Document:

Exhibit 10.1

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF NORTH CAROLINA

CHARLOTTE DIVISION

	
  In re FAMILY DOLLAR, INC.

  	
  )

  	
  Master File No. 3:06-CV-00510(W)

  
	
  SHAREHOLDER DERIVATIVE LITIGATION

  	
  )

  	
   

  
	
   

   

  This Document Relates To:

  	
  )

  )

  )

  	
  STIPULATION AND AGREEMENT OF

  COMPROMISE, SETTLEMENT AND

  RELEASE

  
	
   

  	
  )

  	
   

  
	
  ALL ACTIONS.

  	
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This Stipulation
and Agreement of Compromise, Settlement and Release (the “Stipulation”) dated
as of June 22, 2007, and subject to the approval of the United States District
Court for the Western District of North Carolina, Charlotte Division (the “Court”),
is entered into by and among the parties to the actions captioned In re Family Dollar, Inc. Shareholder Derivative Litigation,
Master File No. 3:06-CV-00510(W) (the “Action”) and In re Family
Dollar Stores, Inc. Derivative Shareholders Litigation, Master File
No. 06-CVS-16796 (the “State Action”), pending before the Court, and the
General Court of Justice, Superior Court Division, of the State of North
Carolina, County of Mecklenburg (the “Superior Court”), respectively.

STIPULATED FACTS

WHEREAS:

A.                                   On August 24, 2006, a shareholder derivative
complaint was filed in the Superior Court, captioned Rebecca
Mitchell v. Howard Levine, et al., Case No. 06-CV-516796 (the “Mitchell litigation”), on behalf of Family Dollar Stores,
Inc. (“Family Dollar” or the “Company”), against its directors and officers:
Howard R. Levine, R. James Kelly, R. David Alexander, Jr., George R. Mahoney,
John D. Reier, Albert S. Rorie, Philip W. Thompson, Mark R. Bernstein, James G.
Martin and Sharon Allred Decker.  The Mitchell litigation alleges, inter alia,
that from 1995 to 2001, the Company and certain of its directors and officers
engaged in improper backdating of stock options and, as a result, disseminated
materially false financial statements to the stockholders of the Company.

B.                                     On October 2, 2006, a second derivative
complaint captioned Jeffrey Alasina v. Howard
Levine, et al., was filed in the Superior Court complaining of the
same alleged activities by the same defendants as the Mitchell
litigation.  The Alasina
complaint included claims for breach of

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fiduciary duty and unjust enrichment arising from
these allegations.  The Mitchell and Alasina
complaints were consolidated by order of the Superior Court into the State
Action.

C.                                     On December 15, 2006, a derivative complaint
was filed in this Court captioned Dorothy M. Lee v. Howard
R. Levine, et al., No. 3:06-CV-510-W.  A virtually identical complaint was filed in
this Court on December 20, 2006, captioned Stanford H. Arden v.
Howard R. Levine, et al., No. 3:06-CV-523-C.  By order entered March 27, 2007, the Court
consolidated the Lee and Arden
cases into the Action.  The Action names
the following Family Dollar directors and officers as defendants: Howard R.
Levine, Leon Levine, R. James Kelly, R. David Alexander, Jr., Charles Gibson,
Jr., C. Martin Sowers, George R. Mahoney, Jr., Mark R. Bernstein, Sharon Allred
Decker, Edward C. Dolby, Glenn A. Eisenberg, James G. Martin and Dale C. Pond (collectively,
with the Mitchell Defendants, the “Individual
Defendants”).

D.                                    In connection with alleged improper
backdating of stock options at the Company, the Action alleges violations of
§14(a) of the Securities Exchange Act of 1934, breaches of fiduciary duties
and/or aiding and abetting in the breach of fiduciary duties, which are alleged
to include abuse of control, gross mismanagement, constructive fraud, corporate
waste, unjust enrichment and breach of fiduciary duty for insider selling and
misappropriation of information by the “insider selling defendants,” all of
which are alleged to have occurred between 1995 and 2006.

E.                                      On January 4, 2007, a consolidated derivative
complaint was filed in the State Action. 
The consolidated derivative complaint names as defendants, Howard R.
Levine, R. James Kelly, R. David Alexander, Jr., John J. Scanlon, Charles S.
Gibson, Jr., C. Martin Sowers, George R. Mahoney, Jr., Gilbert A. LaFare,
Samuel N. McPherson, Mark R. Bernstein, Sharon Allred Decker and James G. Martin
(together with the defendants named in the Mitchell
action, the “Mitchell Defendants”).

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F.                                      On August 31, 2006, after receiving the Mitchell complaint and pursuant to resolutions adopted at a
duly called meeting, the Board of Directors of the Company (the “Board”),
acting in accordance with Section 141(c) of the General Corporation Law of the
State of Delaware and Article III, Section 11 of the Company’s Bylaws, formed
the “Special Committee.”  Pursuant to
such resolutions, the Board appointed Edward C. Dolby, Glenn A. Eisenberg and
Dale C. Pond, each of whom was determined by the Board to be a disinterested
and independent director, to serve on the Special Committee.  The purpose of the Special Committee, as provided
in such resolutions, was to conduct a full and complete investigation and
review of the matters set forth in the Mitchell
litigation and such related matters as the Special Committee deemed necessary
or appropriate.  To that end, the Special
Committee was (i) delegated the authority to consider and determine whether or
not prosecution of the claims and actions set forth in the pending litigation
was in the best interests of the Company and its stockholders, and to advise
what action the Company should take with respect thereto, and (ii) empowered to
take any and all such other actions as it deemed necessary or appropriate to
conduct its investigation.

G.                                     Subsequent to the formation of the Special
Committee, the three additional complaints discussed above were filed, which
included similar claims against the Company and its officers and
directors.  In accordance with the Board
resolutions referred to above, the Special Committee determined that it was
necessary and appropriate to consider all related claims against the Company
and its officers and directors and to consider its investigation as
encompassing all of the pending actions.

H.                                    On May 18, 2007, counsel for the parties to
the Action and the State Action reached an agreement-in-principle (subject to
the negotiation of a definitive written agreement) concerning the proposed
settlement of the Action and State Action. 
The parties’ agreement was reached after

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repeated meetings, both telephonic and in person,
between counsel for the Plaintiffs and the Special Committee and, in some
instances, counsel to the Company. 
Counsel for the parties to the Action and State Action have concluded
that the terms contained in this Stipulation are fair and adequate to both the
Company and its stockholders and that it is fair and reasonable to pursue a
settlement of the Action and dismissal of the State Action based upon the
procedures outlined herein and the substantial benefits and protections offered
herein.  This conclusion by counsel for
Plaintiffs was based in part on review of non-public documents relating to the
claims asserted in the Action and State Action, as well as documents reviewed
and created by the Special Committee during the course of its factual
investigation of these claims.

I.                                         The Company, the
Individual Defendants, the Special Committee and all plaintiffs in the Action
and State Action (collectively, the “Plaintiffs”) have independently considered
the terms of this Stipulation and believe that settlement of the Action,
subject to the terms herein (the “Settlement”), is desirable and in the best
interests of the Company and its stockholders.

J.                                        The
Company and the Individual Defendants have denied, and continue to deny, any
liability or wrongdoing with respect to any and all claims alleged in the
Action, the State Action or otherwise. 
Without conceding any infirmities in their defenses to the claims
asserted in the Action or State Action, the Company and the Individual
Defendants nevertheless consider the dismissal of the Action and State Action,
subject to the terms and conditions herein, desirable because, among other
things, the Stipulation and Settlement will eliminate the substantial burden,
expense, inconvenience and distraction of litigation and will dispel any
uncertainty that may exist as a result thereof.

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NOW
THEREFORE IT IS HEREBY STIPULATED AND AGREED AS FOLLOWS, pursuant
to Federal Rule of Civil Procedure 23.1 (“Rule 23.1”), and subject to the
approval of the Court.

I.                                         SETTLEMENT
CONSIDERATION

In consideration
for the full settlement and release of all Settled Claims (as defined below),
the Company and Individual Defendants shall implement the corporate governance
provisions detailed in Exhibit A attached hereto.

II.                                     RELEASE
OF CLAIMS

1.                                       Upon Final Approval, all of the
Settled Claims (as defined below) are completely, fully, finally and forever
compromised, settled, released, discharged, extinguished and dismissed with
prejudice, upon and subject to the terms and conditions set forth in this
Stipulation.

2.                                       Upon Final Approval, each of the Released
Persons shall be deemed to have and by operation of the Order and Final
Judgment shall have fully, finally and forever released and relinquished and
discharged the Plaintiffs and their counsel from all claims, including unknown
claims, arising out of the institution, prosecution, assertion, settlement or
resolution of the Action or the Settled Claims.

3.                                       For
the purposes of this Stipulation:

(a)                                  “Final
Approval” shall be considered to have occurred for purposes of this Stipulation
after both of the following have occurred:

(i)                                     entry of the Order
and Final Judgment approving the Settlement, attached hereto as Exhibit D, and
the expiration of any applicable appeal period for the appeal of the Order and
Final Judgment without an appeal having been filed or, if an appeal is taken,
upon entry of an order affirming the Order and Final Judgment appealed from (or
dismissing the appeal) and the expiration of any applicable period for the
reconsideration, rehearing or appeal of such affirmance

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(or dismissal) without any motion for reconsideration or rehearing or
further appeal having been filed; and

(ii)                                  the dismissal with
prejudice of the State Action and the expiration of any applicable appeal
period for the appeal of such dismissal with prejudice without an appeal having
been filed or, if an appeal is taken, upon entry of an order affirming the
dismissal with prejudice of the State Action (or dismissing the appeal) and the
expiration of any applicable period for the reconsideration, rehearing or
appeal of such affirmance (or dismissal) without any motion for reconsideration
or rehearing or further appeal having been filed.

An appeal only
with respect to the award of attorneys’ fees and expenses shall not affect
Final Approval or the finality of the Settlement.

(b)                                 “Released
Persons” means (i) the Company and its parent entities, predecessors,
associates, general or limited partnerships, limited liability companies,
affiliates, past and present subsidiaries, and each and all of their respective
past, present or future officers, members, directors, stockholders, agents,
representatives, employees, and also attorneys, financial or investment
advisors, advisors, consultants, auditors, accountants, investment bankers,
commercial bankers, trustees, engineers, agents, insurers, co-insurers and
reinsurers (except to the extent claims against insurance carriers and
subrogation rights are specifically reserved herein); and (ii) all persons who
are or were defendants in the Action or State Action (or any action encompassed
by the Action or State Action), including the Individual Defendants, and their
respective heirs, executors, trustees, general or limited partners or
partnerships, limited liability companies, members, representatives, employees,
attorneys, advisors, consultants, agents, estates, and administrators; in each
instance, whether or not they were named, served with process or appeared in
the Action.

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(c)                                  “Settled
Claims” means all claims, demands, rights, actions or causes of action,
liabilities, damages, losses, obligations, judgments, suits, fees, expenses,
costs, matters and issues of any kind or nature whatsoever, whether known or
unknown, contingent or absolute, suspected or unsuspected, disclosed or
undisclosed, matured or unmatured, that have been, could have been, or in the
future can or might be asserted in the Action, the State Action or in any
court, tribunal or proceeding (including, but not limited to, any claims
arising under federal or state statutory or common law relating to alleged
fraud, breach of any duty, negligence, violations of the federal securities
laws or otherwise), by or on behalf of Plaintiffs, derivatively or in their
status as stockholders of the Company, by any past or present stockholder of
the Company (derivatively or in their status as stockholders of the Company),
by the Company, or by their or its predecessors, successors or assigns (or any
person claiming by, through, in the right of, or on behalf of them or the
Company by assignment or otherwise, except to the extent claims against
insurance carriers and subrogation rights are specifically reserved herein),
whether legal, equitable or any other type, which have arisen, arise now or
hereafter arise out of, or relate in any manner to, the allegations, facts,
events, practices, conduct, transactions, matters, acts, occurrences,
statements, representations, misrepresentations or omissions, or any fees,
expenses or costs incurred in prosecuting, defending or settling the Action and
State Action, or any other matter, thing or cause whatsoever, or any series
thereof, embraced, involved or set forth in, or referred to or otherwise
related, directly or indirectly, in any way to, the Action or the State Action
or the subject matter of the Action or State Action, and including, without
limitation, any claims in any way related to (i) the Settlement and this
Stipulation, (ii) the fiduciary obligations of the Individual Defendants or any
other Released Persons relating to or in connection with the allegations made
in the complaints in the Action and State Action or the investigation of such
allegations, (iii) any disclosures or alleged misrepresentations or omissions
that

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were made or allegedly
not made by any of the Released Persons regarding the subject matter of the
Action or State Action, (iv) the Stipulation or any other matters described or
alleged in this Stipulation, including, without limitation, (1) all stock
option grants made by the Company, (2) all stock options issued pursuant to
such grants, (3) all shares issued upon the exercise of said stock options, (4)
the stock option granting practices of the Company, (5) the actions of the
Special Committee, and (6) any and all disclosures made in connection with any
of the foregoing.

4.                                       The
releases contemplated by this Stipulation extend to claims that any parties
granting a release (the “Releasing Parties”) do not know or suspect to exist at
the time of the release, which if known might have affected the Releasing
Parties’ decision to enter into this release. 
The Releasing Parties will be deemed to relinquish, to the extent applicable
and to the full extent permitted by law, the provisions, rights and benefits of
Section 1542 of the California Civil Code, which provides:

A GENERAL RELEASE DOES
NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN
HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR
HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

In addition, the
Releasing Parties will be deemed to relinquish, to the extent applicable, and
to the fullest extent permitted by law, the provisions, rights and benefits of
any law of any state or territory of the United States, federal law, or
principle of common law, which is similar, comparable or equivalent to Section
1542 of the California Civil Code.  The
Releasing Parties acknowledge that the Releasing Parties may discover facts in
addition to or different from those now known or believed to be true with
respect to the Settled Claims, but that it is the intention of the Releasing
Parties to hereby completely, fully, finally and forever compromise, settle,
release, discharge and extinguish any and all Settled Claims, known or unknown,
suspected or unsuspected, which now exist, or heretofore existed, or may
hereafter exist, and without regard to the subsequent discovery or

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existence of
additional or different facts.  The
parties acknowledge that the inclusion of Unknown Claims in the definition of
Released Claims was separately bargained for and was a key element of the
Settlement.  The Releasing Parties warrant
that the Releasing Parties have read and understand Section 1542 of the
California Civil Code and have had the opportunity to consult with and be
advised by counsel regarding its meaning and effect.  The Releasing Parties hereby voluntarily
waive the provisions, rights and benefits of Section 1542 of the California
Civil Code and the provisions, rights and benefits of any law of any state or
territory of the United States, federal law, or principle of common law, which
is similar, comparable or equivalent to Section 1542 of the California Civil
Code.

5.                                       Notwithstanding
any other provision of this Stipulation or anything contained in any Exhibit
hereto to the contrary, nothing in this Stipulation or in any Exhibit hereto
shall be construed to (i) release, discharge, extinguish or otherwise
compromise any claims or potential claims that Family Dollar or any person who
is or was a defendant in the Action or the State Action may have under or
relating to any policy of liability or other insurance, or (ii) release any
insurer, co-insurer or reinsurer from any obligation owed to Family Dollar or
any person who is or was a defendant in the Action or the State Action for
indemnity or coverage under or relating to any policy of liability or other
insurance.

6.                                       Notwithstanding
any other provision of this Stipulation or anything contained in any Exhibit
hereto to the contrary, nothing in this Stipulation or in any Exhibit hereto
shall be construed to release, discharge, extinguish or otherwise compromise
any claims or potential claims for subrogation that any insurance carrier may
have as to any third party, including, but not limited to attorneys, financial
or investment advisors, advisors, consultants, auditors, accountants,
investment bankers, commercial bankers, trustees, engineers, agents, insurers,
co-insurers and reinsurers not

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otherwise named in the
Action or State Action and not otherwise released herein, to the extent of any
prior or future payments under any policy of insurance which have arisen, arise
now or hereafter arise out of, or relate in any manner to, the allegations,
facts, events, practices, conduct, transactions, matters, acts, occurrences,
statements, representations, misrepresentations or omissions, or any fees,
expenses or costs incurred in prosecuting, defending or settling the Action and
State Action, or any other matter, thing or cause whatsoever, or any series
thereof, embraced, involved or set forth in, or referred to or otherwise
related, directly or indirectly, in any way to, the Action or the State Action
or the subject matter of the Action or State Action, and including, without
limitation, any claims in any way related to (i) the Settlement and this
Stipulation, (ii) the fiduciary obligations of the Individual Defendants or any
other Released Persons relating to or in connection with the allegations made
in the complaints in the Action and State Action or the investigation of such
allegations, (iii) any disclosures or alleged misrepresentations or omissions
that were made or allegedly not made by any of the Released Persons regarding
the subject matter of the Action or State Action, (iv) the Stipulation or any
other matters described or alleged in this Stipulation, including, without
limitation, (1) all stock option grants made by the Company, (2) all stock
options issued pursuant to such grants, (3) all shares issued upon the exercise
of said stock options, (4) the stock option granting practices of the Company,
(5) the actions of the Special Committee, and (6) any and all disclosures made in
connection with any of the foregoing.

III.                                 SUBMISSION
AND APPLICATION TO THE COURT

1.                                       As soon as practicable after the execution of
this Stipulation, the parties to the Action shall jointly apply to the Court
for an order in the form attached hereto as Exhibit B (the “Preliminary
Approval and Scheduling Order”), which shall provide: 

(a)                                  that
a settlement hearing (the “Settlement Hearing”) be held to determine whether
the Court should: (i) approve the Settlement pursuant to Rule 23.1 as fair,
reasonable,

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adequate and in the best
interests of the Company and its stockholders; (ii) enter an Order and Final
Judgment dismissing the Action with prejudice, with each party to bear its, his
or her own costs, and release and enjoin prosecution of any and all Settled
Claims; (iii) consider the application of Plaintiffs’ counsel for an award of
attorneys’ fees and expenses; and (iv) hear other such matters as the Court may
deem necessary and appropriate; 

(b)                                 that
a copy of the Notice of Hearing and Proposed Settlement of Derivative Action
(the “Notice”), substantially in the form attached hereto as Exhibit C, shall
be sent to all stockholders of record of the Company as of the date of the
Preliminary Approval and Scheduling Order, and further provide that the distribution
of the Notice substantially in the manner set forth in the Preliminary Approval
and Scheduling Order herein constitutes the best notice practicable under the
circumstances, meets the requirements of applicable law and due process, is due
and sufficient notice of all matters relating to the Settlement and fully
satisfies the requirements of due process and of Rule 23.1;

(c)                                  a
Court finding that the Settlement appears to be the product of serious,
informed, non-collusive negotiations, has no obvious deficiencies, provides
substantial value to the Company and falls within the range of possible
approval and, therefore, merits further consideration; and

(d)                                 a
grant of preliminary approval of the Settlement and a preliminary finding that
the Settlement is fair, reasonable, adequate and in the best interests of the
Company and its stockholders.

2.                                       All costs incurred in identifying and
notifying the Company’s stockholders of the Settlement, including the printing
and the copying of the Notice, as set forth in the Preliminary Approval and
Scheduling Order, will be paid by the Company. 
Plaintiffs shall undertake the

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administrative
responsibility for providing notice to the Company’s stockholders and are
authorized to hire Gilardi & Co. LLC for purposes of effecting such notice.

3.                                       As soon as practicable after the execution of
this Stipulation, the parties to the State Action shall jointly (i) notify the
Superior Court of this Stipulation and the Settlement, and (ii) apply to the
Superior Court for a stay of all proceedings in the State Action pending Final
Approval.

4.                                       Within
five (5) days after entry by the Court of the Order and Final Judgment
approving the Settlement (attached hereto as Exhibit D), the parties to the
State Action shall jointly apply to the Superior Court for a dismissal with
prejudice of the State Action, and shall use their reasonable best efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things, reasonably necessary, proper or advisable under applicable laws,
regulations and agreements, to secure such dismissal with prejudice.

IV.                                ORDER
AND FINAL JUDGMENT

1.                                       If
the Settlement (including any modification thereto made with the consent of
Plaintiffs, the Company and the Individual Defendants as provided for herein)
is approved by the Court, the parties to the Action shall promptly request that
the Court enter an Order and Final Judgment, substantially in the form attached
hereto as Exhibit D, which among other things:

(a)                                  approves the Settlement, adjudges the terms
thereof to be fair, reasonable, adequate and in the best interests of the
Company and its stockholders, and directs consummation of the Settlement in
accordance with the terms and conditions of the Stipulation;

(b)                                 determines that the requirements of Rule 23.1
and due process have been satisfied in connection with the Notice to the
Company’s stockholders;

(c)                                  dismisses the Action with prejudice as to
Plaintiffs, the Company, the Company’s stockholders and all of the Individual
Defendants, extinguishing, discharging and releasing any and all Settled Claims
as against the Company and the Individual Defendants, said

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dismissal
subject only to compliance by the Company and the Individual Defendants with
the terms of this Stipulation and any order of the Court concerning this
Stipulation, and permanently enjoining Plaintiffs, the Company’s past or
present stockholders, the Company and anyone claiming through or for the
benefit of any of them, from asserting, commencing, prosecuting, assisting,
instigating or in any way participating in the commencement or prosecution of
any action or other proceeding, in any forum, asserting any Settled Claims;

(d)                                 Contains a release by the Released Persons of
the Plaintiffs and their counsel from all claims, including Unknown Claims,
arising out of the institution, prosecution, assertion, settlement or
resolution of the Action or the Settled Claims; and

(e)                                  Contains a statement that during the course
of the Action, the Parties and their counsel at all times complied with Federal
Rule of Civil Procedure 11 and all similar applicable state laws.

V.                                    RIGHT
TO WITHDRAW FROM THE SETTLEMENT

1.                                       Plaintiffs in the Action and the State
Action, the Company and each of the Individual Defendants shall have the
separate option to withdraw from the Settlement in the event that (i) either
the Order and Final Judgment referred to above are not entered substantially in
the forms specified herein, including such modifications thereto as may be
ordered by the Court with the consent of Plaintiffs in the Action, the Company
and the Individual Defendants, or (ii) the Settlement does not receive Final
Approval, or the Court approves the Settlement but such approval is reversed or
vacated or substantially modified on appeal, reconsideration or otherwise.

2.                                       In the event that the Settlement proposed
herein does not receive Final Approval, or the Court approves the Settlement
but such approval is reversed or vacated on appeal, reconsideration or
otherwise, and such order reversing or vacating the Settlement becomes final by
lapse of time or otherwise, or if any of the conditions to such Settlement are
not fulfilled (including

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dismissal
of the State Action with prejudice), then the Settlement proposed herein shall
be of no further force or effect, and this Stipulation and all negotiations,
proceedings and statements relating thereto and any amendment thereof shall be
null and void and without prejudice to any party hereto, and each party shall
be restored to his, her or its respective position as it existed prior to the
execution of this Stipulation.

3.                                       In
order to exercise any option a party to the Action or the State Action may have
to withdraw from and terminate this Settlement, such party must provide, within
five business days of the event giving rise to such option, written notice of
such withdrawal and the grounds therefor to all signatories to this
Stipulation.

VI.                                STIPULATION
NOT AN ADMISSION

1.                                       The
provisions contained in this Stipulation and all negotiations, statements and
proceedings leading up to and in connection therewith are not, shall not be
argued to be, and shall not be deemed, a presumption, concession or admission
by the Individual Defendants or the Company of any fault, liability or
wrongdoing as to any fact or claim alleged or asserted in the Action, the State
Action or any other actions or proceedings and shall not be interpreted,
construed, deemed, invoked, offered or received in evidence or otherwise used
by any person in these or any other actions or proceedings, whether civil,
criminal or administrative, except in a proceeding to enforce the terms or
conditions of this Stipulation.

VII.                            DENIAL
OF LIABILITY

1.                                       Each
Released Person specifically disclaims any liability whatsoever relating to any
of the Settled Claims; expressly denies having engaged in, or threatened to
engage in, any breach of duty, violations of law or wrongful or illegal
activity, or having failed to act in any matter required by law or rule, or
having violated, or threatened to violate, any law or regulation or duty;
expressly denies that any person or entity has suffered any harm or damages as
a result of such Released

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Person’s involvement with
the Settled Claims (or the events at issue therein), and such Released Person
is making this Settlement (without conceding any infirmity in such Released
Person’s defenses against the Settled Claims) solely to avoid the uncertainty,
harm, distraction, burden and expense occasioned by litigation.  Each Released Person believes such Released
Person acted, at all times, in the best interests of the Company and its
stockholders.  The Court has made no
finding that any Released Person has engaged in any wrongdoing or wrongful
conduct or otherwise acted improperly or in violation of any law or regulation
or duty in any respect.

VIII.                        GENERAL
PROVISIONS

1.                                       Each of the individuals executing this
Stipulation on behalf of one or more of the parties hereto represents and
warrants that he or she has been duly authorized and empowered to execute this
Stipulation on behalf of his or her respective client or clients.

2.                                       The Plaintiffs and their counsel in the
Action and State Action represent and warrant that none of Plaintiffs’ claims
or causes of action referred to in any complaint encompassed by the Action or
the State Action or this Stipulation have been assigned, encumbered or in any
manner transferred in whole or in part.

3.                                       This Stipulation may be executed in any
number of actual or telecopied counterparts and by each of the different
parties thereto on several counterparts, each of which when so executed and
delivered shall be an original.  The
executed signature page(s) from each actual or telecopied counterpart may be
joined together and attached to such original and shall constitute one and the
same instrument.

4.                                       The waiver by any party of any breach of this
Stipulation shall not be deemed or construed as a waiver of any other breach,
whether prior, subsequent, or contemporaneous, of this Stipulation.

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5.                                       In addition to the actions specifically
provided for in this Stipulation, the parties will use their reasonable best
efforts from the date hereof to take, or cause to be taken, all actions, and to
do, or cause to be done, all things, reasonably necessary, proper or advisable
under applicable laws, regulations and agreements, to consummate and make
effective this Stipulation.  The parties
and their attorneys agree to cooperate fully with one another in seeking the
Court’s approval of this Stipulation and the Settlement and to use their best
efforts to effect the consummation of this Stipulation and the Settlement.  Without
further order of the Court, the parties may agree to reasonable extensions of
time not expressly set by the Court order to carry out any of the provisions of
this Stipulation.

6.                                       Each party represents and warrants that the
party, or a responsible officer or partner or other fiduciary thereof, has read
this Stipulation and understands the contents hereof, and believes it is a fair
resolution of contested claims.

7.                                       Each party represents and warrants that the
party has made such investigation of the facts pertaining to the Settlement
provided for in this Stipulation, and of all of the matters pertaining thereto,
as the party deems necessary and advisable.

8.                                       Each term of this Stipulation is contractual
and not merely a recital.

9.                                       This Stipulation may not be amended, changed,
waived, discharged or terminated (except as explicitly provided herein), in
whole or in part, except by an instrument in writing signed by the party
against whom or which enforcement of such amendment, change, waiver, discharge
or termination is sought.

10.                                 This Stipulation and Settlement will be
governed by, and construed in accordance with, the laws of the State of North
Carolina, without regard to conflict of laws principles.  Any action relating to this Stipulation or
the Settlement will be filed exclusively in the Court.  Each party

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hereto
(i) consents to personal jurisdiction in any such action (but in no other
action) brought in the Court, (ii) consents to service of process by registered
mail upon such party and/or such party’s agent, (iii) waives any objection to
venue in the Court and any claim the Court is in an inconvenient forum, and
(iv) waives any right to a jury trial as to any such action.

11.                                 This Stipulation constitutes the entire
agreement among the parties with respect to the subject matter hereof, and
supersedes all prior or contemporaneous oral or written agreements,
understandings or representations.  All
of the Exhibits hereto are incorporated herein by reference as if set forth
herein verbatim, and the terms of all Exhibits are expressly made part of this
Stipulation.

12.                                 This Stipulation is and will be binding upon,
and inure to the benefit of, the parties and their respective affiliates,
agents, executors, heirs, successors and permitted assigns.

13.                                 The terms and provisions of this Stipulation
are intended solely for the benefit of the Released Persons and their
respective successors and permitted assigns, and it is not the intention of the
parties to confer third-party beneficiary rights or remedies upon any other
person or entity, except any attorneys’ fees and expenses to be paid pursuant
to the terms of this Stipulation.

14.                                 This Stipulation will be deemed to have been
mutually prepared by the parties and will not be construed against any of them
by reason of authorship.  Paragraph titles and headings have
been inserted for convenience only and will not be used in determining the
terms of this Stipulation.

15.                                 All agreements made and orders entered during
the course of the Action and the State Action relating to the confidentiality
of information shall survive this Stipulation.

16.                                 The parties and their counsel agree not to
disparage any of the other parties or to state or imply that any of the other
parties are guilty of or have engaged in wrongdoing or misconduct of any sort
whatsoever in any press release or other public statement.

 17
 

17.                                 If
any provision of this Stipulation is held to be illegal, invalid, or
unenforceable (i) such provision will be fully severable, (ii) this Stipulation
will be construed and enforced as if such illegal, invalid, or unenforceable
provision had never comprised a part of this Stipulation, and (iii) the
remaining provisions of this Stipulation will remain in full force and effect
and will not be affected by the illegal, invalid, or unenforceable provision or
by its severance from this Stipulation.

IX.                                FEES
AND EXPENSES

1.                                       Counsel for the Plaintiffs will apply to the
Court for an award of attorneys’ fees and expenses (including costs and
disbursements) in a total amount not to exceed $3,500,000.  Defendants agree not to oppose any such fee
and expense award that does not exceed that amount.  The Company will pay any award of fees and
expenses (including costs and disbursements), not to exceed $3,500,000.  Within five (5) business days after Final
Approval, the Company will make such payment jointly to Schiffrin Barroway
Topaz & Kessler, LLP and Lerach Coughlin Stoia Geller Rudman & Robbins
LLP, as joint receiving agents for all Plaintiffs’ counsel.  Nothing contained herein shall be deemed to
prejudice the rights of the defendants to seek reimbursement under any insurance
policy of the fees and expenses awarded by the Court.

2.                                       The
allowance or disallowance by the Court of any award of attorneys’ fees and/or
expenses will be considered by the Court following approval of this Stipulation
and separately from the Court’s consideration of the fairness, reasonableness
and adequacy of the Settlement.  Any
order or proceeding relating solely to the application by Plaintiffs’ counsel
for an award of attorneys’ fees and expenses (including costs and
disbursements), or any appeal from any order relating thereto or reversal or
modification thereof, shall have no effect on the Settlement and shall not
operate to terminate or cancel this Stipulation or to affect or delay the
finality of the Order and Final Judgment approving this Stipulation.

 18
 

IN WITNESS WHEREOF, the parties have executed this
Stipulation effective as of June 22, 2007.

	
  

  	
  /s/ L. Bruce McDaniel

  
	
   

  	
  L. BRUCE McDANIEL (N.C. State Bar #5025)

  
	
   

  	
  WILLIAM E. ANDERSON (N.C. State Bar #098)

  
	
   

  	
  McDANIEL & ANDERSON, L.L.P.

  
	
   

  	
  Lafayette Square

  
	
   

  	
  4942 Windy Hill Drive

  
	
   

  	
  P.O. Box 58186

  
	
   

  	
  Raleigh, NC 27658

  
	
   

  	
  Telephone: 919/872-3000

  
	
   

  	
  919/790-9273 (fax)

  
	
   

  	
  mcdas@mcdas.com

  
	
   

  	
   

  
	
   

  	
  Liaison Counsel

  
	
   

  	
   

  
	
   

  	
  LERACH COUGHLIN STOIA GELLER

  
	
   

  	
  RUDMAN &
  ROBBINS LLP

  
	
   

  	
  TRAVIS E. DOWNS III

  
	
   

  	
  JEFFREY D. LIGHT

  
	
   

  	
  BENNY C. GOODMAN III

  
	
   

  	
  MARY LYNNE CALKINS

  
	
   

  	
  655 West Broadway, Suite 1900

  
	
   

  	
  San Diego, CA 92101

  
	
   

  	
  Telephone: 619/231-1058

  
	
   

  	
  619/231-7423 (fax)

  
	
   

  	
   

  
	
   

  	
  LERACH COUGHLIN STOIA GELLER

  
	
   

  	
  RUDMAN &
  ROBBINS LLP

  
	
   

  	
  SHAWN A. WILLIAMS

  
	
   

  	
  MONIQUE C. WINKLER

  
	
   

  	
  AELISH M. BAIG

  
	
   

  	
  100 Pine Street, Suite 2600

  
	
   

  	
  San Francisco, CA 94111

  
	
   

  	
  Telephone: 415/288-4545

  
	
   

  	
  415/288-4534 (fax)

  

 

 19
 

	
  

  	
  LERACH COUGHLIN STOIA GELLER

  
	
   

  	
  RUDMAN &
  ROBBINS LLP

  
	
   

  	
  THOMAS G. WILHELM

  
	
   

  	
  9601 Wilshire Blvd., Suite 510

  
	
   

  	
  Los Angeles, CA 90210

  
	
   

  	
  Telephone: 310/859-3100

  
	
   

  	
  310/278-2148 (fax)

  
	
   

  	
   

  
	
   

  	
  THE WEISER LAW FIRM, P.C.

  
	
   

  	
  ROBERT B. WEISER

  
	
   

  	
  BRETT D. STECKER

  
	
   

  	
  121 N. Wayne Avenue, Suite 100

  
	
   

  	
  Wayne, PA 19087

  
	
   

  	
  Telephone: 610/225-2677

  
	
   

  	
  610/225-2678 (fax)

  
	
   

  	
   

  
	
   

  	
  Co-Lead Counsel for Plaintiffs

  
	
   

  	
   

  
	
   

  	
  SCHIFFRIN BARROWAY TOPAZ &

  
	
   

  	
  KESSLER, LLP

  
	
   

  	
  LEE D. RUDY

  
	
   

  	
  280 King of Prussia Road

  
	
   

  	
  Radnor, PA 19087

  
	
   

  	
  Telephone: 610/667-7706

  
	
   

  	
  610/667-7056 (fax)

  
	
   

  	
   

  
	
   

  	
  Of Counsel

  
	
   

  	
   

  
	
   

  	
  /s/ Gary W.
  Jackson

  
	
   

  	
  GARY W. JACKSON (NC STATE BAR #1376)

  
	
   

  	
  THE JACKSON LAW GROUP, PLLC

  
	
   

  	
  1321 East Morehead Street

  
	
   

  	
  Charlotte, NC 28204

  
	
   

  	
  Telephone: 704/377-6680

  
	
   

  	
  704/377-6690 (fax)

  
	
   

  	
   

  
	
   

  	
  Attorneys for Plaintiffs in the State Action

  

 

 20
 

 

	
   

  	
  /s/ T. Thomas Cottingham, III

  
	
   

  	
  T. THOMAS
  COTTINGHAM, III

  
	
   

  	
  (NC STATE BAR
  #23798)

  
	
   

  	
  VALERIE B.
  WRIGHT

  
	
   

  	
  (NC STATE BAR
  #32348)

  
	
   

  	
  HUNTON &
  WILLIAMS LLP

  
	
   

  	
  Bank of America
  Plaza

  
	
   

  	
  101 South Tryon
  Street, Suite 3500

  
	
   

  	
  Charlotte, NC
  28280

  
	
   

  	
  Telephone:
  704/378-4700

  
	
   

  	
  704/378-4890 (fax)

  
	
   

  	
   

  
	
   

  	
  Attorneys for Nominal
  Defendant Family Dollar

  
	
   

  	
  Stores, Inc.

  
	
   

  	
   

  
	
   

  	
  HUNTON &
  WILLIAMS LLP

  
	
   

  	
  Riverfront
  Plaza, East Tower

  
	
   

  	
  951 East Byrd
  Street

  
	
   

  	
  Richmond, VA
  23219

  
	
   

  	
   

  
	
   

  	
  /s/ Jonathan E. Buchan, Jr.

  
	
   

  	
  JONATHAN E.
  BUCHAN, JR.

  
	
   

  	
  (NC STATE BAR
  #8205)

  
	
   

  	
  IRVING M.
  BRENNER

  
	
   

  	
  (NC STATE BAR
  #15483)

  
	
   

  	
  CATHERINE E.
  THOMPSON

  
	
   

  	
  (NC STATE BAR
  #9495)

  
	
   

  	
  HELMS, MULLIS
  & WICKER, PLLC

  
	
   

  	
  201 North Tryon
  Street

  
	
   

  	
  PO Box 31247
  (28231)

  
	
   

  	
  Charlotte, NC
  28202

  
	
   

  	
  Telephone:
  704/343-2000

  
	
   

  	
  704/343-2300
  (fax)

  
	
   

  	
   

  
	
   

  	
  Attorneys for Defendants
  Howard Levine, R.

  James Kelly, R. David Alexander, Jr., George

  Mahoney, Jr., Gilbert Lafare, John Scanlon, Sam

  McPherson, Charles S. Gibson, Mark Bernstein,

  Sharon Allred Decker, and James Martin in the

  State Action

  

 

 21
 

 

	
   

  	
  /s/ Mark W.
  Merritt

  
	
   

  	
  MARK W. MERRITT

  (NC STATE BAR #12198)

  RUSSELL M. ROBINSON, II

  (NC STATE BAR #3735)

  KATHERINE G. MAYNARD

  (NC STATE BAR #26837)

  ROBINSON, BRADSHAW & HINSON, P.A.

  101 North Tryon Street, Suite 1900

  Charlotte, NC  28246

  Telephone: 704/377-2536

  704/378-4000 (fax)

  
	
   

  	
   

  
	
   

  	
  Attorneys for Defendant Leon Levine in the

  Action

  
	
   

  	
   

  
	
   

  	
  /s/ Mark R.
  Kutny

  
	
   

  	
  MARK R. KUTNY

  (NC STATE BAR #29306)

  DAVID B. HAMILTON

  (NC STATE BAR #7771)

  HAMILTON, MOON, STEPHENS,

     STEELE & MARTIN PLLC

  2020 Charlotte Plaza

  201 S. College Street

  Charlotte, NC  28244-2020

  Telephone: 704/344-1117

  704/344-1483 (fax)

  
	
   

  	
   

  
	
   

  	
  Attorneys for Defendant C. Martin Sowers in the
  Action

  
	
   

  	
   

  
	
   

  	
  ROGERS & HARDIN LLP

  2700 International Tower, Peachtree Center

  229 Peachtree Street, N.E.

  Atlanta, GA  30303

  
	
   

  	
   

  
	
   

  	
  Of Counsel

  

 

 22
 

 

	
  

  	
  /s/ James T. Williams, Jr.

  
	
   

  	
  JAMES T.
  WILLIAMS, JR.

  
	
   

  	
  (NC STATE BAR
  #4758)

  
	
   

  	
  JENNIFER K. VAN
  ZANT

  
	
   

  	
  (NC STATE BAR
  #21280)

  
	
   

  	
  BROOKS, PIERCE,
  MCLENDON,

  
	
   

  	
  HUMPHREY & LEONARD LLP

  
	
   

  	
  Post Office Box
  26000

  
	
   

  	
  Greensboro,
  North Carolina 27420

  
	
   

  	
  Telephone:
  336-373-8850

  
	
   

  	
  336-378-1001
  (fax)

  
	
   

  	
   

  
	
   

  	
  Attorneys for Defendants
  Edward C. Dolby, Glenn

  
	
   

  	
  A. Eisenberg and
  Dale C. Pond in the Action

  
	
   

  	
   

  
	
   

  	
  RICHARDS, LAYTON
  & FINGER, P.A.

  
	
   

  	
  GREGORY WILLIAMS

  
	
   

  	
  HARRY TASHJIAN,
  IV

  
	
   

  	
  One Rodney
  Square

  
	
   

  	
  P.O. Box 551

  
	
   

  	
  Wilmington, DE
  19899

  
	
   

  	
  Telephone:
  302-658-6541

  
	
   

  	
  302-658-6548
  (fax)

  
	
   

  	
   

  
	
   

  	
  Of Counsel

  

 

 23
 

 

	
  

  	
  Jonathan E. Buchan, Jr.

  
	
   

  	
  JONATHAN E.
  BUCHAN, JR.

  
	
   

  	
  (NC STATE BAR
  #8205)

  
	
   

  	
  IRVING M.
  BRENNER

  
	
   

  	
  (NC STATE BAR
  #15483)

  
	
   

  	
  CATHERINE E. THOMPSON

  
	
   

  	
  (NC STATE BAR
  #9495)

  
	
   

  	
  HELMS, MULLIS
  & WICKER, PLLC

  
	
   

  	
  201 North Tryon
  Street

  
	
   

  	
  PO Box 31247
  (28231)

  
	
   

  	
  Charlotte, North
  Carolina 28202

  
	
   

  	
  Telephone:
  704/343-2000

  
	
   

  	
  704/343-2300
  (fax)

  
	
   

  	
   

  
	
   

  	
  Attorneys for
  Defendants Howard Levine, R.

  James Kelly, R. David Alexander, Jr., George

  Mahoney, Jr., Charles S. Gibson, Jr., Mark

  Bernstein, Sharon Allred Decker, and James

  Martin in the Action

  

 

 24

EXHIBIT A
TO STIPULATION AND AGREEMENT

OF COMPROMISE, SETTLEMENT AND RELEASE

The defendants
acknowledge and agree that the pendency and prosecution of the shareholder
derivative litigation was a significant factor underlying the Company’s
decision to agree to the series of changes set forth below with respect to the
Company’s corporate governance practices. 
In addition, subsequent to the filing of the shareholder derivative
litigation, the Plaintiffs and the Special Committee negotiated the
cancellation of stock options detailed in paragraph seven (7) below.

1.             The Company’s Equity
Award Processes.

(a)           Annual
equity grants of stock options and/or performance share rights (“PSRs”) will be
made by the Compensation Committee of the Board (the “Compensation Committee”)
with a grant date of the Tuesday following the Company’s annual earnings
release.  Grants in connection with the
employment, promotion or retention of an individual employee with the title of
Vice President or above (“Individual Officer Grants”) will be made by the
Compensation Committee with a grant date of the Tuesday following the Company’s
monthly sales release.  Grants may be
made at other times only upon an express determination by the Compensation Committee
that such grants are in the best interests of the Company.

(b)           A list of the
proposed grantees and the amount of options and PSRs will be provided to the
Compensation Committee and shall include all Individual Officer Grants to be
made to employees through the latest practicable date prior to the meeting of
the Compensation Committee at which such grants are to be considered.

(c)           Grants
in connection with the employment, promotion or retention of an individual
employee below the level of Vice President (“Individual Grants”) will be made
by the Equity Award Committee of the Board with a grant date of the Tuesday
following the Company’s

monthly
sales release and shall include all Individual Grants to be made to employees
through the Friday before such Tuesday grant date.

(d)           All stock option grants will be made
at meetings of the Board or a relevant committee of the Board (other than any
committee consisting of one member) and will not be effected by written
consent, except where extenuating circumstances so require.

(e)           Where circumstances require the use
of a written consent to approve a stock option grant, no such consent shall
contain a pre-printed stated effective date of the consent and each member of
the Board or committee must date any written consent on the date of his or her
execution thereof.

2.             The Board shall
revise its Corporate Governance Guidelines (the “Guidelines”) to adopt a
majority voting policy for uncontested elections of directors only.  Under the Company’s organizational documents,
directors currently are elected by a plurality of votes cast at any meeting of
stockholders duly called and held for the purpose of electing directors.  Under the majority voting policy, each
director who receives a greater number of votes withheld from his or her
election than votes cast “for” such election would be required to tender his or
her resignation to the Board promptly following the certification of the
election results.  The
Nominating/Corporate Governance Committee of the Board (the “Nominating
Committee”) would consider the tendered resignation and make a recommendation
to the Board with respect thereto.

3.             The Board shall
revise the Company’s guidelines regarding cash bonuses to provide that in the
future, in connection with the award of any cash bonus to an “executive officer”
(as defined in the rules promulgated under the Securities and Exchange Act of
1934, as amended), such awards would be conditioned upon, in the event of an
accounting restatement due to material noncompliance by the Company as a result
of intentional misconduct with any financial reporting 

 2
 

requirements
of the federal securities laws with respect to financial statements filed by
the Company within twelve (12) months after the date of such award,
reimbursement by the executive officer to the Company of the difference between
the amount of the original bonus received by the executive officer and the
amount of the bonus such officer would have received had the amount of the
bonus been calculated based on the restated financial statements.

4.             The Board shall
revise the Guidelines to provide that, to be deemed “independent” in any fiscal
year, a director must satisfy the following qualifications:

(a)           The director has not been employed by
the Company or its subsidiaries or affiliates within the last four years;

(b)           The director has not received, during
the current year or any of the three immediately preceding years, remuneration,
directly or indirectly, other than de
minimis remuneration (as defined below), as a result of service
(other than as a director of a customer or supplier) as (i) an advisor,
consultant, or legal counsel to the Company or to a member of the Company’s
senior management; or (ii) a significant customer or supplier of the Company;

(c)           The director has no personal services
contracts with the Company, or any member of the Company’s senior management;

(d)           The director is not an officer or
employee of a not-for-profit entity that receives significant contributions
from the Company, and does not serve any such entity in any capacity for which
remuneration is received;

(e)           The director does not have any
investment in any entity in which the Company also has an investment, other
than equity or debt investments that are available to the public in public or
governmental entities, or investments in any other entity in which neither the

 3
 

director nor the Company
or any of its parents, subsidiaries or affiliates own an interest of 5% or more
or exercises managerial control;

(f)            The director is not employed by a
public company at which an executive officer of the Company serves on the
Compensation Committee;

(g)           The director has not had any of the
relationships described above in sub-sections “a” through “f,” with any
affiliate of the Company; and

(h)           The director is not a member of the
immediate family of any person who fails to satisfy the qualifications
described above.

A director shall
be deemed to have received remuneration (other than remuneration as a director,
including remuneration provided to a non-executive Chairman of the Board,
Committee Chairman, or Lead Director), directly or indirectly, if remuneration,
other than de minimis remuneration, was paid by the
Company, its subsidiaries or affiliates, to any entity in which the director
has a beneficial ownership interest of 5% percent of equity or more, or to an
entity by which the director is employed or self-employed other than as a
director.  Remuneration is deemed de minimis remuneration if such remuneration is $60,000 or less in any
year,(1) or if such remuneration is paid to an entity, it (i) did not for the
fiscal year exceed the lesser of $1 million, or 5% of the gross revenues of the
entity; and (ii) did not directly result in a material increase in the
compensation received by the director from that entity.

5.             The Company shall continue to
identify qualified independent directors and agrees to cause two additional
independent directors to be nominated for election to the Board by the date of

(1)           The
$60,000 remuneration level set forth above applies for three years from the
date of Final Approval. Thereafter, the analogous remuneration level set forth
in the applicable stock exchange rules (currently $100,000 as set forth in New
York Stock Exchange Listed Company Manual, Section 303A.02(b)(ii)) shall apply.

 4
 

the annual meeting of
stockholders of the Company in the fiscal year 2009.  One such director may be added to the Board
to fill a vacancy created by resignation or retirement of a non-independent
director.  With respect to the election
of these independent directors, a designee of the Nominating Committee shall
work with a designee of a major stockholder of the Company, other than
stockholders who are affiliates of any member of management, to identify
potential director candidates acceptable to the designee of such major
stockholder.  A reputable director search
firm shall be engaged and assist in such search process.  The candidates so selected shall be submitted
to the Nominating Committee.  Absent
unforeseen circumstances, the Nominating Committee and Company shall nominate
persons for election for these two director positions as set forth in this
paragraph five (5).  After election of
these two additional independent directors to the Board, the Company will
maintain a board of directors comprised of at least 75% independent directors;
however, the termination of service of independent directors that results in
the Board being comprised of less than 75% independent directors shall not
result in a violation of this provision so long as the Company nominates for
election independent directors to fill vacancies created by such termination of
service as soon as practicable.

6.             For a period of at least three
years, the Company shall require its officers, subject to certain conditions
set forth in the Company’s policy with respect to officer stock ownership, to
retain 25% of all equity awards made to such officers until the following
ownership levels of the Company’s stock are obtained:  Chief Executive Officer - five times salary;
President, Chief Financial Officer, Chief Operating Officer and Executive Vice
President - three times salary; Senior Vice Presidents - two times salary; and
Vice Presidents - one times salary.

7.             Upon Final Approval
(as defined in the Stipulation) of the Settlement, each of defendants Howard R.
Levine, the Company’s chief executive officer, R. James Kelly, the

 5
 

Company’s
president and chief operating officer, George R. Mahoney, Jr., the Company’s
former general counsel, and C. Martin Sowers, the Company’s senior vice
president of finance, agree to relinquish their rights to certain unexercised
stock options to purchase shares of common stock of the Company in the amounts
of 75,000, 35,000, 80,000, and 20,000, respectively.  Specifically, Mr. Levine will relinquish his
rights to 57,000 options granted to him by the Company in 2002 and 18,000
options granted to him in 2003;  Mr.
Kelly will relinquish his rights to 28,000 options granted to him by the
Company in 2002 and 7,000 options granted to him in 2003; Mr. Mahoney will
relinquish his rights to 32,000 options granted to him by the Company in 2002
and 48,000 options granted to him in 2003; and Mr. Sowers will relinquish his
rights to 11,500 options granted to him by the Company in 2002 and 8,500
options granted to him in 2003.  The
parties agree that Messrs. Levine, Kelly, Mahoney and Sowers are legally
entitled to the options being relinquished, that there has been no finding of
wrongdoing in connection with the grant of such options and that their
agreement in this regard is not to be deemed an admission of any liability or
wrongdoing on their part.  Messrs.
Levine, Kelly, Mahoney and Sowers agree to relinquish the options recited above
as part of the settlement of the above-styled action and their agreement in
this regard is not to be deemed an admission of any liability or wrongdoing on
their part.  The parties agree that the
relinquishment of said options is not disgorgement or restitution and the value
of said options does not represent in any way a measure of disgorgement or
restitution.  The Company shall not
replace, reissue, or substitute new or additional options for the options that
are being relinquished pursuant to this paragraph.

8.             In September 2006, Messrs. Levine,
Kelly, Mahoney and Sowers allowed certain stock options to expire, due in
significant part to the pendency of the shareholder derivative litigation and
the Special Committee investigation.  Mr.
Levine allowed 150,000 stock options to expire; Mr.

 6
 

Kelly allowed 85,000
stock options to expire; Mr. Mahoney allowed 21,000 stock options to expire;
and Mr. Sowers allowed 20,000 stock options to expire.  In connection with the selection of the
number and grant date of options to be relinquished as set forth in paragraph 7
of this Exhibit A, the Special Committee considered the fact that Messrs.
Levine, Kelly, Mahoney and Sowers allowed the options referred to in this
paragraph to expire; however, the Company will not make any payment to Messrs.
Levine, Kelly, Mahoney or Sowers with respect to the expired options referred
to in this paragraph.

 7

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF NORTH CAROLINA

CHARLOTTE DIVISION

	
  

  	
   

  	
   

  
	
  In re FAMILY DOLLAR, INC.

  	
  )

  	
  Master File No. 3:06-CV-00510(W)

  
	
  SHAREHOLDER DERIVATIVE LITIGATION

  	
  )

  	
   

  
	
   

  	
  )

  	
  PRELIMINARY APPROVAL AND
  SCHEDULING ORDER

  
	
   

  	
  )

  
	
  This Document Relates To:

  	
  )

  	
   

  
	
   

  	
  )

  	
  EXHIBIT B 

  
	
  ALL ACTIONS.

  	
  )

  
	
   

  	
  )

  	
   

  

 

The parties to the
above-captioned consolidated derivative action (the “Action”) having applied
pursuant to Federal Rule of Civil Procedure 23.1 for an Order to approve the
proposed settlement of the Action in accordance with the Stipulation and
Agreement of Compromise, Settlement and Release entered into by the parties,
dated as of June 22, 2007 (the “Stipulation”), and for the dismissal of the
Action with prejudice upon the terms and conditions set forth in the
Stipulation (the “Settlement”), and the Court having read and considered the
Stipulation and accompanying documents, and all parties having consented to the
entry of this Order,

NOW,
THEREFORE, this     day of June, 2007, upon
application of the parties, IT IS HEREBY
ORDERED as follows:

1.             Except for terms defined herein,
the Court adopts and incorporates the definitions in the Stipulation for
purposes of this Order.

2.             The Settlement appears to be the
product of serious, informed, non-collusive negotiations, has no obvious
deficiencies, provides substantial value to the Company and falls within the
range of possible approval and, therefore, merits further consideration.

3.             The Court preliminarily finds that
the Settlement is fair, reasonable, adequate and in the best interests of the
Company and its stockholders.

4.             The Court has scheduled a
Settlement Hearing, which will be held on August    , 2007,
at            .m.,
at 195 Charles R. Jonas Federal Bldg., 401 West Trade Street, Charlotte, North
Carolina 28202, to:

(a)           consider the Settlement pursuant to
Federal Rule of Civil Procedure 23.1 as fair, reasonable, adequate and in the
best interests of the Company and its stockholders;

 1
 

(b)           consider an Order and Final Judgment
dismissing the Action with prejudice, with each party to bear its, his or her
own costs, and release and enjoin prosecution of any and all Settled Claims;

(c)           consider Plaintiffs’ counsel’s
request for an award of attorneys’ fees and expenses; and

(d)           hear other such matters as the Court
may deem necessary and appropriate.

5.             The Court reserves the right to
adjourn the Settlement Hearing or modify any of the dates set forth herein
without further notice to the Company’s stockholders.

6.             The Court reserves the right to
approve the Settlement at or after the Settlement Hearing with such
modifications as may be consented to by the parties to the Action and without
further notice to the Company’s stockholders.

7.             The Court approves, as to form and
content, the Notice of Hearing and Proposed Settlement of Derivative Action
(the “Notice”), annexed as Exhibit C to the Stipulation, and finds that the
mailing and distribution of the Notice, substantially in the manner and form
set forth in this Order, meets the requirements of Federal Rule of Civil
Procedure 23.1 and due process under the United States Constitution and any
other applicable laws, is the best notice practicable under the circumstances,
and shall constitute due and sufficient notice of all matters relating to the
Settlement.

8.             All costs incurred in identifying
and notifying the Company’s stockholders of the Settlement, including the
printing, copying and mailing of the Notice, shall be paid by the Company.  Plaintiffs shall undertake the administrative
responsibility for providing notice to the Company’s stockholders.

 2
 

9.             Gilardi & Co. LLC is appointed
to act as “Notice Administrator” to supervise and administer the notice
procedure subject to such supervision and direction of Plaintiffs’ counsel or
the Court as may be necessary or the circumstances may require as more fully
set forth below:

(a)           Not later than          , 2007,
the Notice Administrator shall cause a copy of the Notice, substantially in the
form annexed as Exhibit C to the Stipulation, to be mailed by first class mail
to all shareholders of Family Dollar as of the date the Court signs this Order
(“Family Dollar stockholders” or the “Company’s stockholders”) who can be
identified with reasonable effort; and

(b)           At least seven (7) days prior to the
Settlement Hearing, Plaintiffs’ counsel shall file with the Court and serve on
defendants’ counsel proof, by affidavit or declaration, of such mailing.

10.           Nominees who held the common stock of
Family Dollar on behalf of any Family Dollar stockholder shall send the Notice
to such beneficial owners of Family Dollar common stock within ten (10) days
after receipt thereof, or send a list of the names and addresses of such
beneficial owners to the Notice Administrator within ten (10) days of receipt
thereof, in which event the Notice Administrator shall promptly mail the Notice
to such beneficial owners.

11.           All proceedings in the Action, other
than such proceedings as may be necessary to carry out the terms and conditions
of the Stipulation and the Settlement, are hereby stayed and suspended until
further Order of this Court.  Pending
final determination of whether the Stipulation should be approved, Plaintiffs,
the Company, Plaintiffs’ counsel and all of the Company’s stockholders, and any
of them, are barred and enjoined from commencing, prosecuting, instigating or
in any way participating in the commencement or prosecution of any action
asserting any Settled Claims (as defined in the Stipulation) against any
Released Person (as defined in the Stipulation).

 3
 

12.           Any Family Dollar stockholder may
appear and show cause, if he, she or it has any reason why the proposed
Settlement of the Action should not be approved as fair, reasonable and
adequate, or why a Judgment should not be entered thereon, or why attorneys’
fees and expenses should not be awarded to counsel for the Plaintiffs;
provided, however, that no Family Dollar stockholder shall be heard or entitled
to contest the approval of the terms and conditions of the proposed Settlement,
or, if approved, the Order and Final Judgment to be entered thereon approving
the same, or the attorneys’ fees and expenses to be awarded to counsel for the
Plaintiffs unless that person files and serves his, her, or its objection in
accordance with the terms and conditions in the Notice.

13.           If the Settlement provided for in the
Stipulation shall be approved by the Court following the Settlement Hearing, a
Final Order shall be entered as described in the Stipulation.

14.           If the Stipulation is not approved by
the Court, is terminated or shall not become effective for any reason, the
Action shall proceed, completely without prejudice to any party as to any
matter of law or fact, as if the Stipulation had not been made and had not been
submitted to the Court, and neither the Stipulation, any provision contained in
the Stipulation, any action undertaken pursuant thereto, nor the negotiation
thereof by any party shall be deemed an admission or offered or received in
evidence at any proceeding in the Action or any other action or proceeding.

IT IS SO ORDERED.

	
  DATED:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  THE HONORABLE FRANK D. WHITNEY

  
	
   

  	
  UNITED STATES DISTRICT JUDGE

  

 

 4
 

Submitted by,

	
  /s/ L. Bruce McDaniel

  	
   

  
	
  L. BRUCE McDANIEL (N.C. State Bar #5025)

  WILLIAM E. ANDERSON (N.C. State Bar #098)

  McDANIEL & ANDERSON, L.L.P.

  Lafayette Square

  4942 Windy Hill Drive

  P.O. Box 58186

  Raleigh, NC 27658

  Telephone: 919/872-3000

  919/790-9273 (fax)

  mcdas@mcdas.com

  
	
   

  
	
  Liaison Counsel

  
	
   

  
	
  LERACH COUGHLIN STOIA GELLER

  RUDMAN & ROBBINS LLP

  TRAVIS E. DOWNS III

  JEFFREY D. LIGHT

  BENNY C. GOODMAN III

  MARY LYNNE CALKINS

  655 West Broadway, Suite 1900

  San Diego, CA 92101

  Telephone: 619/231-1058

  619/231-7423 (fax)

  
	
   

  
	
  LERACH COUGHLIN STOIA GELLER

  RUDMAN & ROBBINS LLP

  SHAWN A. WILLIAMS

  MONIQUE C. WINKLER

  AELISH M. BAIG

  100 Pine Street, Suite 2600

  San Francisco, CA 94111

  Telephone: 415/288-4545

  415/288-4534 (fax)

  
	
   

  
	
  LERACH COUGHLIN STOIA GELLER

  RUDMAN & ROBBINS LLP

  THOMAS G. WILHELM

  9601 Wilshire Blvd., Suite 510

  Los Angeles, CA 90210

  Telephone: 310/859-3100

  310/278-2148 (fax)

  

 

 5
 

 

	
  THE WEISER LAW FIRM, P.C.

  ROBERT B. WEISER

  BRETT D. STECKER

  121 N. Wayne Avenue, Suite 100

  Wayne, PA 19087

  Telephone: 610/225-2677

  610/225-2678 (fax)

  
	
   

  
	
  Co-Lead Counsel for Plaintiffs

  

 

 6

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF NORTH CAROLINA

CHARLOTTE DIVISION

	
  In re FAMILY DOLLAR, INC.

  	
  )

  	
  Master File No. 3:06-CV-00510(W)

  
	
  SHAREHOLDER DERIVATIVE LITIGATION

  	
  )

  	
   

  
	
   

  	
  )

  	
  NOTICE OF HEARING AND PROPOSED

  SETTLEMENT OF DERIVATIVE ACTION

  
	
   

  	
  )

  
	
  This Document
  Relates To:

  	
  )

  	
  EXHIBIT C 

  
	
   

  	
  )

  
	
  ALL ACTIONS.

  	
  )

  	
   

  
	
   

  	
  )

  	
   

  

 

TO:                            ALL
HOLDERS OF STOCK OF FAMILY DOLLAR STORES, INC. (“FAMILY DOLLAR” OR THE “COMPANY”)
ON JUNE     , 2007 (COLLECTIVELY “CURRENT FAMILY DOLLAR
STOCKHOLDERS”).

PLEASE READ THIS NOTICE CAREFULLY AND IN ITS ENTIRETY.  YOUR RIGHTS MAY BE AFFECTED BY THE LEGAL
PROCEEDINGS IN THIS LITIGATION.

THIS NOTICE RELATES TO A SETTLEMENT OF SHAREHOLDERS’ ACTION AND CLAIMS
ASSERTED THEREIN ON BEHALF OF FAMILY DOLLAR.

This Notice is
given pursuant to an Order of the United States District Court for the Western
District of North Carolina, Charlotte Division (the “Court”).  The purpose of the Notice is to advise you
that the parties in the above-entitled action (the “Action”), and in a related
consolidated action pending in the Superior Court of the State of North
Carolina, County of Mecklenburg (the “State Action”), have reached a settlement
(the “Settlement”) as set forth in a Stipulation and Agreement of Compromise,
Settlement and Release dated as of June 22, 2007 (the “Stipulation”), which
will fully, finally and forever resolve the Action and State Action on the
terms and conditions set forth in the Stipulation and summarized in this
Notice.

I.                                         SETTLEMENT
HEARING

1.             A hearing will be held at 195
Charles R. Jonas Federal Bldg., 401 West Trade Street, Charlotte, North
Carolina 28202, on August    , 2007, at   :      .m.
(the “Settlement Hearing”), to determine whether the Court should: (i) approve
the Settlement (as defined above) pursuant to Federal Rule of Civil Procedure
23.1 (“Rule 23.1”) as fair, reasonable, adequate and in the best interests of
the Company and its stockholders; (ii) enter an Order and Final Judgment
dismissing the Action with prejudice; (iii) consider Plaintiffs’ counsel’s
application for an award of attorneys’ fees and expenses; and (iv) hear other
such matters as the Court may deem necessary and appropriate.  The Settlement Hearing may be continued or
adjourned by the Court without further notice. 
Any of the dates set forth herein may also be modified by the Court
without further notice.

 1
 

II.                                     BACKGROUND
OF THE ACTION

On August 24,
2006, a shareholder derivative complaint was filed in the Superior Court of
North Carolina, Mecklenburg County (the “Superior Court”), captioned Rebecca Mitchell v. Howard Levine, et al., Case No.
06-CV-516796 (the “Mitchell
litigation”), on behalf of Family Dollar, against its directors and officers:
Howard R. Levine, R. James Kelly, R. David Alexander, Jr., George R. Mahoney,
John D. Reier, Albert S. Rorie, Philip W. Thompson, Mark R. Bernstein, James G.
Martin and Sharon Allred Decker.  The Mitchell litigation alleges, inter alia,
that from 1995 to 2001, the Company and certain of its directors and officers
engaged in improper backdating of stock options and, as a result, disseminated
materially false financial statements to the stockholders of the Company.  On October 2, 2006, a second derivative
complaint captioned Jeffrey Alasina v. Howard
Levine, et al., was filed in the Superior Court complaining of the
same alleged activities.  The Mitchell and Alasina
complaints were consolidated by order of the Superior Court into the State
Action and a consolidated complaint was filed which named as defendants, in
addition to the defendants named in the Mitchell
litigation, John J. Scanlon, C. Martin Sowers, Gilbert A. LaFare, Samuel N.
McPherson (collectively, the “Mitchell
Defendants”).

On December 15,
2006, a derivative complaint was filed in this Court captioned Dorothy M. Lee v. Howard R. Levine, et al., No.
3:06-CV-510-W.  A virtually identical
complaint was filed in this Court on December 20, 2006, captioned Stanford H. Arden v. Howard R. Levine, et al., No.
3:06-CV-523-C.  By order entered March
27, 2007, the Court consolidated the Lee and Arden cases into the Action, appointed Lee and Arden as
co-lead plaintiffs and appointed co-lead counsel.  The Action names the following Family Dollar
directors and officers as defendants: Howard R. Levine, Leon Levine, R. James
Kelly, R. David Alexander, Jr., Charles S. Gibson, Jr., C. Martin Sowers,
George R. Mahoney, Jr., Mark R. Bernstein, Sharon Allred Decker, Edward C.
Dolby, Glenn A.

 2
 

Eisenberg,
James G. Martin and Dale C. Pond.  The Mitchell Defendants and the defendants named in the Action
are referred to as the “Individual Defendants.”

The Action, in
connection with alleged improper backdating of stock options at the Company,
alleges violations of §14(a) of the Securities Exchange Act of 1934, breaches
of fiduciary duties and/or aiding and abetting in the breach of fiduciary
duties, which are alleged to include abuse of control, gross mismanagement,
constructive fraud, corporate waste, unjust enrichment and breach of fiduciary
duty for insider selling and misappropriation of information by the “insider
selling defendants,” all of which are alleged to have occurred between 1995 and
2006.

On August 31,
2006, after receiving the Mitchell
complaint and pursuant to resolutions adopted at a duly called meeting, the
Board of Directors of the Company (the “Board”), acting in accordance with
Section 141(c) of the General Corporation Law of the State of Delaware and
Article III, Section 11 of the Company’s Bylaws, formed the “Special Committee”
whose duties, among other things, are to investigate the pending litigation and
advise what action the Company should take with respect to such litigation.

On May 18, 2007,
counsel for the parties to the Action and the State Action reached an
agreement-in-principle (subject to the negotiation of a definitive written agreement)
concerning the proposed Settlement of the Action and State Action.  The parties’ agreement was reached after
repeated meetings, both telephonic and in person, between counsel for the
Plaintiffs and the Special Committee and, in some instances, counsel to the
Company.  Counsel for the parties to the
Action and State Action have independently concluded that the terms of the
Settlement are fair, reasonable and adequate to both the Company and its
stockholders based upon the substantial benefits and protections offered
therein.  This conclusion by counsel for
Plaintiffs was based in part on review of non-public documents relating to the
claims asserted in the Action and State Action, as well as

 3
 

documents
reviewed and created by the Special Committee during the course of its factual
investigation of these claims.

III.                                 CLAIMS
OF THE PLAINTIFFS AND BENEFITS OF THE SETTLEMENT

Plaintiffs’
counsel believe that the Settlement set forth in the Stipulation addresses
Plaintiffs’ allegations and confers substantial benefits upon, and is also in
the best interests of, Family Dollar and its shareholders.  This conclusion is based in part on the
Plaintiffs’ counsel’s extensive investigation of the facts and applicable law
regarding the alleged claims and the potential defenses thereto.  This investigation included the review of
public and non-public documents relating to the claims asserted in the Action
and State Action as well as documents reviewed and created by the Special Committee
during the course of its factual investigation of these claims.

While Plaintiffs
and their counsel believe that the claims asserted in the Action and State
Action have substantial merit, they recognize and acknowledge the risk, expense
and length of continued proceedings necessary to prosecute the Action and State
Action against the Individual Defendants through trial and appeal.  Plaintiffs’ counsel also have taken into
account the uncertain outcome and the risk of any litigation, especially in
complex actions such as the Action and State Action, as well as the
difficulties and delays inherent in such litigation.  Plaintiffs’ counsel also are mindful of the
inherent problems of proof of, and possible defenses to, the violations alleged
in the Action and State Action.  As a
result, Plaintiffs and their counsel believe the Settlement is in the best
interest of the Company and its shareholders.

IV.                                THE
COMPANY AND INDIVIDUAL DEFENDANTS’ DENIAL OF WRONGDOING AND LIABILITY

The Company and
the Individual Defendants have denied, and continue to deny, any liability or
wrongdoing with respect to any and all claims alleged in the Action, the State
Action or otherwise.  Without conceding
any infirmities in their defenses to the claims asserted in the Action

 4
 

or
State Action, the Company and the Individual Defendants nevertheless consider
the dismissal of the Action and State Action, subject to the terms and
conditions in the Stipulation, desirable because, among other things, the
Stipulation and Settlement will eliminate the substantial burden, expense,
inconvenience and distraction of litigation and will dispel any uncertainty
that may exist as a result thereof.

V.                                    THE
TERMS OF THE PROPOSED SETTLEMENT

A settlement has
been reached, the terms and conditions of which are set forth in the
Stipulation.  The following description
of the proposed Settlement is only a summary.

The defendants
acknowledge and agree that the pendency and prosecution of the shareholder
derivative litigation was a significant factor underlying the Company’s
decision to agree to the series of changes set forth below with respect to the
Company’s corporate governance practices. 
In addition, subsequent to the filing of the shareholder derivative
litigation, the Plaintiffs and the Special Committee negotiated the
cancellation of stock options detailed in paragraph seven (7) below.

1.             The Company’s Equity Award
Processes.

(a)           Annual equity grants
of stock options and/or performance share rights (“PSRs”) will be made by the
Compensation Committee of the Board (the “Compensation Committee”) with a grant
date of the Tuesday following the Company’s annual earnings release.  Grants in connection with the employment,
promotion or retention of an individual employee with the title of Vice
President or above (“Individual Officer Grants”) will be made by the
Compensation Committee with a grant date of the Tuesday following the Company’s
monthly sales release.  Grants may be
made at other times only upon an express determination by the Compensation
Committee that such grants are in the best interests of the Company.

 5
 

(b)           A list of the
proposed grantees and the amount of options and PSRs will be provided to the
Compensation Committee and shall include all Individual Officer Grants to be
made to employees through the latest practicable date prior to the meeting of
the Compensation Committee at which such grants are to be considered.

(c)           Grants in connection with the
employment, promotion or retention of an individual employee below the level of
Vice President (“Individual Grants”) will be made by the Equity Award Committee
of the Board with a grant date of the Tuesday following the Company’s monthly
sales release and shall include all Individual Grants to be made to employees
through the Friday before such Tuesday grant date.

(d)           All stock option grants will be made
at meetings of the Board or a relevant committee of the Board (other than any
committee consisting of one member) and will not be effected by written
consent, except where extenuating circumstances so require.

(e)           Where circumstances require the use
of a written consent to approve a stock option grant, no such consent shall
contain a pre-printed stated effective date of the consent and each member of
the Board or committee must date any written consent on the date of his or her
execution thereof.

2.             The Board shall revise its
Corporate Governance Guidelines (the “Guidelines”) to adopt a majority voting
policy for uncontested elections of directors only.  Under the Company’s organizational documents,
directors currently are elected by a plurality of votes cast at any meeting of
stockholders duly called and held for the purpose of electing directors.  Under the majority voting policy, each
director who receives a greater number of votes withheld from his or her
election than votes cast “for” such election would be required to tender his or
her resignation to the Board promptly following the certification of the
election results.  The
Nominating/Corporate Governance

 6
 

Committee of the Board
(the “Nominating Committee”) would consider the tendered resignation and make a
recommendation to the Board with respect thereto.

3.             The Board shall revise the Company’s
guidelines regarding cash bonuses to provide that in the future, in connection
with the award of any cash bonus to an “executive officer” (as defined in the
rules promulgated under the Securities and Exchange Act of 1934, as amended),
such awards would be conditioned upon, in the event of an accounting
restatement due to material noncompliance by the Company as a result of
intentional misconduct with any financial reporting requirements of the federal
securities laws with respect to financial statements filed by the Company
within twelve (12) months after the date of such award, reimbursement by the
executive officer to the Company of the difference between the amount of the
original bonus received by the executive officer and the amount of the bonus
such officer would have received had the amount of the bonus been calculated
based on the restated financial statements.

4.             The Board shall revise the Guidelines
to provide that, to be deemed “independent” in any fiscal year, a director must
satisfy the following qualifications:

(a)           The director has not been employed by
the Company or its subsidiaries or affiliates within the last four years;

(b)           The director has not received, during
the current year or any of the three immediately preceding years, remuneration,
directly or indirectly, other than de
minimis remuneration (as defined below), as a result of service
(other than as a director of a customer or supplier) as (i) an advisor,
consultant, or legal counsel to the Company or to a member of the Company’s
senior management; or (ii) a significant customer or supplier of the Company;

(c)           The director has no personal services
contracts with the Company, or any member of the Company’s senior management;

 7
 

(d)           The director is not an officer or
employee of a not-for-profit entity that receives significant contributions
from the Company, and does not serve any such entity in any capacity for which
remuneration is received;

(e)           The director does not have any
investment in any entity in which the Company also has an investment, other
than equity or debt investments that are available to the public in public or
governmental entities, or investments in any other entity in which neither the
director nor the Company or any of its parents, subsidiaries or affiliates own
an interest of 5% or more or exercises managerial control;

(f)            The director is not employed by a
public company at which an executive officer of the Company serves on the
Compensation Committee;

(g)           The director has not had any of the
relationships described above in sub-sections “a” through “f,” with any
affiliate of the Company; and

(h)           The director is not a member of the
immediate family of any person who fails to satisfy the qualifications
described above.

A director shall
be deemed to have received remuneration (other than remuneration as a director,
including remuneration provided to a non-executive Chairman of the Board,
Committee Chairman, or Lead Director), directly or indirectly, if remuneration,
other than de minimis remuneration, was paid by the
Company, its subsidiaries or affiliates, to any entity in which the director
has a beneficial ownership interest of 5% percent of equity or more, or to an entity
by which the director is employed or self-employed other than as a
director.  Remuneration is deemed de minimis remuneration if such remuneration is $60,000 or less in any
year,(1) or if such remuneration is

(1)                                  The
$60,000 remuneration level set forth above applies for three years from the
date of Final Approval. Thereafter, the analogous remuneration level set forth
in the applicable stock exchange rules (currently $100,000 as set forth in New
York Stock Exchange Listed Company Manual, Section 303A.02(b)(ii)) shall apply.

 8
 

paid
to an entity, it (i) did not for the fiscal year exceed the lesser of $1
million, or 5% of the gross revenues of the entity; and (ii) did not directly
result in a material increase in the compensation received by the director from
that entity.

5.             The Company shall continue to
identify qualified independent directors and agrees to cause two additional
independent directors to be nominated for election to the Board by the date of
the annual meeting of stockholders of the Company in the fiscal year 2009.  One such director may be added to the Board
to fill a vacancy created by resignation or retirement of a non-independent
director.  With respect to the election
of these independent directors, a designee of the Nominating Committee shall
work with a designee of a major stockholder of the Company, other than
stockholders who are affiliates of any member of management, to identify
potential director candidates acceptable to the designee of such major
stockholder.  A reputable director search
firm shall be engaged and assist in such search process.  The candidates so selected shall be submitted
to the Nominating Committee.  Absent
unforeseen circumstances, the Nominating Committee and Company shall nominate
persons for election for these two director positions as set forth in this
paragraph 5.  After election of these two
additional independent directors to the Board, the Company will maintain a
board of directors comprised of at least 75% independent directors; however,
the termination of service of independent directors that results in the Board
being comprised of less than 75% independent directors shall not result in a
violation of this provision so long as the Company nominates for election
independent directors to fill vacancies created by such termination of service
as soon as practicable.

 9

6.             For a period of at least three
years, the Company shall require its officers, subject to certain conditions
set forth in the Company’s policy with respect to officer stock ownership, to
retain 25% of all equity awards made to such officers until the following
ownership levels of the Company’s stock are obtained:  Chief Executive Officer - five times salary;
President, Chief Financial Officer, Chief Operating Officer and Executive Vice
President - three times salary; Senior Vice Presidents - two times salary; and
Vice Presidents - one times salary.

7.             Upon Final Approval (as defined
below) of the Settlement, each of defendants Howard R. Levine, the Company’s
chief executive officer, R. James Kelly, the Company’s president and chief
operating officer, George R. Mahoney, Jr., the Company’s former general
counsel, and C. Martin Sowers, the Company’s senior vice president of finance,
agree to relinquish their rights to certain unexercised stock options to
purchase shares of common stock of the Company in the amounts of 75,000,
35,000, 80,000, and 20,000, respectively. 
Specifically, Mr. Levine will relinquish his rights to 57,000 options
granted to him by the Company in 2002 and 18,000 options granted to him in
2003;  Mr. Kelly will relinquish his
rights to 28,000 options granted to him by the Company in 2002 and 7,000
options granted to him in 2003; Mr. Mahoney will relinquish his rights to
32,000 options granted to him by the Company in 2002 and 48,000 options granted
to him in 2003; and Mr. Sowers will relinquish his rights to 11,500 options
granted to him by the Company in 2002 and 8,500 options granted to him in
2003.  The parties agree that Messrs.
Levine, Kelly, Mahoney and Sowers are legally entitled to the options being
relinquished, that there has been no finding of wrongdoing in connection with
the grant of such options and that their agreement in this regard is not to be
deemed an

 10
 

admission of any
liability or wrongdoing on their part.  Messrs. Levine, Kelly, Mahoney and Sowers
agree to relinquish the options recited above as part of the settlement of the
above-styled action and their agreement in this regard is not to be deemed an
admission of any liability or wrongdoing on their part.  The parties agree that the
relinquishment of said options is not disgorgement or restitution and the value
of said options does not represent in any way a measure of disgorgement or
restitution.  The Company shall not
replace, reissue, or substitute new or additional options for the options that
are being relinquished pursuant to this paragraph.(2)

8.             In September
2006, Messrs. Levine, Kelly, Mahoney and Sowers allowed certain stock options
to expire, due in significant part to the pendency of the shareholder
derivative litigation and the Special Committee investigation.  Mr. Levine allowed 150,000 stock options to
expire; Mr. Kelly allowed 85,000 stock options to expire; Mr. Mahoney allowed
21,000 stock options to expire; and Mr. Sowers allowed 20,000 stock options to
expire.  In connection with the selection
of the number and grant date of options to be relinquished as set forth in
paragraph 7 of this Notice, the Special Committee considered the fact that
Messrs. Levine, Kelly, Mahoney and Sowers allowed the options referred to in
this paragraph to expire; however, the Company will not make any payment to
Messrs. Levine, Kelly, Mahoney or Sowers with respect to the expired options
referred to in this paragraph.

VI.                                DISMISSAL
AND RELEASE

If the Settlement
is approved, the Court will enter an Order and Final Judgment.  The Judgment will fully, finally and forever
release the Settled Claims (defined below) as to the Individual Defendants and
the Released Persons (defined below) and will permanently bar Plaintiffs and
the Company’s past and present stockholders from asserting, commencing,
prosecuting,

(2)           In
the event that the options to be relinquished as set forth in paragraph 7
hereof are relinquished pursuant to the Stipulation and subsequently, for
whatever reason, the Settlement is not consummated, the Company will make cash
payments to Messrs. Levine, Kelly, Mahoney and Sowers reflecting the value of
the relinquished options.  In that event,
the Special Committee will issue its final report and, pursuant thereto, enact
remedial measures.

 11
 

assisting,
instigating or in any way participating in the commencement or prosecution of
any action or other proceeding, in any forum, asserting any Settled Claims
against any Released Person.

1.             For purposes of the Settlement,

(a)           “Final Approval” shall be considered
to have occurred for purposes of the Stipulation after both of the following
have occurred:

(i)           
entry of the Order and Final Judgment approving the Settlement, attached to the
Stipulation as Exhibit D, and the expiration of any applicable appeal period
for the appeal of the Order and Final Judgment without an appeal having been
filed or, if an appeal is taken, upon entry of an order affirming the Order and
Final Judgment appealed from (or dismissing the appeal) and the expiration of
any applicable period for the reconsideration, rehearing or appeal of such
affirmance (or dismissal) without any motion for reconsideration or rehearing
or further appeal having been filed; and

(ii)           the
dismissal with prejudice of the State Action and the expiration of any
applicable appeal period for the appeal of such dismissal with prejudice
without an appeal having been filed or, if an appeal is taken, upon entry of an
order affirming the dismissal with prejudice of the State Action (or dismissing
the appeal) and the expiration of any applicable period for the
reconsideration, rehearing or appeal of such affirmance (or dismissal) without
any motion for reconsideration or rehearing or further appeal having been
filed.

(b)           “Released Persons” means (i) the
Company and its parent entities, predecessors, associates, general or limited
partnerships, limited liability companies, affiliates, past and present
subsidiaries, and each and all of their respective past, present or future
officers, members, directors, stockholders, agents, representatives, employees,
and also attorneys, financial or investment advisors, advisors, consultants,
auditors, accountants, investment bankers, commercial 

 12
 

bankers, trustees,
engineers, agents, insurers, co-insurers and reinsurers (except to the extent
claims against insurance carriers and subrogation rights are specifically
reserved herein); and (ii) all persons who are or were defendants in the Action
or State Action (or any action encompassed by the Action or State Action),
including the Individual Defendants, and their respective heirs, executors,
trustees, general or limited partners or partnerships, limited liability
companies, members, representatives, employees, attorneys, advisors,
consultants, agents, estates, and administrators; in each instance, whether or
not they were named, served with process or appeared in the Action.

(c)           “Settled Claims” means all claims,
demands, rights, actions or causes of action, liabilities, damages, losses,
obligations, judgments, suits, fees, expenses, costs, matters and issues of any
kind or nature whatsoever, whether known or unknown, contingent or absolute,
suspected or unsuspected, disclosed or undisclosed, matured or unmatured, that
have been, could have been, or in the future can or might be asserted in the
Action, the State Action or in any court, tribunal or proceeding (including,
but not limited to, any claims arising under federal or state statutory or
common law relating to alleged fraud, breach of any duty, negligence,
violations of the federal securities laws or otherwise), by or on behalf of
Plaintiffs, derivatively or in their status as stockholders of the Company, by
any past or present stockholder of the Company (derivatively or in their status
as stockholders of the Company), by the Company, or by their or its predecessors,
successors or assigns (or any person claiming by, through, in the right of, or
on behalf of them or the Company by assignment or otherwise, except to the
extent claims against insurance carriers and subrogation rights are
specifically reserved herein), whether legal, equitable or any other type,
which have arisen, arise now or hereafter arise out of, or relate in any manner
to, the allegations, facts, events, practices, conduct, transactions, matters,
acts, occurrences, statements, representations, misrepresentations or
omissions, or any fees, expenses or costs incurred in prosecuting, defending or

 13
 

settling the Action and
State Action, or any other matter, thing or cause whatsoever, or any series
thereof, embraced, involved or set forth in, or referred to or otherwise
related, directly or indirectly, in any way to, the Action or the State Action
or the subject matter of the Action or State Action, and including, without
limitation, any claims in any way related to (i) the Settlement and the
Stipulation, (ii) the fiduciary obligations of the Individual Defendants or any
other Released Persons relating to or in connection with the allegations made
in the complaints in the Action and State Action or the investigation of such
allegations, (iii) any disclosures or alleged misrepresentations or omissions
that were made or allegedly not made by any of the Released Persons regarding
the subject matter of the Action or State Action, (iv) the Stipulation or any
other matters described or alleged in the Stipulation, including, without
limitation, (1) all stock option grants made by the Company, (2) all stock
options issued pursuant to such grants, (3) all shares issued upon the exercise
of said stock options, (4) the stock option granting practices of the Company,
(5) the actions of the Special Committee, and (6) any and all disclosures made
in connection with any of the foregoing.

2.             In the event that the Settlement
does not receive final approval from the Court or the Court approves the
Settlement but such approval is reversed or vacated on appeal, reconsideration
or otherwise, or the Stipulation is terminated for any other reason (including
dismissal of the State Action with prejudice), then the Stipulation will become
null and void and each party to the Stipulation shall be restored to his, her
or its respective position as it existed prior to the execution of the
Stipulation.

3.             Nothing in the Stipulation or in
any Exhibit thereto (i) releases, discharges, extinguishes or otherwise
compromises any claims or potential claims that Family Dollar or any person who
is or was a defendant in the Action or the State Action may have under or
relating to any policy of liability or other insurance, or (ii) releases any
insurer, co-insurer or reinsurer from any

 14
 

obligation owed to Family
Dollar or any person who is or was a defendant in the Action or the State
Action for indemnity or coverage under or relating to any policy of liability
or other insurance.

4.             Nothing in the Stipulation or in
any Exhibit thereto discharges, extinguishes or otherwise compromises any
claims or potential claims for subrogation that any insurance carrier may have
as to any third party, including, but not limited to attorneys, financial or
investment advisors, advisors, consultants, auditors, accountants, investment
bankers, commercial bankers, trustees, engineers, agents, insurers, co-insurers
and reinsurers not otherwise named in the Action or State Action and not
otherwise released herein, to the extent of any prior or future payments under
any policy of insurance which have arisen, arise now or hereafter arise out of,
or relate in any manner to, the allegations, facts, events, practices, conduct,
transactions, matters, acts, occurrences, statements, representations,
misrepresentations or omissions, or any fees, expenses or costs incurred in
prosecuting, defending or settling the Action and State Action, or any other
matter, thing or cause whatsoever, or any series thereof, embraced, involved or
set forth in, or referred to or otherwise related, directly or indirectly, in
any way to, the Action or the State Action or the subject matter of the Action
or State Action, and including, without limitation, any claims in any way
related to (i) the Settlement and the Stipulation, (ii) the fiduciary obligations
of the Individual Defendants or any other Released Persons relating to or in
connection with the allegations made in the complaints in the Action and State
Action or the investigation of such allegations, (iii) any disclosures or
alleged misrepresentations or omissions that were made or allegedly not made by
any of the Released Persons regarding the subject matter of the Action or State
Action, (iv) the Stipulation or any other matters described or alleged in the
Stipulation, including, without limitation, (1) all stock option grants made by
the Company, (2) all stock options issued pursuant to such grants, (3) all
shares issued upon the exercise of said stock options, (4) the stock option
granting practices of the

 15
 

Company, (5) the actions
of the Special Committee, and (6) any and all disclosures made in connection
with any of the foregoing.

VII.                            RELEASE
OF UNKNOWN CLAIMS

1.             The releases contemplated in the
Settlement extend to claims that the parties granting the release (the “Releasing
Parties”) do not know or suspect to exist at the time of the release, which if
known might have affected the Releasing Parties’ decision to enter into the
release; the Releasing Parties shall be deemed to relinquish, to the extent
applicable and to the fullest extent permitted by law, the provisions, rights
and benefits of Section 1542 of the California Civil Code, and the Releasing
Parties shall be deemed to waive any and all provisions, rights and benefits
conferred by any law of any state or territory of the United States, federal
law or principle of common law, which is similar, comparable or equivalent to
California Civil Code Section 1542.

VIII.                        ATTORNEYS’
FEES

1.             Counsel for the Plaintiffs will
seek an award of attorneys’ fees and expenses (including costs and disbursements)
in a total amount of $3,500,000, which if approved by the Court at the
Settlement Hearing will be paid by the Company.

IX.                                YOUR
RIGHT TO BE HEARD AT THE SETTLEMENT HEARING

1.             Any Current Family Dollar
stockholder who wishes to object to the Settlement or any of the terms therein,
the dismissal of the Action, the Order and Final Judgment to be entered
approving the Settlement, or the Fee Application, or who otherwise wishes to be
heard, may appear in person or through counsel at the Settlement Hearing and
present evidence or argument that may be proper and relevant; provided,
however, that no person other than counsel for Plaintiffs and defendants shall
be heard, and no papers, briefs, pleadings or other documents by any such
person shall be received and considered by the Court (unless the Court in its
discretion shall thereafter

 16
 

otherwise direct, upon
application of such person and for good cause shown), unless not later than          ,
2007, such person files with the Court:

(a)           a written notice of intention to
appear;

(b)           competent evidence that such person
held shares of Family Dollar common stock as of June    ,
2007, and that the person continues to hold shares of Family Dollar common
stock as of the date of the Settlement Hearing; and

(c)           a statement of such person’s
objections to any matters before the Court, the grounds therefor or the reasons
for such person’s desiring to appear and be heard, as well as all documents or
writings such person desires the Court to consider and, on or before the date
of such filing, serves the same documents via first class mail or overnight
delivery upon all of the following counsel of record:

	
  Jeffrey D. Light

  Lerach Coughlin Stoia Geller

    Rudman & Robbins LLP

  655 West Broadway, Suite 1900

  San Diego, CA 92101

  Attorney for Plaintiffs in the Action

  	
  T. Thomas Cottingham, III

  Hunton & Williams LLP

  Bank of America Plaza

  101 South Tryon Street, Suite 3500

  Charlotte, NC 28280

  Attorney for Nominal Defendant Family Dollar Stores, Inc.

  
	
   

  	
   

  
	
  Mark W. Merritt

  Robinson, Bradshaw & Hinson, P.A.

  101 North Tryon Street, Suite 1900

  Charlotte, NC 28246

  Attorney for Defendant Leon Levine in the
  Action

  	
  Mark R. Kutny

  Hamilton, Moon, Stephens, Steele & Martin

  PLLC

  2020 Charlotte Plaza

  201 S. College Street

  Charlotte, NC 28244-2020

  Attorney for Defendant C. Martin Sowers in
  the Action

  

 

 17
 

 

	
  James T. Williams, Jr.
 Brooks, Pierce, McLendon, Humphrey &

  Leonard LLP

  Post Office Box 26000

  Greensboro, NC 27420

  Attorney for Defendants Edward C. Dolby,

  Glenn A. Eisenberg and Dale C. Pond in the Action

  	
  Jonathan E. Buchan, Jr.

  Helms, Mullis & Wicker, PLLC

  201 North Tryon Street

  PO Box 31247 (28231)

  Charlotte, NC 28202

  Attorney for Defendants Howard Levine, R. James
  Kelly, R. David Alexander, Jr., George Mahoney, Jr., Charles S. Gibson,
  Jr., Mark Bernstein, Sharon Allred Decker, and James Martin in the Action

  

 

2.              Such
objecting persons must also contemporaneously deliver a copy of all documents
described above to the Clerk of Court, United States District Court for the
Western District of North Carolina, Charlotte Division, 401 West Trade Street,
Charlotte, North Carolina 28202; and even if such persons do not appear at the
Settlement Hearing, the Court will consider their written submissions.  Unless the Court otherwise directs, no person
shall be entitled to object to the approval of the Settlement, to any Order and
Final Judgment entered thereon, to the Fee Application, or to otherwise be
heard, except by serving and filing a written objection and supporting papers
and documents as prescribed above.  Any
persons who fail to object in the manner and within the time prescribed above
shall be deemed to have waived the right to object (including the right to
appeal) and forever shall be barred, in this proceeding or in any other
proceeding, from raising such objection.

X.                                    SCOPE
OF THIS NOTICE AND FURTHER INFORMATION

This Notice contains only a summary of the terms of
the Settlement.  For a more detailed
statement of the matters involved in this litigation, you may inspect the
pleadings, the Stipulation, the Orders entered by the Court and other papers
filed in the litigation, unless sealed, at the Office of the Clerk of Court,
United States District Court for the Western District of North Carolina,
Charlotte Division, 401 West Trade Street, Charlotte, North Carolina 28202,
during regular business hours of

 18
 

each business day. 
Any other inquiries regarding the Action should be addressed in the
first instance as follows:

Rick Nelson

LERACH COUGHLIN STOIA GELLER
   RUDMAN & ROBBINS LLP

655 West Broadway, Suite 1900

San Diego, CA  92101

1-800-449-4900

PLEASE DO
NOT CONTACT THE CLERK OF THE COURT OR THE JUDGE REGARDING THIS NOTICE.

XI.                                NOTICE
TO BANKS, BROKERS, AND OTHER NOMINEES

Banks, brokerage
firms, institutions, and other persons who are nominees who, on                ,
2007, held the common stock of Family Dollar for the beneficial interest of
other persons are requested within ten (10) days of receipt of this Notice, to:
(a) provide the Notice Administrator (at the address set forth below) with the
names and addresses of such beneficial holders, or (b) forward a copy of this
Notice to each such beneficial holder and provide the Notice Administrator with
written confirmation that the Notice has been so forwarded.  Additional copies of the Notice may be
obtained from the Notice Administrator for forwarding to such beneficial
owners. All such correspondence should be addressed as follows:

Family
Dollar Derivative Litigation

Notice Administrator

c/o Gilardi & Co. LLC

P.O. Box 8040

San Rafael, CA  94912-8040

	
  DATED: June   , 2007

  	
  BY ORDER OF THE COURT

  UNITED STATES DISTRICT COURT

  WESTERN DISTRICT OF NORTH CAROLINA

  CHARLOTTE DIVISION

  

 

 19

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF NORTH CAROLINA

CHARLOTTE DIVISION

	
  In re FAMILY DOLLAR, INC.

  	
  )

  	
  Master File No. 3:06-CV-00510(W) 

  
	
  SHAREHOLDER DERIVATIVE LITIGATION

  	
  )

  	
   

  
	
   

  	
  )

  	
  ORDER AND FINAL JUDGMENT 

  
	
   

  	
  )

  	
   

  
	
  This Document Relates To:

  	
  )

  	
  EXHIBIT D

  
	
   

  	
  )

  	
   

  
	
  ALL ACTIONS.

  	
  )

  	
   

  
	
   

  	
  )

  	
   

  

 

A hearing having
been held before this Court on August    , 2007, pursuant
to the Court’s Order of June    , 2007 (the “Scheduling
Order”), upon the Stipulation and Agreement of Compromise, Settlement and
Release entered into by the parties, dated as of June 22, 2007 (the “Stipulation”),
providing for the settlement of the above-captioned consolidated action (the “Action”),
which is incorporated herein by reference; it appearing that due notice of said
hearing has been given in accordance with the Scheduling Order; the respective
parties having appeared by their attorneys of record; the Court having heard
and considered evidence in support of the proposed settlement and dismissal
with prejudice of the Action upon the terms and conditions set forth in the
Stipulation (the “Settlement”); the attorneys for the respective parties having
been heard; an opportunity to be heard having been given to all other persons
requesting to be heard in accordance with the Scheduling Order; the Court
having determined that notice to the Company’s stockholders was adequate and
sufficient; and the entire matter of the proposed Settlement having been heard
and considered by the Court;

IT IS
HEREBY ORDERED, ADJUDGED AND DECREED, this    
day of August, 2007, that:

1.             Unless otherwise defined herein,
all defined terms shall have the meaning set forth in the Stipulation.

2.             The Notice of Hearing and Proposed
Settlement of Derivative Action (the “Notice”) has been given to the Company’s
stockholders, pursuant to and in the manner directed by the Scheduling Order,
proof of mailing of the Notice was filed with the Court, and full opportunity
to be heard has been offered to all parties and persons in interest.  The form and manner of the Notice is hereby
determined to have been the best notice practicable under the circumstances and
to have been given in full compliance with each of the requirements of Federal
Rule of Civil Procedure 23.1 and

 1
 

due process, and
it is further determined that the Company, Plaintiffs and all of the Company’s
stockholders are bound by this Order and Final Judgment.

3.             The Stipulation and the Settlement
thereto are found to be fair, reasonable and in the best interests of the
Company and its stockholders and are hereby approved pursuant to Federal Rule
of Civil Procedure 23.1.  The parties to
the Stipulation are hereby authorized and directed to comply with and to
consummate the Settlement in accordance with its terms and provisions, and the
Clerk of Court is directed to enter and docket this Order and Final Judgment.

4.             This Order and Final Judgment shall
not constitute any evidence of or admission by any party herein that any acts
of wrongdoing have been committed by any of the parties to the Action or State
Action and shall not be deemed to create any inference that there is any
liability therefor.

5.             Upon Final Approval, the Action is
hereby dismissed with prejudice as to the Individual Defendants and against
Plaintiffs, the Company and all of the Company’s stockholders on the merits
and, except as explicitly provided in the Stipulation, without costs.

6.             Upon Final Approval, all claims,
demands, rights, actions or causes of action, liabilities, damages, losses,
obligations, judgments, suits, fees, expenses, costs, matters and issues of any
kind or nature whatsoever, whether known or unknown, contingent or absolute,
suspected or unsuspected, disclosed or undisclosed, matured or unmatured, that
have been, could have been, or in the future can or might be asserted in the
Action, the State Action or in any court, tribunal or proceeding (including,
but not limited to, any claims arising under federal or state statutory or
common law relating to alleged fraud, breach of any duty, negligence,
violations of the federal securities laws or otherwise), by or on behalf of
Plaintiffs, derivatively or in their status as stockholders of the Company, by
any past or present stockholder of the Company (derivatively or in

 2
 

their status as
stockholders of the Company), by the Company, or by their or its predecessors,
successors or assigns (or any person claiming by, through, in the right of, or
on behalf of them or the Company by assignment or otherwise, except to the
extent claims against insurance carriers and subrogation rights are
specifically reserved herein), whether legal, equitable or any other type,
which have arisen, arise now or hereafter arise out of, or relate in any manner
to, the allegations, facts, events, practices, conduct, transactions, matters,
acts, occurrences, statements, representations, misrepresentations or
omissions, or any fees, expenses or costs incurred in prosecuting, defending or
settling the Action and State Action, or any other matter, thing or cause
whatsoever, or any series thereof, embraced, involved or set forth in, or
referred to or otherwise related, directly or indirectly, in any way to, the
Action or the State Action or the subject matter of the Action or State Action,
and including, without limitation, any claims in any way related to (i) the Settlement
and the Stipulation, (ii) the fiduciary obligations of the Individual
Defendants or any other Released Persons relating to or in connection with the
allegations made in the complaints in the Action and State Action or the
investigation of such allegations, (iii) any disclosures or alleged
misrepresentations or omissions that were made or allegedly not made by any of
the Released Persons regarding the subject matter of the Action or State
Action, (iv) the Stipulation or any other matters described or alleged in the
Stipulation, including, without limitation, (1) all stock option grants made by
the Company, (2) all stock options issued pursuant to such grants, (3) all
shares issued upon the exercise of said stock options, (4) the stock option
granting practices of the Company, (5) the actions of the Special Committee,
and (6) any and all disclosures made in connection with any of the foregoing
(collectively, the “Settled Claims”) are hereby completely, fully, finally and
forever compromised, settled, released, discharged, extinguished and dismissed
with prejudice; provided, however, that the Settled Claims shall not include
the right to enforce the terms of the Stipulation.

 3
 

7.             Upon Final Approval, all claims,
demands, rights, actions or causes of action, liabilities, damages, losses,
obligations, judgments, suits, fees, expenses, costs, matters and issues of any
kind or nature whatsoever, whether known or unknown, contingent or absolute,
suspected or unsuspected, disclosed or undisclosed, matured or unmatured, that
have been, could have been, or in the future can or might be asserted by the
Released Persons against the Plaintiffs in the Action or the State Action and
their counsel arising out of the institution, prosecution, assertion,
settlement or resolution of the Action, the State Action and the Settled Claims
are hereby completely, fully, finally and forever compromised, settled,
released, discharged, extinguished and dismissed with prejudice; provided,
however, that the release granted in this paragraph shall not release the right
to enforce the terms of the Stipulation.

8.             The releases set forth herein
extend to claims that the Releasing Parties do not know or suspect to exist at
the time of the release, which if known, might have affected the Releasing
Parties’ decision to enter into the release; the Releasing Parties shall be
deemed to relinquish, to the extent applicable and to the fullest extent
permitted by law, the provisions, rights and benefits of Section 1542 of the
California Civil Code; and the Releasing Parties shall be deemed to waive any
and all provisions, rights and benefits conferred by any law of any state or
territory of the United States, federal law or principle of common law, which
is similar, comparable or equivalent to California Civil Code Section 1542.

9.             Upon Final Approval, Plaintiffs,
the Company’s past and present stockholders, the Company and anyone claiming
through or for the benefit of any of them, are hereby permanently enjoined from
asserting, commencing, prosecuting, assisting, instigating or in any way
participating in the commencement or prosecution of any action or other
proceeding, in any forum, asserting any Settled Claims.

 4
 

10.           Notwithstanding any other provision
of this Order and Final Judgment to the contrary, nothing in this Order and
Final Judgment shall be construed to (i) release, discharge, extinguish or
otherwise compromise any claims or potential claims that Family Dollar or any
person who is or was a defendant in the Action or the State Action may have
under or relating to any policy of liability or other insurance, or (ii)
release any insurer, co-insurer or reinsurer from any obligation owed to Family
Dollar or any person who is or was a defendant in the Action or the State
Action for indemnity or coverage under or relating to any policy of liability
or other insurance.

11.           Notwithstanding any other provision
of this Order and Final Judgment to the contrary, nothing in this Order and
Final Judgment shall be construed to release, discharge, extinguish or
otherwise compromise any claims or potential claims for subrogation that any
insurance carrier may have as to any third party, including, but not limited to
attorneys, financial or investment advisors, advisors, consultants, auditors,
accountants, investment bankers, commercial bankers, trustees, engineers,
agents, insurers, co-insurers and reinsurers not otherwise named in the Action
or State Action and not otherwise released herein, to the extent of any prior
or future payments under any policy of insurance which have arisen, arise now
or hereafter arise out of, or relating in any manner to, the allegations,
facts, events, practices, conduct, transactions, matters, acts, occurrences,
statements, representations, misrepresentations or omissions, or any fees,
expenses or costs incurred in prosecuting, defending or settling the Action and
State Action, or any other matter, thing or cause whatsoever, or any series
thereof, embraced, involved or set forth in, or referred to or otherwise
related, directly or indirectly, in any way to, the Action or the State Action
or the subject matter of the Action or State Action, and including, without
limitation, any claims in any way related to (i) the Settlement and the
Stipulation, (ii) the fiduciary obligations of the Individual Defendants or any
other Released Persons relating to or in connection with the allegations

 5
 

made in the
complaints in the Action and State Action or the investigation of such
allegations, (iii) any disclosures or alleged misrepresentations or omissions
that were made or allegedly not made by any of the Released Persons regarding
the subject matter of the Action or State Action, (iv) the Stipulation or any
other matters described or alleged in the Stipulation, including, without
limitation, (1) all stock option grants made by the Company, (2) all stock
options issued pursuant to such grants, (3) all shares issued upon the exercise
of said stock options, (4) the stock option granting practices of the Company,
(5) the actions of the Special Committee, and (6) any and all disclosures made
in connection with any of the foregoing.

12.           The Court finds that the Action was
filed in good faith and that the parties and their counsel at all times
complied with Federal Rule of Civil Procedure 11 and other similar state laws
during the course of the Action.

13.           Counsel for the Plaintiffs are
awarded attorneys’ fees and expenses (including costs and disbursements) in the
total amount of $3,500,000.00, which sum the Court finds to be fair and
reasonable, and which shall be paid by the Company jointly to Schiffrin
Barroway Topaz & Kessler, LLP and Lerach Coughlin Stoia Geller Rudman &
Robbins LLP, as joint receiving agents for all Plaintiffs’ counsel, within five
(5) business days after Final Approval.

14.           If Final Approval fails to occur,
then this Order and Final Judgment shall be rendered null and void to the
extent provided by and in accordance with the Stipulation and shall be vacated
and, in such event, all orders entered and releases delivered in connection herewith
shall be null and void to the extent provided by and in accordance with the
Stipulation.

15.           The effectiveness of this Order and
Final Judgment and the obligations of Plaintiffs, the Company and the
Individual Defendants under the Stipulation and the Settlement shall not be
conditioned upon or subject to the resolution of any appeal from this Order and
Final Judgment that

 6
 

relates solely to
the issue of Plaintiffs’ counsel’s application for an award of attorneys’ fees
and expenses.

16.           Without affecting the finality of
this Order and Final Judgment in any way, this Court reserves jurisdiction over
all matters relating to the administration and consummation of the Settlement.

IT IS SO ORDERED.

	
  DATED:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  THE HONORABLE
  FRANK D. WHITNEY

  
	
   

  	
  UNITED STATES
  DISTRICT JUDGE

  

 

Submitted by,

	
  /s/ L. Bruce McDaniel

  	
   

  
	
  L. BRUCE
  McDANIEL (N.C. State Bar #5025)

  WILLIAM E. ANDERSON (N.C. State Bar #098)

  McDANIEL & ANDERSON, L.L.P.

  Lafayette Square

  4942 Windy Hill Drive

  P.O. Box 58186

  Raleigh, NC 27658

  Telephone: 919/872-3000

  919/790-9273 (fax)

  mcdas@mcdas.com

  
	
   

  
	
  Liaison Counsel

  
	
   

  
	
  LERACH COUGHLIN
  STOIA GELLER

    RUDMAN & ROBBINS LLP

  TRAVIS E. DOWNS III

  JEFFREY D. LIGHT

  BENNY C. GOODMAN III

  MARY LYNNE CALKINS

  655 West Broadway, Suite 1900

  San Diego, CA 92101

  Telephone: 619/231-1058

  619/231-7423 (fax)

  

 

 7
 

 

	
  LERACH COUGHLIN STOIA GELLER

    RUDMAN & ROBBINS LLP

  SHAWN A. WILLIAMS

  MONIQUE C. WINKLER

  AELISH M. BAIG

  100 Pine Street, Suite 2600

  San Francisco, CA 94111

  Telephone: 415/288-4545

  415/288-4534 (fax)

  
	
   

  
	
  LERACH COUGHLIN
  STOIA GELLER

    RUDMAN & ROBBINS LLP

  THOMAS G. WILHELM

  9601 Wilshire Blvd., Suite 510

  Los Angeles, CA 90210

  Telephone: 310/859-3100

  310/278-2148 (fax)

  
	
   

  
	
  THE WEISER LAW
  FIRM, P.C.

  ROBERT B. WEISER

  BRETT D. STECKER

  121 N. Wayne Avenue, Suite 100

  Wayne, PA 19087

  Telephone: 610/225-2677

  610/225-2678 (fax)

  
	
   

  
	
  Co-Lead Counsel
  for Plaintiffs

  

 

 8Exhibit 10.2

CONSIDERATION OF PAYMENTS IN CONNECTION WITH
DERIVATIVE

SETTLEMENT

WHEREAS, this Committee has been fully advised with
respect  to certain shareholder
derivative actions regarding the Company’s historical stock option granting
practices (the “Lawsuits”); and

WHEREAS this Committee has also been fully advised
with respect to that certain Stipulation and Agreement of Compromise,
Settlement and Release (the “Settlement Agreement”) with respect to the
Lawsuits, and has fully considered the same;

WHEREAS, as a part of the settlement of the Lawsuits,
each of Messrs. Howard R. Levine, R. James Kelly, C. Martin Sowers and George
R. Mahoney, Jr. (collectively, the “Optionees”), have agreed to relinquish the
following options which, in connection with the Company’s annual merit review
process, were granted on September 26, 2002 (the “2002 Options”) and September 29,
2003 (the “2003 Options”), respectively: 

	
  

  	
   

  	
  2002 Options

  	
   

  	
  2003 Options

  	
   

  
	
  Levine

  	
   

  	
  57,000

  	
   

  	
  18,000

  	
   

  
	
  Kelly

  	
   

  	
  28,000

  	
   

  	
  7,000

  	
   

  
	
  Mahoney

  	
   

  	
  32,000

  	
   

  	
  48,000

  	
   

  
	
  Sowers

  	
   

  	
  11,500

  	
   

  	
  8,500

  	
   

  

 

WHEREAS, prior to Final Approval (as defined in the
Settlement Agreement), the Optionees have agreed to refrain from exercising the
2002 Options and 2003 Options to be relinquished, as set forth above, to which
they are otherwise entitled (the “Relinquished Options”);

WHEREAS, the 2002 Options will expire on September 25,
2007, and the 2003 Options will expire on September 28, 2008(the “Expiration
Dates”);

WHEREAS, this Committee has the authority and
responsibility to administer the compensation programs of the Company and
believes it will facilitate the Settlement Agreement and be in the best
interest of the Company that the Optionees be entitled to the value of the
Relinquished Options pursuant to conditions set forth in this resolution;

WHEREAS, the Special Committee appointed by the Board
to investigate the Lawsuits retains the authority to consider all matters
related to the Lawsuits in the event that Final Approval of the Settlement
Agreement is not obtained;

RESOLVED, that in the event: (i) any of the
Relinquished  Options expire prior to
Final Approval; (ii) the Optionees would otherwise have had the right to
exercise such Relinquished Options but for such option’s expiration or any
further agreement to relinquish such Relinquished Options; (iii) the Fair
Market Value  (as defined in the Family
Dollar Stores, Inc. 2006 Incentive Plan) of such Relinquished Options exceeds
the strike price of the Relinquished Options on the date of the exercise of the
Optionee’s other 2002 Options or 2003 Options which are not subject to
relinquishment (the “Non-Relinquished Options”) as set forth below; and (iv)
this Committee has been advised by the Special Committee that the Settlement
Agreement will not receive Final Approval, then the Company shall make a cash
payment (the “Cash Payment”) to each of the Optionees within a reasonable time
after such determination by this Committee of the abandonment or termination of
the Settlement Agreement;

RESOLVED, that the Cash Payment with respect to such
Relinquished Options, if any, shall equal the difference between (x) the
exercise price of the Relinquished Options, and (y) either: (i) if the Optionee
engages in a cashless exercise of the Non-Relinquished Options and/or sells the
shares obtained in such exercise, the actual sales price of shares sold upon
the exercise of the Non-Relinquished Options exercised by such Optionee, or the
average of such sales price if there are multiple cashless exercises, or (ii)
if the Optionee tenders the exercise price for the Non-Relinquished Options and
holds the acquired shares, the Fair Market Value of the shares so acquired on
the date of such tender and exercise; multiplied by the number of such
Relinquished Options that expired;

RESOLVED, that if Final Approval of the Settlement
Agreement is not obtained and the Optionees receive the Cash Payment(s) as set
forth herein, such actions shall not in any manner estop the Special Committee
from taking any actions it may deem necessary or appropriate with respect to
the Lawsuits, including but not limited to the issuance of its final report and
the implementation of remedial actions and in no event shall the making of the
Cash Payments constitute a waiver of, or be asserted to estop, the Special
Committee’s authority with respect to such remedial actions; and

RESOLVED,
that  the officers of the Company shall
be and are authorized and directed to take any and all actions deemed necessary
or convenient by them to effectuate the forgoing resolutions without further
action by this Committee.

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