Exhibit 10.3

 

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FAMILY DOLLAR STORES, INC.

 

2006 INCENTIVE PLAN

 

2006 Non-Qualified Stock Option Grant Program

 

1.                                      Purpose

 

Family Dollar Stores, Inc. (together with its Affiliates, the “Company”) is
adopting for the benefit of eligible individuals the Family Dollar Stores, Inc.
2006 Incentive Plan (the “Plan”), which is intended to provide flexibility to
the Company in its ability to motivate, attract, and retain the services of such
individuals upon whose judgment, interest, and special effort the successful
conduct of the Company’s operation is largely dependent.  The terms and
provisions of the 2006 Non-Qualified Stock Option Grant Program (the “2006
Option Program Terms”) have been approved by the Compensation Committee of the
Board of Directors of the Company (the “Compensation Committee”) to establish
the terms and provision applicable to all awards of an option (the “Option”) and
shall be applicable to all awards to purchase Common Stock of the Company
pursuant to the provisions of the Plan, subject to the adoption by the
Compensation Committee of other terms and provisions for the award of Options.

 

The 2006 Option Program Terms are adopted pursuant to relevant provisions of the
Plan and are to be interpreted and applied in accordance with the terms and
provisions thereof.  Specifically, the 2006 Option Program Terms provide for the
grant of Options under Article 7 of the Plan and, with respect to Associates in
the position of Vice President or above, the grant of Qualified
Performance-Based Awards under Article 14 of the Plan.  Unless otherwise
provided herein, capitalized terms used in these 2006 Option Program Terms will
have the meaning given such terms in the Plan.  If there is any conflict between
these 2006 Option Program Terms and the Plan, the terms and provisions of the
Plan shall control.

 

2.                                      Eligibility

 

The Compensation Committee of the Board (the “Committee”) or, if the Committee
so delegates such authority, the Equity Award Committee of the Company, will
determine annually which Associates are eligible to receive Options under these
2006 Option Program Terms.

 

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3.                                      Vesting Provisions

 

Each Option shall vest and become exercisable in three (3) annual installments
commencing two years from the Grant Date if the Associate remains employed with
the Company through each of the vesting dates as follows:

 

Vesting Date

 

Maximum Percentage of Option Shares
that Are Exercisable

 

 

 

2nd anniversary of Grant Date

 

Forty Percent (40%)

3rd anniversary of Grant Date

 

Seventy Percent (70%)

4th anniversary of Grant Date

 

One Hundred Percent (100%)

 

The right to purchase Shares pursuant to the Option shall be cumulative so that
when the right to purchase additional Shares has vested pursuant to the
schedule set forth above, such Shares or any part thereof may be purchased
thereafter until the expiration of the Option.

 

4.             Effect of Termination of Employment on Vesting.

 

Termination of employment with the Company will affect the vesting of the Option
depending on the reason for termination as follows:

 

•                  Death or Disability:  The Option shall become fully (100%)
vested as of the date of the Associate’s death or Disability.

•                  Qualifying Retirement:  If an Associate ceases to be an
employee of the Company due to a “Qualifying Retirement” from employment,
Options granted to and held by the Associate at the date of such retirement
shall continue to vest and be exercisable in accordance with the terms of the
Plan and as set forth herein.  “Qualifying Retirement” shall mean the
Associate’s voluntary termination of employment at age sixty or older after a
period of at least ten (10) years of employment with the Company, or such
earlier retirement date as may be approved by the Committee.  If, at any time
within five (5) years after such Qualifying Retirement and the receipt of the
vesting and extended exercise benefits provided pursuant to this paragraph, the
Associate engages, directly or indirectly, in any of the following activities:
(i) accepting employment with or serving as a consultant, advisor, officer,
director, controlling shareholder or acting in any other capacity with an entity
that is, at the time of such arrangement, in direct and substantial competition
with or acting against the interest of the Company; (ii) employing or recruiting
any person employed by the Company (or within six months of the termination of
such employment) or being recruited by the Company for employment;
(iii) disclosing or misusing any confidential information or material concerning
the Company; or (iv) publicly disparaging the Company, its officers, directors,
or employees; or, if any of these covenants shall be held invalid or
unenforceable by a court, then all outstanding Options that would otherwise
benefit from the vesting or exercise provisions set forth in this paragraph
shall (a) be immediately forfeited and (b) any gain realized by the

 

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Associate from exercising all or a portion of said Options shall be repaid to
the Company within thirty days.

 

•                  Cause:  The Option shall immediately terminate and be
forfeited as of the date of termination of employment for Cause, even if it had
previously vested to any extent pursuant to the foregoing paragraphs prior to
termination of employment.

 

•                  All Other Terminations: Any portion of the Option that was
not already vested pursuant to paragraph 3 above as of the date of termination
of employment shall terminate and be forfeited as of such date.

 

5.                                      Option Term.

 

Each Option granted by the Company shall expire on the earlier of either:
(i) the close of business on the fifth anniversary of the Grant Date of such
Option (the “Expiration Date”), as set forth in the applicable Option Award
Agreement; or (ii) the following cancellation date depending on the reason for
termination:

 

Reason for Termination

 

Cancellation Date

 

 

 

Qualifying Retirement

 

Expiration Date

Death or Disability

 

15 months from termination date

Cause

 

Termination date

All Other Terminations

 

90 days from termination date

 

For purposes of all Options, the employment termination date will be determined
by the Company in its sole discretion based on the personnel records of the
Company.

 

6.                                      Exercise Process.

 

The exercise of an Option shall be effective only upon compliance with such
exercise procedures as may be established from time to time by the Company and
only upon appropriate arrangement for the tender of payment to the Company on
said date of the purchase price of the number of shares specified to be
acquired.  Prior to exercise of an Option, the Associate shall pay or make
adequate arrangements satisfactory to the Company to satisfy all withholding
obligations of the Company.

 

7.                                      Additional Rules

 

•                  These 2006 Option Program Terms cannot be changed or modified
by a verbal communication or course of dealing but only by a written
communication signed by the Chairman, Vice Chairman, and/or the Chief Executive
Officer (“CEO”) of the Company or any officer designated by one of them.

 

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•                  The Compensation Committee or the Chairman of the Company, as
appropriate, will make all final decisions, rulings and interpretations under
these 2006 Option Program Terms (subject to the Plan provisions which may
require action by the Committee).  By participating in the Plan under these 2006
Option Program Terms, each Associate agrees that such decisions, rulings and
interpretations will be final and that each Associate will be bound by them. 
Each Associate further agrees that if and when any circumstances arise relating
to these 2006 Option Program Terms which are not covered by this description of
the Plan, the Associate will be bound by the final decision, ruling or
interpretation of the Chairman and/or the Committee.

 

8.                                      Qualified Performance-Based Awards

 

Notwithstanding anything in these 2006 Option Program Terms to the contrary,
awards of Options to any Associate who is a Vice President or above at the time
of the award are intended to satisfy the Section 162(m) Exemption applicable to
Qualified Performance-Based Awards under Article 14 of the Plan. All
determinations under these 2006 Option Program Terms will be made by the
Committee which, pursuant to Section 4.1 of the Plan, will consist of all the
members of the Compensation Committee who are “outside directors” within the
meaning of Section 162(m) of the Code.

 

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