Exhibit 10.2


 





 


FAMILY DOLLAR STORES, INC.


 


2006 INCENTIVE PLAN


 


Guidelines for Long-Term Incentive Performance Share Rights Awards


 


1.                                      Purpose


 


Family Dollar
Stores, Inc. (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.  These Guidelines for Long-Term Incentive Performance Share Rights Awards
(the “Guidelines”) are intended to implement the Plan by providing eligible
Associates of the Company with an opportunity to participate in the Company’s
success by earning long-term incentive compensation awards in the form of
shares of Company Stock (“Common Stock”) within the framework of the Plan (the “Performance
Share Rights Awards” or the “Awards”), and as further described in these
Guidelines.


 


These
Guidelines 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, these Guidelines
provide for the grant of Performance Share Rights Awards under Article 9
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 Guidelines will have the meaning given
such terms in the Plan.  If there is any
conflict between these Guidelines and the Plan, the terms and provisions of the
Plan shall control.


 


2.                                      Scope


 


The Guidelines
cover Associates who are eligible for participation in the Plan under these
Guidelines and are selected by the Committee for Performance Share Rights Awards
identified in Section 1 above. 
Awards under these Guidelines cover multiple (generally three) year  performance periods relating to such Awards which
generally track the Company’s fiscal (not calendar) year that is the 12-month
period that generally runs from approximately September 1st to August 31st.  The actual dates for the fiscal year are
determined and announced by the Company at the beginning of each fiscal year.  See Section 7 below regarding transition
periods.


 

















 


3.                                      Eligibility


 


The Compensation
Committee of the Board (the “Committee”) and/or management of the Company will
determine annually which Associates are eligible to receive Performance Share
Rights Awards under these Guidelines. 
Participants are selected no later than 90 days following the beginning
of each performance period or upon employment with the Company or promotion.  Annual Performance Share Rights Awards under
these Guidelines will result in overlapping performance periods.  Additional eligibility requirements are as
follows:


 


•                  An
Associate who becomes eligible for a Performance Share Rights Award under these
Guidelines after the beginning of a performance period, either because the Associate
is newly hired or is promoted into a position covered by these Guidelines, will
be granted a prorated Award for all pending performance periods as of the
Associate’s date of hire or effective date of promotion, other than any
performance period that will lapse within six months of such date of hire or
promotion.  Payments with respect to any
such prorated Award will be based on the Company’s performance (as described
below) at the end of the relevant performance period and will be prorated by
multiplying the number of Performance Shares Rights to which the Associate
would have been entitled (had the Associate been a participant in the Plan on
the first day of the performance period) by a fraction, the numerator of which
is the number of calendar months in the performance period from and after the
date of hire or promotion (rounded up to the next full month for any partial
month of service), and the denominator of which is the total number of calendar
months in the performance period.


 


•                  An
Associate covered by these Guidelines who has a job change that results in
either a higher or lower Performance Share Rights Award under these Guidelines will
have the Award for any pending performance period as of the date of the job
change adjusted on a pro rata basis based on the number of months during the
performance period in each such position. 
For example, an Associate with a target Performance Share Rights Award
of 1,000 shares who has a job change half way through a performance period to a
job position with an Award of 1,500 Performance Share Rights will have an
adjusted target Award for the performance period of 1,250 shares of Common
Stock.


 


•                  These
Guidelines do not in any manner restrict the right of the Company or the
Associate to terminate employment at any time, for any reason, with or without
cause.  See Section 5 below for
further information on the consequences of termination of employment during a pending
performance period.


 


•                  An
Associate otherwise meeting all of the eligibility requirements of these
Guidelines, but whose performance rating for a number of fiscal years
representing at least half of the fiscal years covered by the performance
period is at the Unsatisfactory/Does Not Meet Expectations level, will not be eligible for any payout for that performance
period.


 


•                  An
Associate must be classified as a regular full-time employee during the entire
performance period for which an Award is being made and at the time of the
actual issuance of the Common Stock pursuant to the Performance Shares Rights
Award in order to be issued Common Stock pursuant to an Award. An Associate on
leave of absence, regardless of type, will be issued Common Stock pursuant to a
Performance Share Rights Award only upon return to regular, full time
work/active status; provided


 


2

















 


however, that an Associate on an approved family
medical leave or approved military leave will be issued Common Stock pursuant
to such Award at the time such shares are issued even if they have not returned
to regular, full time work/active status at that time.


 


4.                                      Forms
of Awards and Targets


 


At the time an
Associate is selected for an Award under these Guidelines for a particular
performance period, the Associate will be assigned a “target” number of shares
of Common Stock to be earned if the Company’s performance level is at the 50%
level in comparison to the peer group (as set forth below) for the performance
period.  The Award will be expressed as a
number of Performance Shares Rights and will be evidenced by an Award Certificate
consistent with the provisions of the Plan. 
The actual payout for the performance period, if any, will be determined
as a percentage of the target Award payout depending on Company performance as
follows:


 


•                  Company
performance for each performance period will be based equally upon (i) the
Company’s average annual return on equity (“ROE”) for each fiscal year during
the performance period and (ii) the Company’s pre-tax net income growth
rate over the performance period, compounded annually.  For purposes of these Guidelines, ROE will be
calculated by dividing the Company’s pre-tax net income for the relevant fiscal
year by the total shareholders’ equity.


 


•                  Actual
Company performance for each criteria above at the end of the relevant
performance period is then measured against the performance of a peer group of
companies selected prior to, or within 90 days after the beginning of, the performance
period.  The Award levels for the
relevant performance period will be adjusted at the end of the performance
period to reflect the Company’s performance relative to the peer group.  Any such adjustment will generally range from
0% (i.e., no payout for the performance period) to 200% of the target Award per
the following chart (with linear interpolation between the thresholds set forth
below):


 




	
  Performance

  Against

  Performance

  Peer Group

  	
   

  	
  Percent of

  Award

  Adjustment

  (to Target Award)

  	
   

  
	
  90th
  Percentile

  	
   

  	
  200%

  	
   

  
	
  75th
  Percentile

  	
   

  	
  150%

  	
   

  
	
  50th
  Percentile

  	
   

  	
  100%

  	
   

  
	
  40th
  Percentile

  	
   

  	
  75%

  	
   

  






 


3

















 




	
  30th
  Percentile

  	
   

  	
  25%

  	
   

  
	
  <30th
  Percentile

  	
   

  	
  0%

  	
   

  






 


•                  For
example, if an Associate receives a target Performance Share Rights Award of
10,000 shares for a particular performance period, and the Company’s ROE and
pre-tax net income growth performance, as measured against the relevant peer
group of companies, is in the 68th and 46th percentile,
respectively, then the Associate would receive an actual payout of 11,300
shares of Common  Stock, as described
below:


 


	
  Performance

  Metric

  	
   

  	
  Number of

  Performance

  Shares Rights

  at

  Target

  	
   

  	
  Relative

  Performance

  (Against

  Performance

  Peer Group)

  	
   

  	
  Relative

  Performance

  Adjustment

  	
   

  	
  Actual

  Number of

  Shares of

  Common Stock

  Awarded

  	
   

  
	
  ROE

  	
   

  	
  5,000

  	
   

  	
  68%

  	
   

  	
  136%

  	
   

  	
  6,800

  	
   

  
	
  Net Income
  Growth

  	
   

  	
  5,000

  	
   

  	
  46%

  	
   

  	
  90%

  	
   

  	
  4,500

  	
   

  



 


•                  In
addition, under relevant provisions of the Plan, the determination of ROE and
net-income-growth and the peer group of companies for the relevant performance
period may be further adjusted, collectively or individually, to reflect
extraordinary events or circumstances affecting the Company or its business, or
any of the companies included in the peer group, which render any such goals or
peer group selection unsuitable.


 


•                  These
Guidelines do not in any manner restrict the right of the Company to modify
performance measures, targets, cycles, or any other term or condition of these
Guidelines, as the Company deems it necessary or appropriate, subject to the
terms of the Plan.


 


5.                                      Termination
of Employment


 


Notwithstanding
anything in these Guidelines to the contrary, the following provisions will
apply to any Associate whose employment with the Company terminates before the
end of the relevant performance period.


 


•                  In
the event of a termination of an Associate’s employment with the Company before
the end of the relevant performance period, either (i) as a result of the
Associate’s death, Disability or Retirement or (ii) by the Company without
Cause, payments with respect to any outstanding Performance Share Rights Award
for such performance period will be based on actual Company performance at the
end of the fiscal year immediately preceding the date of termination or, if
nearer, the end of the fiscal year immediately following the date of
termination.  For example, if a
performance period covers three fiscal years, and the Associate terminates
employment after 16 months in the performance period, payments with respect to
any outstanding Award for such performance period will be based on actual
Company performance at the end of the first


 


4

















 


fiscal year covered by the performance
period.  However, if the Associate
terminates employment after 20 months in the performance period, payments with
respect to any outstanding Award for such performance period will be based on
actual Company performance at the end of the second fiscal year covered by the
performance period.  Once Company
performance is calculated as indicated above, payments are then prorated by
multiplying the number of Performance Shares Rights to which the Associate
would have been entitled based on such performance by a fraction the numerator
of which is the number of calendar months in the performance period of the
Associate’s actual employment with the Company (including the full calendar
month in which the Associate’s employment terminated) and the denominator of
which is the total number of calendar months in the performance period.


 


•                  In
the case of death or Disability, individual performance of the Associate will
be ignored.  In the case of Retirement or
termination by the Company without Cause, individual performance of the
Associate will be taken into account based on the most recently completed
individual performance review(s) prior to such termination of employment.  In any of these events, payments under this
paragraph shall be made as soon as administratively convenient after
termination of employment and after the applicable performance results are
calculable.


 


•                  In
the event of termination of an Associate’s employment with the Company before
the end of the relevant performance period and the actual issuance by the
Company of Common Stock pursuant to the Performance Share Rights Award, either (i) by
the Company for Cause, or (ii) by the Associate for any reason (other than
death, Disability or Retirement), any outstanding Award for such performance
period will be immediately forfeited.


 


6.                                      Additional
Rules


 


•                  All
payments under these Guidelines are considered supplemental pay and will be taxed
as such.  Appropriate withholding and
deductions will be taken from such payments. 
Percentages will be rounded to the nearest 1/10 of a percent (for
example, 10.3%).  Amounts will be rounded
up to the nearest whole dollar.  In
accordance with the Plan, the Company may require tax withholding to be
satisfied through withholding of shares of Common Stock otherwise payable under
the Award.


 


•                  These
Guidelines 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.


 


•                  Payouts
earned under these Guidelines are expected to be paid as soon as
administratively convenient following the end of the relevant performance
period in the form of one (1) share of the Company’s Common Stock for each
whole Performance Share Right that is payable under the Plan and these
Guidelines, rounded up to the next whole share. Notwithstanding the foregoing,
the Company may permit recipients of


 


5

















 


Awards to
elect to defer receipt of payment of such Awards under such terms and
conditions as the Company may prescribe.


 


•                  In
the event of major economic changes, catastrophic events, or any other
circumstances not contemplated by the Company (but subject to the Plan
provisions relating to Qualified Performance-Based Awards), the Committee, the Chairman,
Vice Chairman and/or the CEO of the Company reserves the right to alter, amend,
or terminate these Guidelines and any Awards hereunder.


 


•                  The
Chairman of the Company will make all final decisions, rulings and
interpretations under these Guidelines (subject to the Plan provisions relating
to Qualified Performance-Based Awards, which may require action by the
Committee).  By participating in the Plan
under these Guidelines, 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 Guidelines 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.


 


7.                                      Transition
Period


 


In addition to
Performance Share Rights Awards made under these Guidelines for multiple year
periods, during the Company’s 2006 and 2007 fiscal years, Performance Share
Rights Awards will be made to Associates participating in the Plan under these
Guidelines for each of the 2006 and 2007 fiscal years based upon the Company’s
performance in each of such fiscal years as set forth in Section 4 above.  Notwithstanding the provisions of Section 3
above requiring that an Associate be eligible to participate in the Plan for at
least six months of any performance period, an Associate who is hired or is
promoted into a position eligible to receive a Performance Share Rights Award
under the Plan during the 2006 or 2007 fiscal years before June 1 of such
fiscal year will be eligible to receive a prorated Performance Share Rights Award
which is otherwise computed in the manner set forth in Section 3 above.


 


8.                                      Qualified
Performance-Based Awards


 


Notwithstanding anything in these Guidelines to the contrary, the
following provisions will apply to any Associate who is a vice president or
above at the time the Awards are established under these Guidelines.  Awards under this Section 8 are intended
to satisfy the Section 162(m) Exemption applicable to Qualified Performance-Based
Awards under Article 14 of the Plan. 
Please refer to the Plan document for further
information.


 


•                  All
determinations under these Guidelines 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.


 


•                  The
Committee will establish within 90 days after the beginning of each performance
period the target Award payout for each Associate covered by this Section 8,
the peer


 


6

















 


group of
companies and potential payout adjustments relating thereto for the relevant
performance period.


 


•                  Notwithstanding
the foregoing, the Committee will adjust ROE and net-income-growth, the peer
group of companies and potential payout adjustments relating thereto for the
relevant performance period, collectively or individually, with respect to each
Associate covered by this Section 8 to adequately reflect the occurrence,
during the performance period, of any of the events described in Sections 14.2
and 14.4 of the Plan.


 


•                  Payment
of any Award under these Guidelines to any Associate covered by this Section 8
is conditioned upon the written certification of the Committee that the
performance goals and any other material conditions applicable to such Award
were satisfied.


 


•                  The
Committee will retain the discretion to decrease, but not increase, the Award
otherwise payable to any Associate covered by this Section 8 in accordance
with the applicable performance formula described above.  In no event will the Award otherwise payable
to any Associate covered by this Section 8 in accordance with the
applicable performance formula described above exceed 1,000,000 shares of Company
Stock.


 


•                  Consistent
with Section 1 above, payment of any Award under these Guidelines to any
Associate covered by this Section 8 is conditioned upon the Plan having
been previously approved by the shareholders of the Company.


 


7