the 401(k) plan. The compensation deferred is credited to a liability account, which is then invested at the option of the participant in either an account that mirrors the performance of a fund or funds selected by the Compensation Committee or its delegate (the “Mutual Fund Options”) or in a phantom stock account which mirrors the performance of our common stock (the “Common Stock Option”).
Pursuant to the SERP, we make an annual contribution 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. The contribution percentage is based on the following schedule of age plus service:
20
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| Percent of Base Plus Bonus | ||||
|
| |||||
Age Plus Service |
| Grade 29 |
| Grades 30-32 |
| Grades 33 and |
|
|
| ||||
<40 |
| 2.0% |
| 3.0% |
| 4.5% |
40-59 |
| 3.0% |
| 4.5% |
| 7.5% |
60-79 |
| 5.0% |
| 7.5% |
| 9.5% |
80 or more |
| 8.0% |
| 12.0% |
| 12.0% |
SERP amounts generally 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.
In accordance with a participant’s election, a participant’s CDP/SERP Plan account balance will 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. The vested amount will be payable at the time designated by the Plan upon the participant’s termination of employment or retirement, except that 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 a date that is no sooner than 5 years after the end of the year in which amounts are deferred. In addition, a participant who is an employee may request to receive an “unforeseeable emergency hardship” in-service lump sum distribution of vested amounts credited to his CDP account. Effective January 1, 2005, account balances deemed to be invested in the Mutual Fund Options are payable in cash and account balances deemed to be invested in the Common Stock Option are payable in shares of Dollar General common stock and cash in lieu of fractional shares. Prior to January 1, 2005, all account balances were payable in cash.
As of February 3, 2006, Messrs. Tehle, Buley and O’Briant and Ms. Guion had “age plus service” levels equal to 50, 44, 65 and 56, respectively. Their account balances under the CDP/SERP Plan (and, with respect to Mr. Perdue who is ineligible to participate in the SERP due to his participation in an individualized supplemental executive retirement plan described below, his account balance under the CDP), after taking into account contributions made in respect of 2005, were approximately $221,990 (Perdue); $92,275 (Tehle); $4,792 (Buley); $110,662 (Guion); and $1,563,732 (O’Briant). The SERP is non-qualified and, therefore, is not subject to certain requirements or protections under ERISA.
Individual Supplemental Retirement Plan
Retirement benefits are provided to Mr. Perdue under an unfunded, non-qualified defined benefit pension plan known as the Supplemental Executive Retirement Plan for David A. Perdue. The following table shows the estimated annual benefits payable to Mr. Perdue under his SERP based on estimates of annualized final average compensation.
PERDUE SERP PENSION TABLEBased on Years of Employment
Final Average Compensation |
| 15 or More Years |
| ||
$2,000,000 |
| $500,000 |
$2,500,000 |
| $625,000 |
$3,000,000 |
| $750,000 |
21
For purposes of Mr. Perdue’s SERP, final average compensation is equal to base salary (which is the same as his regular salary disclosed in the “Salary” column of the Summary Compensation Table) plus his incentive “Teamshare” bonus (which is the same as his bonus disclosed in the “Bonus” column of the Summary Compensation Table and is includible for SERP purposes when it is paid) for the highest three consecutive fiscal years of credited service out of the last ten preceding retirement or termination of employment (or for all years of consecutive fiscal years of credited service if Mr. Perdue does not have ten consecutive fiscal years of service). As of February 3, 2006, Mr. Perdue had 4 years of credited service.
Benefits under Mr. Perdue’s SERP are computed on the basis of a joint and 50% spouse survivor annuity, generally accrue at the rate of 1.67% of final average compensation for each year of credited service (limited to 25% of final average compensation in the aggregate), and are payable in a lump sum, or any annuity form that is the actuarial equivalent of the benefit payable as a joint and 50% spouse survivor annuity. Benefits are not subject to reduction for Social Security benefits or any other offset. A 25% of final average compensation normal retirement benefit under Mr. Perdue’s SERP is payable upon attainment of age 63 with 15 years of credited service, and an early retirement benefit (with the 25% factor reduced proportionately for years of credited service under 15 years and by 5% per year for early payment before age 60) is payable upon completion of 10 years of credited service. Otherwise, benefits vest and are payable after 10 years of credited service or after death or disability while employed by Dollar General. Mr. Perdue will receive two years of credited service for vesting and benefit accrual purposes for each of his first five years of employment and thereafter he will receive one year of credited service for each year of employment to a maximum of 15 years of credited service. In addition, in the event of Mr. Perdue’s termination by Dollar General without cause at any time or his voluntary resignation for good reason within two years after a change in control of Dollar General, Mr. Perdue will be deemed to have five additional years of employment and his compensation will be deemed to continue for purposes of calculating his vesting and benefit.
Effective January 25, 2006, the Board approved the establishment of a grantor trust to hold certain assets in connection with Mr. Perdue’s SERP. The grantor trust provides for assets to be placed in the trust upon an actual or potential change in control (as defined in the grantor trust). The assets of the grantor trust are subject to the claims of the Company’s creditors. In addition, the grantor trust provides for a distribution to Mr. Perdue to pay certain taxes in the event he is taxed in connection with the funding of the trust and prior to normal payment of his SERP benefit.
Agreements with Named Executive Officers
Employment Agreement with Mr. PerdueNonqualified Deferred Compensation Fiscal 2009. We entered into a 4-year employment agreement with Mr. Perdue, dated April 2, 2003. Mr. Perdue’s agreement provides for:
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For purposes of this agreement, “cause” means any of the reasons below, as determined by at least three-quarters of the entire Board membership (and as more fully explained in the agreement):
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24
For purposes of this agreement, “disability” means (as more fully described in the agreement) a long-term disability entitling Mr. Perdue to receive benefits under our long-term disability plan as then in effect or if no long-term disability plan is in effect or if the plan does not apply to Mr. Perdue, then the inability of Mr. Perdue, as determined by the Board, to perform the essential functions of his regular duties and responsibilities with or without reasonable accommodation due to a medically determinable physical or mental illness which has lasted or will reasonably last for a period of 6 consecutive months.
For purposes of this agreement, “good reason” means (as more fully described in the agreement):
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Employment Agreements with Mr. Tehle, Mr. Buley, Ms. Guion and Mr. O’Briant. We entered into a 3-year employment agreement with each of Messrs. Tehle and Buley and Ms. Guion, effective April 1, 2006 (which replaced the previous agreements we had entered into with these officers), and a 2-year employment agreement with Mr. O’Briant, effective March 1, 2004. On February 7, 2006, we extended the term of Mr. O’Briant’s employment agreement to the earlier of his retirement from Dollar General or through October 31, 2006. Mr. O’Briant is expected to retire from Dollar General effective as of April 30, 2006 and, accordingly, we anticipate that his employment agreement will terminate as of that date. The terms of Mr. O’Briant’s employment agreement are generally similar to the terms described below with respect to the agreements for the other named executive officers. Upon Mr. O’Briant’s retirement, he will receive payment in accordance with his employment agreement which generally includes his pro rata base salary through his retirement date, as well as any vested amounts in his 401(k) and CDP/SERP accounts and any other vested amounts due under any separate plan or arrangement. We also will transfer to Mr. O’Briant title to his Company car (currently valued at approximately $44,000). On his retirement date, Mr. O’Briant will forfeit the unvested portions of his stock option and restricted stock unit awards granted by Dollar General. He also will forfeit the vested portion of his stock options if he does not exercise those options within 3 years of his retirement date.
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Each of the employment agreements with Messrs. Tehle and Buley and Ms. Guion provides for:
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For purposes of these agreements, “cause” means any of the reasons below (as more fully explained in the agreements):
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For purposes of these agreements, “disability” means (as more fully described in the agreements) a long-term disability entitling the officer to receive benefits under our long-term disability plan as then in effect or the inability of the officer to perform the officer’s duties under the agreement in accordance with our expectations due to a medically determinable physical or mental impairment that can reasonably be expected to result in death or has lasted or can reasonably be expected to last longer than 90 consecutive days.
For purposes of these agreements, “good reason” means (as more fully described in the agreements):
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Equity Award Provisions Regarding Employment Termination or Change in Control. In addition to the arrangements identified above in the descriptions as of the employment agreements with our named executive officers, the following arrangements exist which result or will result from the resignation, retirement or other termination of employment of the officer or from a change in control of Dollar General.January 29, 2010
Each of our named executive officers has received equity awards that are governed by the terms of our 1998 Stock Incentive Plan. The terms of the 1998 Stock Incentive Plan provide that if
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the grantee’s employment terminates due to death, disability or retirement or if the grantee is involuntarily terminated without cause or if the grantee voluntarily resigns, then stock options granted under that Plan will terminate upon the earlier to occur of the option’s original expiration date or: (a) 3 years from the termination date due to death, disability or retirement (or, if shorter, 1 year from the date of death in the event death occurs during the 3 years following termination due to disability or retirement) or (b) 3 months from the date of involuntary termination without cause or from the date of voluntary resignation. All options terminate immediately upon termination of the grantee’s employment for cause.
Also, restricted stock and restricted stock units may vest and become payable earlier than the scheduled vesting date under the circumstances (if any) described in the grantee’s employment agreement for full vesting of equity compensation awards. If vesting acceleration provisions are not applicable, unvested restricted stock and restricted stock units terminate and are forfeited if the grantee’s employment ends for any reason prior to the end of the restriction period.
Stock options, restricted stock and restricted stock units vest and become exercisable or payable, as the case may be, upon a change in control (as defined in the 1998 Stock Incentive Plan) of Dollar General.
For purposes of the 1998 Stock Incentive Plan, “cause” means a felony conviction or the failure to contest prosecution for a felony, or willful misconduct or dishonesty that is directly and materially harmful to our business or reputation; “disability” is determined under our group long-term disability insurance plan as in effect from time to time (currently under that plan, “disability” is defined as a limitation from performing the material and substantial duties of the employee’s regular occupation due to sickness or injury accompanied by a 20% or more loss in the employee’s indexed monthly earnings due to the same sickness or injury); and “retirement” means either retirement from active employment with us on or after age 65 or retirement from active employment with us prior to age 65, but with our express written consent and in accordance with our early retirement policy (if any) then in effect.
Supplemental Disability Insurance. We have a supplemental disability program for officers and certain highly compensated employees. Under this program, we pay for premiums on individual supplemental disability policies for all participants with annual base salaries of at least $225,000 and we gross up those payments to cover required taxes (participants with annual base salaries of less than $225,000 pay their own premiums). The supplemental disability program is effective for policies written on or after January 1, 2005 and provides a disability income benefit generally to age 67 in the amount of 75% of base salary less the amount of any other disability income protection provided to employees on a group or individual basis, including without limitation our long-term disability plan for exempt salaried employees. The guaranteed issue limit on the supplemental disability is up to $5,000 per month for participants with annual base salaries of at least $225,000 and $3,000 per month for participants with annual base salaries of less than $225,000. The exact amount of coverage will vary based on any individual underwriting limitations. In 2005, our group long-term disability plan for exempt salaried employees provided a benefit of up to 60% of base salary with a maximum of $15,000 per month.
In addition to the policies issued under the supplemental disability program, we previously purchased individual disability policies for the following named executive officers: Mr. Perdue and Mr. O’Briant. These policies were continued on an individual basis and we have continued paying premiums and grossing up those payments to cover required taxes.
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Supplemental Life Insurance. We have a supplemental life insurance program for officers at the level of Vice President or above. Under this program, we provide a death benefit to each eligible officer equal to 2.5 times that officer’s annual base salary (updated annually), reduced by the benefit amount provided under our group life insurance program. Currently, the group life insurance benefit amount is $50,000 per person.
The life insurance coverage offered through this program may be provided through a variety of means, including individual (which may be owned by the individual or by us) or group policies with universal, whole or term insurance, or through payment out of the Company’s general assets, as determined by us in our sole discretion. In addition, certain of these policies may accumulate a cash value that may inure to the benefit of either us or the individual. Regardless of the method for providing the coverage, we gross up payments to cover any required taxes on premiums or imputed income. The coverage for our named executive officers, other than Mr. Buley, in 2005 was provided through individual universal life policies (owned by the individual) that accumulated a cash value that inured to the benefit of the individual. We self-insured the coverage for Mr. Buley in 2005. Effective February 1, 2006, we ceased payment of premiums on those individual policies and instead chose to provide coverage under this program for our named executive officers under group term policies that do not accumulate any cash value.
Each of Messrs. Gee, Beré, Clayton and Dickson was a member of our Compensation Committee during 2005. None of these persons was at any time during 2005 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 2005. In addition, none of these persons had any relationship with Dollar General or any of our subsidiaries requiring disclosure under any paragraph of Item 404 of Regulation S-K. None of our executive officers served as a member of a compensation committee or as a director of any entity of which any of our directors served as an executive officer during 2005.Risk Considerations
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, the NYSE and with us. Based solely upon a review of Forms 3, 4 and 5 and amendments thereto furnished to us during and with respect to 2005 and written representations by our directors, executive officers and greater than 10% shareholders, each of such persons filed, on a timely basis, the reports required by Section 16(a) of the Securities Exchange Act of 1934 with respect to 2005.Beneficial Ownership Reporting Compliance
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REPORT OF THE COMPENSATION COMMITTEESecurity Ownership
What is our compensation philosophy?
Dollar General has a pay-for-performance philosophy that links management and executive compensation to the company’s business results and shareholder returns. We believe this approach allows us to attract, retain, and motivate the talented employees needed to provide the highest possible levels of shareholder return.
What is our direct compensation philosophy?
Direct compensation includes base pay, short-term incentives, and long-term incentives.
Base pay is the cornerstone of direct compensation and is determined for each individual based on the value of the position in the external job market, its importance to the company, and the individual’s level of experience and expertise in performing the position’s duties and responsibilities. Annual base pay increases are determined through a well defined performance assessment process of measuring results achieved against previously established goals and any changes in the marketplace for how people in comparable positions in comparable companies are compensated.
Short-term incentive compensation is tied to the performance of both Dollar General and the individual. The target short-term incentive compensation opportunity for each employee is established based upon his or her job classification and competitive external market data. Threshold incentive opportunities are established based upon minimum corporate performance required to pay any bonuses, and maximum incentive opportunities are based on corporate performance at a designated level above target performance levels. Unless otherwise agreed, no employee may receive a short-term incentive award unless performance against annually established goals is determined to be satisfactory or better.
Long-term incentive compensation includes time-vested stock options and, for certain members of management and executives, time-vested restricted stock units. We use these equity vehicles to link eligible employees to the company’s long-term financial performance and as a retention vehicle. The awards are based on individual job grade levels which are determined based upon competitive market data. Equity grants are made with the authority and approval of this committee under the guidelines of the 1998 Stock Incentive Plan. We believe equity grants help align the interests of both shareholders and employees, as well as serve as employee retention vehicles.
What is our indirect compensation philosophy?
Dollar General also provides executive officers with health, life and disability insurances, retirement benefits, a compensation deferral program, perquisites and other benefits that are competitive with market practices. Most of the benefits offered to executive officers are those that are offered to the general employee population. However, certain benefits are provided exclusively to executives and other management-level employees for retention and recruiting purposes, to promote tax efficiency for the employee, or to replace benefit opportunities lost due to regulatory limits.
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For instance, as discussed in more detail elsewhere in this proxy statement, we offer a Compensation Deferral Plan (the “CDP”) and Supplemental Executive Retirement Plan (the “SERP” and together with the CDP, the “CDP/SERP Plan”) to certain key employees who are determined to be eligible by the Compensation Committee (including all executive officers, except for David Perdue who is eligible to participate in the CDP but not the SERP). Pursuant to the CDP, participants may make annual elections to defer up to 65% of base pay, reduced by any deferrals to the 401(k) plan, and up to 100% of bonus pay. All participants are 100% vested for all compensation deferrals. Dollar General currently matches 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 in the 401(k) plan. The compensation deferred is credited to a liability account, which is then invested at the option of the participant in either an account that mirrors the performance of a fund or funds selected by the Compensation Committee or its delegate or in a phantom stock account which mirrors the performance of our common stock.
Pursuant to the SERP, we make an annual contribution to all participants who are actively employed in an eligible job grade (including all executive officers other than David Perdue) on January 1 and continue to be employed as of December 31 of a given year. The contribution percentage is based on a participant’s job grade, age and years of service. SERP amounts generally 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.
We also provide supplemental disability insurance and supplemental life insurance for executive officers, as more fully described elsewhere in this proxy statement.
How are our executive officers compensated?
Dollar General’s executive compensation strategies are to attract, retain, and motivate persons with superior ability, to reward outstanding performance, and to align the long-term interests of our executives with those of our shareholders. Under the supervision of this committee and consistent with the compensation principles set forth in the Charter governing this committee, Dollar General has developed compensation policies and programs (discussed below) designed to achieve these goals by providing competitive levels of compensation that integrate base pay with Dollar General’s annual and long-term performance targets.
The compensation principles set forth in this committee’s Charter require that executive compensation arrangements maintain an appropriate balance between base salary, short-term (annual) and long-term incentive compensation. Base salaries are intended to be reflective of the responsibilities of the position, the experience and contributions of the individual and the salaries for comparable positions in the competitive marketplace. Generally, the target percent of short-term incentives and the dollar value of long-term incentive compensation are the same for all employees within a job grade, although each grade has ranges of base pay. As a result, the committee’s review and establishment of appropriate total compensation must take into account the grade level of the executive officer and the short-term and long-term incentive compensation associated with that grade level.
We are committed to creating rewards for our executive officers that encourage a team approach to achieving corporate objectives and to creating shareholder value. For executive officers’ total compensation, the committee’s goal is to target the median total compensation of comparable
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positions in the competitive marketplace, although competition for new talent may on occasion require total compensation, or any component of total compensation, to exceed the median. For more information on this process, please see the discussion below under the heading “How do we determine competitive market compensation?”
Our executive officers are not eligible for either a base salary increase or for payout under our short-term incentive plan if they do not achieve a satisfactory or better performance rating against annually established individual performance goals. They also are not eligible for the short-term incentive plan payout if they are not actively employed as of March 15th of the year following the performance year for which the payment is made, unless otherwise provided in an employment or other agreement.
Short-term incentive compensation for executive officers is contingent on both Dollar General’s performance (for 2005, net income performance) and individual performance and is calculated based on a percentage of the executive officer’s annual base salary. For more information regarding the short-term cash incentive plan, please see the discussion below under the heading “How did our short-term incentive program work in 2005?”
Long-term incentive compensation for executive officers in 2005 included awards of time-vested stock options and time-vested restricted stock units, which serve to align the interests of management and shareholders and also serve as employee retention vehicles. In addition, this committee from time to time may grant special awards to executive officers in recognition of extraordinary service or performance. The committee also may grant inducement or sign-on awards to facilitate the hiring process for gaining the services of key executive officers. For more information regarding long-term incentives, please see the discussion below under the heading “How did our long-term-incentive program work in 2005?”
Dollar General also provides executive officers with certain other benefits and perquisites as discussed above under the heading “What is our indirect compensation philosophy?”
Does the committee seek the advice of independent consultants?
The committee has the authority and the ability to conduct or authorize studies and investigations into any matters within the scope of the committee’s responsibilities and to retain outside legal or other advisors. The committee also has the authority to determine the fees to be paid to those advisors.
While the committee may obtain input and advice from any of a variety of sources, since April 2004, the committee has utilized the services of Hewitt Associates as its primary compensation consultant. Hewitt, which was selected by the committee after a thorough committee-led interview process, reports directly to the committee and has the authority and the ability to contact committee members directly without the need to go through management. The committee also has the opportunity at each quarterly meeting to meet in executive session with Hewitt. Additionally, management may use the services of Hewitt for other compensation or human resources related projects.
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How do we determine competitive market compensation?
To ensure that Dollar General’s compensation programs are properly benchmarked with the competitive marketplace, this committee compares our compensation practices to retail industry data provided by Hewitt Associates from published and proprietary retail industry surveys. The survey results were adjusted based on company size. Further, the committee reviewed data presented in the proxy statements of 16 retail companies to determine compensation for the top five positions. The proxy peer group included companies from various retail segments, generally using those within a range of revenue similar to Dollar General’s. We believe the proxy peer group competes with Dollar General for executive officer level talent and has executive officer positions that are similar in breadth, complexity and scope of responsibility to those at Dollar General. The companies included in the proxy peer group include AutoZone, Barnes & Noble, BJ’s Wholesale Club, Circuit City, Dillard’s, Family Dollar, Foot Locker, Kohl’s, Limited Brands, Long Drug Stores, Nordstrom, OfficeMax, Office Depot, RadioShack, Staples, and TJX Companies. The proxy peer group does not include all of the companies that are included in the S&P 500 Retailing Index in the shareholder return performance graph because the committee and its consultant believe that it is more appropriate to compare compensation of our executive officers with that of executives in companies that are comparable in both size and industry.
Generally, the committee believes that median market data from the retail industry provided by Hewitt and the proxy peer group described above constitutes competitive pay for a position. However, the unique job responsibilities of some of our executive officers, the importance of that role to the company, and Dollar General’s unique niche in the retail sector makes some of the comparisons difficult. In those cases, the committee, working with its consultant, tries to fairly account for distinct circumstances not reflected in the market data. Further, competition for new talent may on occasion require total compensation, or any component of total compensation, to exceed the median.
How did we determine the base salary increases for executive officers in 2005?
Base salary increases for 2005 were determined by this committee after reviewing competitive market data provided by Hewitt Associates from published and proprietary retail surveys and peer group proxy data. In consultation with Hewitt, the committee evaluated the recommendations of management, Dollar General’s overall performance, and the respective individual 2004 performance versus previously established annual goals of all executive officers (including the CEO). In each case, the committee determined that the executive officer’s performance was satisfactory and that an increase in base salary was appropriate. The actual amount of the increase was determined by the degree to which the performance goals were met and by the relationship of the executive officer’s 2004 salary to the competitive market, as well as any significant change in the executive officer’s responsibility to the organization.
How did our short-term incentive program work in 2005?
For 2005, the payment of short-term incentive cash awards was contingent upon the following objective and subjective criteria: (a) the individual’s achievement of a satisfactory performance rating when evaluated against his or her annually established performance objectives; and (b) Dollar General’s achievement of net income goals established by this committee at the beginning of the 2005 fiscal year.
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Individual performance goals are established each year by the executive officer and his or her supervisor. In 2005, our executives’ individual goals were based on the areas of Dollar General’s business for which they were responsible, as well as overarching Dollar General goals and initiatives, including measures regarding Dollar General growth (revenue, total sales, same store sales, new stores, etc.), market share, merchandising and marketing strategies, shrink improvement, inventory management, distribution and capacity management, new concept development, leadership development, succession planning, diversity, employee benefits, turnover reduction and retention strategies, workplace improvements, customer satisfaction, technology improvements, internal controls, legal and regulatory compliance, and expense control.
The net income goal for 2005 was set by the committee as the appropriate measure of Dollar General’s overall financial performance. Upon meeting this goal, executives could be eligible to receive the following short-term incentive awards: (a) if Dollar General reached the “threshold” goal, which was considered by this committee to be challenging, then 25% of salary was to be awarded; (b) if Dollar General reached the “target” goal, which is tied to the company’s financial target, then 50-65% of salary, depending on the executive’s grade level, was to be awarded; and (c) if Dollar General reached the “maximum” goal, which was considered by this committee to be extremely difficult, then 75-100% of salary, depending on the executive’s grade level, was to be awarded (for a discussion of the short-term incentive plan as it relates to our CEO, see the discussion below under the heading “How was the CEO Compensated in 2005?”). The percentage of salary awarded for net income performance falling between the “threshold” and “maximum” goals was to be based on a graduated scale commensurate with net income results.
For 2005, the net income threshold amount was not met by the company, resulting in no short-term incentive awards earned or paid under the plan. However, during the year the committee authorized prorated guaranteed incentive payouts to several new executives as inducements to accept employment with the company, including the following executive officers: Beryl Buley, Division President of Merchandising, Marketing and Supply Chain, Challis Lowe, Executive Vice President of Human Resources, Anita Elliot, Senior Vice President and Controller, and Wayne Gibson, Senior Vice President, Dollar General Market Stores.
How did our long-term incentive program work in 2005?
We use equity awards as our long-term incentive compensation to link eligible employees to the company’s long-term financial performance and as a retention vehicle. In 2005, we granted non-qualified, time-vested stock options (which generally vest ratably over a 4-year period) and, to certain members of management and executives, time-vested restricted stock units (which generally vest ratably over a 3-year period) under the 1998 Stock Incentive Plan. The committee may expand the category of persons receiving stock options, restricted stock units or restricted stock in the future, may alter the total mix of equity award types and may change the period of time over which the awards vest. The total amount of restricted stock units and restricted stock that we can grant under the 1998 Stock Incentive Plan is limited to 4 million shares. All such equity awards granted to officers or employees are granted with the authority and approval of this committee.
Because stock options are granted with an exercise price equal to the fair market value of Dollar General stock on the grant date, the executive officers receive no value from a stock option grant unless the stock price appreciates, which directly ties compensation to the shareholders’ interests.
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Restricted stock units are used as incentives for our executives to remain with the company and to provide ownership interests in Dollar General. Each executive’s restricted stock unit account is credited quarterly with dividend equivalents determined by reference to the quarterly dividend on one share of Dollar General stock, multiplied by the number of restricted stock units in the executive officer’s account.
Currently, the number and type of equity awards granted depends on the executive officer’s job grade level. In determining job grades, the committee considers the employees’ scope of responsibility and their strategic and operational responsibilities, as well as comparable positions in comparable companies. In determining the number and type of equity awards to be granted at each job grade level for 2005, this committee reviewed the economic value of competitive equity awards and determined equity award sizes in relation to the mid-point base salary for each grade level. The actual number of stock options and restricted stock units were determined using the target dollar value of the equity award, the economic value of one stock option and/or one restricted stock unit, and the objective of providing approximately 20% of the value using restricted stock units.
In 2005, this committee authorized the accelerated vesting, effective February 3, 2006, of all outstanding unvested stock options awarded to employees prior to August 2, 2005. Additionally, outstanding unvested options awarded to employees on or after August 2, 2005 but prior to January 24, 2006 were approved to vest on an accelerated basis six months after the applicable grant date of the option. These acceleration authorizations excluded all outstanding option grants to Mr. Perdue and all option grants awarded during fiscal 2005 to the company’s officers at the level of executive vice president or above.
While the committee believed these vesting accelerations would benefit employees, the decision was made primarily to reduce future non-cash compensation expense to the company that would have been recorded in future periods following the company’s implementation of option expensing in the first quarter of 2006.
How was the CEO compensated in 2005?
Mr. Perdue’s compensation is determined by the independent directors of our Board of Directors considering the recommendations of this committee. These recommendations are based upon the results of the committee’s evaluation of Mr. Perdue’s performance against previously established goals. As with the other executive officers, Mr. Perdue’s compensation reflects our emphasis on achieving both short and long-term performance results. A substantial portion of his compensation is tied directly to overall Dollar General financial performance as well as to non-financial measures including those derived from the company’s mission statement.
In determining Mr. Perdue’s eligibility for a 2005 base salary adjustment, the committee reviewed Mr. Perdue’s performance against his previously established performance goals for 2004, which included measures relating to improvements in certain financial metrics (earnings per share, total sales growth, operating margins, return on invested capital, free cash flow, inventory turns and return on assets), leadership development and succession, strategic planning, Dollar General growth, new concept development, distribution and capacity management, technology improvements, inventory management, shrink improvement, workplace improvements, turnover reduction and retention strategies, third party relationships (vendors, analysts, rating agencies, media), corporate governance and ethics, legal matters, and internal controls.
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The committee determined that under Mr. Perdue’s leadership, Dollar General continued to remain true to its mission of “Serving Others.” In 2004, Dollar General was able to ensure that customers achieved real shopping or consumer value and shareholders maintained value in their investment. In 2004, Dollar General generated approximately $344 million in net income and earnings per share of $1.04, as well as increases in total sales and same store sales. Dollar General opened 722 new stores, including 13 new Dollar General Market stores, and installed coolers in many of our stores so that customers may now purchase refrigerated food items in those stores. In addition, Dollar General secured electronic benefit transfer (EBT) certification for a substantial portion of our stores enabling us to accept food stamps in those stores, which is important and convenient for our customers. Our customers were also served by the improvement in our store in-stock levels. Dollar General also completed its initial internal controls work under Section 404 of the Sarbanes-Oxley Act, achieved a reduction in operating shrink, made substantial progress on the construction of a new distribution center and expanded the capacity of two additional distribution centers. Our employees’ interests were served in 2004, under Mr. Perdue’s leadership, with the completion of the development stage of our store improvement process designed to improve efficiencies and ease workload and the beginning of the rollout phase. In addition, turnover levels of targeted positions decreased, while progress was demonstrated in our commitment to promoting from within. Mr. Perdue also continued to emphasize Dollar General’s values and commitment to integrity, and to strengthen Dollar General’s relationships with all third parties with whom we deal.
This committee was satisfied with Mr. Perdue’s achievements versus his previously established 2004 performance goals. In accordance with our base salary and short-term incentive policies (see “How did we determine the base salary increases for executive officers in 2005?” and “How did our short-term incentive program work in 2005?” above), Mr. Perdue was eligible in 2005 for both a salary increase and participation in our short-term incentive plan to the extent that Dollar General’s net income goals were achieved.
Accordingly, in 2005 the independent directors of the Board of Directors, upon recommendation by this committee, approved a base salary increase for Mr. Perdue of approximately $70,000 on an annual basis. In recommending this increase, the committee sought an amount that would bring Mr. Perdue’s salary closer to the median for CEOs of the industry comparison group, although Mr. Perdue’s salary remained below the median for this group. In addition, the independent directors at that time established Mr. Perdue’s short-term incentive payout targets. Mr. Perdue’s 2005 short-term incentive payout at “threshold”, which was considered by this committee to be challenging, was set at 50% of salary, his payout at “target” was set at 80% of salary, and his payout at “maximum”, which was considered by this committee to be extremely difficult, was set at 160% of salary. However, because Dollar General did not achieve the 2005 net income results required to meet the minimum threshold for payment of the short-term cash incentive, Mr. Perdue did not receive a short-term incentive cash award for 2005 (see “How did our short-term incentive program work in 2005?” above).
While Mr. Perdue is eligible for grants of equity awards under the 1998 Stock Incentive Plan, the terms of his employment agreement provide that he may not receive stock option grants, other than the initial grants made to him pursuant to the terms of that employment agreement, until 2006. Accordingly, Mr. Perdue was not awarded any stock option grants in 2005. However, the independent directors of the Board of Directors, upon recommendation by this committee, granted Mr. Perdue 100,000 restricted stock units that vest ratably over four years as an additional retention vehicle and to reward his 2004 performance.
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Mr. Perdue is eligible to participate in our 401(k) Plan and in our non-qualified compensation deferral plan, the terms and conditions of which (including vesting and payment provisions) are described in a separate section of the proxy statement. In 2005, Dollar General contributed $4,167 to Mr. Perdue’s 401(k) Plan account and allocated $45,252 to his account under our non-qualified compensation deferral plan, both as matching contributions in accordance with the terms of the plans.
Additional retirement benefits are provided to Mr. Perdue under an unfunded, non-qualified defined benefit pension plan (“SERP”), the terms and conditions of which (including vesting and payment provisions) are described in a separate section of the proxy statement. Effective January 25, 2006, the Board approved the establishment of a grantor trust to hold certain assets in connection with Mr. Perdue’s SERP. The grantor trust provides for assets to be placed in the trust upon an actual or potential change in control (as defined in the grantor trust). The assets of the grantor trust are subject to the claims of the Company’s creditors. In addition, the grantor trust provides for a distribution to Mr. Perdue to pay certain taxes in the event he is taxed in connection with the funding of the trust and prior to normal payment of his SERP benefit. In 2005, Dollar General accrued a liability in the amount of $636,913 in connection with his SERP (this amount represents the net periodic benefit cost, which is the net charge to operating results required by generally accepted accounting principles).
Dollar General also provides Mr. Perdue with health, life and disability insurance, as well as other benefits that are available generally to all salaried employees. In addition, Mr. Perdue is eligible to receive certain other benefits and perquisites provided exclusively to executives or to executives and certain other management-level employees primarily for retention and recruiting purposes. These benefits primarily include company-paid premiums on supplemental life and disability insurance policies, tax gross-ups on those premiums, company-provided PDA and mobile telephone, a company-paid executive physical, and a vehicle allowance.
Has the committee considered the total compensation that would be paid to the CEO and executive officers upon various termination events?
The committee has reviewed all components of Mr. Perdue’s and the other executive officers’ compensation, including salary, short-term incentives, long-term incentives (equity awards), benefits and retirement plans, (including the CEO’s SERP plan), and perquisites under potential termination, severance, and change in control scenarios. A tally sheet detailing these components with respective dollar amounts was prepared by Hewitt Associates for each executive officer and reviewed by the committee. Based on this review, the committee found the total compensation under these various scenarios to be reasonable.
How are the limitations on deductibility of compensation handled?
Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for compensation over $1 million paid for any fiscal year to each of the persons who were, at the end of the fiscal year, the company’s CEO or one of the four other most highly compensated executive officers. Section 162(m) specifically exempts certain performance-based compensation from the deduction limit.
Our policy is generally to design our compensation plans and programs to ensure full deductibility. This committee attempts to balance this policy with compensation programs designed to motivate management to maximize shareholder value. If this committee determines that the shareholders’ interests are best served by the implementation of compensation policies that are
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affected by Section 162(m), our policies do not restrict this committee from exercising discretion to approve compensation packages even though that flexibility may result in certain non-deductible compensation expenses.
Since the company’s 2005 net income performance did not meet the threshold requirements of our short-term incentive plan, no incentives were paid that would cause compensation to exceed the $1 million non-deductible limit. Nonetheless, since the short-term incentive plan has been approved by shareholders, had net income performance resulted in short-term incentive payments in excess of $1 million, we believe any such payments would have been fully deductible under Section 162(m) to the CEO or the other most highly compensated executive officers.
Our 1998 Stock Incentive Plan, under which we may grant equity compensation awards such as stock options, stock appreciation rights, restricted stock and restricted stock units to our executive officers, has been approved by shareholders and we believe this Plan also satisfies the requirements of Section 162(m), so that compensation expense realized in connection with stock options and stock appreciation rights, and in connection with performance-based restricted stock and restricted stock unit awards, will be deductible. However, restricted stock or restricted stock units granted to executive officers that 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 the company.
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 the company.
Who has furnished this report?
This report on executive compensation has been furnished by the members of the Compensation Committee:
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39
SHAREHOLDER RETURNPERFORMANCE GRAPH
As a part of the executive compensation information presented in this proxy statement, the SEC requires us to prepare a performance graph that compares our cumulative total shareholders’ return during the previous 5 years with a performance indicator of the overall stock market and our peer group. For the overall stock market performance indicator, we use the S&P 500 Index. For the peer group stock market performance indicator, we use the S&P General Merchandise Stores Index, which is a subgroup of the S&P 500 and includes Dollar General.
|
| 01-31-01 |
| 02-01-02 |
| 01-31-03 |
| 01-30-04 |
| 01-28-05 |
| 02-03-06 |
| ||||||
|
|
|
|
|
|
|
| ||||||||||||
Dollar General Corporation |
|
| 100.00 |
|
| 86.40 |
|
| 58.75 |
|
| 116.89 |
|
| 106.70 |
|
| 92.02 |
|
S&P 500 |
|
| 100.00 |
|
| 83.85 |
|
| 64.55 |
|
| 86.87 |
|
| 92.28 |
|
| 101.86 |
|
S&P General Merchandise Stores |
|
| 100.00 |
|
| 105.39 |
|
| 81.49 |
|
| 112.59 |
|
| 137.27 |
|
| 141.04 |
|
40
Security Ownership of Certain Beneficial Owners
The following table shows information for those who, as of March 27, 2006, were known by us to beneficially own more than 5% of our common stock. Unless otherwise noted, these persons have sole voting and investment power over the shares listed. Percentage computations are based on 315,671,527 shares of our stock outstanding as of March 27, 2006.
Name and Address of Beneficial Owner |
| Amount and |
| Percent of Class |
| ||
|
|
| |||||
FMR Corp. |
|
| 17,393,807 | (1) |
| 5.51 | % |
Wellington Management Company, LLP |
|
| 22,355,500 | (2) |
| 7.08 | % |
|
| ||
|
| 58 | |
41
Security Ownership of Officers and Directors
The following table shows the amountAudit Committee Report
Proposal 2: Ratification of our common stock beneficially owned, asAppointment of March 27, 2006, by our directors and named executive officers individually and by our directors and all of our executive officers as a group, calculated in accordance with Rule 13d-3 of the Securities Exchange Act of 1934 under which a person generally is deemedAuditors
Fees Paid to beneficially own a security if he has or shares voting or investment power over the security, or if he has the right to acquire beneficial ownership within 60 days. Unless otherwise noted, these persons may be contacted at our executive offices, and they have sole voting and investment power over the shares indicated. Percentage computations are based on 315,671,527 shares of our stock outstanding as of March 27, 2006.Auditors
Name of Beneficial Owner |
| Shares Beneficially Owned |
| Percent of Class |
| ||
|
|
| |||||
David L. Beré |
|
| 29,444 | (1) |
| * |
|
Dennis C. Bottorff |
|
| 50,251 | (1) |
| * |
|
Barbara L. Bowles |
|
| 13,780 | (1) |
| * |
|
James L. Clayton |
|
| 707,123 | (1)(2)(3) |
| * |
|
Reginald D. Dickson |
|
| 49,313 | (1) |
| * |
|
E. Gordon Gee |
|
| 15,938 | (1) |
| * |
|
Barbara M. Knuckles |
|
| 19,602 | (1)(2)(4) |
| * |
|
David A. Perdue |
|
| 1,093,248 | (1)(5) |
| * |
|
J. Neal Purcell |
|
| 8,000 | (1)(2)(3) |
| * |
|
James D. Robbins |
|
| 15,079 | (1)(3) |
| * |
|
David M. Wilds |
|
| 221,681 | (1) |
| * |
|
David M. Tehle |
|
| 148, 066 | (1)(5) |
| * |
|
Beryl J. Buley |
|
| — |
|
| — |
|
Kathleen R. Guion |
|
| 123,903 | (1)(3) |
| * |
|
Stonie R. O’Briant |
|
| 689,315 | (1)(2)(6) |
| * |
|
All current directors and executive officers as a group (19 persons) |
|
| 3,367,295 | (1)(2)(3)(5) |
| 1.06 | % |
| 61 | |||
Shareholder Proposals for 2011 Annual Meeting | 62 | ||
Other Information | 62 | ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
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42
This Proxy Statement, our 2009 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 2009 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 document is the Proxy Statement of Dollar General Corporation for the Annual Meeting of Shareholders to be held on Thursday, June 3, 2010. We will begin mailing printed copies of this document or the Notice of Internet Availability to our shareholders on or about April 16, 2010. We are providing this document to solicit your proxy to vote upon certain matters at the annual meeting. In this document we refer to our company as "we" or "us" or "Dollar General." In addition, unless otherwise noted in this document or the context requires otherwise, "2010," "2009," "2008" and "2007" refer to our fiscal years ending or ended January 28, 2011, January 29, 2010, January 30, 2009, and February 1, 2008. What is a proxy? It is your legal designation of another person, called a "proxy," to vote the stock you own. 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 use of the mails, our directors, officers and employees may solicit proxies in person or by telephone, telegram, electronic mail, facsimile or other means of communication. Those persons will not be additionally compensated, but may be reimbursed for out-of-pocket expenses in connection with any solicitation. We also may reimburse custodians, nominees and fiduciaries 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 29, 2010. For security reasons, we also may require photo identification for admission. Will Board members attend the annual meeting? Yes. Our Board of Directors has adopted a policy that all directors will attend annual shareholders' meetings unless attendance is not feasible due to unavoidable circumstances. Where can I find directions to the annual meeting? You can find directions to Goodlettsville City Hall, where we will hold the annual meeting, on the "Investor Information—Conference Calls and Investor Events" 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 8,800 locations in 35 states as of March 29, 2010. 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 & 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 29, 2010, must exist to conduct any business. What am I voting on? You will be voting on the election of 7 directors and the ratification of the appointment of our independent registered public accounting firm for 2010. 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 29, 2010. As of that date, there were 340,821,004 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 from your broker, and you will follow your broker's instructions for voting your shares. You should 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 and "FOR" ratification of Ernst & Young LLP as our independent registered public accounting firm for 2010. 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: 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. You may vote for all nominees or you may withhold your vote on one or more nominees. The ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2010 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, but will not be counted as votes cast either in favor of or against a particular proposal. What are broker non-votes? Your broker is the record holder of any shares that you hold in street name, but your broker 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" matters but not for "non-routine" items. The election of directors is considered to be a non-routine matter, while the ratification of the appointment of the independent registered public accounting firm is considered to be a routine matter. "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, broker non-votes 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. What is the structure of the Board of Directors? Our Board of Directors must consist of at least 1 but not more than 15 directors. The exact number 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 indentified in that agreement, and is currently fixed at 7. 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 2011 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. Raj Agrawal Warren F. Bryant Michael M. Calbert Richard W. Dreiling Adrian Jones William C. Rhodes, III David B. Rickard What are the backgrounds of this year's nominees? Mr. Agrawal joined Kohlberg Kravis Roberts & Co., L.P. ("KKR") in May 2006 and is a member of the Infrastructure team. He previously was a member of KKR's Retail and Energy industry teams. From 2002 to May 2006, he was a Vice President with Warburg Pincus, where he participated in the execution and oversight of a number of investments in the energy sector. Mr. Agrawal's prior experience also includes Thayer Capital Partners 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. Bryant served 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. Bryant 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. Mr. Calbert has been with KKR for over nine years and during that time has been directly involved with several portfolio companies. He heads the Retail industry team. Mr. Calbert is currently on the board of directors of Toys "R" Us, Inc. and U.S. Foodservice. He joined Randall's Food Markets as the Chief Financial Officer in 1994, ultimately taking the company through a transaction with KKR in June 1997. He left Randall's Food Markets after the company was sold in September 1999 and joined KKR. Mr. Calbert started his professional career 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 investment in Buck Holdings, L.P. and related entities. Mr. Dreiling joined 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, 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. Dreiling 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. Mr. Jones has 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 directors of Biomet, Inc., Education Management Corporation, HealthMarkets, Inc. and Signature Hospital, LLC. He also previously served on the board of directors of Burger King Holdings, Inc. from 2002 to 2008. Mr. Rhodes was elected Chairman of AutoZone, a specialty retailer and distributor of automotive replacement parts and accessories, in June 2007. He has served as President, Chief Executive Officer, and 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, 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, Senior Vice President—Finance and Vice President—Finance and Vice President—Operations Analysis and Support. Prior to 1994, Mr. Rhodes was a manager with Ernst & Young, LLP. Mr. Rickard served 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 nominated for election as directors at the 2010 annual meeting are currently serving on our Board of Directors and were recommended for re-election by our Nominating and Corporate Governance Committee. We established that Committee in connection with the initial public offering of our common stock in November 2009. The Nominating and Corporate Governance 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. The Nominating and Corporate Governance Committee's charter and our Corporate Governance Guidelines require the Committee to consider candidates timely submitted by our shareholders in accordance with the notice provisions and procedures set forth in our Bylaws (as described below under "Can shareholders nominate directors?") and to apply the same criteria to the evaluation of those candidates as the Committee applies to other director candidates. The 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 party search firm is currently retained to assist in that process. Our Board is responsible for nominating the slate 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 Agreement of Buck Holdings, LLC generally requires that Buck Holdings, LLC cause any 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 so long as Buck Holdings, L.P. beneficially owns the following specified amount of the then outstanding shares of our common stock: Designate 50% Any fractional amount that results from determining the percentage of the total number of directors will be rounded up to the nearest 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). In addition, in the event that the KKR Shareholders only have the right to designate one director, they also have the right to designate one person to serve as a non-voting observer to the Board. 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 so long as they beneficially own at least 5% of the then outstanding shares of our common stock and (ii) one person to serve as a non-voting observer. Each of the KKR Shareholders and the Goldman Shareholders has the right to remove and replace its 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 our annual meeting. Given current beneficial ownership by Buck Holdings, L.P. of our common stock, we are a "controlled company" under 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) the 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 Shareholders 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 Compensation Committee for as long as they have the right to designate one director to our Board. In addition, our employment agreement with Mr. Dreiling provides that he shall serve as a member of our Board for as long as he is employed with us under that agreement. Our failure to nominate Mr. Dreiling for election by our shareholders or our shareholders' failure to elect Mr. Dreiling to our Board 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 Governance Committee is charged with identifying, recruiting and recommending to the Board only those candidates that the Committee 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 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 Committee assesses diversity in evaluating each candidate's individual qualities in the context of how that candidate would relate to the Board as a whole. The 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. The Committee recommends candidates, including those submitted by shareholders, only if the Committee 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 Governance 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 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's nominees is in a position to 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, the Board has determined that this year's nominees 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 Board believes that the nominees possess the following experience, qualifications, attributes and skills and considered the following in determining that the nominees should serve as directors of Dollar General: Acting upon the recommendation of the Nominating and Corporate Governance 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 2011 annual shareholders' meeting, if the 2011 annual meeting is held not more than 30 days before and not more than 60 days after June 3, 2011, the notice must be received no earlier than the close of business on February 3, 2011 and no later than the close of business on March 5, 2011. 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 voteFOR the election of each of the director nominees. Does Dollar General combine the positions of Chairman and CEO? Yes. Our CEO, Mr. Dreiling, serves as the Chairman of our Board of Directors. The Board believes this provides an efficient and effective leadership model for Dollar General because, given his 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 the Board have standing Audit, Compensation and Nominating Committees? Yes. Our Board of Directors has a standing Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee. The Board has determined that all members of the Audit Committee and two members of the Compensation Committee are independent as defined in the NYSE listing standards and in our Corporate Governance Guidelines. In addition, the Board has established a sub-committee of our Compensation Committee consisting of Messrs. Rhodes and Bryant for purposes of approving any compensation that may otherwise be subject to Section 162(m) of the Internal Revenue Code of 1986, as amended. None of the members of the Nominating and Corporate Governance Committee are independent as defined in the NYSE listing standards and in our Corporate Governance Guidelines. The Board has adopted a written charter for each of these committees. All committee charters are available on the "Investor Information—Corporate Governance" portion of our web site located at www.dollargeneral.com. Current information regarding the Audit, Compensation and Nominating and Corporate Governance Committees is set forth below. From the beginning of 2009 until the completion of our initial public offering in November 2009, our Audit Committee was comprised of Messrs. Agrawal and Calbert, our Compensation Committee was comprised of Messrs. Agrawal, Calbert and Jones, and we did not have a Nominating and Corporate Governance Committee. • Reviews and • Reviews and discusses with management, prior to the • Provides information to • Evaluates and makes recommendations to our Board concerning shareholder proposals relating to matters of which the • Periodically reviews and reassesses the committee's charter. NOMINATING AND • Develops and recommends criteria for selecting new directors • Screens and recommends to our Board individuals qualified to become • Recommends to our Board the structure and membership of Board • Recommends to our Board persons to fill Board and committee vacancies • Develops and recommends to our Board Corporate Governance Guidelines and makes other recommendations relative to corporate governance issues • Evaluates and makes recommendations to our Board concerning shareholder • Periodically reviews and reassesses the committee's charter • Provides information to our Board that may be relevant to the annual evaluation of performance and effectiveness of the 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 various committees have an important role in our risk oversight process. Our Board regularly reviews with management our financial and business strategies, and those reviews include a discussion of relevant material risks as appropriate. Our General Counsel also periodically reviews with the Board our comprehensive insurance coverage and programs. As part of its charter, 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. The enterprise risk management program is coordinated by our Internal Audit department and entails a 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 used to address each risk, and assesses the remaining residual risk. The program is updated through interviews with members of the leadership team and 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 and the categories with high residual risk, along with their mitigation strategies, are discussed individually. Our Compensation 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 Compensation Committee also periodically assesses the risks relating to our overall compensation programs. While the Audit Committee and the Compensation 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. How often did the Board and its committees meet in 2009? During 2009, our Board of Directors, Audit Committee and Compensation Committee met 8, 4 and 8 times, respectively. Our Nominating and Corporate Governance Committee, which was established towards the end of 2009 after the completion of our initial public offering, did not meet in 2009. Each incumbent director attended at least 75% of the total of all meetings of the Board and all committees on which he or she served, except for Mr. Rickard who was unable to attend a special Board meeting held shortly after his appointment to our Board in January 2010. The following table and text discuss the compensation of persons who served as a member of our Board of Directors during all or part of 2009, other than Mr. Dreiling whose compensation is discussed under "Executive Compensation" below and who was not separately compensated for Board service. We have omitted from this table the columns pertaining to non-equity incentive plan compensation and nonqualified deferred compensation earnings because they are inapplicable. Raj Agrawal Warren F. Bryant(4) Michael M. Calbert Adrian Jones William C. Rhodes, III(4) David B. Rickard(4) Dean B. Nelson(4) We do not compensate for Board service any director who simultaneously served 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. Prior to our initial public offering in November 2009, our director compensation structure encompassed only cash compensation consisting of a $40,000 annual retainer fee, payable in quarterly installments. Effective upon the consummation of our initial public offering, our Board adopted a director compensation program pursuant to which each non-employee director receives quarterly payment of the following cash compensation, as applicable: In addition to the director compensation described above, each non-employee director receives an equity award with an estimated value of $75,000 on the grant date, with such estimated value determined by the Compensation Committee's compensation consultant using economic variables such as the trading price of our common stock, expected volatility of the stock trading prices of similar companies as determined by the compensation consultant, and the terms of the awards. Sixty percent of the value of the equity grant consists of non-qualified stock options to purchase shares of our common stock ("Options") and 40% consists 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 shareholder 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 underlying the RSUs. Pursuant to our Corporate Governance Guidelines, each non-employee director is expected to directly or indirectly acquire a number of shares of our common stock with a value of $75,000 by the date on which such director joins our Board and must continue to hold such shares until such director ceases to be a member of our Board. Directors who were nominated by the KKR Shareholders or the Goldman Shareholders can satisfy this requirement by investing in an investment vehicle that indirectly owns shares of our common stock and was formed for the purpose of facilitating the investment by employees of KKR or Goldman, Sachs & Co. in their portfolio company investments. Is Dollar General subject to the NYSE governance rules regarding director independence? Buck Holdings, L.P. controls a majority of our outstanding common stock. As a result, we are 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: We are, however, subject to the NYSE and SEC rules that require full independence of our 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 Compensation Committee and our Nominating and Corporate Governance Committee do not consist entirely of independent directors. 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 director to Dollar General or to our management that does not fall within the parameters set forth in 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? 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 Governance Committee. Dean Nelson served on our Board until March 2009. 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. Though not formally considered by our Board given that our securities were not registered or traded on a national securities exchange at the time of his service on our Board, we do not believe that Mr. Nelson would have been considered independent under the listing standards of the NYSE because of his relationship with KKR and other relationships with us described under "Transactions with Management and Others" below. Any relationship between an independent director and Dollar General or our management fell within the Board-adopted categorical standards and, accordingly, was not reviewed by our Board. Does the Board have a policy for the review, approval or ratification of related-party transactions? Our Board of Directors has adopted a written policy for the review, approval or ratification of "related party" transactions. For purposes of this policy, a "related party" includes our directors, executive officers, and greater than 5% shareholders, as well as their immediate family members, 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, 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 over 5% shareholders, the Corporate Secretary will coordinate with relevant internal departments to determine whether any transactions were unknowingly entered into with a related party and will present a list of such transactions, subject to certain exceptions, to the Board for review. This policy authorizes Mr. Dreiling 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 if the Board is informed of transactions approved in this manner. In addition, the following transactions are deemed automatically pre-approved and require no further 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 2009 or are any planned for 2010? We describe below the transactions that have occurred since the beginning of 2009, 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. Relationships with Management and Directors. 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, we, Buck Holdings L.P. and 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 significant restrictions on transfer of shares of our common stock held by management shareholders that are subject to the agreement. Generally, shares will be 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 upon the terms of the Management Stockholder's 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; provided, that, in the event KKR or its affiliates transfer 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 owned by them prior to such transfer. Following our initial public offering in November 2009, we amended the Management Stockholder's Agreements so that 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, 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. 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. The Management Stockholder's Agreement also provides for the management shareholder's ability to cause us to repurchase his outstanding 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 ability to cause the management shareholder to sell his stock or options subject to the Management Stockholder's Agreement back to us upon certain termination events. 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 Dollar General common stock in the event that certain investors sell, or cause to be sold, shares of our common stock in a public offering. See the description of the registration rights agreement under "Relationships with the Investors" below. In connection with our initial public offering in November 2009, the Senior Management Shareholders agreed to waive their piggyback registration rights arising from that offering in consideration of our releasing them from the transfer restrictions contained in the Management Stockholder's Agreements after the expiration of the 180-day restricted period contained in the underwriting agreement with respect to that number of shares of Dollar General common stock equal to the number of shares of Dollar General common stock that such Senior Management Shareholders could have required us to register in connection with our initial public offering. At our request, the underwriters reserved up to 1,705,000 shares of common stock for sale at the initial public offering price ($21.00 per share) to our directors, officers and employees and certain persons who are otherwise associated with us through a directed share program. The number of shares of common stock available for sale to the general public in the public offering were reduced to the extent these persons purchase these reserved shares. Any shares not so purchased were offered by the underwriters to the general public on the same basis as other shares offered in the initial public offering. The following members of our Board of Directors purchased shares in the directed share program: Mr. Bryant (4,000 shares); Mr. Calbert (10,000 shares); Mr. Rhodes (4,000 shares); and Mr. Rickard (4,500 shares). Interlocks. Mr. Dreiling serves as a manager of Buck Holdings, LLC for which Messrs. Calbert, Agrawal and Jones (three of our Compensation 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 KKR: 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. Since our 2007 merger through our initial public offering in November 2009, Goldman, Sachs & Co. and KKR provided management and advisory services to us and our affiliates pursuant to a sponsor advisory agreement with us and Buck Holdings, L.P. Under the terms of the sponsor advisory agreement, among other things, we paid to those entities an aggregate annual management fee plus all reasonable out of pocket expenses incurred in connection with the provision of services under the agreement. We paid to those entities an aggregate management fee of approximately $4.3 million in fiscal 2009, $0.9 million of which was paid to Goldman, Sachs & Co. and $3.4 million of which was paid to KKR. We also reimbursed KKR approximately $129,000 for expenses incurred in fiscal 2009. In connection with our initial public offering in November 2009, the parties terminated the sponsor advisory agreement in accordance with its terms. Upon completion of the offering, and in connection with our termination of the sponsor advisory agreement, we paid a fee of approximately $63.6 million to KKR and Goldman, Sachs & Co., $13.8 million of which was paid to Goldman, Sachs & Co. and $49.9 million of which was paid to KKR. This amount included a transaction fee of approximately $4.8 million (equal to 1% of the gross primary proceeds received by us in the initial public offering) and approximately $58.8 million to terminate the agreement in accordance with its terms. In connection with entering into the sponsor advisory agreement, on July 6, 2007 we and Buck Holdings, L.P. also entered into a separate indemnification agreement with the parties to the sponsor advisory agreement, pursuant to which we agreed to provide customary indemnification to such parties and their affiliates. 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.) and KKR and Goldman, Sachs & Co. (and certain of their affiliated investment funds), among certain other parties. Pursuant to this registration rights 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. Pursuant to such demand registration rights, we are required to register 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 the investment funds as described above we are required to give notice of such registration to all parties to the registration rights agreement, including certain senior management members, 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. We believe affiliates of KKR and Goldman, Sachs & Co. (among other entities) continue to be lenders under our senior secured term loan facility. Goldman Sachs Credit Partners L.P. also served as syndication agent for the term loan facility. The amount of principal outstanding under this term loan facility from our 2007 merger to September 30, 2009, was $2.3 billion. Effective September 30, 2009, we became required to repay borrowings under the term loan facility in equal quarterly principal amounts in an aggregate amount per year equal to 1% of the total funded principal amount at July 6, 2007, resulting in the payment of principal of $11.5 million in fiscal 2009. We also voluntarily prepaid an additional $325 million of principal in fiscal 2009, and as a result are no longer subject to the quarterly repayments. In addition, we paid approximately $74.8 million of interest on the term loan during fiscal 2009. Goldman, Sachs & Co. is a counterparty to an amortizing interest rate swap with a notional amount totaling $396.7 million as of January 29, 2010, entered into in connection with the senior secured term loan facility. We paid Goldman, Sachs & Co. approximately $17.9 million in fiscal 2009 pursuant to this swap. 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. From time to time we use Capstone Consulting, LLC, a team of executives who work exclusively with KKR portfolio companies providing certain consulting services. During fiscal 2009, the aggregate fees and expenses incurred for Capstone's services totaled approximately $0.2 million. Our former Board member, Mr. Dean Nelson, is the Chief Executive Officer of Capstone. We entered into an underwriting agreement with KKR Capital Markets LLC (an affiliate of KKR), Goldman, Sachs & Co., Citigroup Global Markets Inc., and several other entities to serve as underwriters in connection with our initial public offering in November 2009. We provided underwriting discounts of approximately $27.4 million pursuant to the underwriting agreement, $6,030,255 of which was provided to each of (a) KKR Capital Markets LLC; (b) Goldman, Sachs & Co.; and (c) Citigroup Global Markets Inc. Prior to our initial public offering, affiliates of Citigroup Capital Markets, Inc. indirectly owned through their investment in Buck Holdings, L.P. at least 5% of our common stock. We paid approximately $3.4 million in expenses related to the initial public offering (excluding underwriting discounts and commissions), including the offering-related expenses of the selling shareholder which we were required to pay under the terms of an existing registration rights agreement. On November 30, 2009, we used the net proceeds to us from the initial public offering to redeem $195.7 million aggregate principal amount of our 10.625% senior notes due 2015 and $205.2 million aggregate principal amount of our 11.875%/12.625% senior subordinated toggle notes due 2017 at redemption prices of 110.625% and 111.875%, respectively, plus accrued and unpaid interest. Affiliates of Goldman, Sachs & Co. and KKR may have received a portion of the proceeds of the offering by reason of the redemption of any notes held by them. From time to time, affiliates of KKR and Goldman, Sachs & Co. may invest in other indebtedness issued by us. We refer to the persons included in the Summary Compensation Table below as our "named executive officers." References to "2010," "2009," "2008," and "2007" mean, respectively, our fiscal years ending or ended 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"), a Delaware limited partnership controlled by investment funds affiliated with Kohlberg Kravis Roberts & Co., L.P. ("KKR"). 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 2010 and 2009 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 of our Board of Directors utilizes employment agreements with the named executive officers which, among other things, set forth minimum levels of certain compensation components. The Compensation Committee believes such arrangements are a common protection offered to named executive officers at comparable companies and help to ensure continuity and aid in retention. The employment agreements, some of which were renewed in 2009, also provide for standard protections to both the executive and to Dollar General should the executive's employment terminate. Named Executive Officer Compensation Process Oversight. The Compensation Committee of our Board of Directors is responsible for approving the compensation of our CEO and our other named executive officers. In 2009, the Board retained sole authority to determine CEO compensation based upon the Compensation Committee's recommendations. This authority was delegated to the Compensation Committee in connection with the initial public offering of our common stock in November 2009 (the "IPO"). A subcommittee of the Compensation Committee consisting entirely of independent directors (the "162(m) Subcommittee") is responsible for approving any part of the compensation of our named executive officers or Board members that is intended to qualify as "performance-based compensation" for purposes of 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. The Compensation Committee members for the full 2009 fiscal year included Messrs. Calbert, Agrawal and Jones. Messrs. Rhodes and Bryant joined the Compensation Committee upon their appointment to our Board on November 18, 2009. The 162(m) Subcommittee consists of Messrs. Rhodes and Bryant. Use of Outside Advisors. Prior to our 2007 merger, the Compensation Committee in effect at such time selected Hewitt Associates ("Hewitt") as its compensation consultant and approved a written agreement with Hewitt which described the general terms of the working relationship. Hewitt remained a consultant to Dollar General and to the Compensation Committee subsequent to our 2007 merger. Although the written agreement with Hewitt had not been formally renewed, until March 2010 we continued to operate consistent with its terms. The Compensation Committee entered into a new written agreement with Hewitt and ratified the selection of Hewitt as its compensation consultant in March 2010. The written agreement with Hewitt details how Hewitt will provide ongoing executive and non-employee director compensation advisory services for Dollar General, including working directly with the Committee or cooperatively with management as directed by the Committee to prepare data, materials and proposals for review, providing independent counsel to the Committee, and ensuring that the Committee receives information and advice needed to make informed and reasonable decisions. The agreement specifies that services provided by Hewitt may include, without limitation, competitive market pay analyses, including total compensation measurement services, proxy data studies, board of director pay studies, dilution analyses and market trends; preparation for attendance at selected meetings with management or the Committee; ongoing support regarding legal, regulatory or accounting considerations impacting compensation and benefit programs; assistance with the redesign of those programs; and other miscellaneous work. In addition to services relating to director and executive compensation, from time to time Hewitt also provides consulting services to management for various projects and assignments pertaining to general employee compensation and benefits matters. Fees incurred for services and products provided by Hewitt unrelated to director and executive compensation did not exceed $120,000 in 2009. Although the Compensation Committee or any of its members may consult directly with Hewitt should it or they choose to do so, during 2009 Hewitt directly dealt solely with Mr. Dreiling and Mr. Robert Ravener, our Executive Vice President and Chief People Officer, as well as with non-executive members of our human resources group in connection with named executive officer compensation (as described below under "Management's Role"). The Compensation Committee reviewed benchmark information provided by Hewitt regarding 2009 executive compensation and discussed with Messrs. Dreiling and Ravener their executive compensation recommendations. With respect to 2010 executive compensation decisions thus far, Hewitt has met directly with the Compensation Committee to review the results of the compensation benchmark study. Management's Role. Messrs. Dreiling and Ravener, along with non-executive members of the human resources group, assist Hewitt in gathering and analyzing relevant competitive data and identifying and evaluating various alternatives for named executive officer compensation (including their own). Messrs. Dreiling and Ravener discuss with the Compensation Committee their recommendations regarding named executive officer pay components, typically based on benchmarking data compiled by Hewitt as well as, with respect to 2010 compensation decisions, the officer's subjective performance and contributions. Mr. Dreiling subjectively assesses performance of each other named executive officer for purposes of determining whether each named executive officer is eligible as a threshold matter for a base salary increase, the extent of that increase (with respect to 2010 compensation decisions), and whether the officer is eligible as a threshold matter for a Teamshare bonus payout in the event the relevant EBITDA-based performance level is achieved (each as discussed more fully below under "Elements of Named Executive Officer Compensation"). Although the Board and the Compensation Committee members valued and welcomed such input from management, the Board, where applicable, and the Compensation Committee ultimately made all decisions regarding named executive officer compensation for 2009 and to-date in 2010. Use of Market Benchmarking Data. To attract and retain named executive officers who we believe will enhance our long-term business results, we must pay compensation that is competitive with the external market for executive talent. We believe that this primary talent market consists of retail companies with revenues both larger and smaller than ours and with business models similar to ours because those companies have executive positions similar in breadth, complexity and scope of responsibility to our named executive officer positions. For 2009, Hewitt provided data to management 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 as the market comparator group. In 2009, this group consisted of 7-Eleven, AutoZone, Big Lots, Collective Brands, Family Dollar, Genuine Parts, Longs Drug Stores, McDonald's, Nordstrom, OfficeMax, PetSmart, Staples, J.C. Penney, The Gap, Macy's, Blockbuster, The Pantry, Ross Stores and Yum Brands. Hewitt was also asked to provide summary market data from all of the retail companies in its database, from a subset of the market comparator group and from the proxy statement information for certain other significantly larger retail companies to help us gain a general understanding of overall retail compensation trends. The market data from these additional groups was not used, either wholly or in part, as reference points upon which to base, justify or provide a framework for the 2009 or 2010 compensation decisions. For 2010 compensation decisions, the same market comparator group identified above was used except for Longs Drug Stores, which discontinued its participation in the Hewitt study. The Compensation Committee believes that the median range of the competitive market generally is the appropriate target for a named executive officer's total compensation, and the Compensation Committee takes into account the estimated value of each named executive officer's long-term compensation when determining the levels of the cash compensation components. The Compensation Committee recognizes, however, that because of liquidity and other comparability issues, it is difficult to compare equity awards that were granted to our named executive officers while we were a private company to equity granted to named executive officers of a public company. The Compensation Committee has not made annual equity awards to the named executive officers, as it believes that the long-term equity previously granted to the named executive officers in 2007 or at the time they commenced employment with us, as applicable, has been sufficiently retentive and otherwise adequately meets our current compensation objectives as discussed under "Long-Term Equity Incentive Program" 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. As discussed in more detail below, the Compensation Committee believes 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 principles by reflecting the salaries for comparable positions in the competitive marketplace, by rewarding strong performance, and by providing a stable and predictable source of income for our executives. The Compensation Committee believes that we would be unable to attract or retain quality named executive officers in the absence of competitive base salary levels. For this reason, base salary constitutes a significant portion of a named executive officer's total compensation. As a threshold matter, a named executive officer is not eligible for a salary increase unless he or she achieves a satisfactory overall subjective performance evaluation. At the end of 2008, Mr. Dreiling subjectively assessed each other named executive officer in the context of that executive's job responsibilities and made a determination as to whether that executive's performance for 2008 was satisfactory or unsatisfactory on an overall basis. A determination of unsatisfactory performance would have precluded that named executive officer from receiving an increase in 2009 base salary. A threshold determination of satisfactory performance did not by itself result in any variation in a named executive officer's compensation. Rather, satisfactory performance merely created the possibility of an increase in base salary. Once a named executive officer's eligibility for an increase in base salary was established, the magnitude of any salary increase was determined on the basis of benchmarking information from Hewitt regarding the compensation and role of each named executive officer within our management structure in comparison to the compensation that companies in our market comparator group provide to similarly situated executives. Because Mr. Dreiling determined that each such person performed satisfactorily overall, as a threshold matter each such named executive officer was eligible to be considered for a 2009 salary increase. Mr. Dreiling's performance in the context of his job responsibilities was also subjectively reviewed in this manner by both the Compensation Committee and the Board. Because it was determined that he performed satisfactorily overall, as a threshold matter he was also eligible to be considered for a 2009 base salary increase. In connection with the Compensation Committee's determination of each named executive officer's 2009 base salary, Mr. Ravener discussed with the Compensation Committee the results of the Hewitt benchmarking analysis. In order to maintain both total cash compensation and base salaries within the median range of the market comparator group, the Compensation Committee recommended, and the non-management Board members approved, a 12.1% base salary increase for Mr. Dreiling, and the Compensation Committee approved a 2.25% base salary increase for each other named executive officer (other than Mr. Todd Vasos who was not considered for an increase given his recent hiring in December 2008). In December 2008, Mr. Vasos was hired as our Executive Vice President, Division President, and Chief Merchandising Officer. The Compensation Committee determined his base salary based on consideration of the 2008 market comparator group data provided by Hewitt, his compensation with his prior employer, the relationship of his position to similar executive positions and the amount we believed necessary to entice him to accept our offer of employment. Subsequent to the end of 2009, the Compensation Committee considered 2010 base salary increases for each named executive officer (other than Mr. Bere, who left Dollar General effective at the close of business on January 29, 2010). Mr. Dreiling advised the Compensation Committee that he had subjectively assessed the overall performance of each other named executive officer and determined that each had performed the duties and responsibilities of the respective position in a satisfactory manner. In addition, the Compensation Committee subjectively reviewed Mr. Dreiling's performance in 2009 in the context of his job responsibilities and determined that such performance was satisfactory on an overall basis. As in prior years, unsatisfactory performance would have precluded a named executive officer from receiving an increase in base salary. However, in 2010 the magnitude of the salary increase for certain officers was determined not only on the basis of benchmarking information from Hewitt regarding data from our market comparator group, but also upon the categorical rating assigned by Mr. Dreiling to each named executive officer after completion of a subjective individual performance evaluation. Specifically, any named executive officer, other than Mr. Dreiling, received a set increase depending upon whether Mr. Dreiling's performance evaluation of such officer resulted in a "Needs Improvement," "Good," "Very Good" or "Outstanding" individual subjective performance rating. After reviewing a summary of the Hewitt benchmarking data and taking into account the categorical rating resulting from the subjective individual performance evaluations, in order to maintain both total cash compensation and base salaries within the median range of the market comparator group and to recognize 2009 performance, the Compensation Committee approved a 2.5% increase in base salary for Mr. Tehle, Ms. Guion and Mr. Vasos. Mr. Vasos received an additional 2.31% increase in base salary, reflecting the Committee's desire to achieve internal pay equity among comparable level executive officers. All such increases were effective April 1, 2010. Mr. Dreiling did not receive a base salary increase, as the Committee has begun negotiations with Mr. Dreiling to extend his employment agreement, and his new compensation will be set during that process. Short-Term Cash Incentive Plan. Our short-term cash incentive plan, called Teamshare, motivates named executive officers to achieve pre-established, objective financial goals annually. For our named executive officers, the Teamshare program is established pursuant to our Annual Incentive Plan (the "AIP"). Under the AIP, "covered employees" under Section 162(m) of the Internal Revenue Code, any of our executive officers, and such other of our employees as the Compensation Committee may select (including our named executive officers), may earn up to $5,000,000 (up to $2,500,000 in 2008 and 2009) 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 Compensation Committee administers the AIP and can amend or terminate it at any time. As a threshold matter, unless required by contract, a named executive officer is not eligible to receive a bonus under the 2009 Teamshare program if that executive receives an "unsatisfactory" overall subjective individual performance rating, and payment of any bonus is in the Compensation Committee's discretion if the executive receives a "needs improvement" overall individual performance rating. 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 to meet our recruiting and retention objectives by providing compensation opportunities that are consistent with those prevalent in our market comparator group. (a) 2009 Teamshare Structure. 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. As it did in 2008, the Compensation Committee selected a measure based upon earnings before interest, taxes, depreciation and amortization ("EBITDA") as the 2009 Teamshare financial performance measure, with certain adjustments similar to those made for the purposes of calculating performance targets for our long-term equity incentive program including exclusion of the impact of: pertaining to the indebtedness issued in connection with the 2007 merger) and any related litigation or settlement of any related litigation; and The Compensation Committee established the target EBITDA-based performance level for purposes of the 2009 Teamshare program at $1.142 billion, which, consistent with prior practice, was equal to the annual objective in our annual financial plan. The Compensation Committee also established the threshold financial EBITDA-based performance level, below which no bonus would be paid under the 2009 Teamshare program, at 95% of the target, which was consistent with the 2008 Teamshare program, pursuant to which the Compensation Committee determined that such threshold level was more consistent with other companies within the KKR portfolio than the prior threshold level. The Compensation Committee also determined that, similar to the 2008 Teamshare program, no maximum level of EBITDA performance would be established for the 2009 Teamshare program. The Compensation Committee felt that setting a maximum EBITDA performance level could discourage employees from striving to achieve EBITDA results beyond the maximum level and that the outstanding 2008 EBITDA results may have been, in part, attributable to not capping the incentive opportunity under the 2008 Teamshare program. The Compensation Committee considered the 2009 Teamshare program EBITDA-based performance target level to be challenging and generally consistent with the level of difficulty of achievement associated with our performance-based awards for prior years. We did not achieve the threshold Teamshare performance level in fiscal years 2006 or 2005. We achieved Teamshare performance levels between threshold and target in fiscal years 2004 and 2002, between target and maximum in fiscal year 2007, at maximum in fiscal year 2003. Fiscal 2008 was the first year in which we did not associate a maximum level of EBITDA-based performance with the bonus program. For fiscal 2008, we achieved an EBITDA-based performance level of approximately 112.47% of the target. The bonus payable to each named executive officer if Dollar General reached the 2009 target EBITDA-based performance level was equal to the applicable percentage of each executive's salary as set forth in the chart below. Such payout percentages remained unchanged from payout percentages under the 2008 Teamshare program because they continued to fall within the median range of the Hewitt data regarding competitive target incentives for comparable positions in our market comparator group. Mr. Dreiling(1) Mr. Bere Mr. Tehle Ms. Guion Mr. Vasos Payments for financial performance below or above the target level are prorated on a graduated scale commensurate with performance levels in accordance with the following schedule: 95% 96% 97% 98% 99% 100% 101% 102% 103% 104% 105% 106% 107% 108% 109% 110%(1) This pro ration schedule, through 110% of the target performance level, is consistent with the pro ration schedule approved by the Compensation Committee in 2007 in reliance upon Hewitt's 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 Compensation Committee did not reconsider the pro ration schedule in 2009. The Compensation Committee determined in 2008 that the pro ration schedule for EBITDA-based performance above 110% of target should approximate a sharing between Dollar General and the Teamshare participants of 20% of the EBITDA dollars earned above that level. The Compensation Committee did not reconsider that determination in 2009. (b) 2009 Teamshare Results. Following 2009, Mr. Dreiling assessed each named executive officer (other than himself and Mr. Bere) in the context of that executive's job responsibilities and made a subjective determination as to whether that executive's performance for 2009 was satisfactory or unsatisfactory on an overall basis. A subjective determination of unsatisfactory performance would have precluded that named executive officer from receiving a Teamshare payout for 2009 performance regardless of whether we achieved our overall, objective EBITDA performance target for 2009. A threshold determination of satisfactory performance did not by itself result in any variation in the named executive officer's incentive compensation. Rather, satisfactory performance merely created the possibility of a payout under the Teamshare program. Once a named executive officer's eligibility was established, the Teamshare payout was determined based upon our objective EBITDA-based performance. Because Mr. Dreiling determined that each named executive officer (other than himself and Mr. Bere) achieved overall satisfactory performance, each named executive officer, as a threshold matter, was eligible to receive a 2009 Teamshare payout to the extent we achieved the relevant EBITDA-based performance level. In connection with his employment separation, the Compensation Committee entered into a Separation Agreement with Mr. Bere that provided for a payout of his 2009 Teamshare bonus, in the event the EBITDA-based performance target was, in fact, satisfied, without the need for a performance evaluation. The Compensation Committee also subjectively reviewed Mr. Dreiling's individual performance for 2009 in a manner similar to Mr. Dreiling's evaluations of the other named executive officers discussed above. The Compensation Committee determined that he had performed satisfactorily and that, as a threshold matter, he was therefore eligible to receive a 2009 Teamshare payout to the extent we achieved the relevant EBITDA-based performance level. In March 2010, the Compensation Committee approved the EBITDA-based performance level at 111.87% of target which equates to a payout of 217.21% of individual bonus targets. Accordingly, a Teamshare payout pursuant to the 2009 Teamshare program was made to each named executive officer at the following percentages of base salary earned: Mr. Dreiling, 217.21%; Mr. Bere, 152.05%; and each of Mr. Tehle, Ms. Guion and Mr. Vasos, 141.18%. Such amounts are reflected in the "Non-Equity Incentive Plan Compensation" column of the Summary Compensation Table for all such executives other than Mr. Bere whose amount is reflected in the "All Other Compensation" column of the Summary Compensation Table. (c) 2010 Teamshare Structure. The Compensation Committee selected adjusted EBITDA, as calculated in accordance with the Company's credit agreements and further adjusted for certain additional factors, as the primary financial performance measure for the 2010 Teamshare program. The Compensation Committee also decided that the 2010 Teamshare program should include a component that reflects the importance of our ability to achieve an appropriate return on our invested capital and the management of and level of investments necessary to achieve superior business performance. As a result, the Compensation Committee added return on invested capital ("ROIC"), calculated as set forth below, as an additional financial performance measure for the 2010 Teamshare program for officer-level employees including the named executive officers. The Compensation Committee weighted the ROIC measure at 10% and the EBITDA-based measure at 90% of the total Teamshare bonus, recognizing that EBITDA is the most critical measure of our current performance, enables the payment of debt, and funds our growth and our day-to-day operations. For purposes of the 2010 Teamshare program, 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), as further adjusted for certain additional factors. The Compensation Committee established threshold and target performance levels, discussed below, for each of the EBITDA-based and ROIC performance measures. The thresholds represent the performance levels below which no bonus may be paid with respect to a particular performance component. For the same reasons discussed under "2009 Teamshare Structure" above, there is no maximum level of EBITDA-based or ROIC performance associated with the 2010 Teamshare program, although any individual payout under the program is capped at $5 million. The Compensation Committee established the target EBITDA-based performance level for the 2010 Teamshare program at the same level as our 2010 annual financial plan objective, which the Compensation Committee considers to be challenging and somewhat more difficult to achieve than performance-based Teamshare targets for prior years (see "2009 Teamshare Structure" above for a discussion of the level of achievement in recent years of the financial performance targets). Consistent with the 2009 Teamshare program, and for the same reasons identified under "2009 Teamshare Structure" above, the Compensation Committee established the 2010 threshold performance level for the EBITDA-based measure at 95% of the target EBITDA-based performance level. The Compensation Committee established the threshold ROIC performance level for the 2010 Teamshare program at the 2009 ROIC year-end actual result (or 21.78%). The Compensation Committee established this threshold ROIC level because it believed the 2009 ROIC results were strong and that 2010 results should be as good or better for that metric. The Compensation Committee established the ROIC target performance level by determining the expected level of improvement over the 2009 ROIC year-end actual result based on productivity enhancements. Specifically, the Company determined the ROIC level that would result if we were to achieve 110% of the EBITDA-based target performance level. We then divided the difference between that ROIC level and the threshold ROIC level described above over pro rata increments between those levels to arrive at the ROIC target performance level that was approved by the Compensation Committee. The bonus payable to each named executive officer if Dollar General reaches the 2010 target performance levels for each of the EBITDA-based and ROIC financial measures is equal to the applicable percentage of each executive's salary as set forth in the chart below. Such payout percentages, which are consistent with Teamshare payout percentages for prior years, continue to fall within the median range of the payout percentages for the market comparator group. Because the Committee seeks to extend Mr. Dreiling's agreement and is in the process of negotiating a new agreement with him, the Committee has not yet approved his target payout percentage. However, the Committee expects to do so within 90 days of the start of our 2010 fiscal year. Mr. Dreiling currently has the contractual right to participate in the program with a target payout percentage of 100% of his base salary. Mr. Tehle Ms. Guion Mr. Vasos Payments for EBITDA-based and ROIC performance below or above the target level are prorated on a graduated scale commensurate with performance levels. For each 1% 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 named executive officer's target payout percentage). For each 1% EBITDA increase above 110% of the target performance level, the payout increases by 10.24% of the target payout amount (based upon the named executive officer's target payout percentage). For ROIC, each 0.67% increase in performance between the threshold performance level and the target performance level increases the payout percentage by 1%. For each 0.67% increase in 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%. Payout percentages greater than 200% of the target payout levels are based on an approximate sharing between Dollar General and the Teamshare participants of 20% of the incremental EBITDA dollars earned above the 110% EBITDA performance level, split 90% to EBITDA and 10% to ROIC. Long-Term Equity Incentive Program. Long-term equity incentives motivate named executive officers to focus on long-term success for shareholders. These incentives provide a balance between 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 equity 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: purchases) while the executive remains employed by us. If an executive's employment with us terminates, we may generally compel him or her to sell that stock back to us for a price determined in accordance with the Management Stockholder's Agreement between us and that executive. 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 Plan"). The 2007 Plan generally provides the Compensation 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). Awards under the 2007 Plan may be made 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, as may be determined by the Compensation Committee. The 2007 Plan is administered by the Compensation Committee, which has the power to amend any awards outstanding under the 2007 Plan in any manner that is not adverse to the holder of such award (other than in a de minimis manner). In the event of any stock split, spin-off, share combination, reclassification, recapitalization, liquidation, dissolution, reorganization, merger, change in control of our company (as defined in the 2007 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 Compensation Committee is required to adjust awards then outstanding under the 2007 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 Plan and any outstanding awards. In the event of a change in control of our company (as defined in the 2007 Plan), the Compensation 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 at of 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 Plan, except that shareholder approval is required to increase the aggregate number of shares available for awards under the 2007 Plan, to decrease the exercise price of outstanding stock options or stock appreciation rights, to change the requirements relating to the Compensation Committee, or to extend the term of the 2007 Plan. The 2007 Plan currently expires July 6, 2017, although awards made on or before the expiration of the 2007 Plan may extend beyond the expiration date. As of March 29, 2010, there were 31,142,858 shares authorized for issuance under the 2007 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 17,474,635 of which remained available for future grants. In connection with the special dividend paid to our shareholders on September 11, 2009, the Compensation Committee adjusted the exercise price of options granted under our 2007 Plan as required by the terms of such options to reflect the effects of the special dividend on such options. On 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 (whether granted under our 2007 Plan or under a prior stock incentive plan) existing at the time of the reverse stock split were retroactively adjusted to reflect the reverse stock split. Under the current equity award program established in connection with our 2007 merger, a personal financial investment in Dollar General is a prerequisite to eligibility to receive an option grant under the 2007 Plan. All of our named executive officers (other than Messrs. Dreiling and Vasos who joined us in calendar year 2008) met that personal investment in 2007 in one or more of the following 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. Mr. Vasos met the personal investment requirement upon his employment in 2008. Mr. Dreiling's equity arrangements are discussed separately under "Compensation of Mr. Dreiling" below. Accordingly, each such named executive officer received an option grant under the 2007 Plan at the time he or she met the personal investment requirement. Because the Compensation Committee believes that such options have been sufficiently retentive and currently adequately meet our compensation objectives, the named executive officers have not been granted any further options during 2009. The options granted in prior fiscal years to the named executive officers are divided so that half are time-vested and half are performance-vested 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 of these option awards is designed to compensate executives for long-term commitment to us, while motivating sustained increases in our financial performance. These options have an exercise price of $7.9975 per share, which was the fair market value of one share of our common stock on the grant date of the options as determined by our Board of Directors and then adjusted for the special dividend paid to our shareholders on September 11, 2009. The time-vested options vest and become exercisable ratably on each of the five anniversary dates of July 6, 2007 or, with respect to Mr. Vasos, each of the five anniversary dates of December 1, 2008, solely based upon continued employment with us over that time period. The performance-vested options are eligible to vest and become exercisable ratably at the end of each of fiscal years 2007, 2008, 2009, 2010, and 2011 with respect to all named executive officers other than Mr. Vasos, whose performance options will vest and become exercisable 3.33% at the end of fiscal year 2008, 20% at the end of each of fiscal years 2009, 2010, 2011 and 2012, and 16.67% at the end of fiscal year 2013 (the first and last year of Mr. Vasos' grant were prorated to reflect his employment for two months of the 2008 fiscal year). The vesting of the performance-based options is subject to continued employment with us over the performance period and the Board's determination that we have achieved specified annual performance targets for each of the relevant fiscal years based on EBITDA and adjusted as described below. For fiscal years 2007, 2008, and 2009, those adjusted EBITDA targets were $700 million, $828 million, and $961 million, 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 through fiscal year 2012 (fiscal year 2014 for Mr. Vasos whose grant was made after he was hired in December 2008), a specified cumulative adjusted EBITDA performance target is achieved. The annual and cumulative adjusted EBITDA performance targets through fiscal 2012 were based on our long-term financial plan in existence at the time of our 2007 merger. Similarly, the annual and cumulative adjusted EBITDA performance targets for fiscal 2013 and fiscal 2014 were based on our forecasted financial plan for those years as of December 2008. Accordingly, in each case at the time of grant, we believed those levels, while attainable, would require strong performance and execution. Although Mr. Vasos joined us near the end of fiscal 2008 after the original performance targets had been set for fiscal 2008, 2009, 2010, and 2011, the Compensation Committee decided to grant his performance shares at the same performance levels as had been set for the other officers to avoid having different sets of performance levels for one member of the team applying to the same fiscal years. For purposes of calculating the achievement of performance targets for our long-term equity incentive program, "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. The specified adjusted EBITDA performance targets were achieved for fiscal years 2007, 2008 and 2009. Benefits and Perquisites. We provide benefits and limited perquisites to named executive officers 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 our industry. Most of the perquisites were established prior to our 2007 merger by our former compensation committee, which believed these benefits and perquisites to be helpful in attracting and retaining executive talent. 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. The named executive officers, except Mr. Vasos, have the opportunity to participate in the Compensation Deferral Plan (the "CDP") and the defined contribution Supplemental Executive Retirement Plan (the "SERP", and together with the CDP, the "CDP/SERP Plan"). Our Compensation Committee determined in 2008 to no longer offer SERP participation to persons to whom employment offers are made after May 28, 2008, including newly hired executive officers. 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. Each named executive officer other than Mr. Vasos had the option to choose either a leased automobile (for which we paid for gasoline, repairs, service and insurance) or a fixed monthly automobile allowance. We provided a gross-up payment to pay the tax costs associated with the imputed income for both programs. Since the Compensation Committee believes that executive automobile programs are no longer typical in the competitive retail market, the Compensation Committee eliminated this program for all executives, including the named executive officers, as of July 6, 2009 (as of April 1, 2009 for Mr. Dreiling). 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 2009, we incurred relocation expenses for Mr. Vasos in accordance with this policy. As an exception to the policy, we also paid lease cancellation costs for Mr. Vasos equal to 90 days of rent. The significant differences between the relocation assistance available to officers from the relocation assistance available to non-officers are as follows: Effective May 1, 2009, the Compensation Committee approved the establishment of a personal financial and advisory service benefit to all executive officers who report directly to the CEO, including the named executive officers. This program, provided through a third party, provides each named executive officer with various personal financial support services, 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 related travel expenses by the third party provider). The Compensation Committee approved the program to reduce 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 maximize the net financial reward to the executive of compensation received from us. The Compensation Committee also believes this benefit is commonly provided to executives within our market comparator group. Compensation of Mr. Dreiling Effective January 21, 2008, Mr. Dreiling entered into an employment agreement with Dollar General for a term of five years, and automatic one-year renewals thereafter, to become CEO and a member of our Board. Key continuing compensatory provisions of the agreement include: Mr. Dreiling was chosen for the CEO position after a lengthy and careful search. The terms of his employment agreement summarized above were settled after negotiation with Mr. Dreiling and were considered by our Board to be fair and appropriate given CEO compensation and benefits at comparable companies and given Mr. Dreiling's experience and leadership ability. The Board firmly believes he is the right leader for Dollar General as we move forward. Accordingly, as discussed above, the Compensation Committee has entered into negotiations with Mr. Dreiling to extend his employment agreement. 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 Plan. As required by applicable securities laws, we have included a summary of our severance and change in control arrangements as they existed as of the end of fiscal year 2009 (that is, as of January 29, 2010) under the "Potential Payments upon Termination or Change in Control as of January 29, 2010" discussion below. Payments to Mr. Bere in Connection with Employment Separation Mr. Bere's employment with us ended at the close of business on January 29, 2010. Payments and other benefits to Mr. Bere in connection with the termination of his employment are itemized under "Potential Payments Upon Termination or Change in Control as of January 29, 2010" below and generally were in accordance with the terms of his employment agreement, as modified by our separation agreement with him as discussed below. In recognition of Mr. Bere's contribution to our company and his continuous employment throughout the full 2009 fiscal year, the separation agreement provided for payment to Mr. Bere of the amount that he would have been due, if any, under the 2009 Teamshare program had he remained employed with us through the Teamshare payment date (normally, eligibility for payment requires active employment on the date Teamshare payments are actually made, which was several weeks after his termination date), calculated and paid at the same time as bonus payments are calculated under the 2009 Teamshare program for our senior executives. In addition, the separation agreement provided for payment of a lump sum amount representing two times Mr. Bere's (1) base salary at the annual rate in effect on January 29, 2010; and (2) target bonus in effect on January 29, 2010 (rather than two times base salary and target bonus in effect on July 6, 2007 as provided in his employment agreement), as the provisions of his employment agreement were intended to protect Mr. Bere from the effects of any decrease in his salary and/or target bonus rather than limit the severance payment. Finally, because a public market now exists for our stock, we waived our call rights under our management stockholder's agreement with Mr. Bere (the "MSA") pertaining to his Dollar General stock and stock options, and we agreed to waive the transfer restrictions set forth in the MSA upon the expiration of the underwriter lock-up period in connection with our initial public offering. 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. Prior to our 2007 merger, our general policy historically had been to design our compensation plans and programs to ensure full deductibility. The Compensation Committee attempted to balance this policy with compensation programs designed to motivate management to maximize shareholder value. Subsequent to our initial public offering, if our Compensation 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 Compensation 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 Plan satisfies 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 Compensation Committee administers our compensation programs 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 Compensation 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 Compensation 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 Compensation Committee: The following table summarizes compensation paid to or earned by our named executive officers in each of fiscal 2009, fiscal 2008 and fiscal 2007. We have omitted from this table the column for Change in Pension Value and Nonqualified Deferred Compensation Earnings as no amounts are required to be reported in such column for any named executive officer. The table below sets forth each named executive officer's annual Teamshare bonus opportunity established for fiscal 2009. Actual bonus amounts earned by each named executive officer for fiscal 2009 as a result of our EBITDA performance are set forth in the Summary Compensation Table above and represent prorated payments on a graduated scale for performance above the target EBITDA performance level, but at or below the maximum payout cap of $2.5 million, for each of the named executive officers. See "Short-Term Cash Incentive Plan" in "Compensation Discussion and Analysis" above for further discussion of the fiscal 2009 Teamshare program. We did not make any equity awards to our named executive officers in fiscal 2009. Accordingly, we have omitted from this table all columns pertaining to equity grants. Mr. Dreiling Mr. Bere Mr. Tehle Ms. Guion Mr. Vasos The table below sets forth information regarding outstanding equity awards held by our named executive officers as of the end of fiscal 2009, 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. We have omitted from this table the columns pertaining to stock awards under equity incentive plans because they are inapplicable. Mr. Dreiling Mr. Bere Mr. Tehle Ms. Guion Mr. Vasos 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 on 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 special 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. On 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. See "Long-Term Equity Incentive Program" in "Compensation Discussion and Analysis" above for discussion of the terms of the equity awards granted under the 2007 Stock Incentive Plan. We have omitted from this table the columns pertaining to option exercises because they are inapplicable. Mr. Dreiling Mr. Bere Mr. Tehle Ms. Guion Mr. Vasos We have omitted the Pension Benefits table as it is inapplicable. 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. Mr. Dreiling Mr. Bere Mr. Tehle Ms. Guion Mr. Vasos Mr. Dreiling Mr. Bere Mr. Tehle Ms. Guion Mr. Vasos Pursuant to the CDP, named executive officers may annually elect to defer up to 65% of base salary if their 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 their 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. Vasos, are not eligible to participate in the SERP. The contribution percentage is based on age, years of service and job grade. The fiscal 2009 contribution percentage for each eligible named executive officer was 7.5%. 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 29, 2010—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 Compensation Committee or its delegate (the "Mutual Fund Options"). 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 deemed to be invested in the Mutual Fund Options 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 29, 2010 Other than with respect to Mr. Bere, 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 29, 2010. The amounts shown assume that the termination or change in control event was effective as of January 29, 2010. For stock valuations, we have assumed that the price per share is the fair market value of our stock on January 29, 2010 ($23.49), which was the closing price on the NYSE on such date. The amounts shown are merely estimates. We cannot determine the actual amounts to be paid until the time of the named executive officer's termination of employment or the time of a change in control. Because Mr. Bere's employment separation occurred on January 29, 2010, we discuss below, and the table below presents, the payments he has received or will actually receive in connection with his employment separation. Payments Regardless of Manner of Termination Regardless of the termination scenario, the named executive officers will receive (and Mr. Bere received) 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. The tables below 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. 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. 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 determination of the named executive officer's disability by the Social Security Administration. In the event of Mr. Dreiling's termination of employment due to disability, he will also be entitled to receive any incentive bonus accrued in respect of any of our previously completed fiscal years but unpaid as of the date of his termination. In the event of his termination of employment due to his disability, he will also receive 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. Payments Upon Voluntary Termination The payments to be made to a named executive officer upon voluntary termination vary depending upon whether the named executive officer resigns with or without "good reason" or after our failure to offer to renew, extend or replace the named executive officer's employment agreement under certain circumstances. For purposes of each named executive officer, "good reason" generally means (as more fully described in the applicable employment agreement): No event (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 a period of 180 days (90 days in the case of Rollover Options) from the termination date. 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 (other than Mr. Dreiling), resigns within 60 days of our failure to offer to renew, extend or replace the named executive officer's 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 the 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 as soon as administratively practicable after 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 in the form of salary continuation that would otherwise have been paid during the 60 day period after the named executive officer's 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 benefits continuation, 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: 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 (other than Rollover Options). Rollover Options are fully exercisable and generally may be exercised for 3 months from the termination date unless they expire earlier or unless we repurchase them, on a per share basis, at a per share price equal to the lesser 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. 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" generally means (as more fully described in the applicable employment agreement): For purposes of Mr. Tehle, Ms. Guion and Mr. Vasos, "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 all Rollover Options 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 as described under "Voluntary Termination with Good Reason or After Failure to Renew the Employment Agreement" above. In addition, each named executive officer 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 under "Voluntary Termination with Good Reason or After Failure to Renew the Employment Agreement" above. If any payments or benefits in connection with a change in control (as defined in Section 280G of the 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: Payments to Mr. Bere Mr. Bere's employment with us ended at the close of business on January 29, 2010. Mr. Bere received or will receive the following payments and benefits under his employment agreement, as modified by his separation agreement with us, and other plans in which he participated. The severance payments were contingent upon execution and effectiveness of a release of certain claims against us and our affiliates in the form attached to the separation agreement. Mr. Bere is subject to the Continuing Obligations set forth under "Voluntary Termination with Good Reason or After Failure to Renew the Employment Agreement" above. 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 29, 2010). Mr. Dreiling Vested Options Prior to Event Option Vesting Due to Event SERP Benefits Prior to Event SERP Benefits Due to Event Deferred Comp Plan Balance Prior to and After Event Cash Severance Health Continuation(3) Outplacement(4) 280(G) Excise Tax and Gross-Up Life Insurance Proceeds Total Mr. Tehle Vested Options Prior to Event Option Vesting Due to Event SERP Benefits Prior to Event SERP Benefits Due to Event Deferred Comp Plan Balance Prior to and After Event Cash Severance Health Payment(3) Outplacement(4) 280(G) Excise Tax and Gross-Up Life Insurance Proceeds Total Ms. Guion Vested Options Prior to Event Option Vesting Due to Event SERP Benefits Prior to Event SERP Benefits Due to Event Deferred Comp Plan Balance Prior to and After Event Cash Severance Health Payment(3) Outplacement(4) 280(G) Excise Tax and Gross-Up Life Insurance Proceeds Total Mr. Vasos Vested Options Prior to Event Option Vesting Due to Event SERP Benefits Prior to Event SERP Benefits Due to Event Deferred Comp Plan Balance Prior to and After Event Cash Severance Health Payment(3) Outplacement(4) 280(G) Excise Tax and Gross-Up Life Insurance Proceeds Total SERP Benefits Vested Prior to the Event(1) Deferred Comp Plan Balance to be Paid(1) Cash Severance (2) Cash Severance – Bonus(3) Health & Welfare Continuation(2) Total Each of Messrs. Agrawal, Bryant, Calbert, Jones and Rhodes was a member of our Compensation Committee during all or a portion of 2009. None of these persons was at any time during 2009 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 2009. Messrs. Calbert and Agrawal, due to their relationships with KKR, and Mr. Jones, due to his relationship with Goldman, Sachs & Co., may be viewed as having an indirect material interest in certain 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. 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. As a result of that assessment, management and our Compensation Committee believe that risks arising from our compensation policies and practices are not reasonably likely to have a material adverse effect on Dollar General. 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. Our Compensation Committee and management noted several design features of our programs that reduce the likelihood of excessive risk-taking or otherwise mitigate risk, such as: 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 2009, 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. The following table shows the amount of our common stock beneficially owned as of March 29, 2010 by those who were known by us to beneficially own more than 5% of our common stock. A person is a "beneficial owner" of a security if that person has or shares voting or investment power over the security or if he 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 340,821,004 shares of our common stock outstanding as of March 29, 2010. Buck Holdings, L.P.* The following table shows the amount of our common stock beneficially owned, as of March 29, 2010, by our directors and named executive officers individually and by our directors and all of our executive officers as a group, calculated in accordance with Rule 13d-3 of the Securities Exchange Act of 1934 under which a person generally is deemed to beneficially own a security if he has or shares voting or investment power over the security, or if he has the right to acquire beneficial ownership within 60 days. Unless otherwise noted, these persons may be contacted at our executive offices and, to our knowledge, have sole voting and investment power over the shares listed. Percentage computations are based on 340,821,004 shares of our common stock outstanding as of March 29, 2010. Raj Agrawal(1)(2) Warren F. Bryant(2) Michael M. Calbert(1)(2) Adrian Jones(2)(3) William C. Rhodes, III(2) David B. Rickard(2) Richard W. Dreiling(4) David L. Bere(4) David M. Tehle(4) Kathleen R. Guion(4) Todd J. Vasos(4) All directors and executive officers as a group (15 persons)(1)(2)(3)(4) 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 29, 2010 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. Who has the Audit Committee selected as our independent registered public accounting firm? The Audit Committee has selected Ernst & Young LLP as our independent registered public accounting firm for the 2010 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 2010 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 2009 and 2008? The following table sets forth the aggregate fees for professional services rendered to us by Ernst & Young LLP during the past two fiscal years: Audit Fees(1) Audit-Related Fees(2) Tax Fees(3) All Other Fees(4) 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 2009 and 2008. To be considered for inclusion in our proxy materials relating to the 2011 annual meeting of shareholders, proposals must be submitted by eligible shareholders who have complied with the relevant regulations of the SEC and must be received no later than December 17, 2010. In addition, if we are not notified of a shareholder proposal by March 2, 2011, 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 2011 annual meeting of shareholders. If you would like to introduce other new business at the 2011 annual meeting, you must provide written notice to us no earlier than the close of business on February 3, 2011 and no later than the close of business on March 5, 2011, 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. A copy of our Annual Report to Shareholders for 2009 is being provided to each shareholder with this proxy statement.A copy of our 2009 Form 10-K and a list of all its exhibits will be supplied without charge to any shareholder upon written request sent to our principal executive offices: Dollar General Corporation, Attention: Investor Relations, 100 Mission Ridge, Goodlettsville, TN 37072. Exhibits to the Form 10-K are available for a reasonable fee. You may also view our Form 10-K and its exhibits online at the SEC web site at www.sec.gov or via our web site at www.dollargeneral.com under "Investor Information—SEC Filings". THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: Signature (Joint Owners) Signature [PLEASE SIGN WITHIN BOX] Date Date To withhold authority to 0000063383_2 R2.09.05.010 Important Notice Regarding the www.proxyvote.com . DOLLAR GENERAL CORPORATION Proxy Solicited by and on behalf of the Board of Directors for the June 3, 2010 The undersigned shareholder of Dollar General Corporation, a Tennessee corporation
IMPORTANT NOTICE REGARDING AVAILABILITY OF PROXY MATERIALSPROPOSAL 2:AMENDMENTS TO THE DOLLAR GENERALCORPORATION 1998 STOCK INCENTIVE PLAN
PROPOSAL 1:
ELECTION OF DIRECTORSName Age Director Since 37 2007 64 2009 47 2007 56 2008 45 2007 45 2009 63 2010 % of Directors is asking our shareholders to approve certain amendments to the Dollar General Corporation 1998 Stock Incentive Plan relating to the limitation on the number of shares thatKKR may be awarded to certain individuals under the plan in a given year and to the performance criteria upon which performance-based awards may be granted. These amendments affect provisions of the plan that are required to be approved by shareholders to obtain the benefits of Section 162(m) of the Internal Revenue Code for certain awards. The following discussion summarizes the material terms of our plan and describes the proposed amendments.What is the Dollar General Corporation 1998 Stock Incentive Plan? The Dollar General Corporation 1998 Stock Incentive Plan was originally approved for adoption by our shareholders in June 1998 and later amended and restated by our shareholders in June 2003. The Board subsequently adopted certain other amendments not requiring shareholder approval, all of which are included in the proposed amended and restated version of the plan attached as Appendix B. The stated purpose of the plan is to enable us to attract, retain and reward key employees of and consultants to Dollar General and its subsidiaries and affiliates, and our non-employee directors, and to strengthen the mutuality of interests between those persons by awarding performance-based cash and stock incentives and/or other equity interests or equity-based incentives in Dollar General. The plan permits the award of stock options, stock appreciation rights (“SARs”), restricted stock and restricted stock units to key employees of and consultants to Dollar General and its subsidiaries and affiliates and provides for the automatic annual award of restricted stock units to our non-employee directors. Currently, a maximum of 29,375,000 shares of our common stock may be issued under the plan. The plan is not intended to be a “qualified plan” under Section 401(a) of the Internal Revenue Code.Who can participate in the plan? All key employeesBeneficial Ownership of Dollar General of our 50% or more owned subsidiaries, or of our 20% or more owned affiliates that our Board designates as participating employers, as well as our non-employee directors (to
Common Stock by Buck Holdings, L.P.Up to a limited extent) are eligiblemajority>50% Up to participate in the plan. The selection of the participants who will receive awards, other than our non-employee directors who receive automatic annual awards under the plan, is entirely within the discretion of the committee that administers the plan, except that only employees of Dollar General40%>40% but < or of our 50% or more owned subsidiaries may receive incentive stock options. As of March 27, 2006, there were approximately 1,100 employees and 10 non-employee directors who were eligible to participate in the plan.43Does the plan contain features that protect shareholder interests? Yes. The plan includes the following features that protect the interests of our shareholders:•the plan is administered by a committee composed entirely of non-employee directors (currently, this committee is the Compensation Committee of our Board, and we will refer below to the Compensation Committee simply as the committee);•the plan has a fixed number of shares available for grant that we will not increase without prior shareholder approval (other than adjustments for changes in Dollar General’s capital structure);•we can issue no more than 4 million shares in full value awards (that is, awards of restricted stock and restricted stock units) over the life of the plan (subject to adjustments for changes in Dollar General’s capital structure);•we may not grant options or SARs with an exercise price that is below the fair market value of our stock on the grant date;•we will not amend outstanding stock options or SARs to lower the exercise price without prior shareholder approval;•the plan contains a minimum 6-month vesting period for all awards (and the automatic annual awards of restricted stock units to our non-employee directors have a one-year vesting period);•we may not make any material amendments without shareholder approval; and•we may not grant any awards under the plan after May 31, 2008.What types of awards may be granted under the plan? Under the plan, the committee has the authority to grant the following types of awards, any or all of which may be “performance-based”, which means the grant or vesting of all or a portion of the award may depend upon the satisfaction or achievement of certain performance criteria:•stock options (incentive stock options and non-qualified stock options);•SARs;•restricted stock; and/or•restricted stock units. The plan also provides for the automatic annual grant of restricted stock units to our non-employee directors. What is a stock option? A stock option is the right to acquire shares of common stock for a specific exercise price after the option vests and becomes exercisable but prior to the option’s termination date. The committee determines the number of shares subject to the option. An option vests and becomes exercisable at the times and subject to the terms and conditions as the committee determines, but an option will not be exercisable less than 6 months or more than 10 years after its grant date. In addition, the exercise price for an option will not be less than 100% of our common stock’s fair market value at the date the44option is granted (or 110% of fair market value with respect to certain 10% shareholders). “Fair market value” generally means the closing price of our stock on the New York Stock Exchange. Subject to the committee’s determination, the exercise price may be paid in cash, by delivery of restricted or unrestricted common shares valued at fair market value at the time of exercise, or to the extent approved by the committee prior to April 9, 2003, by shares subject to an option valued at fair market value at the time of exercise, or by a combination of these methods.What is a SAR? SARs may be granted under the plan in conjunction with all or part of a stock option and are exercisable only when the underlying stock option is exercisable. Upon the exercise of a SAR, which requires no payment to Dollar General by the participant, we will pay to the holder in cash, common stock, or a combination thereof (in the committee’s discretion), an amount equal to the excess of the stock’s fair market value on the exercise date over the exercise price, multiplied by the number of SARs being exercised. Once a SAR has been exercised, the related portion of the underlying stock option will terminate.What is restricted stock? Restricted stock is stock that a participant may not transfer until the restrictions established by the committee lapse. The restrictions may take the form of a period during which the participant must remain employed or in service as a consultant, or may require the achievement of one or more pre-established performance criteria. Unless otherwise provided by the committee, holders of restricted stock will have voting and dividend rights with respect to the restricted shares. Shares of restricted stock generally will be forfeited in the event that specified service or performance goals are not achieved within the required time period.What is a restricted stock unit? A restricted stock unit represents a right to receive one share of Dollar General common stock for each restricted stock unit. A restricted stock unit is similar to restricted stock, except that the shares of common stock are not actually issued to the restricted stock unit recipient unless and until the restrictions lapse. When the restrictions lapse, without a prior forfeiture, the holder of the restricted stock unit receives one share of common stock (or equivalent cash payment, or a combination of stock and cash) for each restricted stock unit. Recipients of restricted stock units cannot vote those units or the shares underlying those units. Rather, voting rights only attach to stock that is paid out to the recipient after the restrictions have lapsed. In addition, recipients of restricted stock units do not receive dividend payments, but dividend equivalents may be credited to the restricted stock unit holder’s account if we pay a cash dividend or make a property distribution on our common stock during the restriction period. What terms and conditions apply to the automatic non-employee director awards? Under the plan, our non-employee directors receive an automatic annual grant of 4,600 restricted stock units. In the event a non-employee director serves as Chairman of the Board, the annual grant to that person would be 6,000 restricted stock units. The committee does not have authority to grant any other awards to our non-employee directors under the plan. Restricted stock units granted to non-employee directors generally vest on the first anniversary of the grant date, if the director is still serving as a director on that anniversary date; however, no stock will be distributed,45nor any amount paid, to any non-employee director in respect of restricted stock units until such time as the non-employee director has ceased to be a member of the Board. The plan allows vesting to accelerate prior to the first anniversary of the grant date in limited circumstances. Dividend equivalents on the restricted stock units will be credited to the non-employee director’s restricted stock unit account in the event we declare a dividend on our stock. Awards of restricted stock units made to non-employee directors are also subject to specific rules governing termination of service. For further description of the restricted stock unit grants to non-employee directors, see above under the caption “Proposal 1—Election of Directors—How are directors compensated?” How many shares of Dollar General common stock may be issued under the plan?Up to 29,375,000 shares of our common stock may be granted under the plan. This number may be adjusted for changes in our capital structure, such as a stock split, and may include authorized and unissued shares. The following shares will be placed back into the pool of shares available for future grant under the plan in the following circumstances:•shares of common stock underlying options that cease to be subject to an option;•shares of restricted stock that are forfeited prior to the payment of dividends with respect to those shares;•shares of common stock that are subject to restricted stock units that are forfeited;30%>30% but < or •shares subject to an award that otherwise terminates without a payment being made to the participant in the form of common stock.Are there any other limits on the amount of awards that can be granted under the plan? Yes, the following are limits on the amount of awards that can be granted under the plan, in addition to the plan’s overall share limitation:•The maximum number of shares of common stock for which awards may be made under the plan during any single fiscal year to an officer of Dollar General or other person whose compensation may be subject to the limitations on deductibility under Section 162(m) of the Internal Revenue Code (we refer to these persons below as covered employees) currently is 500,000, subject to adjustments for changes in our capital structure. If the proposed amendments to the plan are approved, the maximum number of shares of common stock for which stock option or SARs awards, in the aggregate, may be made under the plan during any single fiscal year to any covered employee would increase to 1.5 million, subject to adjustments for changes in our capital structure. The existing individual annual limit of 500,000 shares would remain with respect to any other types of award (such as restricted stock or restricted stock units) granted under the plan in the aggregate. If the proposed amendments are not approved, the current individual annual limit of 500,000 shares to a covered employee in any single fiscal year will continue to apply with respect to all awards under the plan.•Subject to adjustments for changes in our capital structure, the maximum number of shares that can be issued under the plan pursuant to restricted stock and restricted stock unit awards (including automatic awards of restricted stock units to our non-employee directors) is 4 million.46The aggregate fair market value of common shares (determined at the grant date) with respect to which any employee may first exercise incentive stock options granted under the plan during any calendar year may not exceed $100,000 or any different amount specified in the Internal Revenue Code and the related rules and regulations.What amendments are shareholders being asked to approve? We are asking shareholders to approve amendments to the plan that would:•increase to 1.5 million shares the individual annual limit for the number of shares with respect to which stock options and SARs may be granted to covered employees (currently there is an individual annual limit of 500,000 shares for all awards to a covered employee, which limit would be retained with respect to equity awards other than stock options and SARs; see the first bullet point under the above heading “Are there any other limits on the amount of awards that can be granted under the plan?”); and•revise the qualifying performance criteria contained in the plan in order for Dollar General to continue to deduct for U.S. federal income tax purposes certain performance-based compensation paid to our covered employees from time to time (see below under the heading “What are the performance goals that may be used in connection with performance-based awards?”).Do the proposed amendments increase the number of shares that can be granted under the plan? No. While the amendments provide for a separate, increased individual annual limit for the number of shares with respect to which stock options and SARs can be granted to covered employees (1.5 million), the amendments do not increase the maximum number of shares that can be granted under the plan or the maximum number of shares that can be granted as restricted stock or restricted stock units under the plan, nor do they increase the individual annual limit for the number of shares with respect to which restricted stock and restricted stock units, in the aggregate, can be granted.Why is the Board recommending the proposed amendments? The Board believes that the proposed amendments will help further the goals of the plan by providing us with greater flexibility to implement long-term incentives that are intended to enable us to attract, retain and reward key employees, which we believe should increase shareholder value. We believe that the current individual annual limit of 500,000 shares for all awards to any one covered employee under the plan is too low, in many instances, with respect to stock options and SARs to provide some of our key employees with competitive incentives and rewards. The Board also believes that revising the performance criteria for measuring performance-based compensation will benefit shareholders by allowing us greater latitude in providing incentives that encourage performance from our key employees that is most desired from time to time. These criteria, as proposed to be revised, would match the performance criteria set forth in our Annual Incentive Plan that was approved by our shareholders at the 2005 annual shareholders’ meeting.47Why are shareholders being asked to approve these amendments? We are asking you to approve these amendments because they affect provisions of the plan that are required to be approved by shareholders to obtain the benefits of Section 162(m) of the Internal Revenue Code.What is Section 162(m)? Section 162(m) limits our ability to deduct from our U.S. federal corporate income taxes compensation in excess of $1 million per year paid to a covered employee unless the compensation qualifies as “performance-based.” As discussed above, “covered employees” include our Chief Executive Officer and our other four most highly-compensated executive officers. Stock options and SARs are performance-based compensation if the exercise price is at least equal to the fair market value of our common stock on the grant date and if the maximum number of shares available for awards is disclosed40%Up to and approved by shareholders. Other awards under the plan may be performance-based compensation if they are based on achievement of objective performance goals set by the committee and the material terms of the compensation20%>20% but < or benefit to be paid, including the performance goals that may be used and the maximum that may be paid to any employee, are disclosed to and approved by shareholders before payment.What are the performance goals that may be used in connection with performance-based awards? The plan currently provides that performance goals may include one or more of the following criteria:•pre-tax income or after-tax income;•operating cash flow;•operating profit;•return on equity, assets, capital or investment;•earnings or book value per share;•sales or revenues;•operating expenses;•common stock price appreciation; and•implementation, management or completion of critical projects or processes. We are asking you to approve a broader list of performance goals that may be used by the committee in connection with performance-based awards under the plan. The performance goals that we are asking you to approve are listed below and match the performance goals set forth in the Annual Incentive Plan approved by our shareholders at the 2005 annual shareholders’ meeting:48•Net earnings or net income (before or after taxes);•Earnings before or after taxes, interest, depreciation, and/or amortization;•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 per share;•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; and•Regulatory ratings;•Asset quality.•Net worth;•Safety; Where applicable, the performance goals may be expressed in terms of attaining a specified level of the particular criteria or attaining a percentage increase or decrease in the particular criteria, and may be applied, either singly or in combination, to Dollar General, any subsidiary or affiliate, or a division or strategic business unit of Dollar General, or may be applied to the performance of Dollar General relative to a market index, a group of other companies, or a combination thereof, all as determined by the committee. The performance goals may include a threshold level of performance below which no payment will be made (or no vesting will occur), levels of performance at which specified payments will be made (or specified vesting will occur), and a maximum level of performance above which no additional payment will be made (or at which full vesting will occur). The committee may include or exclude items to measure specific performance, such as extraordinary, unusual, non-recurring or non-operational items, and other items as the committee determines to be required so that the operating results of Dollar General, or any subsidiary, affiliate, division or strategic business unit shall be computed on a comparative basis from performance period to performance period.Has the Board adopted the proposed amendments? Yes, but the Board’s adoption of the proposed amendments is subject to shareholder approval at the annual meeting.When will the proposed amendments become effective? The amendments, if approved, will become effective on May 31, 2006.Who can amend the plan? Subject to the shareholder approval requirements discussed below, our Board of Directors may amend the plan or any outstanding award at any time for any reason or no reason, except that a participant’s consent will be required for any amendment that impairs the rights of a participant under an outstanding award. We must obtain shareholder approval to adopt any amendment:49•affecting covered employees that otherwise requires the vote of our shareholders under Section 162(m) of the Internal Revenue Code;•resulting in repricing stock options or otherwise increasing the benefits accruing to participants or to our non-employee directors;•increasing the number of shares of our common stock issuable under the plan;•adding to the types of awards available to be granted under the plan; or•modifying the requirements for eligibility. We also must obtain shareholder approval if the Board believes shareholder approval is necessary or advisable to:•permit awards to be exempt from liability under Section 16(b) of the Securities Exchange Act of 1934;•comply with the listing or other requirements of an automated quotation system or stock exchange; or•satisfy any other tax, securities or other applicable laws, policies or regulations.What happens to awards under the plan if there is a change in control of Dollar General? If there is a change in control, or in certain circumstances a potential change in control, of Dollar General, SARs and any stock options which are not then exercisable will become fully exercisable and vested and the restrictions applicable to restricted stock and any restricted stock units will lapse and the shares and awards will be deemed fully vested. The committee in its discretion may determine at any time prior to a change in control that all vested and exercisable awards under the plan will be cashed out on the basis of the change in control price. The change in control price will be the highest price per share paid in any transaction reported on the New York Stock Exchange or paid or offered to be paid in any bona fide transaction relating to a change in control or potential change in control at any time during the immediately preceding 60-day period, as determined by the committee.How does the plan define a change in control? For purposes of the plan, a change in control is defined generally to include:•any person or entity, other than Dollar General or a wholly-owned subsidiary of Dollar General, becoming the beneficial owner of Dollar General’s securities having 35% or more of the combined voting power of the then outstanding securities that may be cast for the election of directors;•in connection with a cash tender, exchange offer, merger or other business combination, sale of assets or contested election, less than a majority of the combined voting power of the then outstanding securities of Dollar General entitled to vote generally in the election of directors being held in the aggregate by the holders of Dollar General’s securities entitled to vote generally in the election of our directors immediately prior to such transaction; and50during any period of 2 consecutive years, individuals who at the beginning of any such period constitute the Board ceasing to constitute at least a majority thereof, unless the election of each director first elected during such period was approved by a vote of at least two-thirds of our directors then still in office who were directors of Dollar General at the beginning of any such period.What are the federal tax consequences of awards granted under the plan? The following is a brief summary of the United States federal income tax consequences relating to awards under the plan based upon the federal income tax laws in effect on the date hereof (other than the compensation deduction limit under Section 162(m) of the Internal Revenue Code which is described below under “Will the deduction limitations under Section 162(m) of the Internal Revenue Code apply to the plan?”). This summary is not intended to be exhaustive and, among other things, does not describe state or local tax consequences. Non-qualified stock options. A participant who receives a non-qualified stock option will not be subject to taxation at the time of grant, nor will we be entitled to a deduction at that time. A participant who exercises a non-qualified stock option will realize ordinary income in an amount measured by the excess of the fair market value of the shares on the date of exercise over the exercise price. We generally will be entitled to a corresponding deduction for federal income tax purposes. Incentive stock options. A participant who receives an incentive stock option will not be subject to taxation at the time of grant or exercise, nor will we be entitled to a deduction. The difference between the exercise price and the fair market value of shares on the date of exercise is a tax preference item for purposes of determining a participant’s alternative minimum tax. A disposition of the purchased shares after the expiration of the required holding periods will subject the participant to taxation at long-term capital gains rates in the year of disposition in an amount determined under the Internal Revenue Code, and we will not be entitled to a deduction for federal income tax purposes. A disposition of the purchased shares prior to the expiration of the applicable holding periods will subject the participant to taxation at ordinary income rates in the year of disposition in an amount determined under the Internal Revenue Code, and we generally will be entitled to a corresponding deduction. Use of shares to exercise options. If a participant pays all or part of the exercise price for a stock option in shares that the participant already owns, the participant will not realize gain or loss on those surrendered shares, but will be taxed according to the rules described above. The shares acquired upon exercise that are equal in number to the shares surrendered will have a basis equal to the basis30%Up to 10% At least 5% Name of
Committee & MembersCommittee Functions DOLLAR GENERAL CORPORATION1998 STOCK INCENTIVE PLAN(As AmendedCOMPENSATION:Restated effective as of May 31, 2006) SECTION 1. Purpose; Definitions. The purpose of the Dollar General Corporation 1998 Stock Incentive Plan (the “Plan”) is to enable Dollar General Corporation (the “Corporation”) to attract, retainapproves corporate goals and reward key employees of and consultantsobjectives relevant to the Corporation and its Subsidiaries and Affiliates, and directors who are not also employees of the Corporation, and to strengthen the mutuality of interests between such key employees, consultants, and directors by awarding such key employees, consultants, and directors performance-based stock incentives and/or other equity interests or equity-based incentives in the Corporation, as well as performance-based incentives payable in cash. The provisions of the Plan are intended to satisfy the requirements of Section 16(b) of the Exchange Act, and shall be interpreted in a manner consistent with the requirements thereof, as now or hereafter construed, interpreted, and applied by regulations, rulings, and cases. The Plan is also designed so that awards granted hereunder intended to comply with the requirements for “performance-based” compensation under Section 162(m) of the Code may comply with such requirements. The creation and implementation of the Plan will not diminish or prejudice other compensation plans or programs approved from time to time by the Board. For purposes of the Plan, the following terms shall be defined as set forth below: A. “Affiliate” means any entity other than the Corporation and its Subsidiaries that is designated by the Board as a participating employer under the Plan, provided that the Corporation directly or indirectly owns at least 20% of the combined voting power of all classes of stock of such entity or at least 20% of the ownership interests in such entity. B. “Board” means the Board of Directors of the Corporation. C. “Cause” has the meaning provided in Section 5(j) of the Plan. D. “Change in Control” has the meaning provided in Section 9(b) of the Plan. E. “Change in Control Price” has the meaning provided in Section 9(d) of the Plan. F. “Common Stock” means the Corporation’s Common Stock, $.50 par value per share. G. “Code” means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto. H. “Committee” means the Committee referred to in Section 2 of the Plan. I. “Corporation” means Dollar General Corporation, a corporation organized under the laws of the State of Tennessee, or any successor corporation. Mr. Calbert, Chairman compensation of our chief executive officer Mr. Agrawal B-1 J. “Disability” means disability as determined under• Determines the compensation of our officers and recommends the Corporation’s Group Long Term Disability Insurance Plan. K. “Dividend Equivalents” means an amount equal to the cash dividends paid by the Corporation upon one share of Common Stock for each Restricted Unit or property distributions awarded to a Participant in accordance with Section 7 or 8 of the Plan. L. “Early Retirement” means retirement, for purposes of this Plan with the express consent of the Corporation at or before the time of such retirement, from active employment with the Corporation and any Subsidiary or Affiliate prior to age 65, in accordance with any applicable early retirement policy of the Corporation then in effect or as may be approved by the Committee. M. “Effective Date” has the meaning provided in Section 13 of the Plan. N. “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and any successor thereto. O. “Fair Market Value” means with respect to the Common Stock, as of any given date or dates, unless otherwise determined by the Committee in good faith, the reported closing price of a share of Common Stock on the NYSE or such other market or exchange as is the principal trading market for the Common Stock, or, if no such sale of a share of Common Stock is reported on NYSE or other exchange or principal trading market on such date, the fair market value of a share of Common Stock as determined by the Committee in good faith. P. “Incentive Stock Option” means any Stock Option intended to be and designated as an “Incentive Stock Option” within the meaning of Section 422 of the Code. Q. “Immediate Family” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include adoptive relationships. R. “Non-Employee Director” means a member of the Board who is a Non-Employee Director within the meaning of Rule 16b-3(b)(3) promulgated under the Exchange Act and an outside director within the meaning of Treasury Regulation Sec. 162-27(e)(3) promulgated under the Code. S. “Non-Qualified Stock Option” means any Stock Option that is not an Incentive Stock Option. T. “Normal Retirement” means retirement from active employment with the Corporation and any Subsidiary or Affiliate on or after age 65. U. “NYSE” means the New York Stock Exchange. V. “Outside Director” means a member of the Board who is not an officer or employee of the Corporation or any Subsidiary or Affiliate of the Corporation.Mr. Bryant compensation of our directors Mr. Jones B-2 W. “Outside Director Option” means an award to an Outside Director under Section 8(b) below. X. “Outside Director Restricted Unit Award” means an award to an Outside Director under Section 8(c) below. Y. “Performance Goals” means one or more of the performance measures listed below:• Recommends, when appropriate, changes to our compensation(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.Mr. Rhodes philosophy and principles Where applicable, the Performance Goals may be expressed in terms of attaining a specified level of the particular criteria or the attainment of a percentage increase or decrease in the particular criteria, and may be applied to one or more of the Corporation or any Subsidiary or Affiliate, or a division or strategic business unit of the Corporation, or may be applied to the performance of the Corporation relative to a market index, a group of other companies, or a combination thereof, all as determined by the Committee. The Performance Goals may include a threshold level of performance below which no payment will be made (or no vesting will occur), levels of performance at which specified payments will be made (or specified vesting will occur), and a maximum level of performance above which no additional payment will be made (or at which full vesting will occur).B-3 Z. “Plan” means this Dollar General Corporation 1998 Stock Incentive Plan, as amended from time to time. AA. “Restricted Stock” means an award of shares of Common Stock that is subject to restrictions under Section 7 of the Plan. BB. “Restricted Unit” means the right to receive, pursuant to the Plan, one share of Common Stock at the end of a specified period of time, which right is subject to forfeiture in accordance with Section 7 or 8 of the Plan. CC. “Restriction Period” has the meaning provided in Section 7 of the Plan. DD. “Retirement” means Normal or Early Retirement. EE. “Section 162(m) Maximum” has the meaning provided in Section 3(a) hereof. FF. “Stock Appreciation Right” means the right pursuant to an award granted under Section 6 below to surrender to the Corporation all (or a portion) of a Stock Option in exchange for an amount equal to the difference between (i) the Fair Market Value, as of the date such Stock Option (or such portion thereof) is surrendered, of the shares of Common Stock covered by such Stock Option (or such portion thereof), subject, where applicable, to the pricing provisions in Section 6(b)(ii), and (ii) the aggregate exercise price of such Stock Option (or such portion thereof). GG. “Stock Option” or “Option” means any option to purchase shares of Common Stock (including Restricted Stock, if the Committee so determines) granted pursuant to Section 5 below. HH. “Subsidiary” means any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation if each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain.• Administers overall compensation and benefits programs SECTION 2. Administration. Except as provided below, the Plan shall be administered by a Committee of not less than two Non-Employee Directors, who shall be appointed by the Board• Recommends any changes in our incentive compensation and who shall serve at the pleasure of the Board. The functions of the Committee specified in the Plan may be exercised by an existing Committee of the Board composed exclusively of Non-Employee Directors. The initial Committee shall be the Corporate Governance and Compensation Committee of the Board. In the event there are not at least two Non-Employee Directors on the Board, the Plan shall be administered by the Board and all references herein to the Committee shall refer to the Board. The Committee shall have the power to delegate authority to the Corporation’s Chief Executive Officer, or to a committee composed of executive officers of the Corporation, to grant, on behalf of the Committee, Non-Qualified Stock Options exercisable at Fair Market Value on the date of grant, subject to such guidelines as the Committee may determine from time to time; provided, however that (i) options may only be granted pursuant to such delegated authority for the purposes specified by the Committee, which may include attracting new employees, awarding outstanding performance, or retaining employees,B-4(ii) the Committee shall specify the maximum number of shares that may be granted for purposes of attracting any single new employee at any specified level and the maximum number that may be granted to any other employee for any other purpose, and (iii) a report of each grant of an option pursuant to such delegated authority shall be presented to the Committee at the first meeting of the Committee following such grant. Options granted pursuant to such delegated authority in accordance herewith shall be deemed, to the extent permitted under applicable law, to have been granted by the Committee for all purposes under the Plan. The Committee shall have authority to grant, pursuant to the terms of the Plan, to officers, other key employees and consultants eligible under Section 4: (i) Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, and/or (iv) Restricted Units. In particular, the Committee, or the Board, as the case may be, shall have the authority, consistent with the terms of the Plan: (a) to select the officers, key employees of and consultants to the Corporation and its Subsidiaries and Affiliates to whom Stock Options, Stock Appreciation Rights, Restricted Stock, and/or Restricted Units may from time to time be granted hereunder; (b) to determine whether and to what extent Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock, and/or Restricted Units or any combination thereof, are to be granted hereunder to one or more eligible persons; (c) to determine the number of shares to be covered by each such award granted hereunder; (d) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder (including, but not limited to, the share price and any restriction or limitation, or any vesting acceleration or waiver of forfeiture restrictions regarding any Stock Option or other award and/or the shares of Common Stock relating thereto, based in each case on such factors as the Committee shall determine, in its sole discretion); and to amend or waive any such terms and conditions to the extent permitted by Section 10 hereof; (e) to determine whether and under what circumstances a Stock Option may be settled in cash or Restricted Stock under Section 5(l) or (m), as applicable, instead of Common Stock; (f) to determine whether, to what extent, and under what circumstances Option grants and/or other awards under the Plan are to be made, and operate, on a tandem basis vis-à-vis other awards under the Plan and/or cash awards made outside of the Plan; (g) to determine whether, to what extent, and under what circumstances shares of Common Stock and other amounts payable with respect to an award under this Plan shall be deferred either automatically or at the election of the participant (including providing for and determining the amount (if any) of any deemed earnings on any deferred amount during any deferral period);B-5 (h) to determine the terms, conditions, and restrictions of any Performance Goals and the number of Options, Stock Appreciation Rights, shares of Restricted Stock, or Restricted Units subject thereto; (i) to determine whether to require payment of tax withholding requirements in shares of Common Stock subject to the award; and (j) to impose any holding period required to satisfy Section 16 under the Exchange Act. The Committee shall have the authority to adopt, alter, and repeal such rules, guidelines, and practices governing the Plan as it shall, from time to time, deem advisable; to interpret the terms and provisions of the Plan and any award issued under the Plan (and any agreements relating thereto); and to otherwise supervise the administration of the Plan; and, except as expressly set forth herein or otherwise required by law, all decisions made by the Committee pursuant to the provisions of the Plan shall be made in the Committee’s sole discretion and shall be final and binding on all persons, including the Corporation and Plan participants. SECTION 3. Shares of Common Stock Subject to Plan. (a) As of the Effective Date, the aggregate number of shares of Common Stock that may be issued under the Plan shall be 29,375,000 shares. The shares of Common Stock issuable under the Plan may consist, in whole or in part, of authorized and unissued shares or treasury shares. No officer of the Corporation or other person whose compensation may be subject to the limitations on deductibility under Section 162(m) of the Code shall be eligible in any fiscal year to receive awards of stock options or stock appreciation rights pursuant to this Plan relating to in excess of 1,500,000 shares of Common Stock in the aggregate or to receive other equity awards pursuant to this Plan relating to in excess of 500,000 shares of Common Stock in the aggregate (the “Section 162(m) Maximum”). (b) If any shares of Common Stock that have been optioned cease to be subject to a Stock Option, or if any shares of Common Stockequity-based plans that are subject to any Restricted Stock granted hereunder are forfeitedBoard approvalpaymentfiling of any dividends, if applicable, with respectthe proxy statement, the disclosure prepared regarding executive compensation, including the Compensation Discussion and Analysis and compensation tables (in addition to such shares of Common Stock, or if any shares of Common Stock that are subjectpreparing a report on executive compensation for the proxy statement)any Restricted Units granted hereunder are forfeited, or any such award otherwise terminates without a payment being made to the participant in the form of Common Stock, such shares shall again be available for distribution in connection with future awards under the Plan. (c) In the event of any merger, reorganization, consolidation, recapitalization, extraordinary cash dividend, stock dividend, stock split or other change in corporate structure affecting the Common Stock, an appropriate substitution or adjustment shall be made in the maximum number of sharesour Board that may be awarded under the Plan, in the number and option price of shares subject to outstanding Options granted under the Plan, in the Performance Goals, in the number of shares underlying Outside Director Options and Outside Director Restricted Units to be granted under Section 8 hereof and in the number of Restricted Units outstanding, in the Section 162(m) Maximum, and in the number of shares subject to other outstanding awards granted under the Plan as may be determined to be appropriate by the Committee, in its sole discretion, provided that the number of shares subject to any award shall always be a whole number. An adjusted option price shall also be used to determine the amount payable by the Corporation upon the exercise of any Stock Appreciation Right associated with any Stock Option.B-6 SECTION 4. Eligibility. Officers, other key employees and Outside Directors of and consultantsrelevant to the Corporationannual evaluation of performance and its Subsidiaries and Affiliates who are responsible for or contribute to the management, growth and/or profitability of the business of the Corporation and/or its Subsidiaries and Affiliates are eligible to be granted awards under the Plan. Outside Directors are eligible to receive awards pursuant to Section 8 and not pursuant to any other provisions of the Plan. SECTION 5. Stock Options. Stock Options may be granted alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. Any Stock Option granted under the Plan shall be in such form as the Committee may from time to time approve. Stock Options granted under the Plan may be of two types: (i) Incentive Stock Options and (ii) Non-Qualified Stock Options. Incentive Stock Options may be granted only to individuals who are employees of the Corporation or any Subsidiary of the Corporation. No Incentive Stock Option shall be granted on or following the tenth anniversary of the earlier of (i) the effectiveness of the Plan or (ii)Board and its committeesdatecommittee has expertiseCORPORATE GOVERNANCE: members of our Board Mr. Calbert, Chairman Mr. Agrawal committees Mr. Jones approvalproposals relating to matters of which the committee has expertisePlan.Board and its committees. The Committee shall
Fiscal 2009 Director CompensationName Fees
Earned
or Paid
in Cash
($) Stock
Awards
($)(1) Option
Awards
($)(2) All Other
Compensation
($)(3) Total
($) 47,195 34,389 53,171 — 134,755 15,217 34,389 53,171 — 102,777 52,268 34,389 53,171 — 139,828 47,195 34,389 53,171 — 134,755 17,504 34,389 53,171 — 105,064 6,681 34,403 54,290 — 95,374 10,000 — — — 10,000
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Compensation Discussion and AnalysisName Target Payout Percentage 100% 70% 65% 65% 65% % of Target Performance Level % of Bonus Target 50% 60% 70% 80% 90% 100% 110% 120% 130% 140% 150% 160% 170% 180% 190% 200% (1) Name Target Payout Percentage 65% 65% 65% Name and
Principal Position(1) Year Salary
($)(2) Bonus
($)(3) Stock
Awards
($)(4) Option
Awards
($)(5) Non-Equity
Incentive Plan
Compensation
($)(6) All Other
Compensation
($) Total
($) Richard W. Dreiling, 2009 1,100,876 — — — 2,434,924 885,525 (7) 4,421,325 Chairman & 2008 1,000,038 — — — 2,176,300 343,397 3,519,735 Chief Executive Officer 2007 34,615 2,000,000 4,450,000 6,241,750 41,760 62,141 12,830,266
David L. Bere,
2009
756,583
—
—
—
—
4,013,610
(8)
4,770,193
Former President & 2008 739,053 — — — 1,319,885 211,275 2,270,213 Chief Strategy Officer 2007 717,528 — — 6,084,450 1,009,400 187,402 7,998,780
David M. Tehle,
2009
626,884
—
—
—
888,258
275,313
(9)
1,790,455
Executive Vice President 2008 612,358 — — — 870,431 153,431 1,636,220 & Chief Financial Officer 2007 594,523 — — 2,974,620 493,213 130,456 4,192,812
Kathleen R. Guion,
2009
606,180
—
—
—
858,922
243,856
(10)
1,708,958
Executive Vice 2008 581,689 — — — 841,684 141,333 1,564,706 President, 2007 512,520 — — 2,366,175 425,184 115,217 3,419,096 Division President, Store Operations & Store Development
Todd J. Vasos,
2009
595,023
—
—
—
840,021
88,659
(11)
1,523,703
Executive Vice President, Division President, Chief Merchandising Officer
Grants of Plan-Based Awards in Fiscal 2009 Estimated Possible Payouts Under
Non-Equity Incentive Plan Awards Name Threshold
($) Target
($) Maximum
($) 560,500 1,121,000 2,500,000 265,769 531,537 2,500,000 204,479 408,959 2,500,000 197,726 395,452 2,500,000 193,375 386,750 2,500,000
Outstanding Equity Awards at 2009 Fiscal Year-End Option Awards Name Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable(1) Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)(2) Option
Exercise
Price
($) Option
Expiration
Date 285,714 (3) 428,571 — 7.9975 07/06/2017 428,571 (4) — 285,714 7.9975 07/06/2017
3,319
(5)
—
—
2.1875
08/12/2012 10,051 (6) — — 2.1875 03/13/2013 14,465 (7) — — 2.1875 03/23/2017 257,144 (3) 385,713 — 7.9975 07/06/2017 385,715 (4) — 257,142 7.9975 07/06/2017
31,101
(8)
—
—
2.1875
08/09/2014 25,408 (9) — — 2.1875 08/24/2014 47,505 (10) — — 2.1875 03/16/2016 5,704 (7) — — 2.1875 03/23/2017 125,714 (3) 188,571 — 7.9975 07/06/2017 188,571 (4) — 125,714 7.9975 07/06/2017
13,110
(11)
—
—
2.1875
12/02/2013 20,288 (9) — — 2.1875 08/24/2014 37,922 (10) — — 2.1875 03/16/2016 4,557 (7) — — 2.1875 03/23/2017 100,000 (3) 150,000 �� 7.9975 07/06/2017 150,000 (4) — 100,000 7.9975 07/06/2017
50,000
(12)
200,000
—
7.9975
12/19/2018 58,333 (13) — 191,667 7.9975 12/19/2018
Option Exercises and Stock Vested During Fiscal 2009 Stock Awards Name Number of Shares
Acquired on
Vesting
(#)(1) Value Realized
on Vesting
($)(2) 508,572 11,468,299 — — — — — — — —
Nonqualified Deferred Compensation
Fiscal 2009Name Executive
Contributions
in Last FY
($)(1) Registrant
Contributions
in Last FY
($)(2) Aggregate
Earnings
in Last FY
($)(3) Aggregate
Balance
at Last FYE
($)(4) 55,044 283,154 12,276 358,728 103,823 181,140 138,165 713,929 31,344 131,248 127,781 610,903 78,455 126,509 121,809 662,943 — — — — Name Fiscal 2008
($) Fiscal 2007
($) Fiscal 2006
($) Fiscal 2005
($) Fiscal 2004
($)* 8,334 — — — — 243,784 122,431 — — — 132,467 117,642 102,104 84,387 3,333 143,106 98,597 61,503 43,168 57,689 — — — — —
Potential Payments to Named Executive Officers Upon Occurrence of
Various Termination Events As of January 29, 2010 Involuntary
Without
Cause or
Voluntary
With Good
Reason
($) Voluntary
Without
Good
Reason
($)(1) Involuntary
With Cause
($)(1) Change in
Control
($)(2) Death
($) Disability
($) Retirement
($) Name/Item 0 11,066,060 0 11,066,060 11,066,060 11,066,060 11,066,060 n/a n/a n/a 2,213,212 2,213,212 n/a 11,066,060 245,032 245,032 245,032 245,032 245,032 245,032 245,032 n/a n/a n/a n/a n/a n/a n/a 113,697 113,697 113,697 113,697 113,697 113,697 113,697 n/a 4,484,000 n/a 0 2,434,924 n/a 4,484,000 n/a 12,470 n/a n/a 12,470 n/a 12,470 n/a 10,000 n/a n/a n/a n/a 10,000 n/a n/a n/a n/a n/a n/a 0 n/a n/a n/a 2,802,500 n/a n/a n/a 358,728 15,931,259 358,728 16,440,501 16,085,395 11,424,789 26,997,319 2,337,268 7,206,328 2,337,268 7,206,328 7,206,328 7,206,328 7,206,328 n/a n/a n/a 973,812 973,812 n/a 4,869,060 362,338 362,338 362,338 362,338 362,338 362,338 362,338 n/a n/a n/a n/a n/a n/a n/a 248,565 248,565 248,565 248,565 248,565 248,565 248,565 n/a 3,426,632 n/a n/a n/a n/a 3,426,632 n/a 19,790 n/a n/a n/a n/a 19,790 n/a 10,000 n/a n/a n/a n/a 10,000 n/a n/a n/a n/a n/a n/a 2,192,270 n/a n/a n/a 1,572,918 n/a n/a n/a 2,948,171 11,273,653 2,948,171 10,363,961 8,791,043 7,817,231 18,334,984 1,616,370 5,489,495 1,616,370 5,489,495 5,489,495 5,489,495 5,489,495 n/a n/a n/a 774,625 774,625 n/a 3,873,125 330,245 330,245 330,245 330,245 330,245 330,245 330,245 n/a n/a n/a n/a n/a n/a n/a 332,697 332,697 332,697 332,697 332,697 332,697 332,697 n/a 3,313,464 n/a n/a n/a n/a 3,313,464 n/a 12,470 n/a n/a n/a n/a 12,470 n/a 10,000 n/a n/a n/a n/a 10,000 n/a n/a n/a n/a n/a n/a 1,888,207 n/a n/a n/a 1,520,970 n/a n/a n/a 2,279,313 9,488,371 2,279,313 8,448,033 6,927,063 6,152,438 15,249,703 Involuntary
Without
Cause or
Voluntary
With Good
Reason
($) Voluntary
Without
Good
Reason
($)(1) Involuntary
With Cause
($)(1) Change in
Control
($)(2) Death
($) Disability
($) Retirement
($) Name/Item 0 1,678,349 0 1,678,349 1,678,349 1,678,349 1,678,349 n/a n/a n/a 774,625 774,625 n/a 6,067,901 0 0 0 0 0 0 0 n/a n/a n/a n/a n/a n/a n/a 0 0 0 0 0 0 0 n/a 3,240,549 n/a n/a n/a n/a 3,240,549 n/a 11,870 n/a n/a n/a n/a 11,870 n/a 10,000 n/a n/a n/a n/a 10,000 n/a n/a n/a n/a n/a n/a 2,892,653 n/a n/a n/a 1,487,500 n/a n/a n/a 0 4,940,767 0 3,940,474 2,452,974 1,678,349 13,901,321
Payments to Mr. Bere in Connection With Termination on January 29, 2010 $ 379,454 $ 334,475 $ 2,581,753 $ 1,154,575 $ 19,790 $ 4,470,047
Compensation Committee Interlocks and Insider Participation
Compensation Risk Considerations
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Security Ownership of Certain Beneficial OwnersName and Address of Beneficial Owner Amount and Nature of
Beneficial Ownership Percent of
Class 299,713,583 87.9 %
Security Ownership of Officers and DirectorsName of Beneficial Owner Amount and Nature of
Beneficial OwnershipPercent of Class — * 4,000 * 10,000 * — * 4,000 * 4,500 * 1,037,482 * 596,095 * 433,143 * 343,256 * 182,619 * 3,253,917 *
PROPOSAL 2:
RATIFICATION OF APPOINTMENT OF AUDITORSService 2009 Aggregate Fees Billed ($) 2008 Aggregate Fees Billed ($) 2,512,641 1,911,418 28,500 28,500 1,310,650 218,129 6,000 6,000
SHAREHOLDER PROPOSALS
FOR 2011 ANNUAL MEETING
grant tovote for any optionee Incentive Stock Options, Non-Qualified Stock Options, or both types of Stock Options (in each case with or without Stock Appreciation Rights). Options granted to officers, key employees, Outside Directorsindividual nominee(s), mark “For All Except” and consultants underwrite the Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the termsnumber(s) of the Plan, as the Committee shall deem desirable: (a) Option Price. The option price per share of Common Stock purchasable under a Stock Option shall be determined by the Committee at the time of grant but shall be not less than 100% (or, in the case of any employee who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Corporation or of any of its Subsidiaries, not less than 110%) of the Fair Market Value of the Common Stock at grant. Except as provided in Section 3(c), the Committee shall not have the power or authority to reduce, whether through amendment or otherwise, the exercise price of any outstanding Stock Option without prior shareholder approval. (b) Option Term. The term of each Stock Option shall be fixed by the Committee, but no Stock Option (Incentive or Non-Qualified) shall be exercisable more than ten years (or, in the case of an employee who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Corporation or any of its Subsidiaries or parent corporations, no Incentive Stock Option shall be exercisable more than five years) after the date the Option is granted. (c) Exercisability. Stock Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee at or after grant; provided however, that Stock Options shall have a minimum vesting period of six months from the date of grant. The Committee may provide that a Stock Option shall vest over a period of future service at a rate specified at the time of grant, or that the Stock Option is exercisable only in installments. If the Committee provides, in its sole discretion, that any Stock Option is exercisable only in installments, the Committee may waive such installment exercise provisions at any time at or after grant, in whole or in part, based on such factors as the Committee shall determine in its sole discretion.B-7 (d) Method of Exercise. Subject to whatever installment exercise restrictions apply under Section 5(c), Stock Options may be exercised in whole or in part at any time during the option period, by giving written notice of exercise to the Corporation specifying the number of shares to be purchased. As determined by the Committee, in its sole discretion, at or (except in the case of an Incentive Stock Option) after grant, payment in full or in part may also be made in the form of shares of Common Stock already owned by the optionee or, in the case of a Non-Qualified Stock Option, shares of Restricted Stock or (to the extent approved by the Committee prior to April 9, 2003) shares subject to such Option or another award hereunder (in each case valued at the Fair Market Value of the Common Stocknominee(s) on the dateline below. 000000 0000063383_1 R2.09.05.010 For Withhold For All All All Except The Board of Directors recommends that you vote FOR the Option is exercised). If paymentfollowing: 1. Election of Directors Nominees 01 Raj Agrawal 02 Warren F. Bryant 03 Michael M. Calbert 04 Richard W. Dreiling 05 Adrian Jones 06 William C. Rhodes, III 07 David B. Rickard DOLLAR GENERAL CORP ATTN: INVESTOR RELATIONS 100 MISSION RIDGE GOODLETTSVILLE, TN 37072 VOTE BY INTERNET - www.proxyvote.com Use the exercise price is made in part or in full with Common Stock, the Committee may awardInternet to the employee a new Stock Option to replace the Common Stock which was surrendered. If paymenttransmit your voting instructions and for electronic delivery of the option exercise price of a Non-Qualified Stock Option is made in whole or in part in the form of Restricted Stock, such Restricted Stock (and any replacement shares relating thereto) shall remain (or be) restricted in accordance with the original terms of the Restricted Stock award in question, and any additional Common Stock received upon the exercise shall be subject to the same forfeiture restrictions, unless otherwise determined by the Committee, in its sole discretion, at or after grant. No shares of Common Stock shall be issuedinformation up until full payment therefor (either by check, note, or such other instrument as the Committee may accept) has been made. An optionee shall generally have the rights to dividends or other rights of a shareholder with respect to shares subject to the Option when the optionee has given written notice of exercise, has paid in full for such shares, and, if requested, has given the representation described in Section 12(a). (e) Transferability of Options. No Non-Qualified Stock Option shall be transferable by the optionee without the prior written consent of the Committee other than (i) transfers by the Optionee to a member of his or her Immediate Family or a trust for the benefit of the optionee or a member of his or her Immediate Family, or (ii) transfers by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order. No Incentive Stock Option shall be transferable by the optionee otherwise than by will or by the laws of descent and distribution and all Incentive Stock Options shall be exercisable, during the optionee’s lifetime, only by the optionee. (f) Bonus for Taxes. In the case of a Non-Qualified Stock Option or an optionee who elects to make a disqualifying disposition (as defined in Section 422(a)(1) of the Code) of Common Stock acquired pursuant to the exercise of an Incentive Stock Option, the Committee in its discretion may award at the time of grant or thereafter the right to receive upon exercise of such Stock Option a cash bonus calculated to pay part or all of the federal and state, if any, income tax incurred by the optionee upon such exercise. (g) Termination by Death. Subject to Section 5(k), if an optionee’s employment by the Corporation and any Subsidiary or (except in the case of an Incentive Stock Option) Affiliate terminates by reason of death, any Stock Option held by such optionee may thereafter be exercised, to the extent such option was exercisable at the time of death or11:59 P.M. Eastern Time on such accelerated basis as the Committee may determine at or after grant (or as may be determined in accordance with procedures established by the Committee) by the legal representative of the estate or by the legatee of the optionee under the will of the optionee, for a period of three years (or such other period as the Committee may specify at or after grant) from the date of such death or until the expiration of the stated term of such Stock Option, whichever period is the shorter.B-8 (h) Termination by Reason of Disability. Subject to Section 5(k), if an optionee’s employment by the Corporation and any Subsidiary or (except in the case of an Incentive Stock Option) Affiliate terminates by reason of Disability, any Stock Option held by such optionee may thereafter be exercised by the optionee, to the extent it was exercisable at the time of termination or (except in the case of an Incentive Stock Option) on such accelerated basis as the Committee may determine at or after grant (or, except in the case of an incentive Stock Option, as may be determined in accordance with procedures established by the Committee), for a period of (i) three years (or such other period as the Committee may specify at or after grant) from the date of such termination of employment or until the expiration of the stated term of such Stock Option, whichever period is the shorter, in the case of a Non-Qualified Stock Option and (ii) one year from the date of termination of employment or until the expiration of the stated term of such Stock Option, whichever period is shorter, in the case of an Incentive Stock Option; provided however, that, if the optionee dies within the period specified in (i) above (or other such period as the Committee shall specify at or after grant), any unexercised Non-Qualified Stock Option held by such optionee shall thereafter be exercisable to the extent to which it was exercisable at the time of death for a period of twelve months from the date of such death or until the expiration of the stated term of such Stock Option, whichever period is shorter. In the event of termination of employment by reason of Disability, if an Incentive Stock Option is exercised after the expiration of the exercise period applicable to Incentive Stock Options, but before the expiration of any period that would apply if such Stock Option were a Non-Qualified Stock Option, such Stock Option will thereafter be treated as a Non-Qualified Stock Option. (i) Termination by Reason of Retirement. Subject to Section 5(k), if an optionee’s employment by the Corporation and any Subsidiary or (except in the case of an Incentive Stock Option) Affiliate terminates by reason of Normal or Early Retirement, any Stock Option held by such optionee may thereafter be exercised by the optionee, to the extent it was exercisable at the time of such Retirement or (except in the case of an Incentive Stock Option) on such accelerated basis as the Committee may determine at or after grant (or, except in the case of an Incentive Stock Option, as may be determined in accordance with procedures established by the Committee), for a period of (i) three years (or such other period as the Committee may specify at or after grant) from the date of such termination of employment or the expiration of the stated term of such Stock Option, whichever period is the shorter, in the case of a Non-Qualified Stock Option and (ii) three months from the date of such termination of employment or the expiration of the stated term of such Stock Option, whichever period is the shorter, in the event of an Incentive Stock Option; provided however, that, if the optionee dies within the period specified in (i) above (or other such period as the Committee shall specify at or after grant), any unexercised Non-Qualified Stock Option held by such optionee shall thereafter be exercisable to the extent to which it was exercisable at the time of death for a period of twelve months from the date of such death or until the expiration of the stated term of such Stock Option, whichever period is shorter. In the event of termination of employment by reason of Retirement, if an Incentive Stock Option is exercised after the expiration of the exercise period applicable to Incentive Stock Options, but before the expiration of the period that would apply if such Stock Option were a Non-Qualified Stock Option, the option will thereafter be treated as a Non-Qualified Stock Option. (j) Other Termination. Subject to Section 5(k), unless otherwise determined by the Committee (or pursuant to procedures established by the Committee) at or (except in the case of an Incentive Stock Option) after grant, if an optionee’s employment by the Corporation and any Subsidiary or (except in the case of an Incentive Stock Option) Affiliate is involuntarily terminated for any reason other than death, Disability or Normal or Early Retirement, the Stock Option shall thereupon terminate, except that such Stock Option may be exercised, to the extent otherwise then exercisable, for the lesser of three months or the balance of such Stock Option’s term if the involuntary termination is without Cause. For purposes of this Plan, “Cause” means (i) a felony conviction of a participant or the failure of a participant to contest prosecutio n for a felony, or (ii) a participant’s willful misconduct or dishonesty, which is directly and materially harmful to the business or reputation of the Corporation or any Subsidiary or Affiliate, in each case as determined by the Committee, in its sole direction. Unless otherwise determined by the Committee, if an optionee voluntarily terminates employment with the Corporation and any Subsidiary or (except in the case of an Incentive Stock Option) Affiliate (except for Disability, Normal or Early Retirement), the Stock Option shall thereupon terminate; provided, however, that the Committee at grant or (except in the case of an Incentive Stock Option) thereafter may extend the exercise period in this situation for the lesser of three months or the balance of such Stock Option’s term.B-9 (k) Incentive Stock Options. Anything in the Plan to the contrary notwithstanding, no term of this Plan relating to Incentive Stock Options shall be interpreted, amended, or altered, nor shall any discretion or authority granted under the Plan be so exercised, so as to disqualify the Plan under Section 422 of the Code, or, without the consent of the optionee(s) affected, to disqualify any Incentive Stock Option under such Section 422. No Incentive Stock Option shall be granted to any participant under the Plan if such grant would cause the aggregate Fair Market Value (as of the date the Incentive Stock Option is granted) of the Common Stock with respect to which all Incentive Stock Options are exercisable for the first time by such participant during any calendar year (under all such plans of the Corporation and any Subsidiary) to exceed $100,000. To the extent permitted under Section 422 of the Code or the applicable regulations thereunder or any applicable Internal Revenue Service pronouncement: (i) if (x) a participant’s employment is terminated by reason of death, Disability, or Retirement and (y) the portion of any Incentive Stock Option that is otherwise exercisable during the post-termination period specified under Section 5(g), (h) or (i), applied without regard to the $100,000 limitation contained in Section 422(d) of the Code, is greater than the portion of such Option that is immediately exercisable as an “Incentive Stock Option” during such post-termination period under Section 422, such excess shall be treated as a Non-Qualified Stock Option; and (ii) if the exercise of an Incentive Stock Option is accelerated by reason of a Change in Control, any portion of such Option that is not exercisable as an Incentive Stock Option by reason of the $100,000 limitation contained in Section 422(d) of the Code shall be treated as a Non-Qualified Stock Option. (l) Buyout Provisions. The Committee may at any time offer to buy out for a payment in cash, Common Stock, or Restricted Stock an Option previously granted, based on such terms and conditions as the Committee shall establish and communicate to the optionee at the time that such offer is made. (m) Settlement Provisions. If the option agreement so provides at grant or (except in the case of an Incentive Stock Option) is amended after grant and prior to exercise to so provide (with the optionee’s consent), the Committee may require that all or part of the shares to be issued with respect to the spread value of an exercised Option take the form of Restricted Stock, which shall be valued on the date of exercise on the basis of the Fair Market Value (as determined by the Committee) of such Restricted Stock determined without regard to the forfeiture restrictions involved.B-10 (n) Performance and Other Conditions. The Committee may condition the exercise of any Option upon the attainment of specified Performance Goals or other factors as the Committee may determine, in its sole discretion. Unless specifically provided in the option agreement, any such conditional Option shall vest six months prior to its expiration if the conditions to exercise have not theretofore been satisfied. SECTION 6. Stock Appreciation Rights. (a) Grant and Exercise. Stock Appreciation Rights may be granted in conjunction with all or part of any Stock Option granted under the Plan. In the case of a Non-Qualified Stock Option, such rights may be granted either at or after the time of the grant of such Stock Option. In the case of an Incentive Stock Option, such rights may be granted only at the time of the grant of such Stock Option. A Stock Appreciation Right or applicable portion thereof granted with respect to a given Stock Option shall terminate and no longer be exercisable upon the termination or exercise of the related Stock Option, subject to such provisions as the Committee may specify at grant where a Stock Appreciation Right is granted with respect to less than the full number of shares covered by a related Stock Option. A Stock Appreciation Right may be exercised by an optionee, subject to Section 6(b), in accordance with the procedures established by the Committee for such purpose. Upon such exercise, the optionee shall be entitled to receive an amount determined in the manner prescribed in Section 6(b). Stock Options relating to exercised Stock Appreciation Rights shall no longer be exercisable to the extent that the related Stock Appreciation Rights have been exercised. (b) Terms and Conditions. Stock Appreciation Rights shall be subject to such terms and conditions, not inconsistent with the provisions of the Plan, as shall be determined from time to time by the Committee, including the following: (i) Stock Appreciation Rights shall be exercisable only at such time or times and to the extent that the Stock Options to which they relate shall be exercisable in accordance with the provisions of Section 5 and this Section 6 of the Plan. (ii) Upon the exercise of a Stock Appreciation Right, an optionee shall be entitled to receive an amount in cash and/or shares of Common Stock equal in value to the excess of the Fair Market Value of one share of Common Stock over the option price per share specified in the related Stock Option multiplied by the number of shares in respect of which the Stock Appreciation Right shall have been exercised, with the Committee having the right to determine the form of payment. When payment is to be made in shares, the number of shares to be paid shall be calculated on the basis of the Fair Market Value of the shares on the date of exercise. When payment is to be made in cash, such amount shall be calculated on the basis of the Fair Market Value of the Common Stock on the date of exercise. (iii) Stock Appreciation Rights shall be transferable only when and to the extent that the underlying Stock Option would be transferable under Section 5(e) of the Plan. (iv) Upon the exercise of a Stock Appreciation Right, the Stock Option or part thereof to which such Stock Appreciation Right is related shall be deemed to have been exercised for the purpose of the limitation set forth in Section 3 of the Plan on the number of shares of Common Stock to be issued under the Plan.B-11 (v) The Committee, in its sole discretion, may also provide that, in the event of a Change in Control and/or a Potential Change in Control, the amount to be paid upon the exercise of a Stock Appreciation Right shall be based on the Change in Control Price, subject to such terms and conditions as the Committee may specify at grant. (vi) The Committee may condition the exercise of any Stock Appreciation Right upon the attainment of specified Performance Goals or other factors as the Committee may determine, in its sole discretion. SECTION 7. Restricted Stock and Restricted Units. (a) Administration. Shares of Restricted Stock or Restricted Units may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside the Plan. The Committee shall determine the eligible persons to whom, and the time or times at which, grants of Restricted Stock or Restricted Units will be made, the number of shares of Restricted Stock or Restricted Units to be awarded to any person, the price (if any) to be paid by the recipient of Restricted Stock (subject to Section 7(b)), the time or times within which such awards may be subject to forfeiture, and the other terms, restrictions and conditions of the awards in addition to those set forth in Section 7(c). The Committee may condition the grant of Restricted Stock or Restricted Units upon the attainment of specified Performance Goals or such other factors as the Committee may determine, in its sole discretion. The provisions of Restricted Stock or Restricted Unit awards need not be the same with respect to each recipient. (b) Awards and Certificates for Restricted Stock and Restricted Units. The prospective recipient of a Restricted Stock or Restricted Unit award shall not have any rights with respect to such award, unless and until such recipient has executed an agreement evidencing the award and has delivered a fully executed copy thereof to the Corporation, and has otherwise complied with the applicable terms and conditions of such award. (i) The purchase price for shares of Restricted Stock shall be established by the Committee and may be zero. (ii) Awards of Restricted Stock or Restricted Units must be accepted within a period of 60 days (or such shorter period as the Committee may specify at grant) after the award date, by executing a Restricted Stock Award Agreement or Restricted Stock Unit Award Agreement, as applicable, and paying whatever price (if any) is required under Section 7(b)(i). (iii) Each participant receiving a Restricted Stock award shall be issued a stock certificate in respect of such shares of Restricted Stock or shall have such shares of Restricted Stock evidenced electronically through a book entry transfer. Any such certificate shall be registered in the name of such participant (or a transferee permitted by Section 12(h) hereof), and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such award. In the event that certificates evidencing shares of Restricted Stock are not issued and such awards are held electronically, such shares shall be registered in the name of such participant (or a transferee permitted by Section 12(h) hereof) and shall be subject to account restrictions reflecting the terms, conditions, and restrictions applicable to such award.B-12 (iv) The Committee shall require that the stock certificates evidencing shares of Restricted Stock be held in custody by the Corporation until the restrictions thereon shall have lapsed, and that, as a condition of any Restricted Stock award, the participant shall have delivered a stock power, endorsed in blank, relating to the shares of Common Stock covered by such award. (v) In the case of an award of Restricted Units, no shares of Common Stock shall be issued at the time an award is made, and the Corporation shall not be required to set aside a fund for the payment of such award. (vi) The maximum number of shares eligible for issuance pursuant to this Section 7 and Section 8 below shall be 4,000,000. (c) Restrictions and Conditions. Restricted Stock and Restricted Units awarded pursuant to this Section 7 shall be subject to the following restrictions and conditions: (i) In accordance with the provisions of this Plan and the award agreement, during a period set by the Committee commencing with the date of such award (the “Restriction Period”), the participant shall not be permitted to sell, transfer, pledge, assign, or otherwise encumber shares of Restricted Stock or Restricted Units awarded under the Plan; provided however, that such Restriction Period shall lapse no less than six months from the date of such award. Within these limits, the Committee, in its sole discretion, may provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions, in whole or in part, based on service, the attainment of Performance Goals, or such other factors or criteria as the Committee may determine in its sole discretion. (ii) Except as provided in this paragraph (ii) and Section 7(c)(i), the participant shall have, with respect to the shares of Restricted Stock, all of the rights of a shareholder of the Corporation, including the right to vote the shares, and the right to receive any cash dividends. The Committee, in its sole discretion, as determined at the time of award, may permit or require the payment of cash dividends to be deferred and, if the Committee so determines, reinvested, subject to Section 12(e), in additional Restricted Stock to the extent shares are available under Section 3, or otherwise reinvested. Pursuant to Section 3 above, stock dividends issued with respect to Restricted Stock shall be treated as additional shares of Restricted Stock that are subject to the same restrictions and other terms and conditions that apply to the shares with respect to which such dividends are issued. If the Committee so determines, the award agreement may also impose restrictions on the right to vote and the right to receive dividends. The recipient of an award of Restricted Units shall not have any right, in respect of Restricted Units awarded pursuant to the Plan, to vote on any matter submitted to the shareholders of the Corporation until such time as the shares of Common Stock attributable to such Restricted Units have been issued. At the discretion of the Committee, the recipient’s Restricted Unit account may be credited with Dividend Equivalents during the Restriction Period. At the discretion of the Committee, Dividend Equivalents may be credited in the form of cash or additional Restricted Units. (iii) Subject to the applicable provisions of the award agreement and this Section 7, upon termination of a participant’s employment with the Corporation and any Subsidiary or Affiliate for any reason during the Restriction Period, all shares of Restricted Stock and all Restricted Units still subject to restriction will vest, or be forfeited, in accordance with the terms and conditions established by the Committee at or after grant.B-13 (iv) If and when the Restriction Period expires without a prior forfeiture of the Restricted Stock subject to such Restriction Period, certificates for an appropriate number of unrestricted shares shall be delivered to the participant (or a transferee permitted by Section 12(h) hereof) promptly. Upon the lapse of the Restriction Period with respect to any Restricted Units without a prior forfeiture of such Restricted Units, the Corporation shall deliver to the participant, or the participant’s beneficiary or estate, as the case may be, one share of Common Stock for each Restricted Unit as to which restrictions have lapsed and any Dividend Equivalents credited with respect to such Restricted Units; provided, that any fractional shares of Common Stock to be delivered in respect of a Restricted Unit or related Dividend Equivalent shall be settled in cash based on the Fair Market Value on the date the Restriction Period lapsed with respect to the related Restricted Unit or Dividend Equivalent. The Committee may, in its sole discretion, elect to pay cash or part cash and part Common Stock in lieu of delivering only Common Stock. The amount of such cash payment for each share of Common Stock to which a participant is entitled shall be equal to the Fair Market Value of the Common Stock on the date on which the Restriction Period lapsed with respect to the related Restricted Unit. (d) Minimum Value Provisions. In order to better ensure that award payments actually reflect the performance of the Corporation and service of the participant, the Committee may provide, in its sole discretion, for a tandem performance-based or other award designed to guarantee a minimum value, payable in cash or Common Stock to the recipient of a Restricted Stock or Restricted Unit award, subject to such performance, future service, deferral, and other terms and conditions as may be specified by the Committee. SECTION 8. Awards to Outside Directors. (a) The provisions of this Section 8 shall apply only to awards to Outside Directors in accordance with this Section 8. The Committee shall have no authority to determine the timing of or the terms or conditions of any award under this Section 8. No awards shall be made hereunder until awards are no longer made pursuant to the 1995 Outside Directors Stock Option Plan. Effective June 2, 2003, no additional awards2010. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. Electronic Delivery of Non-Qualified Stock Options shall be made to Outside Directors pursuant to Section 8(b). (b) Outside Director Stock Options (i) A Non-Qualified Stock Option will be awarded hereunder pursuant to the following formula: Each Outside Director shall receive an annual Non-Qualified Stock Option for the purchase of shares of Common Stock determined by dividing (i) the annual retainer for an Outside Director (determined with reference to the rate of annual retainer in effect on the date the Non-Qualified Stock Option is granted) by (ii) the Fair Market Value of a share of Common Stock on the date of the grant, multiplying the result (the quotient) by three, rounding the resulting number of shares up to the nearest whole share. In the event an Outside Director serves as Chairman of the Board, the multiplier in the preceding sentence shall be four in lieu of three. The exercise price of each Non-Qualified Stock Option granted hereunder shall be the Fair Market Value on the date of grant.B-14 (ii) Each Outside Director Option shall vest and become exercisable on the first anniversary of the date of grant if the grantee is still a member of the Board on such date, but shall not be exercisable before such date except as provided in Section 9. (iii) No Outside Director Option shall be exercisable prior to vesting. Each Outside Director Option shall expire, if unexercised, on the tenth anniversary of the date of grant. The exercise price may be paid in cash or in shares of Common Stock, including shares of Common Stock subject to the Outside Director Option. (iv) Outside Director Options shall not be transferable without the prior written consent of the Board other than (i) transfers by the optionee to a member of his or her Immediate Family or a trust for the benefit of optionee or a member of his or her Immediate Family, or (ii) transfers by will or by the laws of descent and distribution. (v) Recipients of Outside Director Options shall enter into a stock option agreement with the Corporation setting forth the exercise price and other terms as provided herein. (vi) Upon termination of an Outside Director’s service as a director of the Corporation, (i) all Outside Director Options shall be governed by the provisions of Sections 5(g), 5(i), and 5(j) hereof as if Outside Directors were employees of the Corporation, except that there shall be no discretion to accelerate the vesting of any Outside Director Options in connection with the termination of service of any individual Outside Director. (vii) Outside Director Options shall be subject to Section 9. The number of shares and the exercise price per share of each Outside Director Option theretofore awarded shall be adjusted automatically in the same manner as the number of shares and the exercise price for Stock Options under Section 3(c) hereof at any time that Stock Options are adjusted as provided in Section 3(c). The number of shares underlying Outside Director Options to be awarded in the future shall be adjusted automatically in the same manner as the number of shares underlying outstanding Stock Options are adjusted under Section 3(c) hereof at any time that Stock Options are adjusted under Section 3(c) hereof. (c) Outside Director Restricted Unit Awards (i) Each Outside Director shall receive an annual Outside Director Restricted Unit Award of 4,600 Restricted Units. In the event an Outside Director serves as Chairman of the Board, the annual Outside Director Restricted Unit Award shall be 6,000 Restricted Units. (ii) Subject to earlier vesting as provided in Section 9, each Outside Director Restricted Unit Award shall vest on the first anniversary of the date of grant if the grantee is still a member of the Board on such date. (iii) An Outside Director shall not have any right, in respect of Restricted Units awarded pursuant to the Plan, to vote on any matter submitted to the Corporation’s shareholders until such time as the shares of Common Stock attributable to such Restricted Units have been issued.B-15 (iv) Dividend Equivalents. Whenever a dividend, other than a dividend payable in the form of shares of Common Stock, is declared with respect to the shares of Common Stock, the number of Restricted Units credited to an Outside Director shall be increased by the number of Restricted Units determined by dividing: (A) the product of: (1) the number of Restricted Units credited to such Outside Director on the related dividend record date and (2) the amount of any cash dividend declared by the Corporation on a share of Common Stock (or, in the case of any dividend distributable in property other than shares of Common Stock, the per share value of such dividend, as determined by the Corporation for purposes of Federal income tax reporting) by (B) the Fair Market Value on the related dividend payment date. (v) Subject to Section 9 and (xiii) below, no shares of Common Stock shall be distributed, or amount paid, to any Outside Director in respect of any Restricted Units until such time as such Outside Director has ceased to be a member of the Board (but in no event earlier than the first day of the calendar month that is at least more than six months after the Service Termination Date (as defined below) if the Outside Director is considered to be a key employee of a publicly traded employer for purposes of the distribution limitations of Section 409A(a)(2)(B)(i) of the Code). (vi) An Outside Director may elect: (A) to receive a distribution of shares of Common Stock in respect of the Outside Director’s Restricted Units in a single lump sum payment or in such number of annual installments, not to exceed ten, as the Outside Director shall elect; and (B) whether the lump sum distribution or first installment shall be made: (1) as soon as practicable after the Service Termination Date (subject to deferral to the first day of the calendar month that is more than six months after the Service Termination Date if the Outside Director is considered to be a key employee of a publicly traded employer for purposes of the distribution limitations of Section 409A of the Code as provided in (v) above); (2) on the first day of the calendar month beginning more than six months after the Service Termination Date; or (3) on the first anniversary of the Service Termination Date. Each Outside Director is entitled to make the initial payment elections (the “Initial Payment Elections”) described above which will apply to all Restricted Units granted to the Outside Director hereunder. If an Outside Director fails to make such elections in accordance with the procedures set forth herein, the Initial Payment Elections will be considered to be the Plan’s Default Payment Provisions (as defined below). When used herein, the term “Initial Payment Elections”B-16means either the Initial Payment Elections made by the Outside Director or, if no such Initial Payment Elections have been made, the Plan’s Default Payment Provisions. An Outside Director receiving a grant of Restricted Units for the first time must make the Initial Payment Elections, if at all, within thirty (30) calendar days after the initial grant date (or by any other date permitted or required by Section 409A of the Code and utilized by the Committee, including, without limitation, the December 31, 2005 election deadline provided in IRS Notice 2005-1) or the Plan’s Default Payment Provisions will apply. The Initial Payment Elections of an Outside Director who was granted Restricted Units prior to December 31, 2004 will be those in place on December 31, 2005 (or on any other date permitted or required by Section 409A of the Code and utilized by the Committee). An Outside Director may make changes to the Initial Payment Elections subject to the following conditions: (A) such changes may not be made later than one full year prior to the date as of which his or her service as an Outside Director terminates (the “Service Termination Date”); (B) an Outside Director may not make any change to either the Initial Payment Elections or to any subsequent payment elections after December 31, 2005 that would have the effect of accelerating the time or schedule of payment (e.g., change from installments to a lump sum or accelerate time of payment); and (C) except for elections to change the time or form of payment in the case of death or disability (within the meaning of Section 409A(a)(2)(C) of the Code), such changes must defer the first payment for at least five (5) years from the otherwise applicable payment date. All payment elections (whether Initial or subsequent) shall be filed in writing with the Secretary of the Corporation and shall be effective when received by the Secretary; provided that, if an Outside Director’s Service Termination Date occurs within one full year of the date an election is received it shall be deemed to be ineffective and the last election filed more than twelve months before the Service Termination Date shall be deemed to be effective. (vii) Any payment to be made to an Outside Director shall be made in shares of Common Stock; provided, that any fractional shares of Common Stock to be delivered in respect of Restricted Units shall be settled in cash based upon the Fair Market Value on the last business day immediately prior to the date such shares would otherwise have been delivered to the Outside Director or the Outside Director’s beneficiary; provided, further, that the Committee may, in its sole discretion, elect to pay cash, or part cash and part Common Stock in lieu of delivering only Common Stock for Restricted Units. If a cash payment is made in lieu of delivering Common Stock, the amount of such cash payment for each share of Common Stock to which a Participant is entitled shall be equal to the Fair Market Value of the Common Stock on the last business day immediately prior to the date on which the distribution is required to be made. (viii) If an Outside Director fails to specify a commencement date for a distribution in accordance with Section 8(c)(vi), such distribution shall commence as soon as practicable after the Service Termination Date, unless the Outside Director is considered to be a keyB-17employee of a publicly traded employer for purposes of the distribution limitations of Section 409A of the Code as provided in (v) above, in which case the distribution shall commence on the first day of the calendar month that is at least six months after the Service Termination Date (the “Plan’s Default Payment Time”). If an Outside Director fails to specify whether a distribution shall be made in a lump-sum payment or a number of installments, such distribution shall be made in a lump-sum payment (the “Plan’s Default Payment Form” and, together with the Plan’s Default Payment Time, the “Plan’s Default Payment Provisions”). (ix) In the case of any distribution being made in annual installments, each installment after the first installment shall be paid on the first business day of each subsequent calendar year until the entire amount shall have been paid. The value of any installment payment payable in cash shall be an amount equal to the product of: (A) the number of Restricted Units then standing to the credit of an Outside Director (which shall be net of the number of Restricted Units with respect to which a prior installment payment has been made); (B) the Fair Market Value of a share of Common Stock on the last business day immediately prior to the date as of which such installment is payable; and (C) a fraction, the numerator of which is one and the denominator of which is the number of installments (including the then current installment) remaining to be paid. (x) Outside Director Restricted Unit Awards shall not be transferable without the prior written consent of the Board other than (i) transfers by the holder to a member of his or her Immediate Family or a trust for the benefit of the holder or a member of his or her Immediate Family, or (ii) transfers by will or by the laws of descent and distribution or a qualified domestic relations order. (xi) Recipients of Outside Director Restricted Unit Awards shall enter into a restricted unit agreement with the Corporation setting forth the terms of such grant as provided herein. (xii) Termination of Service (A) If an Outside Director’s service as a director of the Corporation terminates by reason of death, Disability or Normal Retirement, all Outside Director Restricted Unit Awards held by such Outside Director shall immediately vest. (B) If an Outside Director’s service as a director of the Corporation terminates for any reason other than death, Disability or Normal Retirement, all Unvested Outside Director Restricted Unit Awards held by such Outside Director shall thereupon terminate, except that if an Outside Director’s service as a director is terminated for Cause (as such term is defined in Section 5(j) of this Plan) all Restricted Units shall terminate and be forfeited. (C) In the event of the death of an Outside Director, any payment due in respect of the Outside Director’s Restricted Units shall be made to the beneficiary designated in writing by such Outside Director and filed with the Secretary of the Corporation, or, in theB-18absence of such designation, to the Outside Director’s estate. Any such payment shall be made at the same time and subject to the same conditions as would have applied had the Outside Director survived and the date of his or her death been treated as the termination date of the Outside Director’s service, unless the Outside Director shall have specified that an alternative form of payment permitted under the Plan should apply in the event of his or her death. (xiii) Outside Director Restricted Unit Awards shall be subject to Section 9, provided, that no payment in respect of any Restricted Units shall be accelerated pursuant to Section 9 unless the Change in Control is a change in ownership or effective control, or in the ownership of a substantial portion of the assets, of the Corporation for purposes of Section 409A(a)(2)(A)(v) of the Code. The number of Outside Director Restricted Units theretofore awarded shall be adjusted automatically in the manner prescribed by Section 3(c). (d) Any applicable withholding taxes shall be paid in shares of Common Stock subject to the Outside Director Option or Outside Director Restricted Unit Award valued as the Fair Market Value of such shares unless the Corporation agrees to accept payment in cash in the amount of such withholding taxes. (e) The Board, in its sole discretion, may determineFuture PROXY MATERIALS If you would like to reduce the size of any Outside Director Option or Outside Director Restricted Unit Award priorcosts incurred by our company in mailing proxy materials, you can consent to grant or to postpone the vesting or distribution of any Outside Director Restricted Unit Award prior to grant. (f) Unless otherwise expressly provided, Outside Director Restricted Units which are both earnedreceiving all future proxy statements, proxy cards and vested as of December 31, 2004 shall not be affected by the Plan changes adopted as of January 1, 2005 to comply with Section 409A of the Code; and the time and form of payment provisions of the Plan applicable thereto on December 31, 2004 shall continue to apply to such Outside Director Restricted Units. SECTION 9. Change in Control Provisions. (a) Impact of Event. In the event of: (1) a “Change in Control” as defined in Section 9(b); or (2) a “Potential Change in Control” as defined in Section 9(c), but only if and to the extent so determined by the Committee or the Board at or after grant (subject to any right of approval expressly reserved by the Committee or the Board at the time of such determination); (i) subject to the limitations set forth below in this Section 9(a), the following acceleration provisions shall apply: (A) Any Stock Appreciation Right, Stock Option or Outside Director Option awarded under the Plan not previously exercisable and vested shall become fully exercisable and vested. (B) The restrictions applicable to any Restricted Stock or Restricted Units in each case to the extent not already vested under the Plan, shall lapse and such shares and awards shall be deemed fully vested.B-19 (ii) subject to the limitations set forth below in this Section 9(a), the Board or the Committee may determine in its sole discretion at any time prior to any Change in Control that the value of all outstanding Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Units and Outside Director Options, in each case to the extent vested, shall be cashed out on the basis of the “Change in Control Price” as defined in Section 9(d) as of the date such Change in Control or such Potential Change in Control is determined to have occurred or such other date as the Board or Committee may determine prior to the Change in Control. (iii) The Board or the Committee may impose additional conditions on the acceleration or valuation of any award in the award agreement. (b) Definition of Change in Control. For purposes of Section 9(a), a “Change in Control” means the happening of any of the following: (i) any person or entity, including a “group” as defined in Section 13(d)(3) of the Exchange Act, other than the Corporation or a wholly-owned subsidiary thereof or any employee benefit plan of the Corporation or any of its Subsidiaries, becomes the beneficial owner of the Corporation’s securities having 35% or more of the combined voting power of the then outstanding securities of the Corporation that may be cast for the election of directors of the Corporation (other than as a result of an issuance of securities initiated by the Corporation in the ordinary course of business); or (ii) as the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sales of assets or contested election, or any combination of the foregoing transactions, less than a majority of the combined voting power of the then outstanding securities of the Corporation or any successor corporation or entity entitled to vote generally in the election of the directors of the Corporation or such other corporation or entity after such transaction are held in the aggregate by the holders of the Corporation’s securities entitled to vote generally in the election of directors of the Corporation immediately prior to such transaction; or (iii) during any period of two consecutive years, individuals who at the beginning of any such period constitute the Board cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the Corporation’s shareholders, of each director of the Corporation first elected during such period was approved by a vote of at least two-thirds of the directors of the Corporation then still in office who were directors of the Corporation at the beginning of any such period. (c) Definition of Potential Change in Control. For purposes of Section 9(a), a “Potential Change in Control” means the happening of any one of the following: (i) The approval by shareholders of an agreement by the Corporation, the consummation of which would result in a Change in Control of the Corporation as defined in Section 9(b); or (ii) The acquisition of beneficial ownership, directly or indirectly, by any entity, person or group (other than the Corporation or a Subsidiary or any Corporation employee benefit plan (including any trustee of such plan acting as such trustee)) of securities of the Corporation representing 5% or more of the combined voting power of the Corporation’s outstanding securities and the adoption by the Committee of a resolution to the effect that a Potential Change in Control of the Corporation has occurred for purposes of this Plan.B-20 (d) Change in Control Price. For purposes of this Section 9, “Change in Control Price” means the highest price per share paid in any transaction reported on the New York Stock Exchange or such other exchange or market as is the principal trading market for the Common Stock, or paid or offered in any bona fide transaction related to a Potential or actual Change in Control of the Corporation at any time during the 60 day period immediately preceding the occurrence of the Change in Control (or, where applicable, the occurrence of the Potential Change in Control event), in each case as determined by the Committee except that, in the case of Incentive Stock Options and Stock Appreciation Rights relating to Incentive Stock Options, such price shall be based only on transactions reported for the date on which the optionee exercises such Stock Appreciation Rights or, where applicable, the date on which a cash out occurs under Section 9(a)(ii). SECTION 10. Amendments and Termination. The Board may at any time amend, alter or discontinue the Plan without shareholder approval to the fullest extent permitted by the Exchange Act and the Code; provided, however, that no amendment, alteration, or discontinuation shall be made which would impair the rights of an optionee or participant under a Stock Option, Stock Appreciation Right, Restricted Stock, Restricted Unit or Outside Director Option theretofore granted, without the participant’s consent. Subject to Section 5(b) above, the Committee may amend the terms of any Stock Option or other award theretofore granted, prospectively or retroactively, but, subject to Section 3 above, no such amendment shall impair the rights of any holder without the holder’s consent. The Committee may also substitute new Stock Options for previously granted Stock Options (on a one for one or other basis), subject to Section 5(a) above. Solely for purposes of computing the Section 162(m) Maximum, if any Stock Options or other awards previously granted to a participant are canceled and new Stock Options or other awards having a lower exercise price or other more favorable terms for the participant are substituted in their place, both the initial Stock Options or other awards and the replacement Stock Options or other awards will be deemed to be outstanding (although the canceled Stock Options or other awards will not be exercisable or deemed outstanding for any other purposes). SECTION 11. Unfunded Status of Plan. The Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation. With respect to any payments not yet made to a participant or optionee by the Corporation, nothing contained herein shall give any such participant or optionee any rights that are greater than those of a general creditor of the Corporation. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Common Stock or payments in lieu of or with respect to awards hereunder; provided, however, that, unless the Committee otherwise determines with the consent of the affected participant, the existence of such trusts or other arrangements is consistent with the “unfunded” status of the Plan. SECTION 12. General Provisions. (a) The Committee may require each person purchasing shares pursuant to a Stock Option or other award under the Plan to represent to and agree with the Corporation in writing that the optionee or participant is acquiring the shares without a view to distribution thereof. The certificates for such shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer. All certificates for shares of Common Stock or other securities delivered under the Plan shall be subject to such stop-transfer orders and otherB-21restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Commission, any stock exchange upon which the Common Stock is then listed, and any applicable Federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. (b) Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to shareholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. (c) The adoption of the Plan shall not confer upon any employee of the Corporation or any Subsidiary or Affiliate any right to continued employment with the Corporation or a Subsidiary or Affiliate, as the case may be, nor shall it interfere in any way with the right of the Corporation or a Subsidiary or Affiliate to terminate the employment of any of its employees at any time. (d) No later than the date as of which an amount first becomes includable in the gross income of the participant for Federal income tax purposes with respect to any award under the Plan, the participant shall pay to the Corporation, or make arrangements satisfactory to the Committee regarding the payment of, any Federal, state, or local taxes of any kind required by law to be withheld with respect to such amount. The Committee may require withholding obligations to be settled with Common Stock, including Common Stock that is part of the award that gives rise to the withholding requirement. The obligations of the Corporation under the Plan shall be conditional on such payment or arrangements and the Corporation and its Subsidiaries or Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the participant. (e) The actual or deemed reinvestment of dividends or Dividend Equivalents in additional Restricted Stock (or other types of Plan awards) at the time of any dividend payment shall only be permissible if sufficient shares of Common Stock are available under Section 3 for such reinvestment (taking into account then outstanding Stock Options and other Plan awards). (f) The Plan and all awards made and actions taken thereunder shall be governed by and construed in accordance with the laws of the State of Tennessee. (g) The members of the Committee and the Board shall not be liable to any employee or other person with respect to any determination made hereunder in a manner that is not inconsistent with their legal obligations as members of the Board. In addition to such other rights of indemnification as they may have as directors or as members of the Committee, the members of the Committee shall be indemnified by the Corporation against the reasonable expenses, including attorneys’ fees actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Corporation) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such Committee member is liable for negligence or misconduct in the performance of his duties; provided that within 60 days after institution of any such action, suit or proceeding, the Committee member shall in writing offer the Corporation the opportunity, at its own expense, to handle and defend the same.B-22 (h) In addition to any other restrictions on transfer that may be applicable under the terms of this Planannual reports electronically via e-mail or the applicable award agreement, no Stock Option, Stock Appreciation Right, Restricted Stock Award, Restricted Unit Award or other right issued under this Plan is transferable by the participant without the prior written consent of the Committee, or, in the case of an Outside Director, the Board, other than (i) transfers by an optionee to a member of his or her Immediate Family or a trust for the benefit of the optionee or a member of his or her Immediate Family or (ii) transfers by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order. The designation of a beneficiary will not constitute a transfer. (i) The Committee may, at or after grant, condition the receipt of any payment in respect of any award or the transfer of any shares subject to an award on the satisfaction of a six-month holding period, if such holding period is required for compliance with Section 16 under the Exchange Act. (j) It is intended that any compensation, benefit or other remuneration which is provided pursuant to or in connection with the Plan which is considered to be nonqualified deferred compensation for purposes of Section 409A of the Code and which is not both earned and vested as of December 31, 2004 shall be provided and paid in a manner, and at such time and in such form, as complies with the applicable requirements of Section 409A of the Code to avoid the unfavorable tax consequences provided therein for non-compliance. The Committee is authorized to amend the Plan or any election under the Plan as may be determined by it to be necessary or appropriate to evidence or further evidence such required compliance with Section 409A of the Code. It is specifically intended that all elections, consents and modifications thereto under the Plan with respect to compensation, benefit or other remuneration provided pursuant to or in connection with the Plan which is considered to be nonqualified deferred compensation for purposes of Section 409A of the Code and which is not both earned and vested as of December 31, 2004 will comply with the applicable requirements of Section 409A of the Code (including any transition or grandfather rules thereunder). The Committee is authorized to adopt rules or regulations deemed necessary or appropriate in connection therewith to anticipate and/or comply with the requirements of Section 409A of the Code (including any transition or grandfather rules thereunder). It is also intended that if any compensation, benefit or other remuneration which is provided pursuant to or in connection with the Plan is considered to be nonqualified deferred compensation for purposes of Section 409A of the Code but for being earned and vested as of December 31, 2004, then no material modification of the Plan after October 3, 2004 shall apply to such Plan benefits which are earned and vested as of December 31, 2004 unless such modification expressly so provides. SECTION 13. Effective Date of Amended and Restated Plan. This Amended and Restated Plan shall be effective as of the date of approval by a majority of the votes cast by the holders of the Corporation’s Common Stock (the “Effective Date”). SECTION 14. Term of Plan. No awards may be granted under the Plan after May 31, 2008, but awards granted prior to such date may extend beyond such date.B-23
100 MISSION RIDGEGOODLETTSVILLE, TN 37072-2170VOTE BY INTERNET - www.proxyvote.comUse the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Daylight Time on May 30, 2006. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER COMMUNICATIONSIf you would like to reduce the costs incurred by Dollar General Corporation in mailing proxy materials, you can consent to receive all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote the shares using the Internet and, when prompted, indicate that you agree to receive or access shareholder communications electronically in future years.VOTE BY PHONE -1-800-690-6903Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Daylight Time on May 30, 2006. Have your proxy card in hand when you call and then follow the instructions.VOTE BY MAILMark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Dollar General Corporation, c/o ADP, 51 Mercedes Way, Edgewood, NY 11717.TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:DOLLA1KEEP THIS PORTION FOR YOUR RECORDSDETACH AND RETURN THIS PORTION ONLYTHIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.DOLLAR GENERAL CORPORATIONTHE DIRECTORS RECOMMEND A VOTE“FOR” ITEMS 1, 2 AND 3.Proposal 1 - Election of DirectorsTo elect ten directors to serve until the next annual meeting and until their successors are elected and qualified:ForAllWithholdFor AllFor AllExceptTo withhold authority to vote, mark “For All Except” and write the nominee’s number on the line below.ooo01) David L. Beré02) Dennis C. Bottorff03) Barbara L. Bowles04) Reginald D. Dickson05) E. Gordon Gee06) Barbara M. Knuckles07) David A. Perdue08) J. Neal Purcell09) James D. Robbins10) David M. WildsForAgainstAbstainProposal 2 -Approval of Amendments to the Dollar General Corporation 1998 Stock Incentive PlanoooProposal 3 - Ratification of the appointment of Ernst & Young LLP as independent auditorsoooFor address changes and/or comments, please check this box and write them on the back where indicated.oPlease indicate if you plan to attend this meeting.ooYesNoSignature [PLEASE SIGN WITHIN BOX]DateSignature (Joint Owners)DateWhether or not you expect to be physically present at the annual meeting, please vote your proxy as soon as possible. You may vote your proxy electronically or by phone according to the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time on the enclosed card, or sign, date and return the enclosed printedJune 2, 2010. Have your proxy card in hand when you call and then follow the enclosedinstructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. The Board of Directors recommends you vote FOR the following proposal(s): For Against Abstain 2. To ratify Ernst & Young LLP as the independent registered public accounting firm for fiscal 2010 NOTE: In their discretion, the proxies are authorized to vote on any other business reply envelope. No postage is necessary ifthat may properly come before the proxy is mailed withinmeeting, including any adjournment(s) thereof. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer.
United States. You may revokeAvailability of Proxy Materials for the proxyAnnual Meeting: The Annual Report, Notice & Proxy Statement is/ are available at any time before it is voted.
Annual Meeting of Shareholders to be held on May 31, 2006(the “Company”( the "Company"), hereby acknowledges receipt of the notice of annual meeting of shareholders and proxy statement dated April 19, 2006,16, 2010, and hereby appoints Susan S. Lanigan and Christine L. Connolly, or either of them, proxies and attorneys-in-fact,each with full power to each of substitution and authorizes them to represent and to vote, as designated on behalf and in the namereverse side of this proxy card, all shares of common stock of the undersigned,Company that the shareholder is entitled to represent the undersignedvote at the annual meeting of shareholders of the Company to be held on May 31, 2006,June 3, 2010 at 10:9:00 A.M., Central Daylight Time, in the Goodlettsville City Hall Auditorium, located at 105 South Main Street, Goodlettsville, Tennessee, and at any adjournment(s) thereof, and to vote all shares of common stock which the undersigned would be entitled to vote, if then and there personally present, on the matters set forth on the reverse side of thisthereof. This proxy, card. The shareswhen properly executed, will be voted in accordance with your instructions. the manner directed herein. If no choicesuch direction is specified, sharesmade, this proxy will be voted “FOR” election of all director nominees, “FOR” approvalFOR each of the amendments tonominees for director in Proposal 1 and FOR Proposal 2. Whether or not direction is made, this proxy, when properly executed, will be voted in the Dollar General Corporation 1998 Stock Incentive Plan, and “FOR” the ratificationdiscretion of the appointment ofproxy holders upon such other business as may properly come before the independent auditors.Address Changes/Comments:(If you notedmeeting or any Address Changes/Comments above, please mark corresponding box on the reverse side.)IMPORTANT - This Proxy is continuedadjournment(s) thereof. Continued and mustto be signed and dated on the reverse side.side