Exhibit 10.3


 





 


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.


 

















 


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 


 


2

















 


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.


 


3

















 


•                  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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