Document:

Exhibit 10.1

 

FAMILY DOLLAR STORES, INC.

2006 INCENTIVE PLAN

 

ARTICLE 1

PURPOSE

 

1.1.                              GENERAL.  The Family Dollar Stores, Inc. 2006
Incentive Plan is designed to promote the success, and enhance the value, of
the Company, by linking the personal interests of employees, officers,
directors and consultants of the Company or any Affiliate (as defined below) to
those of Company stockholders and by providing such persons with an incentive
for outstanding performance.  The Plan is
further intended to provide flexibility to the Company in its ability to
motivate, attract, and retain the services of employees, officers, directors
and consultants upon whose judgment, interest, and special effort the
successful conduct of the Company’s operation is largely dependent.  Accordingly, the Plan permits the grant of
incentive awards from time to time to selected employees, officers, directors
and consultants of the Company and its Affiliates.

 

ARTICLE 2

DEFINITIONS

 

2.1.                              DEFINITIONS.  When a word or phrase appears in this Plan
with the initial letter capitalized, and the word or phrase does not commence a
sentence, the word or phrase shall generally be given the meaning ascribed to
it in this Section unless a clearly different meaning is required by the
context.  The following words and phrases
shall have the following meanings:

 

(a)                      “Affiliate”
means (i) any Subsidiary or Parent, or (ii) an entity that directly
or through one or more intermediaries controls, is controlled by or is under
common control with, the Company, as determined by the Committee.

 

(b)                     “Award” means any Option, Stock Appreciation
Right, Restricted Stock Award, Restricted Stock Unit Award, Deferred Stock Unit
Award, Performance Award, Dividend Equivalent Award, Other Stock-Based Award,
Performance-Based Cash Awards, or any other right or interest relating to Stock
or cash, granted to a Participant under the Plan.

 

(c)                      “Award
Certificate” means a written
document, in such form as the Committee prescribes from time to time, setting
forth the terms and conditions of an Award. 
Award Certificates may be in the form of individual award agreements or
certificates or a program document describing the terms and provisions of an
Award or series of Awards under the Plan.

 

(d)                     “Board”
means the Board of Directors of
the Company.

 

 

(e)                      “Cause”
as a reason for a Participant’s termination of employment shall have the
meaning assigned such term in the employment, severance or similar agreement,
if any, between such Participant and the Company or an Affiliate, provided, however
that if there is no such employment, severance or similar agreement in which
such term is defined, and unless otherwise defined in the applicable Award
Certificate, “Cause” shall mean any of the following acts by the Participant,
as determined by the Committee: (i) gross neglect of duty, (ii) prolonged
absence from duty without the consent of the Company, (iii) intentionally
engaging in any activity that is in conflict with or adverse to the business,
reputation or other interests of the Company, or (iv) willful misconduct,
misfeasance or malfeasance of duty which is reasonably determined to be
detrimental to the Company. With respect to a Participant’s termination of
directorship, “Cause” means an act or failure to act that constitutes cause for
removal of a director under applicable Delaware law.  The determination of
the Committee as to the existence of “Cause” shall be conclusive on the
Participant and the Company.

 

(f)                        “Change in
Control” unless
otherwise determined by the Committee in the applicable Award Certificate, a “Change
in Control” shall be deemed to have occurred upon any of the following events;
provided, however, that the Board shall at all times prior to the occurrence of
any particular event described in this Section 2.1(f) have the authority
to decide, in its sole discretion, that such event shall be deemed not to
constitute a “Change in Control” for purposes hereof:

 

(i)                                     individuals
who, on the Effective Date, constitute the Board of Directors of the Company
(the “Incumbent Directors”) cease for any reason to constitute at least a
majority of such Board; provided, however, that any person
becoming a director after the Effective Date and whose election or nomination
for election was approved by a vote of at least a majority of the Incumbent
Directors then on the Board shall be an Incumbent Director; provided, further,
that no individual initially elected or nominated as a director of the Company
as a result of an actual or threatened election contest with respect to the
election or removal of directors (“Election Contest”) or other actual or
threatened solicitation of proxies or consents by or on behalf of any Person
other than the Board (“Proxy Contest”), including by reason of any agreement
intended to avoid or settle any Election Contest or Proxy Contest, shall be
deemed an Incumbent Director; or

 

(ii)                                  any
Person becomes a “beneficial owner” (as defined in Rule 13d-3 under the
1934 Act), directly or indirectly, of either (A) 40% or more of the
then-outstanding shares of common stock of the Company (“Company Common Stock”)
or (B) securities of the Company representing 40% or more of the combined
voting power of the Company’s then outstanding securities eligible to vote for
the election of 

 

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directors (the “Company Voting Securities”); provided,
however, that for purposes of this subsection (ii), the following
acquisitions of Company Common Stock or Company Voting Securities shall not
constitute a Change in Control: (w) an acquisition directly from the Company,
(x) an acquisition by the Company or a Subsidiary of the Company, (y) an
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Subsidiary of the Company, or (z) an
acquisition pursuant to a Non-Qualifying Transaction (as defined in subsection (iii) below);
or

 

(iii)                               the consummation of a
reorganization, merger, consolidation, statutory share exchange or similar form
of corporate transaction involving the Company or a Subsidiary (a “Reorganization”),
or the sale or other disposition of all or substantially all of the Company’s
assets (a “Sale”) or the acquisition of assets or stock of another corporation
or other entity (an “Acquisition”), unless immediately following such
Reorganization, Sale or Acquisition, all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
outstanding Company Common Stock and outstanding Company Voting Securities
immediately prior to such Reorganization, Sale or Acquisition beneficially own,
directly or indirectly, more than 50% of, respectively, the then outstanding
shares of common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors, as
the case may be, of the entity resulting from such Reorganization, Sale or
Acquisition (including, without limitation, an entity which as a result of such
transaction owns the Company or all or substantially all of the Company’s
assets or stock either directly or through one or more subsidiaries, the “Surviving
Entity”) in substantially the same proportions as their ownership, immediately
prior to such Reorganization, Sale or Acquisition, of the outstanding Company
Common Stock and the outstanding Company Voting Securities, as the case may be
(any Reorganization, Sale or Acquisition which satisfies such criterion shall
be deemed to be a “Non-Qualifying Transaction”); or

 

(iv)                              approval
by the stockholders of the Company of a complete liquidation or dissolution of
the Company.

 

Notwithstanding the foregoing, for any Awards that
constitute a nonqualified deferred compensation plan within the meaning of Section 409A(d) of
the Code and provide for an accelerated payment in connection with a Change in
Control, Change in Control shall have the same meaning as set forth in any
regulations, revenue procedure, revenue rulings or other pronouncements issued
by the Secretary of the United States Treasury pursuant to Section 409A of
the Code, applicable to such plans.

 

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(g)                     “Code”
means the Internal Revenue Code of 1986, as amended from time to time, and
includes a reference to the underlying final regulations.

 

(h)                     “Committee”
means the committee of the Board described in Article 4.

 

(i)                         “Company”
means Family Dollar Stores, Inc., a Delaware corporation, or any successor
corporation.

 

(j)                         “Covered
Employee” means a “covered employee” as defined in Code Section 162(m)(3).

 

(k)                      “Deferred
Stock Unit” means a right granted to a Participant under Article 11.

 

(l)                         “Director”
means any individual who is a member of
the Board.

 

(m)                   “Disability”
or “Disabled” has the same meaning as provided in any long-term disability plan
or policy maintained by the Company or if applicable, most recently maintained,
by the Company or if applicable, an Affiliate (whether or not the Participant
actually participates or receives disability benefits under such plan or
policy); provided, however, that in no event shall a Participant be deemed Disabled
for purposes of the Plan within the six-month period beginning on the date the
Participant commences employment with the Company or an Affiliate.  If the determination of Disability relates to
an Incentive Stock Option, or a Stock Appreciation Right issued in tandem with
an Incentive Stock Option, Disability means “permanent and total disability” as
defined in Section 22(e)(3) of the Code.  In the event of a dispute, the determination
whether a Participant is Disabled will be made by the Committee and may be
supported by the advice of a physician competent in the area to which such
Disability relates.  Notwithstanding the
foregoing, for any Awards that constitute a nonqualified deferred compensation
plan within the meaning of Section 409A(d) of the Code and provide
for an accelerated payment in connection with any Disability, Disability shall
have the same meaning as set forth in any regulations, revenue procedure,
revenue rulings or other pronouncements issued by the Secretary of the United
States Treasury pursuant to Section 409A of the Code, applicable to such
plans.

 

(n)                     “Dividend
Equivalent” means a right granted to a Participant under Article 12.

 

(o)                     “Effective
Date” has the meaning assigned such term in Section 3.1.

 

(p)                     “Eligible
Individual” means an employee, officer, consultant or

 

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director of the Company or any Affiliate.

 

(q)                     “Exchange”
means the New York Stock Exchange or any other national securities exchange on
which the Stock may from time to time be listed or traded.

 

(r)                        “Fair
Market Value”, on any date, means (i) if the Stock is listed on the New
York Stock Exchange or another national securities exchange or is traded over
the Nasdaq National Market, the average of the highest price and lowest price
at which the Stock is sold regular way on such exchange or over such system on
such date or, in the absence of reported sales on such date, on the immediately
preceding date on which sales were reported, or (ii) if the Stock is not
listed on any securities exchange or traded over the Nasdaq National Market,
the mean between the bid and offered prices as quoted by Nasdaq for such date,
provided that if it is determined that the fair market value is not properly
reflected by such Nasdaq quotations, Fair Market Value will be determined in
compliance with Sections 162(m) and 409A of the Code, to the extent applicable,
by such other method as the Committee determines in good faith to be
reasonable.

 

(s)                      “Good
Reason” has the meaning assigned such term in the employment, severance or
similar agreement, if any, between a Participant and the Company or an
Affiliate, provided, however that if there is no such employment, severance or
similar agreement in which such term is defined, and unless otherwise defined
in the applicable Award Certificate, “Good Reason” shall mean any of the
following acts by the Company or an Affiliate, without the consent of the
Participant (in each case, other than an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
or the Affiliate promptly after receipt of notice thereof given by the
Participant): (i) a reduction by the Company or an Affiliate in the
Participant’s base salary, (ii) a
material reduction in the Participant’s position, duties and responsibilities,
assignment to duties inconsistent with such position or material adverse change
in reporting relationships, (iii) with respect to a Participant who
is stationed at the Company’s headquarters in Charlotte, North Carolina, or in
Matthews, North Carolina, the Company or an Affiliate requiring the
Participant, without his or her consent, to be based at any office or location
more than 35 miles from the location at which the Participant was stationed
immediately prior to a Change in Control, or (iv) the continuing material
breach by the Company or an Affiliate of any employment agreement between the
Participant and the Company or an Affiliate after the expiration of any
applicable period for cure.

 

(t)                        “Grant
Date” of an Award means the first date
on which all necessary corporate action has been taken to approve the grant of
the Award as provided in the Plan, or such later date as is determined and
specified as part of that authorization process.

 

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(u)                     “Incentive
Stock Option” means an Option that is intended to be an incentive stock option
and meets the requirements of Section 422 of the Code or any successor
provision thereto.

 

(v)                     “Insider”
means an individual who is, on the
relevant date, an officer, director or ten percent (10%) beneficial owner of
any class of the Company’s equity securities that is registered pursuant to Section 12
of the 1934 Act, all as defined under Section 16 of the 1934 Act and the rules thereunder.

 

(w)                   “Nonstatutory
Stock Option” means an Option that is not an Incentive Stock Option.

 

(x)                       “Option”
means a right granted to a Participant under Article 7 of the Plan to
purchase Stock at a specified price during specified time periods.  An Option may be either an Incentive Stock
Option or a Nonstatutory Stock Option.

 

(y)                     “Other
Stock-Based Award” means a right, granted to a Participant under Article 13,
that relates to or is valued by reference to Stock or other Awards relating to
Stock.

 

(z)                       “Parent”
means a corporation, limited liability company, partnership or other entity
which owns or beneficially owns a majority of the outstanding voting stock or
voting power of the Company. Notwithstanding the above, with respect to an
Incentive Stock Option, Parent shall have the meaning set forth in Section 424(e) of
the Code.

 

(aa)                “Participant”
means an Eligible Individual who has been granted an Award under the Plan;
provided that in the case of the death of a Participant, the term “Participant”
refers to a beneficiary designated pursuant to Section 15.5 or the legal
guardian or other legal representative acting in a fiduciary capacity on behalf
of the Participant under applicable state law.

 

(bb)              “Performance
Award” means Performance Shares, Performance Units or Performance-Based Cash
Awards granted pursuant to Article 9.

 

(cc)                “Performance-Based
Cash Award” means a right granted to a Participant under Article 9 to a
cash award to be paid upon achievement of such performance goals as the
Committee establishes with regard to such Award.

 

(dd)              “Performance
Share” means any right granted to a Participant under Article 9 to a share
to be valued by reference to a designated number of Shares to be paid upon
achievement of such performance goals as the Committee establishes with regard
to such Performance Share.

 

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(ee)                “Performance
Unit” means a right granted to a Participant under Article 9 to a unit
valued by reference to a designated amount of cash or property other than
Shares, to be paid to the Participant in cash or in kind upon achievement of
such performance goals as the Committee establishes with regard to such
Performance Unit.

 

(ff)                    “Person”
means any individual, entity or group, within the meaning of Section 3(a)(9) of
the 1934 Act and as used in Section 13(d)(3) or 14(d)(2) of the
1934 Act.

 

(gg)              “Plan”
means this Family Dollar Stores, Inc. 2006 Incentive Plan, as amended or
supplemented from time to time.

 

(hh)              “Qualified
Performance-Based Award” means, with respect to a Covered Employee, an Award
granted to an officer of the Company that is either (i) intended to
qualify for the Section 162(m) Exemption and is made subject to
performance goals based on Qualified Business Criteria as set forth in Section 14.2,
or (ii) an Option or SAR having an exercise price equal to or greater than
the Fair Market Value of the underlying Stock as of the Grant Date.

 

(ii)                      “Qualified
Business Criteria” means one or more of the Business Criteria listed in Section 14.2
upon which performance goals for certain Qualified Performance-Based Awards may
be established by the Committee.

 

(jj)                      “Restricted
Stock Award” means Stock granted to a Participant under Article 10 that is
subject to certain restrictions and to risk of forfeiture.

 

(kk)                “Restricted Stock Unit Award” means the right
granted to a Participant under Article 10 to receive Shares (or the
equivalent value in cash or other property) in the future, which right is subject to certain restrictions and to
risk of forfeiture.

 

(ll)                      “Retirement”
means a
Participant’s voluntary termination of employment or consultancy at or after
having attained age sixty (60) with at least ten (10) years of service
with the Company or an Affiliate, or such earlier retirement date as may be approved
by the Committee with regard to such Participant.  With respect to a
Participant’s termination of service as a Director, Retirement means the
failure to stand for reelection or other retirement as a Director after a Participant
has attained age sixty-five (65) or such earlier retirement date as may be approved
by the Committee with regard to such Participant.

 

(mm)          “Section 162(m)
Exemption” means the exemption from the limitation on deductibility imposed by Section 162(m)
of the Code that is set forth in Section 162(m)(4)(C) of the Code or
any successor provision thereto.

 

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(nn)              “Shares”
means shares of the Company’s Stock.  If
there has been an adjustment or substitution pursuant to Section 16.1, the
term “Shares” shall also include any shares of stock or other securities that
are substituted for Shares or into which Shares are adjusted pursuant to Section 16.1.

 

(oo)              “Stock”
means the $0.10 par value common stock of the Company and such other securities
of the Company as may be substituted for Stock pursuant to Article 16.

 

(pp)              “Stock
Appreciation Right” or “SAR” means a right granted to a Participant under Article 8
to receive a payment equal to the difference between the Fair Market Value of a
Share as of the date of exercise of the SAR over the grant price of the SAR,
all as determined pursuant to Article 8.

 

(qq)              “Subsidiary”
means any corporation, limited liability company, partnership or other entity
of which a majority of the outstanding voting stock or voting power is
beneficially owned directly or indirectly by the Company. Notwithstanding the
above, with respect to an Incentive Stock Option, Subsidiary shall have the
meaning set forth in Section 424(f) of the Code.

 

(rr)                    “1933
Act” means the Securities Act of 1933, as amended from time to time.

 

(ss)                “1934
Act” means the Securities Exchange Act of 1934, as amended from time to time.

 

ARTICLE 3

EFFECTIVE TERM OF PLAN

 

3.1.                              EFFECTIVE
DATE.  The Plan shall be effective as
of the date it is approved by the stockholders of the Company (the “Effective
Date”).  Upon the Effective Date, no
further grants shall be made under the Company’s 1989 Non-Qualified Stock
Option Plan.  No further grants may be
made under this Plan after the 10th anniversary of the Effective
Date.

 

ARTICLE 4

ADMINISTRATION

 

4.1.                              COMMITTEE.  The Plan shall be administered by a Committee
appointed by the Board (consisting of at least two members) or, at the
discretion of the Board from time to time, the Plan may be administered by the
Board.  Unless otherwise designated by the Board, the Compensation Committee of
the Board shall serve as the Committee administering the Plan; provided,
however, that (i) with respect to Awards to any Insiders, the
Committee shall consist of all of the members of the Compensation Committee who
are “non-employee directors” within the meaning of Rule 16b-3 adopted
under the 1934 Act, and (ii) with respect to Awards intended to constitute
Qualified Performance-Based

 

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Awards, the Committee shall consist of all of the
members of the Compensation Committee who are “outside directors” within the
meaning of Section 162(m) of the Code. 
For purposes of this Plan, Committee may also mean any individual or
committee of individuals (who need not be Directors) that the Compensation
Committee may appoint from time to time to administer the Plan with respect to
Awards to Eligible Individuals who are not Insiders or Covered Employees, in
accordance with and subject to the requirements of Section 4.3.  The Board may reserve to itself any or
all of the authority and responsibility of the Committee under the Plan or may
act as administrator of the Plan for any and all purposes.  To the extent the Board has reserved any
authority and responsibility or during any time that the Board is acting as
administrator of the Plan, it shall have all the powers of the Committee
hereunder, and any reference herein to the Committee (other than in this Section 4.1)
shall include the Board.  To the extent
any action of the Board under the Plan conflicts with actions taken by the
Committee, the actions of the Board shall control.

 

4.2.                              ACTION
AND INTERPRETATIONS BY THE COMMITTEE. 
For purposes of administering the Plan, the Committee may from time to
time adopt rules, regulations, guidelines and procedures for carrying out the
provisions and purposes of the Plan and make such other determinations, not
inconsistent with the Plan, as the Committee may deem appropriate.  The Committee’s interpretation of the Plan,
any Awards granted under the Plan, any Award Certificate and all decisions and
determinations by the Committee with respect to the Plan are final, binding,
and conclusive on all parties.  Each
member of the Committee is entitled to, in good faith, rely or act upon any
report or other information furnished to that member by any officer or other
employee of the Company or any Affiliate, the Company’s or an Affiliate’s
independent certified public accountants, Company counsel or any executive compensation
consultant or other professional retained by the Company to assist in the
administration of the Plan.

 

4.3.                              AUTHORITY
OF COMMITTEE.  Except as provided
below, the Committee has the exclusive power, authority and discretion to:

 

(a)                                  Grant
Awards;

 

(b)                                 Designate
Participants;

 

(c)                                  Determine
the type or types of Awards to be granted to each Participant;

 

(d)                                 Determine
the number of Awards to be granted and the number of Shares or dollar amount to
which an Award will relate;

 

(e)                                  Determine
the terms and conditions (not inconsistent with the terms of this Plan) of any
Award granted under the Plan, including but not limited to, the exercise price,
grant price, or purchase price, any restrictions or limitations on the Award,
any schedule for lapse of forfeiture restrictions or restrictions on

 

9

 

the exercisability of an Award, and accelerations or
waivers thereof, based in each case on such considerations as the Committee in
its sole discretion determines;

 

(f)                                    Determine
whether, to what extent, and under what circumstances an Award may be settled
in, or the exercise price of an Award may be paid in, cash, Stock, other
Awards, or other property, or an Award may be canceled, forfeited, or
surrendered;

 

(g)                                 Prescribe
the form of each Award Certificate, which need not be identical for each
Participant;

 

(h)                                 Decide
all other matters that must be determined in connection with an Award;

 

(i)                                     Establish,
adopt or revise any rules, regulations, guidelines or procedures as it may deem
necessary or advisable to administer the Plan;

 

(j)                                     Make
all other decisions and determinations that may be required under the Plan or
as the Committee deems necessary or advisable to administer the Plan;

 

(k)                                  Amend
the Plan or any Award Certificate as provided herein;

 

(l)                                     Adopt
such modifications, procedures, and subplans as may be necessary or desirable
to comply with provisions of the laws of non-U.S. jurisdictions in which the
Company or any Affiliate may operate, in order to assure the viability of the
benefits of Awards granted to participants located in such other jurisdictions
and to meet the objectives of the Plan; and

 

(m)                               Appoint
and compensate agents, counsel, auditors or other specialists to aid it in the
discharge of its duties.

 

Notwithstanding the above,
to the extent permitted by applicable law, the Committee may delegate its
authority as identified herein to any individual or committee of individuals
(who need not be Directors), including without limitation the authority to make
Awards to Eligible Individuals who are not Insiders or Covered Employees.  To the extent that the Committee delegates
its authority to make Awards as provided by this Section 4.3, all
references in the Plan to the Committee’s authority to make Awards and
determinations with respect thereto shall be deemed to include the Committee’s
delegate.  Any such delegate shall serve
at the pleasure of, and may be removed at any time by, the Committee.

 

4.4.                              AWARD
CERTIFICATES.  Each Award shall be
evidenced by an Award Certificate.  Each
Award Certificate shall include such provisions, not inconsistent with the
Plan, as may be specified by the Committee.

 

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ARTICLE 5

SHARES SUBJECT TO THE PLAN

 

5.1.                              NUMBER
OF SHARES .  Subject to adjustment as
provided in Sections 5.2 and 16.1, the aggregate number of Shares reserved and
available for issuance pursuant to Awards granted under the Plan shall be (i) Twelve
Million (12,000,000) Shares, plus (ii) any Shares covered by an award made
under the Company’s 1989 Non-Qualified Stock Option Plan prior to the Effective
Date that is canceled, terminates, expires, forfeits or lapses for any reason
after the Effective Date.

 

5.2.                              SHARE
COUNTING.

 

(a)                                  To
the extent that an Award is canceled, terminates, expires, is forfeited or
lapses for any reason, any unissued Shares from such Award will again be
available for issuance pursuant to Awards granted under the Plan.

 

(b)                                 Shares
subject to Awards settled in cash will again be available for issuance pursuant
to Awards granted under the Plan.

 

(c)                                  Substitute
Awards granted pursuant to Section 15.11 of the Plan shall not count
against the Shares otherwise available for issuance under the Plan under Section 5.1.

 

5.3.                              SOURCE
OF SHARES.  Any Stock distributed
pursuant to an Award may consist, in whole or in part, of authorized and
unissued Stock, treasury Stock or Stock purchased on the open market, all as determined by the Chief Financial
Officer of the Company (or the Chief Financial Officer’s designee) from time to
time, unless otherwise determined by the Committee.

 

5.4.                              LIMITATIONS
ON AWARDS.  Notwithstanding any
provision in the Plan to the contrary (but subject to adjustment as provided in
Section 16.1):

 

(a)                                  The
maximum number of Shares that may be issued upon exercise of Incentive Stock
Options granted under the Plan shall be 1,000,000.

 

(b)                                 The
maximum number of Shares with respect to one or more Options, SARs, Restricted
Stock, Restricted Stock Units, Deferred Stock Units, Performance Shares or
other Stock-Based Awards that may be granted during any one calendar year under
the Plan to any one Participant shall be 500,000.

 

(d)                                 The
aggregate dollar value of any Performance-Based Cash Award or other cash-based
award that may be paid to any one Participant during any one calendar year
under the Plan shall be $1,000,000.

 

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ARTICLE 6

ELIGIBILITY

 

6.1.                              GENERAL.  Awards may be granted only to Eligible
Individuals, except as limited for Incentive Stock Options under Section 7.2(g).

 

ARTICLE 7

STOCK OPTIONS

 

7.1.                              GENERAL.  The Committee is authorized to grant Options
to Participants on the following terms and conditions:

 

(a)                                  EXERCISE
PRICE.  The exercise price per Share
under an Option shall be determined by the Committee; provided, however, that
the exercise price of an Option (other than an Option issued as a substitute
Award pursuant to Section 15.11) shall not be less than the Fair Market
Value as of the Grant Date.

 

(b)                                 TIME
AND CONDITIONS OF EXERCISE.  The
Committee shall determine the time or times at which an Option may be exercised
in whole or in part, subject to Section 7.1(d).  The Committee shall also determine the
performance or other conditions, if any, that must be satisfied before all or
part of an Option may be exercised or vested.

 

(c)                                  PAYMENT.  Options
shall be exercised by the delivery of a notice of exercise to the Company,
setting forth the number of Shares with respect to which the Option is to be
exercised, accompanied by full payment for the Shares.  To be effective, notice of exercise must be
made in accordance with procedures established by the Company from time to
time.

 

The Option price due upon
exercise of any Option shall be payable to the Company in full either: (i) in
cash or its equivalent, or (ii) by tendering previously acquired Shares
having an aggregate Fair Market Value at the time of exercise equal to the
total Option price (provided that the Shares which are tendered must have been
held by the Participant for at least six (6) months prior to their tender
to satisfy the Option price unless such Shares had been acquired by the
Participant on the open market), or (iii) by a combination of (i) and
(ii).

 

As soon as practicable after
notification of exercise and full payment, the Company shall deliver the Shares
to the Participant in an appropriate amount based upon the number of Shares
purchased under the Option(s).

 

Notwithstanding the
foregoing, the Committee also may allow (A) cashless exercises as
permitted under Federal Reserve Board’s Regulation T, subject
to applicable securities law restrictions, or (B) exercises by any
other means which the Committee determines to be consistent with the Plan’s
purpose and applicable law.

 

(d)                                 EXERCISE
TERM.  In no event may any Option be
exercisable

 

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for more than ten years from the Grant Date.

 

7.2.                              INCENTIVE STOCK OPTIONS.  The
terms of any Incentive Stock Options granted under the Plan must comply with
the following additional rules:

 

(a)                                  EXERCISE PRICE.  The
exercise price of an Incentive Stock Option shall not be less than the Fair
Market Value as of the Grant Date.

 

(b)                                 LAPSE OF OPTION. 
Subject to any earlier termination provision contained in the Award
Certificate, an Incentive Stock Option shall lapse upon the earliest of the
following circumstances; provided, however, that the Committee may, prior to
the lapse of the Incentive Stock Option under the circumstances described in
subsections (3), (4) or (5) below, provide in writing that the Option
will extend until a later date, but if an Option is so extended and is
exercised after the dates specified in subsections (3) and (4) below,
it will automatically become a Nonstatutory Stock Option:

 

(1)                                  The
expiration date set forth in the Award Certificate.

 

(2)                                  The
tenth anniversary of the Grant Date.

 

(3)                                  Three
months after termination of the Participant’s employment with the Company and
its Affiliates for any reason other than the Participant’s Disability or death.

 

(4)                                  One
year after termination of the Participant’s employment with the Company and its
Affiliates by reason of the Participant’s Disability.

 

(5)                                  One
year after the Participant’s death if the Participant dies while employed, or
during the three-month period described in paragraph (3) or during the
one-year period described in paragraph (4) and before the Option otherwise
lapses.

 

Unless the exercisability of the Incentive Stock
Option is accelerated as provided in Article 15, if a Participant
exercises an Option after termination of employment, the Option may be
exercised only with respect to the Shares that were otherwise vested on the
Participant’s termination of employment. 
Upon the Participant’s death, any exercisable Incentive Stock Options
may be exercised by the Participant’s beneficiary, determined in accordance
with Section 15.5.

 

(c)                                  INDIVIDUAL
DOLLAR LIMITATION.  The aggregate
Fair Market Value (determined as of the Grant Date) of all Shares with respect
to which Incentive Stock Options (under all plans maintained by the Company)
are first exercisable by a Participant in any calendar year may not exceed
$100,000.00.

 

13

 

(d)                                 TEN
PERCENT OWNERS.  No Incentive Stock
Option shall be granted to any individual who, at the Grant Date, in accordance
with Section 424(d) of the Code, owns stock possessing more than ten
percent of the total combined voting power of all classes of stock of the
Company or any Parent or Subsidiary unless the exercise price per share of such
Option is at least 110% of the Fair Market Value per Share at the Grant Date
and the Option expires no later than five years after the Grant Date.

 

(e)                                  EXPIRATION
OF AUTHORITY TO GRANT INCENTIVE STOCK OPTIONS.  No Incentive Stock Option may be granted pursuant
to the Plan after the day immediately prior to the tenth anniversary of the
Effective Date of the Plan, or the termination of the Plan, if earlier.

 

(f)                                    RIGHT
TO EXERCISE.  During a Participant’s
lifetime, an Incentive Stock Option may be exercised only by the Participant
or, in the case of the Participant’s Disability, by the Participant’s guardian
or legal representative.

 

(g)                                 ELIGIBLE
GRANTEES.  The Committee may not
grant an Incentive Stock Option to a person who is not at the Grant Date an employee
of the Company or a Parent or Subsidiary.

 

ARTICLE 8

STOCK APPRECIATION RIGHTS

 

8.1.                              GRANT
OF STOCK APPRECIATION RIGHTS.  The
Committee is authorized to grant Stock Appreciation Rights to Participants on
the following terms and conditions:

 

(a)                                  RIGHT
TO PAYMENT.  Upon the exercise of a
Stock Appreciation Right, the Participant to whom it is granted, has the right,
to receive upon exercise, at the Committee’s election, either a payment in cash
or Shares, equal to the excess, if any, of:

 

(1)                                        The
Fair Market Value of one Share on the date of exercise; over

 

(2)                                        The
base value of the Stock Appreciation Right as determined by the Committee,
which shall not be less than the Fair Market Value of one Share on the Grant
Date (other than an SAR issued as a substitute Award pursuant to Section 15.11
or unless the SAR is granted in tandem with an Option after the Grant Date of
the Option, in which case, to the extent permitted under Section 409A of
the Code and the regulations promulgated thereunder, the base price of the SAR
may equal the exercise price of the related Option even if less than the Fair
Market Value of one Share on the Grant Date of the SAR).

 

14

 

(b)                                 OTHER
TERMS.  The terms, methods of
exercise, methods of settlement, form of consideration payable in settlement,
and any other terms and conditions of any Stock Appreciation Right shall be
determined by the Committee.  With
respect to a Stock Appreciation Right, the number of shares to be counted
against the share pool in Section 5.1 above shall be the number of net
shares with respect to which the award is granted.

 

ARTICLE 9

PERFORMANCE AWARDS

 

9.1.                              GRANT
OF PERFORMANCE AWARDS.  The Committee
is authorized to grant Performance Shares, Performance Units or
Performance-Based Cash Awards to Participants on such terms and conditions as
may be selected by the Committee.

 

9.2.                              PERFORMANCE
GOALS.  The Committee may establish
performance goals for Performance Awards which may be based on any criteria
selected by the Committee.  Such
performance goals may be described in terms of Company-wide objectives or in
terms of objectives that relate to the performance of the Participant, an
Affiliate or a division, region, department or function within the Company or
an Affiliate.  If the Committee
determines that a change in the business, operations, corporate structure or
capital structure of the Company or the manner in which the Company or an
Affiliate conducts its business, or other events or circumstances render performance
goals to be unsuitable, the Committee may modify such performance goals in
whole or in part, as the Committee deems appropriate.  If a Participant is promoted, demoted or
transferred to a different business unit or function during a performance period,
the Committee may determine that the performance goals or performance period
are no longer appropriate and may (i) adjust, change or eliminate the
performance goals or the applicable performance period as it deems appropriate
to make such goals and period comparable to the initial goals and period, or (ii) make
a cash payment to the participant in an amount determined by the
Committee.  The foregoing two sentences
shall not apply with respect to a Performance Award that is intended to be a
Qualified Performance-Based Award, except to the extent the Committee exercises
such negative discretion as is permitted under applicable law for purposes of
the Section 162(m) Exemption.

 

9.3.                              RIGHT
TO PAYMENT.  The grant of a
Performance Share to a Participant will entitle the Participant to receive at a
specified later time a specified number of Shares, or the equivalent cash
value, if the performance goals established by the Committee are achieved and
the other terms and conditions thereof are satisfied.  The grant of a Performance Unit to a
Participant will entitle the Participant to receive at a specified later time a
specified dollar value, which may be settled in cash or other property,
including Shares, variable under conditions specified in the Award, if the performance
goals in the Award are achieved and the other terms and conditions thereof are
satisfied. The grant of a Performance-Based Cash Award to a Participant will
entitle the Participant to receive at a specified later time a specified dollar
value in cash variable

 

15

 

under
conditions specified in the Award, if the performance goals in the Award are
achieved and the other terms and conditions thereof are satisfied. The
Committee shall set performance goals and other terms or conditions to payment
of the Performance Awards in its discretion which, depending on the extent to
which they are met, will determine the value of the Performance Awards that
will be paid to the Participant.

 

9.4.                              OTHER
TERMS.  The terms, methods of
exercise, methods of settlement, form of consideration payable in settlement,
and any other terms and conditions of any Performance Awards shall be
determined by the Committee.  For
purposes of determining the number of Shares to be used in payment of a
Performance Award denominated in cash but payable in whole or in part in Shares
or Restricted Stock, the number of Shares to be so paid will be determined by
dividing the cash value of the Award to be so paid by the Fair Market Value of
a Share on the date of determination by the Committee of the amount of the
payment under the Award, or, if the Committee so directs, the date immediately
preceding the date the Award is paid.

 

ARTICLE 10

RESTRICTED
STOCK AND RESTRICTED STOCK UNIT AWARDS

 

10.1.                        GRANT OF RESTRICTED STOCK AND RESTRICTED
STOCK UNITS.  The Committee is authorized to make Awards of
Restricted Stock or Restricted Stock Units to Participants in such amounts and
subject to such terms and conditions as may be selected by the Committee, subject
to Section 5.4.

 

10.2.                        ISSUANCE AND RESTRICTIONS. 
Restricted Stock or Restricted Stock Units shall be subject to such
restrictions on transferability and other restrictions as the Committee may
impose (including, without limitation, limitations on the right to vote
Restricted Stock or the right to receive dividends on the Restricted Stock or
dividend equivalents on the Restricted Stock Units) covering a period of time
specified by the Committee (the “Restriction Period”).  These restrictions may lapse separately or in
combination at such times, under such circumstances, in such installments, upon
the satisfaction of performance goals or otherwise, as the Committee determines
at the time of the grant of the Award or thereafter.  Except as otherwise provided in an Award
Certificate, the Participant shall have all of the rights of a stockholder with
respect to the Restricted Stock, and the Participant shall have none of
the rights of a stockholder with respect to Restricted Stock Units until such
time as Shares of Stock are paid in settlement of the Restricted Stock Units.

 

10.3.                        FORFEITURE.  Except as provided in an Award
Certificate or otherwise determined by the Committee at the time of the grant
of the Award or thereafter, immediately after termination of the Participant’s
employment or other service relationship with the Company and its Affiliates
during the applicable Restriction Period or upon failure to satisfy a
performance goal during the applicable Restriction Period, Restricted Stock or
Restricted Stock Units that are at that time subject to restrictions shall be
forfeited.

 

16

 

10.4.                        DELIVERY OF RESTRICTED STOCK. 
Shares of Restricted Stock shall be delivered to the Participant at the
time of grant either by book-entry registration or by delivering to the
Participant, or a custodian or escrow agent (including, without limitation, the
Company or one or more of its employees) designated by the Committee, a stock
certificate or certificates registered in the name of the Participant.  If physical certificates representing shares
of Restricted Stock are registered in the name of the Participant, such
certificates must bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Restricted Stock.

 

ARTICLE 11

DEFERRED STOCK UNITS

 

11.1.                        GRANT OF DEFERRED STOCK
UNITS.  The Committee is authorized
to grant Deferred Stock Units to Participants subject to such terms and
conditions as may be selected by the Committee. 
Deferred Stock Units shall entitle the Participant to receive Shares of
Stock (or the equivalent value in cash or other property if so determined by
the Committee) at a future time as determined by the Committee, or as
determined by the Participant within guidelines established by the Committee in
the case of voluntary deferral elections.

 

ARTICLE 12

DIVIDEND AND INTEREST EQUIVALENTS

 

12.1.                        GRANT OF DIVIDEND
EQUIVALENTS.  The Committee is
authorized to grant Dividend Equivalents to Participants subject to such terms
and conditions as may be selected by the Committee.  Dividend Equivalents shall entitle the
Participant to receive payments equal in value to the cash dividends that would
have been paid with respect to all or a portion of the number of Shares subject
to any Award, if such Shares had been outstanding, as determined by the
Committee.  The Committee may provide
that Dividend Equivalents be paid or distributed when accrued or be deemed to
have been reinvested in additional Shares or units equivalent to Shares, or
otherwise reinvested.

 

12.2                           GRANT
OF INTEREST EQUIVALENTS.  The
Committee is authorized to grant Interest Equivalents to Participants subject
to such terms and conditions as may be selected by the Committee.  Interest Equivalents shall entitle the Participant
to receive payments equal to a stated rate of return on the value of an
outstanding Award, as determined by the Committee.  The Committee may provide that Interest
Equivalents be paid or distributed when accrued or be deemed to have been
reinvested in additional Shares or units equivalent to Shares, or otherwise
reinvested.

 

ARTICLE 13

STOCK OR OTHER STOCK-BASED AWARDS

 

13.1.                        GRANT OF STOCK OR OTHER
STOCK-BASED AWARDS.  The Committee is
authorized, subject to limitations under applicable law, to grant to
Participants such other Awards that are payable in, valued in whole or in part
by

 

17

 

reference
to, or otherwise based on or related to Shares or other property, as deemed by
the Committee to be consistent with the purposes of the Plan, including without
limitation Shares awarded purely as a “bonus” and not subject to any
restrictions or conditions, convertible or exchangeable debt securities, other
rights convertible or exchangeable into Shares, and Awards valued by reference
to book value of Shares or the value of securities of or the performance of
specified Parents or Affiliates (“Other Stock-Based Awards”).  Such Other Stock-Based Awards shall also be
available as a form of payment in the settlement of other Awards granted under
the Plan.  The Committee shall determine
the terms and conditions of such Other Stock-Based Awards.

 

ARTICLE 14

QUALIFIED PERFORMANCE-BASED AWARDS

 

14.1.                        OPTIONS
AND STOCK APPRECIATION RIGHTS.  The
provisions of the Plan are intended to ensure that all Options and Stock
Appreciation Rights granted hereunder to any Covered Employee shall qualify for
the Section 162(m) Exemption.

 

14.2.                        OTHER
AWARDS.  When granting an Award other
than an Option or a Stock Appreciation Right, the Committee may designate such
Award as a Qualified Performance-Based Award, based upon a determination that
the recipient is or may be a Covered Employee with respect to such Award, and
the Committee wishes such Award to qualify for the Section 162(m) Exemption.  If an Award is so designated, the Committee
shall establish performance goals for such Award within the time period
prescribed by Section 162(m) of the Code based on one or more of the
following Qualified Business Criteria, which may be expressed in terms of
Company-wide objectives or in terms of objectives that relate to the
performance of an Affiliate or a division, region, department, function or
combination thereof within the Company or an Affiliate:

 

• Revenue

• Sales

• Profit (net
profit, gross profit, operating profit, economic profit, profit margins or
other corporate profit measures)

• Earnings on
a pre-tax or post-tax basis (EBIT, EBITDA, earnings per share, earnings growth
or other corporate earnings measures)

• Net income
(before or after taxes, operating income or other income measures)

• Cash (cash
flow, cash generation or other cash measures)

• Stock price
or performance

• Total
stockholder return (stock price appreciation plus reinvested dividends divided
by beginning share price or other measures of return)

•
Financial return measures (including, but not limited to, dividends, return on
assets, capital, equity, or sales, and cash flow return on assets, capital,
equity, or sales);

• Market share
measures

 

18

 

• Improvements
in capital structure

• Expenses
(operating expense, expense management, expense ratio, expense efficiency
ratios or other expense measures)

• Business
expansion or consolidation (acquisitions and divestitures)

•
Internal rate of return or increase in net present value

•
Working capital targets relating to inventory and/or accounts receivable

•
Planning accuracy (as measured by comparing planned results to actual results)

•
Productivity improvement

•
Inventory measures (turns, reduction, shrink)

•
Customer relations (count, frequency, size of basket, attitude)

•
Compliance goals (employee turnover, social goals, diversity goals, safety
programs, regulatory or legal compliance)

•
Goals relating to business expansion, acquisitions and divestitures.

 

Performance goals
with respect to the foregoing Qualified Business Criteria may be specified in
absolute terms, in percentages, or in terms of growth from period to period or
growth rates over time, as well as measured relative to an established or
specially-created performance index of Company competitors or peers.  Any member of a specially-created performance
index that undergoes a corporate event or transaction of a kind described in Article 16
or that files a petition for bankruptcy during a measurement period shall be
disregarded from and after such event, unless the Committee determines not to
disregard such entity or to make some other adjustment to measuring the
performance index and the effect of such Committee determination is to reduce
the amount payable under any affected Qualified Performance-Based Award.  Performance goals need not be based upon an
increase or positive result under a business criterion and could include, for
example, the maintenance of the status quo or the limitation of economic losses
(measured, in each case, by reference to a specific business criterion).  Notwithstanding anything herein to the
contrary, the Committee may exercise, with respect to such Qualified Business
Criteria and related performance goals, such negative discretion as is
permitted under applicable law for purposes of the Section 162(m)
Exemption.

 

14.3.                        PERFORMANCE
GOALS.  Each Qualified
Performance-Based Award (other than a market-priced Option or SAR) shall be
earned, vested and payable (as applicable) only upon the achievement of
performance goals established by the Committee based upon one or more of the
Qualified Business Criteria, together with the satisfaction of any other
conditions, such as continued employment, as the Committee may determine to be
appropriate; provided, however, that the Committee may provide, either in
connection with the grant thereof or by amendment thereafter, that achievement
of such performance goals will be waived upon the death or Disability of the
Participant, or upon a Change in Control. Performance periods established by
the Committee for any such Qualified Performance-Based Award may be as short as
three months and may be any longer period. 
In addition, the Committee may reserve the right, in connection with

 

19

 

the grant of a Qualified Performance-Based Award, to
exercise negative discretion to determine that the portion of such Award
actually earned, vested and/or payable (as applicable) shall be less than the
portion that would be earned, vested and/or payable based solely upon
application of the applicable performance goals.

 

14.4.                        INCLUSIONS
AND EXCLUSIONS FROM PERFORMANCE CRITERIA. 
The Committee may determine prospectively, at the time that goals under
this Article 14 are established, whether or not to adjust any such goals
during or after the fiscal year period to take into consideration and/or
mitigate the unbudgeted impact of unusual or non-recurring gains and losses,
accounting changes, acquisitions, dispositions, divestitures, and/or “extraordinary
items” within the meaning of generally accepted accounting principles (“non-recurring
items”), or if such non-recurring items were not foreseen or were not
quantifiable at the time such goals were established, upon the occurrence of
such non-recurring items, including any of the following that occur during a
fiscal year period: (a) asset write-downs or impairment charges; (b) litigation
or claim costs, judgments or settlements; (c) the effect of changes in tax
laws, accounting principles or other laws or provisions affecting reported
results; (d) restatements occurring as a result of errors that arise from
events other than fraud or failures in performance; (e) accruals for
reorganization and restructuring programs; (f) extraordinary nonrecurring
items as described in Accounting Principles Board Opinion No. 30 and/or in
management’s discussion and analysis of financial condition and results of
operations appearing in the Company’s annual report to stockholders for the
applicable year; (g) acquisitions or divestitures; and (h) foreign
exchange gains and losses.

 

14.5.                        CERTIFICATION OF PERFORMANCE
GOALS.  Any payment of a Qualified
Performance-Based Award granted with performance goals pursuant to Section 14.3
above shall be conditioned on the written certification of the Committee in
each case that the performance goals and any other material conditions were
satisfied.  Except as specifically
provided in Section 14.3, no Qualified Performance-Based Award held by a
Covered Employee or by an employee who in the reasonable judgment of the
Committee may be a Covered Employee on the date of payment, may be amended, nor
may the Committee exercise any discretionary authority it may otherwise have
under the Plan with respect to a Qualified Performance-Based Award under the
Plan, in any manner to waive the achievement of the applicable performance goal
based on Qualified Business Criteria or to increase the amount payable pursuant
thereto or the value thereof, or otherwise in a manner that would cause the
Qualified Performance-Based Award to cease to qualify for the Section 162(m)
Exemption.

 

20

 

ARTICLE 15

PROVISIONS APPLICABLE TO AWARDS

 

15.1.                        STAND-ALONE AND TANDEM
AWARDS.  Awards granted under the
Plan may, in the discretion of the Committee, be granted either alone or in
addition to, in tandem with, any other Award granted under the Plan.  Subject to Section 17.2, Awards granted
in addition to or in tandem with other Awards may be granted either at the same
time as or at a different time from the grant of such other Awards.

 

15.2.                        TERM OF AWARD.  The term of each Award shall be for the
period as determined by the Committee, provided that in no event shall the term
of any Option or a Stock Appreciation Right exceed a period of ten years from
its Grant Date (or, if Section 7.2(d) applies, five years from its
Grant Date).

 

15.3.                        FORM OF PAYMENT FOR
AWARDS.  Subject to the terms of the
Plan and any applicable law (including, but not limited Section 409A of
the Code and the regulations promulgated thereunder) or Award Certificate,
payments or transfers to be made by the Company or an Affiliate on the grant or
exercise of an Award may be made in such form as the Committee determines at or
after the Grant Date, including without limitation, cash, Stock, other Awards,
or other property, or any combination, and may be made in a single payment or
transfer, in installments, or on a deferred basis, in each case determined in accordance
with rules adopted by, and at the discretion of, the Committee.

 

15.4.                        LIMITS ON TRANSFER.  No right or interest of a Participant in any
unexercised or restricted Award may be pledged, encumbered, or hypothecated to
or in favor of any party other than the Company or an Affiliate, or shall be
subject to any lien, obligation, or liability of such Participant to any other
party other than the Company or an Affiliate. 
No unexercised or restricted Award shall be assignable or transferable
by a Participant other than by will or the laws of descent and distribution;
provided, however, that the Committee may (but need not) permit other transfers
where the Committee concludes that such transferability (i) does not
result in accelerated taxation, (ii) does not cause any Option intended to
be an Incentive Stock Option to fail to be described in Code Section 422(b),
and (iii) is otherwise appropriate and desirable, taking into account any
factors deemed relevant, including without limitation, state or federal tax or
securities laws applicable to transferable Awards.  Any purported transfer in violation of this Section 15.4
shall be null and void.

 

15.5.                        BENEFICIARIES.  Notwithstanding Section 15.4, a
Participant may, in the manner determined by the Committee, designate a
beneficiary to exercise the rights of the Participant and to receive any
distribution with respect to any Award upon the Participant’s death.  A beneficiary, legal guardian, legal
representative, or other person claiming any rights under the Plan is subject
to all terms and conditions of the Plan and any Award Certificate applicable to
the Participant, except to the extent the Plan and Award Certificate otherwise
provide, and to any additional restrictions deemed necessary or appropriate by
the Committee.  If no beneficiary has
been designated or survives the Participant, payment shall be made to the
Participant’s surviving spouse or, in the

 

21

 

absence
of a surviving spouse, to the Participant’s estate.  Subject to the foregoing, a beneficiary
designation may be changed or revoked by a Participant at any time provided the
change or revocation is filed with the Company.

 

15.6.                        STOCK CERTIFICATES.  All Stock issuable under the Plan is subject
to any stop-transfer orders and other restrictions as the Committee deems
necessary or advisable to comply with federal or state securities laws, rules and
regulations and the rules of any national securities exchange or automated
quotation system on which the Stock is listed, quoted, or traded.  The Committee may place legends on any Stock
certificate or issue instructions to the transfer agent to reference
restrictions applicable to the Stock.

 

15.7.                        EFFECT OF A CHANGE IN
CONTROL.  The provisions of this Section 15.7
shall apply in the case of a Change in Control, unless otherwise provided in
the Award Certificate or any special Plan document or separate agreement with a
Participant governing an Award.

 

(a)                                  Awards
not Assumed or Substituted by Surviving Entity.  Upon the occurrence of a Change in Control,
and except with respect to any Awards assumed by the Surviving Entity or
otherwise equitably converted or substituted in connection with the Change in
Control in a manner approved by the Committee or the Board: (i) outstanding
Options, SARs, and other Awards in the nature of rights that may be exercised
shall become fully exercisable and shall remain exercisable for their full
term, (ii) time-based vesting restrictions on outstanding Awards shall
lapse, and (iii) the target payout opportunities attainable under
outstanding performance-based Awards shall be deemed to have been fully earned
as of the effective date of the Change in Control based upon the greater
of:  (A) an assumed achievement of
all relevant performance goals at the “target” level, or (B) the actual
level of achievement of all relevant performance goals against target as of the
Company’s fiscal quarter end preceding the Change in Control, and, in either
such case, there shall be a prorata payout to Participants within thirty (30)
days following the Change in Control based upon the length of time within the
performance period that has elapsed prior to the Change in Control.  Any Awards shall thereafter continue or lapse
in accordance with the other provisions of the Plan and the Award
Certificate.  To the extent that this
provision causes Incentive Stock Options to exceed the dollar limitation set
forth in Section 7.2(b), the excess Options shall be deemed to be
Nonstatutory Stock Options.

 

(b)                                 Awards
Assumed or Substituted by Surviving Entity. 
With respect to Awards assumed by the Surviving Entity or otherwise
equitably converted or substituted in connection with a Change in Control,
unless the Award Certificate expressly provides otherwise: if within two years
after the effective date of the Change in Control, a Participant’s employment
is terminated without Cause or the Participant resigns for Good Reason, then (i) all
of that Participant’s outstanding Options, SARs and other Awards in the nature
of rights that may be exercised shall become fully exercisable and shall remain
exercisable for their full term, (ii)

 

22

 

all time-based vesting restrictions outstanding Awards
shall lapse, and (iii) the target payout opportunities attainable under
all outstanding of that Participant’s performance-based Awards shall be deemed
to have been fully earned as of the date of termination based upon the greater
of: (A) an assumed achievement of all relevant performance goals at the “target”
level, or (B) the actual level of achievement of all relevant performance
goals against target as of the Company’s fiscal quarter end preceding the
Change in Control, and, in either such case, there shall be a prorata payout to
such Participant within thirty (30) days following the date of termination of
employment based upon the length of time within the performance period that has
elapsed prior to the date of termination of employment.  Any Awards shall thereafter continue or lapse
in accordance with the other provisions of the Plan and the Award
Certificate.  To the extent that this
provision causes Incentive Stock Options to exceed the dollar limitation set
forth in Section 7.2(b), the excess Options shall be deemed to be
Nonstatutory Stock Options.

 

(c) For purposes of Section 15.7 (a) and
(b), “target” shall mean the amount of the performance-based Award initially
granted to a Participant as a “target” amount to be awarded subject to
adjustment pursuant to the terms and conditions of the Award.

 

15.8.                        DISCRETIONARY ACCELERATION.  Regardless of whether an event has occurred
as described in Section 15.7 above, and subject to Article 14 as to
Qualified Performance-Based Awards, the Committee may in its sole discretion at
any time determine that, upon the termination of service of a Participant, or
the occurrence of a Change in Control, all or a portion of such Participant’s
Options, SARs and other Awards in the nature of rights that may be exercised
shall become fully or partially exercisable, that all or a part of the
restrictions on all or a portion of the Participant’s outstanding Awards shall
lapse, and/or that any performance-based criteria with respect to any Awards
held by that Participant shall be deemed to be wholly or partially satisfied,
in each case, as of such date as the Committee may, in its sole discretion,
declare.  The Committee may discriminate
among Participants and among Awards granted to a Participant in exercising its
discretion pursuant to this Section 15.8.

 

15.9.                        TERMINATION OF EMPLOYMENT.  The Committee shall be entitled to make such
rules, regulations, and determinations as it deems appropriate under this Plan
in respect of any leave of absence taken by an employee or any other change in
employment status, such as a change from full time employment to a consulting
relationship, of an employee relative to an Award. Without limiting the
foregoing, the Committee shall be entitled to determine (i) whether or not
any such leave of absence or other change in employment status, including the
receipt of continuing payments provided pursuant to a written severance or
employment agreement, shall constitute a termination of employment within the
meaning of this Plan and (ii) the impact, if any, of any such leave of
absence or other change in employment status on Awards under this Plan
therefore made to any employee who takes such leave of absence or otherwise
changes his or her employment status.  To
the extent that this provision causes Incentive

 

23

 

Stock
Options to extend beyond three months from the date a Participant is deemed to
cease to be an employee of the Company, a Parent or Subsidiary for purposes of
Sections 424(e) and 424(f) of the Code, the Options held by such Participant
shall be deemed to be Nonstatutory Stock Options.

 

15.10.                  FORFEITURE EVENTS.  The Committee may specify in an Award
Certificate that the Participant’s rights, payments and benefits with respect
to an Award shall be subject to reduction, cancellation, forfeiture or
recoupment upon the occurrence of certain specified events. Such events may
include, but are not limited to, termination of employment for Cause, violation
of material Company or Affiliate policies, breach of non-competition,
confidentiality or other restrictive covenants that may apply to the
Participant, or other conduct by the Participant that is detrimental to the
business or reputation of the Company or any Affiliate.

 

15.11.                  SUBSTITUTE AWARDS.  The Committee may grant Awards under the Plan
in substitution for stock and stock-based awards held by employees of another
entity who become employees of the Company or an Affiliate as a result of a
merger or consolidation of the former employing entity with the Company or an
Affiliate or the acquisition by the Company or an Affiliate of property or
stock of the former employing corporation. 
The Committee may direct that the substitute awards be granted on such
terms and conditions as the Committee considers appropriate in the
circumstances.

 

ARTICLE 16

CHANGES IN CAPITAL STRUCTURE

 

16.1.                        GENERAL.  In the
event of a corporate event or transaction involving the Company (including,
without limitation, any stock dividend, stock split, extraordinary cash
dividend, recapitalization, reorganization, merger, consolidation, split-up,
spin-off, combination or exchange of shares), the authorization limits
under Section 5.1 and 5.4 shall be adjusted proportionately, and the Committee may adjust the Plan and Awards to
preserve the benefits or potential benefits of the Awards.  Action by the Committee may include: (i) adjustment
of the number and kind of shares which may be delivered under the Plan; (ii) adjustment
of the number and kind of shares subject to outstanding Awards; (iii) adjustment
of the exercise price of outstanding Awards or the measure to be used to
determine the amount of the benefit payable on an Award; and (iv) any
other adjustments that the Committee determines to be equitable.  In addition, upon the occurrence or in
anticipation of such an event, the Committee may, in its sole
discretion, provide (i) that Awards will be settled in cash rather than
Stock, (ii) that Awards will become immediately vested and exercisable and
will expire after a designated period of time to the extent not then exercised,
(iii) that Awards will be assumed by another party to a transaction or
otherwise be equitably converted or substituted in connection with such
transaction, (iv) that outstanding Awards may be settled by payment in
cash or cash equivalents equal to the excess of the Fair Market Value of the
underlying Stock, as of a specified date associated with the transaction, over
the exercise price of the Award, (v) that performance targets and
performance periods for Performance Awards will be modified, consistent with
Code Section 162(m) where applicable, or (vi) any combination

 

24

 

of the
foregoing.  The Committee’s determination
need not be uniform and may be different for different Participants whether or
not such Participants are similarly situated. 
Without limiting the foregoing, in
the event of a subdivision of the outstanding Stock (stock-split), a
declaration of a dividend payable in Shares, or a combination or consolidation
of the outstanding Stock into a lesser number of Shares, the authorization
limits under Section 5.1 and 5.4 shall automatically be adjusted
proportionately, and the Shares then subject to each Award shall automatically
be adjusted proportionately without any change in the aggregate purchase price
therefore.  To the extent that any adjustments made
pursuant to this Article 15 cause Incentive Stock Options to cease to
qualify as Incentive Stock Options, such Options shall be deemed to be
Nonstatutory Stock Options.

 

ARTICLE 17

AMENDMENT, MODIFICATION AND TERMINATION

 

17.1.                        AMENDMENT, MODIFICATION AND
TERMINATION.

 

(a)                                  The
Board or the Committee may, at any time and from time to time, amend, modify or
terminate the Plan without stockholder approval; provided, however, that if an
amendment to the Plan would, in the reasonable opinion of the Board or the
Committee, either (i) materially increase the number of Shares available
under the Plan, (ii) expand the types of awards under the Plan, (iii) materially
expand the class of participants eligible to participate in the Plan, (iv) materially
extend the term of the Plan, or (v) otherwise constitute a material change
requiring stockholder approval under applicable laws or the applicable listing
or other requirements of an Exchange, then such amendment shall be subject to
stockholder approval; and provided, further, that the Board or Committee may
condition any amendment or modification on the approval of stockholders of the
Company for any reason, including by reason of such approval being necessary or
deemed advisable to (i) to comply with the listing or other requirements
of an Exchange, or (ii) to satisfy any other tax, securities or other
applicable laws, policies or regulations.

 

(b)                                 No
termination, amendment, or modification of the Plan shall adversely affect any
Award previously granted under the Plan, without the written consent of the
Participant affected thereby.  An
outstanding Award shall not be deemed to be “adversely affected” by a Plan
amendment if such amendment would not reduce or diminish the value of such
Award determined as if the Award had been exercised, vested, cashed in or
otherwise settled on the date of such amendment (with the per-share value of an
Option or Stock Appreciation Right for this purpose being calculated as the
excess, if any, of the Fair Market Value as of the date of such amendment over
the exercise price or base value of such Award).

 

(c)                                  Notwithstanding
the foregoing, the Company reserves the right to amend the Plan or any Award
granted under the Plan, by action of the Board or

 

25

 

the Committee, without the consent of any affected
Participant, to the extent deemed necessary or appropriate for purposes of
maintaining compliance with Section 409A of the Code and the regulations
promulgated thereunder.

 

17.2.                        AWARDS PREVIOUSLY GRANTED.  At any time and from time to time, the
Committee may amend, modify or terminate any outstanding Award without approval
of the Participant; provided, however:

 

(a)                                  Subject
to the terms of the applicable Award Certificate, such amendment, modification
or termination shall not, without the Participant’s consent, reduce or diminish
the value of such Award determined as if the Award had been exercised, vested,
cashed in or otherwise settled on the date of such amendment or termination
(with the per-share value of an Option or Stock Appreciation Right for this
purpose being calculated as the excess, if any, of the Fair Market Value as of
the date of such amendment or termination over the exercise or base price of
such Award);

 

(b)                                 The
original term of an Option may not be extended without the prior approval of
the stockholders of the Company; and

 

(c)                                  Except
as otherwise provided in Article 16, the exercise price of an Option may
not be reduced, directly or indirectly, without the prior approval of the
stockholders of the Company.

 

ARTICLE 18

GENERAL PROVISIONS

 

18.1.                        NO RIGHTS TO AWARDS; NON-UNIFORM DETERMINATIONS.  No Participant or any Eligible Individual
shall have any claim to be granted any Award under the Plan.  Neither the Company, its Affiliates nor the
Committee is obligated to treat Participants or Eligible Individuals uniformly,
and determinations made under the Plan may be made by the Committee selectively
among Eligible Individuals who receive, or are eligible to receive, Awards
(whether or not such Eligible Individuals are similarly situated).

 

18.2.                        NO STOCKHOLDER RIGHTS.  No Award gives a Participant any of the
rights of a stockholder of the Company unless and until Shares are in fact
issued to such Participant in connection with the Award.

 

18.3.                        WITHHOLDING.  The Company or any Affiliate shall have the
authority and the right to deduct or withhold, or require a Participant to
remit to the Company, an amount sufficient to satisfy federal, state, and local
taxes (including the Participant’s FICA obligation) required by law to be
withheld with respect to any exercise, lapse of restriction or other taxable
event arising as a result of the Plan or an Award.  If Shares are permitted to be surrendered to
the Company to satisfy tax obligations in excess of the minimum tax withholding
obligation, such Shares must have been held by the Participant

 

26

 

as
fully vested shares for such period of time, if any, as necessary to avoid the
recognition of an expense under generally accepted accounting principles.  The Company shall have the authority to
require a Participant to remit cash to the Company in lieu of the surrender of
Shares for tax withholding obligations if the surrender of Shares in
satisfaction of such withholding obligations would result in the Company’s
recognition of expense under generally accepted accounting principles.  With respect to withholding required upon any
taxable event under the Plan, the Committee may, at the time the Award is
granted or thereafter, require or permit that any such withholding requirement
be satisfied, in whole or in part, by withholding from the Award Shares having
a Fair Market Value on the date of withholding equal to the minimum amount (and
not any greater amount) required to be withheld for tax purposes.

 

18.4.                        NO RIGHT TO CONTINUED
SERVICE.  Nothing in the Plan, any
Award Certificate or any other document or statement made with respect to the
Plan, shall interfere with or limit in any way the right of the Company or any
Affiliate to terminate any Participant’s employment or status as an officer,
director or consultant at any time, nor confer upon any Participant any right
to continue as an employee, officer, director or consultant of the Company or
any Affiliate, whether for the duration of a Participant’s Award or otherwise.

 

18.5.                        UNFUNDED STATUS OF AWARDS.  The Plan is intended to be an “unfunded” plan
for incentive and deferred compensation. 
With respect to any payments not yet made to a Participant pursuant to
an Award, nothing contained in the Plan or any Award Certificate shall give the
Participant any rights that are greater than those of a general creditor of the
Company or any Affiliate.  This Plan is
not intended to be subject to ERISA.

 

18.6.                        RELATIONSHIP TO OTHER
BENEFITS.  No payment under the Plan
shall be taken into account in determining any benefits under any pension,
retirement, savings, profit sharing, group insurance, welfare or benefit plan
of the Company or any Affiliate unless specifically provided otherwise in such
other plan.

 

18.7.                        TITLES AND HEADINGS.  The titles and headings of the Sections in
the Plan are for convenience of reference only, and in the event of any
conflict, the text of the Plan, rather than such titles or headings, shall
control.

 

18.8.                        GENDER AND NUMBER.  Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.

 

18.9.                        FRACTIONAL SHARES.  No fractional Shares shall be issued and the
Committee shall determine, in its discretion, whether cash shall be given in
lieu of fractional Shares or whether such fractional Shares shall be eliminated
by rounding up or down.

 

18.10.                  GOVERNMENT AND OTHER REGULATIONS.

 

27

 

(a)                                  Notwithstanding
any other provision of the Plan, no Participant who acquires Shares pursuant to
the Plan may, during any period of time that such Participant is an affiliate
of the Company (within the meaning of the rules and regulations of the
Securities and Exchange Commission under the 1933 Act), sell such Shares,
unless such offer and sale is made (i) pursuant to an effective
registration statement under the 1933 Act, which is current and includes the
Shares to be sold, or (ii) pursuant to an appropriate exemption from the
registration requirement of the 1933 Act, such as that set forth in Rule 144
promulgated under the 1933 Act.

 

(b)                                 Notwithstanding
any other provision of the Plan, if at any time the Committee shall determine
that the registration, listing or qualification of the Shares covered by an
Award upon any Exchange or under any foreign, federal, state or local law or
practice, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with, the granting
of such Award or the purchase or receipt of Shares thereunder, no Shares may be
purchased, delivered or received pursuant to such Award unless and until such
registration, listing, qualification, consent or approval shall have been
effected or obtained free of any condition not acceptable to the
Committee.  Any Participant receiving or
purchasing Shares pursuant to an Award shall make such representations and
agreements and furnish such information as the Committee may request to assure
compliance with the foregoing or any other applicable legal requirements.  The Company shall not be required to issue or
deliver any certificate or certificates for Shares under the Plan prior to the
Committee’s determination that all related requirements have been
fulfilled.  The Company shall in no event
be obligated to register any securities pursuant to the 1933 Act or applicable
state or foreign law or to take any other action in order to cause the issuance
and delivery of such certificates to comply with any such law, regulation or
requirement.

 

18.11.                  GOVERNING LAW.  To the extent not governed by federal law, the
Plan and all Award Certificates shall be construed in accordance with and
governed by the laws of the State of Delaware.

 

18.12.                  ADDITIONAL PROVISIONS.  Each Award Certificate may contain such other
terms and conditions as the Committee may determine; provided that such other
terms and conditions are not inconsistent with the provisions of the Plan.

 

18.13.                  NO LIMITATIONS ON RIGHTS OF
COMPANY.  The grant of any Award
shall not in any way affect the right or power of the Company to make
adjustments, reclassification or changes in its capital or business structure
or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part
of its business or assets.  The Plan
shall not restrict the authority of the Company, for proper corporate purposes,
to draft or assume awards, other than under the Plan, to or with respect to any
person.  If the Committee so directs, the
Company may issue or transfer Shares to an Affiliate, for such

 

28

 

lawful
consideration as the Committee may specify, upon the condition or understanding
that the Affiliate will transfer such Shares to a Participant in accordance
with the terms of an Award granted to such Participant and specified by the
Committee pursuant to the provisions of the Plan.

 

18.14.                  INDEMNIFICATION.  Each person who is or shall have been a
member of the Committee, or of the Board, or an officer of the Company to whom
authority was delegated in accordance with Article 4 shall be indemnified
and held harmless by the Company against and from any loss, cost, liability, or
expense that may be imposed upon or reasonably incurred by him or her in
connection with or resulting from any claim, action, suit, or proceeding to
which he or she may be a party or in which he or she may be involved by reason
of any action taken or failure to act under the Plan and against and from any
and all amounts paid by him or her in settlement thereof, with the Company’s
approval, or paid by him or her in satisfaction of any judgment in any such
action, suit, or proceeding against him or her, provided he or she shall give
the Company an opportunity, at its own expense, to handle and defend the same
before he or she undertakes to handle and defend it on his or her own behalf,
unless such loss, cost, liability, or expense is a result of his or her own
willful misconduct or except as expressly provided by statute.  The foregoing right of indemnification shall
not be exclusive of any other rights of indemnification to which such persons
may be entitled under the Company’s charter or bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold
them harmless.

 

18.15.                  FOREIGN PARTICIPANTS.  In
order to facilitate the granting of Awards to Eligible Individuals who are
foreign nationals or who are employed outside of the United States of America,
the Committee may provide for such special terms and conditions, including
without limitation substitutes for Awards, as the Committee may consider
necessary or appropriate to accommodate differences in local law, tax policy or
custom. The Committee may approve any supplements to, or amendments,
restatements or alternative versions of this Plan as it may consider necessary
or appropriate for the purposes of this Section 18.16 without thereby
affecting the terms of this Plan as in effect for any other purpose, and the
Secretary or other appropriate officer of the Company may certify any such
documents as having been approved and adopted pursuant to properly delegated authority;
provided, that no such supplements, amendments, restatements or alternative
versions shall include any provisions that are inconsistent with the spirit of
this Plan, as then in effect. Participants subject to the laws of a foreign
jurisdiction may request copies of, or the right to view, any materials that
are required to be provided by the Company pursuant to the laws of such
jurisdiction.

 

18.16.                  NOTICE.  Except
as otherwise provided in this Plan, any notice which either the Company or a
Participant may be required or permitted to give shall be in writing and may be
delivered personally, by intraoffice mail, by fax, by electronic mail or other
electronic means, or via a postal service, postage prepaid, to such electronic
mail or postal address and directed to such person as the Company may notify
Participants from time to time; and to the Participant at the Participant’s
electronic mail or postal address as shown on the records of the Company from
time to time, or at such other electronic mail

 

29

 

or postal address as the Participant, by notice to
the Company, may designate in writing from time to time.

 

18.17.                  INUREMENT OF RIGHTS AND
OBLIGATIONS.  The rights and obligations under this Plan and any related documents shall inure to the benefit of, and shall
be binding upon, the Company, its successors and assigns, and the Participants
and their beneficiaries.

 

18.18.                  COSTS AND EXPENSES. 
Except as otherwise provided herein, the costs and expenses of
administering this Plan shall be borne
by the Company, and shall not be charged to any Award nor to any Participant
receiving an Award. Costs and expenses associated with the redemption or
exercise of any Award under this Plan, including, but not limited to, commissions
charged by any agent of the Company, may be charged to the Participant.

 

18.19.                  COMPLIANCE WITH CODE SECTION 409A.  The
Plan is intended to comply with Code Section 409A.  Notwithstanding any provision of the Plan to
the contrary, the Plan shall be interpreted, operated and administered
consistent with this intent.

 

18.20.                  ARBITRATION.  All claims, disputes and
controversies arising out of or in any way related to this Plan or any Award
hereunder, including any claim, dispute or controversy relating to the validity
or enforceability of this Plan or any Award, shall be resolved by binding
arbitration administered by the American Arbitration Association pursuant to
the Commercial Arbitration Rules of the American Arbitration Association
in effect as of the time that the dispute, claim or controversy is submitted
for resolution.  Arbitration hearings
shall be held in Charlotte, North Carolina, and judgment upon any award may be
entered by any court having jurisdiction. 
The costs of arbitration, including the fees and expenses of the
arbitrator, shall be shared equally by the parties unless otherwise required by
law or directed by the arbitrator in his or her award.  Each party shall be responsible for paying
its or his own attorneys’ fees unless the arbitrator orders otherwise in
compliance with governing law.  All
aspects of the arbitration process, including the demand for arbitration, the
hearing, and the record of the proceeding, are confidential and shall not be
open to or disclosed to any third party or the public, unless required by law,
including judicial or administrative process, or in connection with a
regulatory inquiry, investigation or proceeding.

 

30Exhibit 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

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