Exhibit 10.5


 


FAMILY DOLLAR STORES, INC.


 


2006 INCENTIVE PLAN


 


Guidelines for Long-Term Incentive Performance Share Rights Awards


 


Section 1: Purpose


 


Family Dollar
Stores, Inc. (the “Company”) maintains 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.


 


Section 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 three (3) 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 “performance period”).  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.


 


Section 3: Eligibility for Awards and
Payouts


 


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:


 


New Hire and Promotion Awards
(New Equity Plan Participants)


 


·                                          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 an Award computed
in accordance with these Guidelines.  The
dollar value of an Award for the performance period beginning in the year in
which the Associate is hired or promoted will be established based upon the
Associate’s position and prorated for the number of months remaining (rounded
up to the next full month for any partial month of service) in the fiscal year
of the Associate’s hire or promotion (the “base line year”).  The dollar value of the base line year Award
will be prorated by a fraction, the numerator of which is the number of
calendar months remaining in the performance period at 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 for any performance periods beginning prior to the year of
hire or promotion.  The dollar amounts so
awarded shall be converted into Performance Share Rights based on the fair
value of the Performance Share Rights, as established from time to time by the
Company.  Payments of all such Awards
shall be subject to Company performance as outlined in Section 4 below.


 


Promotion Awards for Active
Equity Plan Participants (Equity to Equity)


 


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


 


Payout Eligibility


 


·                                          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.


 


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·                                          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.  An Associate who is 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 the Associate has not
returned to regular, full time work/active status at that time.


 


·                                          The Company will not issue common stock
pursuant to the Performance Share Rights Award for any performance period if
the Associate’s most recent annual performance rating is Unsatisfactory/Does
Not Meet Expectations.


 


·                                          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.


 


Section 4: Payout Calculation of PSR
Awards


 


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.  “Target” is defined as the
actual number of shares approved and awarded. 
Any payout is based on cumulative yearly performance over the relevant
performance period.  The Award will be
expressed as a number of Performance Share 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.


 


·                                          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):


 


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  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%

  	
   

  



 


·                                          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.


 


Section 5: Termination of Employment or
Plan Participation


 


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


 


·                                          In the event of a termination of an Associate’s
employment, either (i) as a result of the Associate’s death, Disability or
Retirement (as defined by Article 2, section 3.1 (11) of the Incentive
Plan) or (ii) by the Company without Cause, payments with respect to any
outstanding Performance Share Rights Awards will be based on actual Company
performance, as set forth in Section 4 above, over the three fiscal years
immediately preceding the date of termination. 
Common stock awarded pursuant to the Performance Share Rights will be
issued on a pro-rata basis based on the actual number of months worked in each
relevant performance period.  The pro
ration will be determined by multiplying the number of Performance Shares
Rights to which the Associate would have been entitled based on Company
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.  Payments
under this paragraph will be made as soon as administratively convenient
following the termination of the Associate’s employment.


 


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·                                          In the case of death or Disability,
individual performance of the Associate will be ignored.  In either event, payments under this
paragraph shall be made as soon as administratively convenient after
termination of employment.


 


·                                          In the event of termination of an Associate’s
employment with the Company before the end of any relevant performance period
or 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 Awards for all relevant performance periods will be immediately
forfeited.


 


·                                          In the event that an active Associate leaves
the Plan for any reason but remains employed by the company, the Associate’s
Performance Share rights will be paid on a pro-rata basis based on the actual
number of months worked in each relevant performance period, including the full
calendar month in which the Associate’s plan participation ended. Payments will
be made during the same cycle as active plan participants and will be subject
to the Company performance criteria outlined in section 4 of this document.


 


·                                          To the extent an
Associate is or becomes Retirement-eligible during a performance period, (i) the
Associate will not be considered to have terminated from employment under these
Guidelines unless the Associate has had a “separation from service” with the
Company within the meaning of Code Section 409A and the Company’s 409A
Administrative Policies and (ii) to the extent required by Code Section 409A
and the Company’s 409A Administrative Policies, payment will not be made before
the date that is six months after the Associate’s termination from employment.


 


Section 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.  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, 


 


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rounded up to the next whole share.  Notwithstanding the foregoing, the Company
may permit recipients of Awards to elect to defer receipt of payment of such
Awards under such terms and conditions as the Company may prescribe in accordance with the requirements of Code Section 409A.


 


·                                          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.


 


Section 7: Transition Period


 


·                                          In addition to Performance Share Rights
Awards made under these Guidelines for three 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.  An Associate who is hired or is promoted into
a position eligible to receive a Performance Share Rights Award under the Plan
during 2006 or 2007 will be eligible to receive a prorated Performance Share
Rights Award which is otherwise computed in the manner set forth in Section 3
above and subject to all other provisions of these Guidelines.


 


Section 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.


 


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·                                          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 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.


 


Adopted:  September 28,2005


 


Amended:  January 19, 2006; March 27, 2007; August 28,
2007


 


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