**Exhibit 10.4**

**FAMILY DOLLAR STORES, INC.**

**2006 INCENTIVE PLAN**

**Guidelines for Long-Term IncentivePerformance Share Rights Awards**

 

**Document Contents:**

 
| **SECTION 1: PURPOSE**                                                   | ** ** | ** ** |
|--------------------------------------------------------------------------|------------|------------|
| **SECTION 2: SCOPE**                                                     | ** ** | ** ** |
| **SECTION 3: ELIGIBILITY FOR  AWARDS AND PAYOUTS**                       | ** ** | ** ** |
| NEW HIRE AND  PROMOTION AWARDS (NEW EQUITY PLAN PARTICIPANTS)            |       |       |
| PROMOTION AWARDS  FOR ACTIVE EQUITY PLAN PARTICIPANTS (EQUITY TO EQUITY) |       |       |
| PAYOUT  ELIGIBILITY                                                      |       |       |
| **SECTION 4: PAYOUT CALCULATION  OF PSR AWARDS**                         | ** ** | ** ** |
| **SECTION 5: TERMINATION OF  EMPLOYMENT OR PLAN PARTICIPATION**          | ** ** | ** ** |
| **SECTION 6: ADDITIONAL RULES**                                          | ** ** | ** ** |
| **SECTION 7: TRANSITION PERIOD**                                         | ** ** | ** ** |
| **SECTION 8: QUALIFIED  PERFORMANCE BASED AWARDS**                       | ** ** | ** ** |

** **

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**FAMILY DOLLAR STORES, INC.**

**2006 INCENTIVE PLAN**

**Guidelines for Long-Term IncentivePerformance Share Rights Awards**

# **Section 1: Purpose**

Family Dollar Stores, Inc. (the “Company”) maintains for the benefit ofeligible individuals the Family Dollar Stores, Inc. 2006 Incentive Plan****(the “Plan”),****which isintended to provide flexibility to the Company in its ability to motivate, attract,and retain the services of such individuals upon whose judgment, interest, andspecial effort the successful conduct of the Company’s operation is largelydependent. These *Guidelines for Long-Term IncentivePerformance Share Rights Awards* (the “Guidelines”) are intended toimplement the Plan by providing eligible Associates of the Company with anopportunity to participate in the Company’s success by earning long-termincentive compensation awards in the form of shares of Company Stock (“CommonStock”) 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 thePlan and are to be interpreted and applied in accordance with the terms andprovisions thereof.  Specifically, theseGuidelines provide for the grant of Performance Share Rights Awards underArticle 9 of the Plan and, with respect to Associates in the position of VicePresident or above, the grant of Qualified Performance-Based Awards underArticle 14 of the Plan.  Unless otherwiseprovided herein, capitalized terms used in these Guidelines will have themeaning given such terms in the Plan.  Ifthere is any conflict between these Guidelines and the Plan, the terms andprovisions of the Plan shall control.

# **Section 2: Scope**

The Guidelines cover Associates who are eligible for participation inthe Plan under these Guidelines and are selected by the Committee forPerformance Share Rights Awards identified in Section 1 above.  Awards under these Guidelines cover three (3)year performance periods relating to such Awards which generally track theCompany’s fiscal (not calendar) year that is the 12-month period that generallyruns from approximately September 1st toAugust 31st. (The “PerformancePeriod”).  The actual dates for thefiscal year are determined and announced by the Company at the beginning ofeach fiscal year.  See Section 7 belowregarding transition periods.

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# **Section 3: Eligibility for Awards and Payouts**

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

## **NewHire and Promotion Awards (New Equity Plan Participants)**

·                  AnAssociate who becomes eligible for a Performance Share Rights Award under theseGuidelines after the beginning of a performance period, either because theAssociate is newly hired or is promoted into a position covered by theseGuidelines, will be granted an Award computed in accordance with theseGuidelines.  The dollar value of an Awardfor the performance period beginning in the year in which the Associate ishired or promoted will be established based upon the Associate’s position andprorated for the number of months remaining (rounded up to the next full monthfor any partial month of service) in the fiscal year of the Associate’s hire orpromotion (the “base line year”).  Thedollar value of the base line year Award will be prorated by a fraction, thenumerator of which is the number of calendar months remaining in theperformance period at the date of hire or promotion (rounded up to the nextfull month for any partial month of service), and the denominator of which isthe total number of calendar months in the performance period for anyperformance periods beginning prior to the year of hire or promotion. Thedollar amounts so awarded shall be converted into Performance Share Rightsbased on the fair value of the Performance Share Rights, as established fromtime to time by the Company.  Payments ofall such Awards shall be subject to Company performance as outlined in Section4 below.

## **PromotionAwards for Active Equity Plan Participants (Equity to Equity)**

***·***                                          An Associate covered by these Guidelines who has a job change thatresults in a higher Performance Share Rights Award will have their Award forall pending performance periods as of the date of the job change adjustedupward on a pro rata basis. The additional equity award will be calculated asthe difference between the full year Award for the new position and the actualAward for the old position for each relevant performance period, prorated forthe time in the new position. Payments of all such Awards will be subject toCompany performance as outlined in section 4 below.

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## **PayoutEligibility**

·                                          AnAssociate must be classified as a regular full-time employee during the entireperformance period for which an Award is being made and at the time of theactual issuance of the Common Stock pursuant to the Performance Shares RightsAward in order to be issued Common Stock pursuant to an Award.

·                                          AnAssociate on leave of absence, regardless of type, will be issued Common Stockpursuant to a Performance Share Rights Award only upon return to regular, fulltime work/active status.  An associatewho is on an approved family medical leave or approved military leave will beissued Common Stock pursuant to such Award at the time such shares are issuedeven if the associate has not returned to regular, full time work/active statusat that time.

·                                          TheCompany will ***not***issue common stock pursuant to the Performance Share Rights Award for anyperformance period if the associate’s most recent annual performance rating isUnsatisfactory/Does Not Meet Expectations.

·                                          TheseGuidelines do not in any manner restrict the right of the Company or theAssociate to terminate employment at any time, for any reason, with or withoutcause.  See Section 5 below for furtherinformation on the consequences of termination of employment during a pendingperformance period.

# **Section 4: Payout Calculation of PSR Awards**

At the time an Associate is selected for anAward under these Guidelines for a particular performance period, the Associatewill be assigned a “target” number of shares of Common Stock to be earned ifthe Company’s performance level is at the 50% level in comparison to the peergroup (as set forth below) for the performance period.  “Target” is defined as the actual number ofshares approved and awarded. Each performance period is a three (3) yearperiod, and any payout is based on cumulative yearly performance over the 3years covered.  The Award will beexpressed as a number of Performance Share Rights and will be evidenced by anAward Certificate consistent with the provisions of the Plan.  The actual payout for theperformance period, if any, will be determined as a percentage of the targetAward payout depending on Company performance.

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

·                                          ActualCompany performance for each criteria above at the end of the relevantperformance period is then measured against the performance of a peer group ofcompanies selected prior to, or within 90 days after the beginning of, theperformance period.  The Award levels forthe relevant performance period will be adjusted at the end of the performanceperiod to reflect the Company’s performance relative to the peer group.  Any such adjustment will generally range from0% (i.e., no payout for the performance period) to 200% of the target Award perthe following chart (with linear interpolation between the thresholds set forthbelow):

| Performance  Against  Performance  Peer Group | ** ** | **Percent of  Award  Adjustment  (to Target Award)** |
|-----------------------------------------------|------------|------------------------------------------------------|
| 90th Percentile                          |       | 200%                                                 |
| 75th Percentile                          |       | 150%                                                 |
| 50th Percentile                          |       | 100%                                                 |
| 40th Percentile                          |       | 75%                                                  |
| 30th Percentile                          |       | 25%                                                  |
| <30th Percentile                      |       | 0%                                                   |

 

·                                          Inaddition, under relevant provisions of the Plan, the determination of ROE andnet-income-growth and the peer group of companies for the relevant performanceperiod may be further adjusted, collectively or individually, to reflectextraordinary events or circumstances affecting the Company or its business, orany of the companies included in the peer group, which render any such goals orpeer group selection unsuitable.

·                                          TheseGuidelines do not in any manner restrict the right of the Company to modifyperformance measures, targets, cycles, or any other term or condition of theseGuidelines, as the Company deems it necessary or appropriate, subject to theterms of the Plan.

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# **Section 5: Termination of Employment or PlanParticipation**

Notwithstanding anything in these Guidelines to the contrary, thefollowing provisions will apply to any Associate whose employment with theCompany terminates.

·                                          Inthe event of a termination of an Associate’s employment, either (i) as a resultof the Associate’s death, Disability or Retirement (as defined by Article 2,section 3.1 (ll) of the Incentive Plan) or (ii) by the Company without Cause,payments with respect to any outstanding Performance Share Rights Awards willbe based on actual Company performance (Percent of Award Adjustment) from the 3year performance period immediately preceding the date of termination.  Common stock issued pursuant to thePerformance Share Rights will be paid on a pro-rata basis based on the actualnumber of months worked in each relevant performance period.  The pro ration will be determined bymultiplying the number of Performance Shares Rights to which the Associatewould have been entitled based on Company performance by a fraction thenumerator of which is the number of calendar months in the performance periodof the Associate’s actual employment with the Company (including the fullcalendar month in which the Associate’s employment terminated) and thedenominator of which is the total number of calendar months in the performanceperiod. Payments under this paragraph will be made as soon as administrativelyconvenient following the termination of the Associate’s employment.

·                                          Inthe case of death or Disability, individual performance of the Associate willbe ignored.  In either event, paymentsunder this paragraph shall be made as soon as administratively convenient aftertermination of employment.

·                                          Inthe event of termination of an Associate’s employment with the Company beforethe end of any relevant performance period or the actual issuance by theCompany 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 (otherthan death, Disability or Retirement), any outstanding Awards for all relevantperformance periods will be immediately forfeited.

·                                          Inthe event that an active Associate leaves the Plan for any reason but remainsemployed by the company, the Associate’s Performance Share rights will be paidon a pro-rata basis based on the actual number of months worked in eachrelevant performance period, including the full calendar month in which theAssociate’s plan participation ended. Payments will be made during the samecycle as active plan participants and will be subject to the Companyperformance criteria outlined in section 4 of this document.

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# **Section 6: Additional Rules**

·                                          Allpayments under these Guidelines are considered supplemental pay and will betaxed as such.  Appropriate withholdingand deductions will be taken from such payments.  In accordance with the Plan, the Company mayrequire tax withholding to be satisfied through withholding of shares of CommonStock otherwise payable under the Award.

·                                          TheseGuidelines cannot be changed or modified by a verbal communication or course ofdealing but only by a written communication signed by the Chairman, ViceChairman, and/or the Chief Executive Officer (“CEO”) of the Company or anyofficer designated by one of them.

·                                          Payoutsearned under these Guidelines are expected to be paid as soon asadministratively convenient following the end of the relevant performanceperiod in the form of one (1) share of the Company’s Common Stock for eachwhole Performance Share Right that is payable under the Plan and theseGuidelines, rounded up to the next whole share. Notwithstanding the foregoing,the Company may permit recipients of Awards to elect to defer receipt ofpayment of such Awards under such terms and conditions as the Company may prescribe.

·                                          Inthe event of major economic changes, catastrophic events, or any othercircumstances not contemplated by the Company (but subject to the Planprovisions relating to Qualified Performance-Based Awards), the Committee, theChairman, Vice Chairman and/or the CEO of the Company reserves the right toalter, amend, or terminate these Guidelines and any Awards hereunder.

·                                          TheChairman of the Company will make all final decisions, rulings andinterpretations under these Guidelines (subject to the Plan provisions relatingto Qualified Performance-Based Awards, which may require action by theCommittee).  By participating in the Planunder these Guidelines, each Associate agrees that such decisions, rulings andinterpretations will be final and that each Associate will be bound bythem.  Each Associate further agrees thatif and when any circumstances arise relating to these Guidelines, which are notcovered by this description of the Plan, the Associate will be bound by thefinal decision, ruling or interpretation of the Chairman.

# **Section 7: Transition Period**

·                                          Inaddition to Performance Share Rights Awards made under these Guidelines formultiple year periods, during the Company’s 2006 and 2007 fiscal years,Performance Share Rights Awards will be made to Associates participating in thePlan under these Guidelines for each of the 2006 and 2007 fiscal years basedupon the Company’s performance in each of such fiscal years as set forth inSection 4 above.   An Associate who ishired or is promoted into a position eligible to receive a Performance ShareRights Award under the Plan during 2006 or 2007 will be eligible to receive aprorated Performance Share Rights Award which is otherwise computed in themanner set forth in Section 3 above.

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# **Section 8: Qualified Performance Based Awards**

Notwithstandinganything in these Guidelines to the contrary, the following provisions willapply to any Associate who is a vice president or above at the time the Awardsare 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 ofthe Plan.  *Please referto the Plan document for further information*.

·                                          Alldeterminations 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 theCompensation Committee who are “outside directors” within the meaning ofSection 162(m) of the Code.

·                                          TheCommittee will establish within 90 days after the beginning of each performanceperiod the target Award payout for each Associate covered by this Section 8,the peer group of companies and potential payout adjustments relating theretofor the relevant performance period.

·                                          Notwithstandingthe foregoing, the Committee will adjust ROE and net-income-growth, the peergroup of companies and potential payout adjustments relating thereto for therelevant performance period, collectively or individually, with respect to eachAssociate covered by this Section 8 to adequately reflect the occurrence,during the performance period, of any of the events described in Sections 14.2and 14.4 of the Plan.

·                                          Paymentof any Award under these Guidelines to any Associate covered by this Section 8is conditioned upon the written certification of the Committee that theperformance goals and any other material conditions applicable to such Awardwere satisfied.

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

·                                          Consistentwith Section 1 above, payment of any Award under these Guidelines to anyAssociate covered by this Section 8 is conditioned upon the Plan having beenpreviously approved by the shareholders of the Company.
| Adopted: |   | September 28, 2005                |
|----------|--------|-----------------------------------|
| Amended: |   | January 19, 2006; March  27, 2007 |

 

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