Exhibit 10.4


FAMILY DOLLAR STORES, INC.


2006 INCENTIVE PLAN


Guidelines for Long-Term Incentive
Performance 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

  	
   

  	
   

  



 













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.


·                                          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. Each performance period is a three (3) year
period, and any payout is based on cumulative yearly performance over the 3
years covered.  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):




	
  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 (ll) 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 (Percent of Award Adjustment) from the 3
year performance period immediately preceding the date of termination.  Common stock issued pursuant to the
Performance Share Rights will be paid 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.


·                                          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.













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, 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
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
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.   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.













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.


·                                          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