FAMILY DOLLAR STORES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 15, 1998
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Family Dollar Stores, Inc. (the Company), will be held at 2:00 o'clock
p.m. on Thursday, January 15, 1998, at the office of the Company at
10401 Old Monroe Road, Matthews, North Carolina, for the following
purposes:
(1) To elect a Board of seven directors;
(2) To consider and vote upon a proposal to amend
the Company's 1989 Non-Qualified Stock Option
Plan;
(3) To consider and vote upon a proposal to amend
the Certificate of Incorporation to increase the
authorized number of shares of Common Stock, par
value $.10 per share, from 120,000,000 to
300,000,000;
(4) To ratify the action of the Board of Directors
in selecting Price Waterhouse LLP as independent
accountants to audit the consolidated financial
statements of the Company and its subsidiaries
for the current fiscal year; and
(5) To transact such other business as may properly
come before the meeting or any adjournments
thereof.
The Board of Directors has fixed the close of business on
November 17, 1997, as the record date for the determination of
Stockholders entitled to notice of and to vote at the meeting or
any adjournments thereof. The voting list of Stockholders will be
available for inspection in accordance with the By-Laws at the
Company's office at 10401 Old Monroe Road, Matthews, North Carolina,
at least ten days prior to the meeting.
Each Stockholder who does not plan to attend the meeting is
requested to date, sign and return the accompanying proxy in the
enclosed postage-paid return envelope.
By Order of the Board of Directors
GEORGE R. MAHONEY, JR.
Executive Vice President-
General Counsel and Secretary
Matthews, North Carolina
November 20, 1997
<PAGE>
FAMILY DOLLAR STORES, INC.
Post Office Box 1017
Charlotte, North Carolina 28201-1017
PROXY STATEMENT
This Proxy Statement is furnished to the holders of the Common
Stock of Family Dollar Stores, Inc. (the Company) in connection with
the solicitation on behalf of the Board of Directors of the Company of
proxies to be used in voting at the Annual Meeting of Stockholders to
be held on January 15, 1998, or any adjournments thereof. This Proxy
Statement and the enclosed proxy were first sent to Stockholders on or
about November 20, 1997.
The enclosed proxy is for use at the meeting if the Stockholder
will not be able to attend in person. Any Stockholder giving a proxy
may revoke it at any time before it is exercised by delivering written
notice of such revocation to the Secretary of the Company or by
attending the meeting and voting. All shares represented by valid
proxies received pursuant to this solicitation and not revoked before
they are exercised will be voted in the manner specified therein. If
no specification is made, the proxies will be voted in favor of:
1. The election to the Board of Directors of the seven
nominees named in the Proxy Statement;
2. The proposal to amend the Company's 1989 Non-
Qualified Stock Option Plan;
3. The proposal to amend the Certificate of Incorporation
to increase the authorized number of shares of Common
Stock, par value $.10 per share, from 120,000,000 to
300,000,000; and
4. The ratification of the action of the Board of
Directors in selecting Price Waterhouse LLP as
independent accountants to audit the consolidated
financial statements of the Company and its
subsidiaries for the current fiscal year.
The presence, in person or by proxy, of the holders of a majority
of the shares entitled to vote is necessary for a quorum at the
meeting. Directors are elected by a plurality of the votes of shares
present in person or represented by proxy at the meeting. The
approval of the amendment of the 1989 Non-Qualified Stock Option Plan
and the ratification of the selection of the accountants each requires
the affirmative vote of a majority of shares present or represented by
proxy at the meeting and entitled to vote in respect thereto. Appro-
al of the amendment of the Certificate of Incorporation requires the
affirmative vote of a majority of shares outstanding. Abstentions
will be counted for the purpose of determining the existence of a
quorum and will have the same effect as a negative vote on any such
matters other than the election of directors. If a nominee holding
shares for a beneficial owner indicates on the proxy that it does not
have discretionary authority as to certain shares to vote on a
<PAGE>
particular matter or otherwise does not vote such shares, these shares
will not be considered as present and entitled to vote in respect to
that matter, but will be counted for the purpose of determining the
existence of a quorum and will have the same effect as a negative vote
as to the proposal to amend the Certificate of Incorporation.
The cost of soliciting proxies for the meeting will be borne by
the Company. In addition to solicitation by mail, arrangements may be
made with brokerage firms, banks and other custodians, nominees and
fiduciaries to send proxy material to their principals. The Company
will reimburse these institutions for their reasonable costs in doing
so. No solicitation is to be made by specially engaged employees or
other paid solicitors.
Only the holders of Common Stock of record at the close of
business on November 17, 1997, will be entitled to vote at the
meeting. On such date, 85,872,666 shares of Common Stock were
outstanding and Stockholders will be entitled to one vote for each
share held.
<PAGE>
OWNERSHIP OF THE COMPANY'S SECURITIES
OWNERSHIP BY DIRECTORS AND OFFICERS
The following table sets forth, with respect to each
director of the Company, each of the executive officers named in
the Summary Compensation Table and all executive officers and
directors as a group, the number of shares beneficially owned and
the percent of Common Stock so owned, all as of November 1, 1997:
<TABLE>
<CAPTION>
Amount and
Nature of Beneficial Percent of
Name Ownership (1) Class
<S> <C> <C>
Leon Levine 9,043,811 (2) 10.5%
Howard R. Levine 5,106,231 (3) 5.9%
R. James Kelly 3,000 *
George R. Mahoney, Jr. 301,050 *
R. David Alexander, Jr. 15,000 *
Mark R. Bernstein 14,355 (4) *
James H. Hance, Jr. 6,000 *
James G. Martin 300 *
All Executive Officers and 14,762,544 17.2%
Directors of the Company
as a Group (22 persons)
* Less than one percent.
</TABLE>
(1) All shares are held with sole voting and investment power,
except that Mr. Howard R. Levine does not have voting or
investment power with respect to 3,859,483 shares held in
irrevocable trusts by NationsBank, N.A., as Trustee, for his
benefit, as set forth in note (3) below, and Mr. Bernstein
has shared voting power with respect to 10,605 shares held
in the Profit Sharing Plan as set forth in note (4) below.
Includes those shares listed in the table which the
following persons have the right to acquire beneficial
ownership of as of November 1, 1997, or within 60 days
<PAGE>
thereafter, pursuant to the exercise of stock options:
(i) Mr. Mahoney-56,925 shares, (ii) Mr. Alexander-15,000
shares; and (iii) all executive officers and directors as a
group-188,955 shares.
(2) Does not include (i) the 8,020,792 shares listed in the
table under the caption "Ownership by Others" below as
being held in irrevocable trusts by NationsBank, N.A., as
Trustee, for the benefit of certain of Mr. Leon Levine's
children and grandchildren, including 3,859,483 shares held
in trusts for the benefit of Mr. Leon Levine's son,
Mr. Howard R. Levine; (ii) 106,350 shares owned by
Mr. Leon Levine's wife; (iii) 1,215,000 shares held in
trust by Mr. Leon Levine's wife and one of his children
for the benefit of another child of Mr. Leon Levine;
and (iv) 1,246,748 shares beneficially owned by
Mr. Howard R. Levine. Mr. Leon Levine disclaims beneficial
ownership of the shares referred to in this note (2).
(3) Includes 3,859,483 shares listed in the table under the
caption "Ownership by Others" below as being held in
irrevocable trusts by NationsBank, N.A., as Trustee, for
the benefit of Mr. Howard R. Levine. Does not include
93,642 shares listed in said table as being held in
irrevocable trusts by NationsBank, N.A., as Trustee, for
the benefit of a child of Mr. Howard R. Levine.
(4) Includes 10,605 shares held under the Parker, Poe, Adams &
Bernstein L.L.P. Profit Sharing Plan, but does not include
11,250 shares owned by Mr. Bernstein's wife. Mr. Bernstein
disclaims beneficial ownership of the shares owned by his
wife.
OWNERSHIP BY OTHERS
On the basis of filings with the Securities and Exchange Commission and
other information, the Company believes that as of November 1, 1997, the
following additional Stockholder beneficially owned more than 5% of the
Company's Common Stock:
Amount and
Nature of Beneficial Percent
Name and Address Ownership of Class
NationsBank, N.A., as Trustee 8,020,792 (1) 9.3%
One NationsBank Plaza
Charlotte, North Carolina 28255
(1) These shares are held with sole voting and investment power under
irrevocable trusts for the benefit of certain of Mr. Leon Levine's
children and grandchildren, including 3,859,483 shares held in trusts
for the benefit of Mr. Howard R. Levine.
<PAGE>
ELECTION OF DIRECTORS
At the meeting, seven directors are to be elected to serve for the
ensuing year and until their respective successors are elected and
qualified. Votes pursuant to the enclosed proxy will be cast for the
election as directors of the seven nominees named below unless authority is
withheld. All seven nominees are now members of the Board of Directors.
If for any reason any nominee shall not be a candidate for election as a
director at the meeting, an event not now anticipated, the enclosed proxy
will be voted for such substitute as shall be designated by the Board of
Directors.
The following information is furnished with respect to the nominees:
<TABLE>
<CAPTION>
Year First
Elected
Name of Nominee Principal Occupation Age Director
<S> <C> <C> <C>
Leon Levine (1) Chairman of the Board, 60 1969
Chief Executive Officer and
Treasurer of the Company
Howard R. Levine (1) President and 38 1997 (2)
Chief Operating Officer
of the Company
R. James Kelly (1) Vice Chairman, 50 1997 (3)
Chief Financial and
Administrative Officer
of the Company
George R. Mahoney, Jr. (1) Executive Vice President- 55 1987 (4)
General Counsel and
Secretary of the Company
Mark R. Bernstein (5)(6) Partner in the law firm 67 1980 (8)
of Parker, Poe, Adams &
Bernstein L.L.P.
James H. Hance, Jr. (7) Vice Chairman- 53 1995 (9)
Chief Financial Officer
NationsBank Corporation
James G. Martin (5)(6)(7) Vice President, Research 61 1996 (10)
Carolinas HealthCare System
</TABLE>
<PAGE>
(1) Member of the Executive Committee of the Board of Directors.
Mr. Leon Levine is the father of Mr. Howard R. Levine, President
and Chief Operating Officer of the Company.
(2) Mr. Howard R. Levine was employed by the Company in various
capacities in the Merchandising Department from 1981 to 1987,
including employment as Senior Vice President-Merchandising and
Advertising. From 1988 to 1992, Mr. Levine was President of Best
Price Clothing Stores, Inc., a chain of ladies' apparel stores.
From 1992 to April 1996, he was self-employed as an investment
manager. He rejoined the Company in April 1996, and was elected
Vice President-General Merchandise Manager: Softlines in April 1996,
Senior Vice President-Merchandising and Advertising in September
1996, and President and Chief Operating Officer in April 1997. He
is the son of Leon Levine.
(3) Mr. Kelly was employed by the Company as Vice Chairman in January
1997. Prior to his employment with the Company, Mr. Kelly was a
partner with Price Waterhouse LLP for more than the past five years.
(4) Mr. Mahoney was employed by the Company as General Counsel in 1976,
and also has served as Vice President and Secretary since 1977,
Senior Vice President since 1984, and Executive Vice President since
October 1991.
(5) Member of the Stock Option Committee of the Board of Directors.
(6) Member of the Compensation Committee of the Board of Directors.
(7) Member of the Audit Committee of the Board of Directors.
(8) Mr. Bernstein has been a partner in the law firm named above for
more than the last five years.
(9) Mr. Hance has been Vice Chairman of NationsBank Corporation since
1993 and Chief Financial Officer since 1988. He also is a
director of Caraustar Industries, Inc., Lance, Inc. and Summit
Properties, Inc.
(10) Mr. Martin has been associated with the Carolinas HealthCare System
since January 1993, and currently is Vice President, Research. He
served as Governor of the State of North Carolina from 1985 to 1993
and was a member of the United States House of Representatives,
representing the Ninth District of North Carolina, from 1973
until 1984. He also is a director of Duke Energy Corporation,
J.A. Jones, Inc. and Palomar Medical Technologies, Inc.
(11) Directors who are not employees of the Company are paid $2,000 for
each Board meeting attended and $500 for each Audit Committee
and Compensation Committee meeting attended. Directors who are
employees of the Company receive no additional compensation for each
Board or Committee meeting attended.
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Executive Committee, which met on one occasion and acted by
unanimous written consent in lieu of meetings on three occasions during the
fiscal year ended August 31, 1997, is authorized under Delaware corporate
laws and the Company's By-Laws to exercise certain of the powers of the
Board of Directors.
The principal functions of the Audit Committee, which met with the
Company's independent accountants two times during fiscal 1997 are to (i)
recommend to the Board of Directors the firm to be engaged as the Company's
independent accountants, (ii) review with the independent accountants the
scope of the audit and the audit report, (iii) consult with the independent
accountants regarding internal accounting controls, and (iv) review
non-audit services to be performed by the independent accountants.
The principal function of the Stock Option Committee, which acted by
unanimous written consent in lieu of meetings on 27 occasions during fiscal
1997, is to administer the 1989 Non-Qualified Stock Option Plan, including
determination of the employees who are to be granted options under the Plan
and the number of shares subject to each option.
The principal functions of the Compensation Committee, which met five
times during fiscal 1997, are to review compensation policies for executive
officers of the Company, establish the compensation of the Chairman of the
Board and Chief Executive Officer and review and approve the pre-tax
earnings goal and the payment of bonuses under the Incentive Profit Sharing
Plan.
There was no nominating committee of the Board of Directors nor any
other committee which performed a similar function during fiscal 1997.
The Board of Directors met four times, and acted by unanimous written
consent in lieu of meetings on three occasions, during fiscal 1997.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation
during fiscal years 1997, 1996 and 1995 of the Company's Chief Executive
Officer and the four other most highly compensated executive officers who
served in such capacities as of August 31, 1997, and one former executive
officer who would have been one of the most highly compensated executive
officers but for the fact that he resigned prior to August 31, 1997.
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Awards Payouts
All
Fiscal Other Long-Term Other
Year Annual Restricted Securities Incentive Compen-
Name and Principal Ended Bonus Compen- Stock Underlying Plan sation
Position August 31, Salary($) ($)(1) sation($) Award(s)($) Options(#)(2) Payouts($) ($)(3)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leon Levine 1997 875,000 456,313 - - 0 - 8,942
Chairman of the Board, 1996 850,000 341,375 - - 0 - 13,280
Treasurer and Chief 1995 800,000 0 - - 0 - 12,678
Executive Officer
Howard R. Levine 1997(4) 208,654 83,212 - - 90,000 - 5,755
President and Chief 1996 38,462 5,308 - - 45,000 - 0
Operating Officer 1995 - - - - - - -
R. James Kelly 1997(5) 268,269 139,902 - - 225,000 - 1,827
Vice Chairman, Chief 1996 - - - - - - -
Financial and 1995 - - - - - - -
Administrative Officer
George R. Mahoney, Jr. 1997 228,824 81,690 - - 45,000 - 3,527
Executive Vice President- 1996 214,700 60,957 - - 0 - 13,988
General Counsel and 1995 211,597 0 - - 45,000 - 12,801
Secretary
R. David Alexander, Jr. 1997(6) 209,231 62,142 - - 15,000 - 7,391
Senior Vice President- 1996 200,000 50,769 - - 0 - 2,269
Distribution and 1995 3,077 0 - - 37,500 - 0
Logistics
John D. Reier 1997(7) 273,686 0 - - 37,500 - 3,820
Former President and 1996 300,000 124,907 - - 0 - 2,861
Chief Operating Officer 1995 285,006 0 - - 112,500 - 4,233
</TABLE>
<PAGE>
(1) Includes amounts paid under the Company's Incentive Profit Sharing
Plan, and a discretionary bonus paid in December 1995 as follows:
Mr. Leon Levine-$80,000, Mr. Mahoney-$15,870, Mr. Alexander-$769 and
Mr. Reier-$32,657.
(2) Stock options were granted pursuant to the Company's 1989
Non-Qualified Stock Option Plan, and the number of shares have been
adjusted to reflect a three-for-two stock split effective July 15,
1997.
(3) Includes (a) Company contributions to the Employee Savings and
Retirement Plan and Trust for fiscal years 1997, 1996 and 1995,
respectively, as follows: Mr. Leon Levine-$2,400, $2,250 and $2,250,
Mr. Howard R. Levine-$173, $0 and $0, Mr. Mahoney-$2,400, $2,263 and
$2,217, Mr. Alexander-$2,059, $0 and $0 and Mr. Reier-$2,206, $2,250
and $3,410; and (b) reimbursement of expenses under the Company's
Medical Expense Reimbursement Plan of certain medical care costs for
fiscal years 1997, 1996 and 1995, respectively, as follows:
Mr. Leon Levine-$6,542, $11,030 and $10,428, Mr. Howard R. Levine
-$5,582, $0 and $0, Mr. Kelly $1,827, $0 and $0, Mr. Mahoney-$1,118,
$11,725 and $10,584, Mr. Alexander-$5,332, $2,269 and $0 and
Mr. Reier-$1,614, $611 and $823.
(4) Mr. Howard R. Levine was employed by the Company in April 1996.
(5) Mr. Kelly was employed by the Company in January 1997.
(6) Mr. Alexander was employed by the Company in August 1995.
(7) Mr. Reier resigned from the Company in April 1997. His compensation
for fiscal year 1997 includes $54,167 paid in connection with the
termination of his employment.
<PAGE>
OPTION GRANTS DURING THE FISCAL YEAR ENDED AUGUST 31, 1997
The following table sets forth all options to acquire shares of the
Company's Common Stock granted during the fiscal year ended August 31, 1997,
to the executive officers named in the Summary Compensation Table. No
options have been granted to Leon Levine. The potential realizable value
amounts shown in the table are the values that might be realized upon
exercise of options immediately prior to the expiration of their term based
on arbitrarily assumed annualized rates of appreciation in the price of
the Company's Common Stock of five percent and ten percent over the term
of the options, as set forth in the rules of the Securities and Exchange
Commission. Actual gains, if any, on stock option exercises are dependent
on the future performance of the Common Stock. There can be no assurance
that the potential realizable values shown in the table will be achieved.
<TABLE>
<CAPTION>
Individual Grants(1) Potential Realizable
Percent of Value at Assumed
Number of Total Annual Rates of Stock
Securities Options Price Appreciation
Underlying Granted to Exercise or for Option Term
Options Employees in Base Price Expiration
Name Granted(#) Fiscal Year ($/Sh) Date 5%($) 10%($)
<S> <S> <C> <C> <C> <C> <C>
Howard R. Levine 15,000 1.8% 11.34 9/26/01 46,995 103,848
75,000 8.8% 17.00 4/24/02 352,259 778,400
R. James Kelly 225,000 26.4% 13.83 1/26/02 859,719 1,899,754
George R. Mahoney, Jr. 30,000 3.5% 11.34 9/26/01 93,991 207,696
15,000 1.8% 15.50 3/31/02 64,235 141,944
R. David Alexander, Jr. 15,000 1.8% 11.34 9/26/01 46,995 103,848
John D. Reier 37,500 4.4% 11.34 (2) (2) (2)
</TABLE>
<PAGE>
(1) Stock options were granted pursuant to the Company's 1989
Non-Qualified Stock Option Plan. The exercise price for each option
is the fair market value per share of Common Stock on the date of the
grant. The number of shares and exercise price have been adjusted to
reflect a three-for-two stock split effective July 15, 1997. See
"Report of the Compensation Committee and Stock Option Committee of
the Board of Directors on Executive Compensation" for a description of
other material terms of the Plan.
(2) In accordance with the provisions of the Company's 1989 Non-Qualified
Stock Option Plan, Mr. Reier's option grant was cancelled upon his
resignation from the Company in April 1997.
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth all options exercised during the fiscal
year ended August 31, 1997, by the executive officers named in the Summary
Compensation Table, and the number and value of unexercised options held by
such executive officers at fiscal year-end. No options have been granted to,
or exercised by, Leon Levine.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Value Underlying Unexercised In-the-Money
Acquired on Realized Options at FY-End(#)(1) Options at FY-End($)(3)
Name Exercise(#)(1) ($)(2) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Howard R. Levine 0 0 0 135,000 0 988,500
R. James Kelly 0 0 0 225,000 0 1,669,500
George R. Mahoney, Jr. 40,500 94,500 52,425 78,075 518,694 793,446
R. David Alexander, Jr. 0 0 15,000 37,500 133,800 349,350
John D. Reier 95,400 565,374 0 0 0 0
</TABLE>
<PAGE>
(1) The number of shares has been adjusted to reflect a three-for-two
split of the Common Stock effective July 15, 1997.
(2) The value realized is calculated based on the difference between the
option exercise price and the closing market price of the Company's
Common Stock on the date prior to the date of the exercise multiplied
by the number of shares to which the exercise relates.
(3) The closing price of the Company's Common Stock as reported on the New
York Stock Exchange Composite tape on August 31, 1997, was $21.25 and
is used in calculating the value of unexercised options.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS
Howard R. Levine's compensation arrangement with the Company
provides that for the period from April 29, 1997, when he was elected
President and Chief Operating Officer, through August 31, 1997, he was
to be paid a base salary of $5,769 per week ($300,000 per annum), and
for the fiscal year ending August 31, 1998, he is to be paid a base
salary of $6,250 per week ($325,000 per annum). In addition, under the
Company's Incentive Profit Sharing Plan, he may receive a bonus for the
period from April 29, 1997, through August 31, 1997, and for the fiscal
year ending August 31, 1998, based on approximately 50% of the base
salary he receives for such period and such fiscal year, subject to the
achievement of pre-tax earnings goals established by the Company. In
the event Mr. Levine's employment is terminated by the Company prior
to August 31, 1998, for reasons other than for cause or medical
disability, the Company will pay Mr. Levine 180 days of his base salary
then in effect in six equal monthly installments. If Mr. Levine
accepts new employment, the unpaid balance of the payments is reduced
by the compensation Mr. Levine receives for the same period from the
new employment.
R. James Kelly's compensation arrangement with the Company
provides that for the period from January 27, 1997, when he was elected
Vice Chairman and Chief Financial and Administrative Officer, through
August 31, 1998, he is to be paid a base salary of $8,654 per week
($450,000 per annum), and for the period from September 1, 1998,
through January 31, 2000, the Compensation Committee of the Board of
Directors shall establish the weekly base salary, subject to
ratification by the Board of Directors, provided that such weekly base
salary shall not be reduced below $8,654. In addition, under the
Company's Incentive Profit Sharing Plan, he may receive a bonus for the
period from January 27, 1997, through August 31, 1997, and for each
full or partial fiscal year thereafter through January 31, 2000, based
on approximately 50% of the base salary he receives for such periods
and fiscal years, subject to the achievement of pre-tax earnings goals
established by the Company. Pursuant to his employment agreement,
Mr. Kelly also was granted an option to purchase 150,000 shares of
<PAGE>
Common Stock on January 27, 1997, under the Company's 1989
Non-Qualified Stock Option Plan. See "Option Grants During the
Fiscal Year Ended August 31, 1997" herein. The Stock Option Committee
of the Board of Directors will consider the grant of additional
options to Mr. Kelly in February 1998 and February 1999. In the event
Mr. Kelly's employment agreement is terminated by the Company prior to
January 31, 2000, for reasons other than for cause or medical
disability, the Company will pay Mr. Kelly the balance of his base
salary then in effect in equal monthly installments from the
termination date through January 31, 2000. However, in the event the
employment agreement is not terminated for any reason prior to
August 31, 1999, and there is no agreement before that date to extend
Mr. Kelly's employment beyond January 31, 2000, the employment
agreement terminates automatically on August 31, 1999, and the Company
will pay Mr. Kelly six months of his base salary then in effect in six
equal monthly installments. In addition, in the event Mr. Kelly's
employment agreement is terminated by the Company prior to January 31,
2000, for reasons other than for cause or medical disability, Mr. Kelly
will receive as a severance payment an amount equal to the pro rata
share of the bonus, if any, under and subject to the terms and
conditions of the Incentive Profit Sharing Plan. The payment will be
equal to 50% of the base salary he receives for the period from the
beginning of the fiscal year in which the Company terminates the
employment agreement through the termination date. If Mr. Kelly
accepts new employment, the unpaid balance of the payments is reduced
by the compensation Mr. Kelly receives for the same period from the new
employment.
COMPENSATION COMMITTEE AND STOCK OPTION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors during the
period from September 1, 1996, through November 7, 1996, was composed
of Mark R. Bernstein and Thomas R. Payne (now deceased), and during
the period from November 8, 1996, through August 31, 1997, was
composed of Mark R. Bernstein and James G. Martin. No member of the
Compensation Committee was an officer or employee of the Company.
Mr. Bernstein is a partner in the law firm of Parker, Poe, Adams &
Bernstein L.L.P., which rendered legal services to the Company during
the last fiscal year and which is performing legal services for the
Company during the current fiscal year.
The Stock Option Committee of the Board of Directors during the
period from September 1, 1996, through November 7, 1996, was composed
of Mark R. Bernstein and Thomas R. Payne, and during the period
from November 8, 1996, through August 31, 1997, was composed of
Mark R. Bernstein and James G. Martin. Mr. Bernstein, Mr. Payne and
Mr. Martin were not eligible to receive options under the Company's
1989 Non-Qualified Stock Option Plan.
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE AND STOCK OPTION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The objectives of the Company's executive compensation program are
to provide a competitive total compensation package that enables the
Company to attract and retain key executives, and to offer compensation
opportunities that are directly related to the annual and long-term
performance of the Company. The Company seeks to link a significant
portion of compensation to the Company's performance such that
executive officers will have a strong incentive to meet the Company's
goals and their compensation will then be aligned with the interests of
the Company's shareholders. With these objectives, the compensation of
executive officers consists primarily of (i) a base salary; (ii) annual
incentive compensation in the form of a bonus based on the achievement
of pre-tax earnings goals and the executive's contributions to meeting
the goals; and (iii) long-term incentive compensation in the form of
stock options.
BASE SALARY. The base salary of executive officers is reviewed
annually by the Compensation Committee. In determining the salary
level, the Compensation Committee takes into consideration the
responsibilities, experience and performance of the executives, their
contributions to the Company's operating performance, including the
achievement of pre-tax earnings goals, and competitive salary practices
of other companies in the retail industry, including companies in the
S&P Retail Composite Index and other companies in the retail industry
with sales comparable to the sales of the Company.
INCENTIVE PROFIT SHARING PLAN. The Compensation Committee also
reviews and approves a pre-tax earnings goal established by the Company
each fiscal year under the Company's Incentive Profit Sharing Plan.
This Plan provides for payments, not exceeding 5% of the Company's
consolidated earnings before income taxes and before deducting payments
under the Plan or any other incentive compensation arrangement, to
executive officers and other supervisory personnel if such goal is
achieved. The amount of the bonus is based on a percentage of the
employee's base salary, and for executive officers the percentage
ranges from 20% to 50%. The percentage is higher for the more senior
executive officers as a greater portion of the senior executives'
compensation is tied to the achievement of pre-tax earnings goals. In
the event the pre-tax earnings goal is exceeded, the amount of the
bonus increases by 2% for each 1% by which the goal is exceeded, to a
maximum of 50% additional bonus for exceeding the goal by 25%. If the
pre-tax earnings goal is not achieved, the amount of the bonus
decreases by 5% for each 1% by which the goal is not achieved, with no
bonus being paid if pre-tax earnings are below 90% of the goal. As
approximately 102% of the pre-tax earnings goal for the fiscal year
ended August 31, 1997, was achieved, the bonus paid was approximately
104% of the bonus that would have been paid if 100% of the goal had
been achieved. Except for the Chairman of the Board and Chief
Executive Officer, the President and Chief Operating Officer, and Vice
Chairman and Chief Financial and Administrative Officer, the annual
<PAGE>
individual performance rating of each executive officer by that
officer's supervisor may increase or decrease the amount of bonus paid.
The performance rating is based on a variety of criteria, including the
effectiveness of the officers in executing their managerial
responsibilities and their impact on the financial results of the
Company (such as sales, pre-tax earnings and shareholders' return on
average equity). The Compensation Committee reviews and approves the
payment of bonuses under the Incentive Profit Sharing Plan.
STOCK OPTIONS. To establish another link between compensation and
management's performance in creating value for shareholders, evidenced
by increases in the Company's stock price, executive officers may
receive grants of stock options typically on an annual basis. The
Company encourages stock ownership by executives, but has not
established target levels for equity holdings by executives. Grants
are made by the Stock Option Committee of the Board of Directors. The
Compensation Committee considers the grant of stock options by the
Stock Option Committee in reviewing the compensation of executive
officers. Under the Company's 1989 Non-Qualified Stock Option Plan,
the exercise price for each option is the fair market value per share
of Common Stock on the date of the grant. Fair market value per share
is the average of the highest price and lowest price at which the
Common Stock is sold regular way on the New York Stock Exchange on the
date of the grant. Options have a term of five years, and may not be
exercised prior to the expiration of two years from the date of the
grant. Thereafter, each option becomes exercisable in cumulative
installments of not more than 40% of the number of shares subject to
the option after two years, 70% after three years and 100% after four
years. Such vesting schedule encourages executives to remain in the
employ of the Company. With limited exceptions, no option is
exercisable unless the optionee has been continuously employed by the
Company from the date of grant to the date of exercise. In determining
the number of options to be granted, the Stock Option Committee takes
into account the executive's base salary and level of responsibilities
and the annual individual performance rating of the executive, as well
as the number of options granted in prior years.
COMPENSATION OF CHIEF EXECUTIVE OFFICER. In determining the
compensation of Leon Levine, the Chairman of the Board and Chief
Executive Officer of the Company, the Compensation Committee takes into
account the fact that long-term compensation in the form of stock
options, retirement plans and similar benefits is an important element
of the compensation of most Chief Executive Officers. Mr. Levine has
never been granted stock options. In addition, the Company does not
have any retirement plan or similar benefits for the Chief Executive
Officer or any executive officers, other than the Employee Savings and
Retirement Plan, a 401(k) Plan under which contributions by the Company
are limited. In the fiscal year ended August 31, 1997, the amount of
the Company's contribution for Mr. Levine was $2,400. Accordingly, the
substantial portion of Mr. Levine's compensation has been his base
salary and bonus under the Incentive Profit Sharing Plan.
<PAGE>
The base salary of the Chief Executive Officer is established by
the Compensation Committee annually based on consideration of the
same general factors as are described above with respect to the
determination of the base salary of other executive officers. For the
fiscal year ended August 31, 1997, Mr. Levine received a base salary of
$875,000. Mr. Levine will receive a base salary for the fiscal year
ending August 31, 1998, of $950,000.
The incentive compensation element of the compensation of the
Chief Executive Officer is based on the Company's achievement of its
pre-tax earnings goal. Under the Company's Incentive Profit Sharing
Plan, the Chief Executive Officer's bonus is based on 50% of his base
salary. The amount of the bonus is subject to increase or decrease
based on the level of pre-tax earnings in the manner described above
with respect to the bonus for other executive officers. For the fiscal
year ended August 31, 1997, the Chief Executive Officer was paid a
bonus of $456,313 under the Incentive Profit Sharing Plan as the
Company achieved approximately 102% of the pre-tax earnings goal.
DEDUCTIBILITY OF COMPENSATION. Internal Revenue Code Section
162(m) provides that publicly held companies may not deduct in any
taxable year compensation in excess of $1 million paid to the Chief
Executive Officer or any of the four other highest paid executive
officers which is not "performance-based" as defined in Section 162(m).
At the Annual Meeting of Stockholders on January 16, 1997, Stockholders
approved an amendment to the 1989 Non-Qualified Stock Option Plan and
approved the Incentive Profit Sharing Plan for the purpose of
preserving the future deductibility of all compensation paid under said
Plans. The Company believes that all executive officer compensation
paid in the fiscal year ended August 31, 1997, met the deductibility
requirements of Section 162(m). The Compensation Committee will
continue to monitor this issue and will determine what additional
steps, if any, it may take in response to such provision.
This report is submitted by Mark R. Bernstein and James G. Martin
as the members of the Compensation Committee and Stock Option
Committee.
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph sets forth the yearly percentage change in the
cumulative total shareholder return on the Company's Common Stock
during the five fiscal years ended August 31, 1997, compared with the
cumulative total returns of the S&P Midcap 400 Index and the S&P Retail
Composite Index. The comparison assumes $100 was invested on
August 31, 1992, in the Company's Common Stock and in each of the
foregoing indices, and that dividends were reinvested.
<TABLE>
<CAPTION>
COMPARISON OF FIVE YEAR
CUMULATIVE TOTAL RETURN
AMONG FAMILY DOLLAR STORES, INC.,
THE S & P MIDCAP 400 INDEX
AND THE S & P RETAIL
COMPOSITE INDEX
8/92 8/93 8/94 8/95 8/96 8/97
<S> <C> <C> <C> <C> <C> <C>
Family Dollar Stores, Inc. 100 114 76 113 109 206
S & P Midcap 400 100 l24 130 157 176 241
S & P Retail Composite 100 110 111 113 136 176
</TABLE>
RELATED TRANSACTIONS
Legal services were rendered to the Company during the year ended
August 31, 1997, and are being rendered to the Company during the year
ending August 31, 1998, by Parker, Poe, Adams & Bernstein L.L.P., of
which Mark R. Bernstein, a director of the Company, is a partner.
The Company has commercial banking relationships with
subsidiaries of NationsBank Corporation, of which James H. Hance, Jr.,
a director of the Company, is Vice Chairman and Chief Financial
Officer.
<PAGE>
Since December 1994, a subsidiary of the Company has leased space
in a building in Charlotte, North Carolina, from 9517 Monroe, LLC, for
processing merchandise returned from stores. 9517 Monroe, LLC is a
limited liability company in which Leon Levine, the Chairman of the
Board of the Company, and his brother, Alvin E. Levine, each owns a 50%
interest. A total of $240,455 in rents was paid to 9517 Monroe, LLC,
for the year ended August 31, 1997. The current rent payable for the
leasing of approximately 78,100 square feet is $19,830 per month
($237,960 annually). The present term of the lease for 57,000 square
feet of the space is for one year expiring March 31, 1998, and the
Company's subsidiary has an option to extend the term for an additional
year. The lease for the other 21,100 square feet of space is on a
month-to-month term. The Company believes that the rents for this
leased space are competitive with amounts that would be paid to an
unaffiliated entity to lease similar space.
AMENDMENT TO
1989 NON-QUALIFIED STOCK OPTION PLAN
On November 6, 1997, the Company's Board of Directors declared it
advisable that the 1989 Non-Qualified Stock Plan (the "Plan") be
amended to (i) extend the duration of the Plan by ten (10) years, and
(ii) to increase by 3,000,000 the number of shares of Common Stock
available for issuance thereunder. The amendment to the Plan was
adopted by the Board of Directors, subject to approval of Stockholders.
The Plan is the only stock option plan under which options may be
granted. When the Plan was originally approved by Stockholders in
January 1989, by its terms no options could be granted thereunder after
November 30, 1998. The effect of the proposed amendment will be to
extend the duration of the Plan by ten (10) years so that options may
be granted thereunder through November 30, 2008, but not thereafter.
A maximum of 350,000 shares originally were available for issuance
under the Plan, subject to adjustments for stock splits and similar
events. The Plan was amended effective December 1, 1991, and
January 16, 1997, to increase by 750,000 and 500,000, respectively, the
number of shares of Common Stock available for issuance thereunder,
also subject to adjustments for stock splits and similar events. The
number of shares of Common Stock available for issuance under the Plan
was adjusted as a result of a two-for-one stock split effective
February 10, 1992, and a three-for-two stock split effective July 15,
1997. The effect of the proposed amendment will be to increase the
number of shares available for issuance under the Plan as of
November 10, 1997, from 2,522,185 to 5,522,185 shares, or 6.4% of the
shares of Common Stock outstanding on such date.
As of November 10, 1997, 1,527,815 shares of Common Stock had been
purchased pursuant to the exercise of options under the Plan. There
also were options outstanding under the Plan to 264 employees to
purchase a total of 1,918,268 shares with an average per share option
price of $14.00, and expiration dates ranging from January 19, 1998, to
October 27, 2002. Accordingly, 603,917 shares were available under the
<PAGE>
Plan for the granting of options. Approximately 285 employees may be
considered eligible to participate in the Plan, including 19 executive
officers. Directors of the Company who are employees, including
Mr. Leon Levine, Mr. Howard R. Levine, Mr. Kelly and Mr. Mahoney, are
eligible to receive options, and each of said directors has received
options except Mr. Leon Levine. The timing and amount of such options,
and the amount of options to be granted to all executive officers and
other employees, are matters within the Stock Option Committee's
discretion and cannot be determined at this time, except that the
maximum number of shares of Common Stock subject to options that may be
granted under the Plan to any individual during any twelve month period
may not exceed 150,000.
In the opinion of the Board of Directors, the amendment to the
Plan will further the interests of the Company by strengthening its
ability to attract and retain the services of key employees, and will
furnish additional incentives to these employees by encouraging them to
become owners or increase their ownership of the Company's Common
Stock.
DESCRIPTION OF THE PLAN
A brief description of the Plan is set forth below.
1. ADMINISTRATION. The Plan is administered and interpreted by
the Stock Option Committee of the Board of Directors. The Stock Option
Committee consists of two or more members of the Board of Directors who
are ineligible to receive options under the Plan. Under the Plan if
any member of the Stock Option Committee does not meet the
qualifications of an "outside director" established from time to time
under Section 162(m) of the Internal Revenue Code, then that member
shall be replaced by another director meeting the qualifications such
that the Stock Option Committee shall always be comprised of at least
two "outside directors." The Board of Directors may suspend, terminate
or amend the Plan. No such amendment, however, may affect the
determination of officers and directors to participate in the Plan or
of the timing, pricing and amount of grants all of which determinations
shall be made by the Stock Option Committee. In addition, without
Stockholder approval, no amendment may materially increase the benefits
under the Plan, or increase the number of shares subject to the Plan,
or materially modify the requirements as to eligibility for
participation thereunder.
2. STOCK SUBJECT TO THE PLAN. Currently a maximum of
2,522,185 shares of Common Stock of the Company may be issued and sold
under the Plan, except as such number may be adjusted to reflect stock
splits and dividends, mergers, recapitalizations or similar events. If
the amendment is approved, this number will change from 2,522,185 to
5,522,185 shares. Any shares subject to an option which terminates,
is cancelled or expires prior to exercise may again be subjected to an
option under the Plan. No option may be granted after November 30,
1998. If the amendment is approved, this termination date will change,
and options may be granted through November 30, 2008, but not
thereafter.
<PAGE>
3. ELIGIBILITY. Options may be granted only to officers and
other key employees (including those who are also directors).
4. OPTION PRICE. Options may be granted to purchase shares of
the Company's Common Stock at prices which are not less than the fair
market value of the Common Stock on the date the option is granted.
Fair market value per share is defined in the Plan as the average of
the highest price and the lowest price at which the Common Stock is
sold regular way on the New York Stock Exchange on the date of the
grant of the option. The purchase price of the optioned shares must be
paid in full on exercise of an option.
5. PERIOD OF OPTION. Options will have a term of not more than
five years. Options may not be exercised prior to the expiration of
two years from the date of grant. Thereafter, each option will become
exercisable in cumulative installments as to not more than 40% of the
number of shares subject to the option after two years, 70% after three
years, and 100% after four years.
6. LIMITATIONS. With limited exceptions, no option is
exercisable unless the optionee has been continuously employed by the
Company or a subsidiary from the date of grant to the date of exercise.
Options are not transferable other than by will or by laws of descent
and distribution.
On November 10, 1997, the closing price of the Company's Common
Stock on the New York Stock Exchange was $______.
Under current regulations, for federal income tax purposes the
Company will not be entitled to a deduction, and the optionee will not
be required to recognize income, upon the grant of an option under the
Plan. An optionee exercising an option granted under the Plan will
recognize ordinary income, and the Company will be entitled to a
deduction (subject to the reasonableness of the compensation and the
Company's compliance with Section 162(m) and any applicable withholding
obligations) on the date the option is exercised. The amount of such
income and such deduction both will be equal to the excess of the fair
market value on that date of the shares of Common Stock acquired over
the amount paid therefor.
The affirmative vote of the holders of a majority of the shares of
Common Stock present or represented by proxy at the meeting and
entitled to vote in respect thereto is required to approve the
amendment. The Board of Directors recommends that the Stockholders
vote for approval of the amendment to the Plan.
<PAGE>
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED NUMBER OF
SHARES OF COMMON STOCK
The Stockholders of the Company are being requested to approve a
proposal to amend the Certificate of Incorporation of the Company to
increase the authorized number of shares of Common Stock, par value
$.10 per share, from 120,000,000 to 300,000,000.
The Board of Directors has declared advisable the proposed
amendment to the Certificate of Incorporation as the Board considers it
in the best interests of the Company to have available a reasonable
amount of Common Stock for possible stock splits, stock dividends,
acquisitions and mergers, employee benefit plans, or other corporate
purposes. Accordingly, at its meeting on November 6, 1997, the Board
adopted a resolution proposing that an amendment to the first paragraph
of Article Fourth of the Certificate of Incorporation be presented to
the Stockholders for approval.
If approved by the Stockholders, the first paragraph of Article
Fourth would read in its entirety as follows:
" FOURTH: The total number of shares of Stock which
the Corporation shall have authority to issue is Three
Hundred Million Five Hundred Thousand (300,500,000), of
which Five Hundred Thousand (500,000) shares of the par
value of $1.00 per share are to be Preferred Stock
(hereinafter called the "Preferred Stock") and Three
Hundred Million (300,000,000) shares of the par value
of $.10 per share are to be Common Stock (hereinafter
called the "Common Stock")."
Although the proposed amendment is not intended to be an
anti-takeover provision, issuance of the additional shares being
authorized could have the effect of discouraging or making more
difficult a change in control of the Company by diluting the stock
ownership of persons who might seek to obtain such control.
Management is not aware of any attempt to change control of the
Company.
Of the 120,000,000 shares of Common Stock authorized as of
November 10, 1997, 85,872,666 shares were issued and outstanding,
5,179,233 shares were held in treasury and up to 2,522,185 shares may
be issued pursuant to options granted or that may be granted under the
Company's 1989 Non-Qualified Stock Option Plan. Accordingly,
26,425,916 shares (excluding treasury shares) are available for
issuance for unspecified purposes.
At the Annual Meeting of Stockholders on January 16, 1986, the
Stockholders approved an increase in the authorized number of shares
of Common Stock from 40,000,000 to 120,000,000. Subsequent to the
increase in the authorized number of shares in January 1986, the
Company effected a two-for-one stock split in February 1992, and a
three-for-two stock split in July 1997. There are no plans or
commitments at the present time for the issuance of any additional
shares of Common Stock, other than in connection with the Company's
1989 Non-Qualified Stock Option Plan.
<PAGE>
The proposed increase in the authorized number of shares of Common
Stock will not in and of itself affect the proportionate interests of
Stockholders. No Stockholder of the Company has any preemptive rights
to subscribe for or purchase any of the additional shares of Common
Stock. Such shares may be issued at such times and on such terms as
the Board of Directors may see fit without further action of the
Stockholders, unless required for a particular transaction by
applicable law or by rule of any stock exchange on which the Company's
securities may then be listed.
The affirmative vote of the holders of a majority of the
outstanding shares of Common Stock is required to adopt the amendment.
The Board of Directors recommends that the Stockholders vote for the
proposed amendment.
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected the firm of Price Waterhouse
LLP as independent accountants to audit and report on the consolidated
financial statements of the Company and its subsidiaries for the year
ending August 31, 1998, and to perform such other appropriate
accounting and related services as may be required by the Board of
Directors. The affirmative vote of the holders of a majority of the
shares of Common Stock present or represented by proxy at the meeting
and entitled to vote in respect thereto is required to ratify the
selection of Price Waterhouse LLP for the purposes set forth above.
The Board of Directors recommends that the Stockholders vote for
ratification of the selection of Price Waterhouse LLP. If the
Stockholders do not ratify the selection of Price Waterhouse LLP, the
selection of independent accountants will be reconsidered by the Board
of Directors.
Price Waterhouse LLP served as the Company's independent
accountants for the year ended August 31, 1991, and for each subsequent
fiscal year.
Representatives of Price Waterhouse LLP are expected to be present
at the Annual Meeting of Stockholders and will have an opportunity to
make a statement if they desire to do so and to respond to appropriate
questions.
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers and persons who own more
than ten percent of the Company's Common Stock to file with the
Securities and Exchange Commission and New York Stock Exchange initial
reports of ownership and reports of changes in ownership of the Common
Stock, and to furnish the Company with copies of such reports. To the
Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no
other reports were required, during the fiscal year ended August 31,
1997, all Section 16(a) filing requirements applicable to its
directors, executive officers and greater than ten percent beneficial
owners were complied with, except that one filing by James G. Martin, a
director, with respect to the purchase of 200 shares, and one filing by
Bruce W. Fosson, a Vice President, with respect to the exercise of an
option to purchase 5,000 shares and the sale of 3,550 of those shares,
were made after the required date.
STOCKHOLDER PROPOSALS
Proposals of Stockholders intended to be presented at the next
Annual Meeting of Stockholders in January 1999, and to be included in
the Proxy Statement and form of proxy, must be received by the Company
on or before July 27, 1998. Any such proposals should be in writing
and be sent to the Secretary, Family Dollar Stores, Inc., P. O. Box
1017, Charlotte, North Carolina 28201-1017.
OTHER MATTERS
Management knows of no other matters to be brought before the
meeting. However, if any other matters do properly come before the
meeting, it is intended that the shares represented by the proxies in
the accompanying form will be voted in accordance with the best
judgment of the person voting the proxies.
Whether Stockholders plan to attend the meeting or not, they are
respectfully urged to sign, date and return the enclosed proxy which
will, of course, be returned to them at the meeting if they are present
and so request.
<PAGE>
PROXY
FAMILY DOLLAR STORES, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS ON JANUARY 15, 1998
The undersigned hereby appoints Leon Levine, Howard R. Levine
and George R. Mahoney, Jr., or any one of them, with full power of
substitution, proxies of the undersigned to the Annual Meeting of
Stockholders of Family Dollar Stores, Inc. to be held at 2:00 p.m.
on Thursday, January 15, 1998, at the office of the Company at
10401 Old Monroe Road, Matthews, North Carolina, or at any
adjournments thereof, with all the powers which the undersigned
would possess if personally present, and instructs them to vote
upon any matter which may properly be acted upon at this
meeting, and specifically as indicated below:
<TABLE>
<CAPTION>
<S> <C> <C>
[ ] [ ]
1. ELECTION OF DIRECTORS FOR ALL NOMINEES WITHHOLD AUTHORITY
(Mark only one) Listed below (except as to vote for all
shown to the contrary nominees listed below
below)
</TABLE>
Nominees: Leon Levine, Howard R. Levine, R. James Kelly,
George R. Mahoney, Jr., Mark R. Bernstein, James H. Hance, Jr.,
James G. Martin
(INSTRUCTION: To withhold authority to vote for any individual nominee,
print that nominee's name below)
2. Approval of proposed amendment to the 1989 Non-Qualified Stock Option Plan:
<TABLE>
<CAPTION>
<S> <C> <C>
FOR [ ] AGAINST [ ] ABSTAIN [ ]
</TABLE>
3. Approval of proposed amendment to the Certificate of Incorporation to
increase the authorized number of shares of Common Stock from 120,000,000
to 300,000,000 shares:
<TABLE>
<CAPTION>
<S> <C> <C>
FOR [ ] AGAINST [ ] ABSTAIN [ ]
</TABLE>
<PAGE>
4. Ratification of the selection of Price Waterhouse LLP
as Independent Accountants:
<TABLE>
<CAPTION>
<S> <C> <C>
FOR [ ] AGAINST [ ] ABSTAIN [ ]
</TABLE>
5. In their discretion, upon such other business as may properly come before
the meeting or any adjournments thereof.
(Please Sign on Reverse Side)
(Continued from other side)
This Proxy, if received and correctly signed, will be voted in accordance
with the choices specified. If a choice is not specified, this Proxy will be
voted in favor of the election of the Directors named, for the approval of the
proposed amendment to the 1989 Non-Qualified Stock Option Plan, for the
approval of the proposed amendment to the Certificate of Incorporation and
for the ratification of the selection of the independent accountants.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
This Proxy is revocable, and the undersigned retains the right to attend this
meeting and to vote his stock in person.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement.
Dated this day of , 19
(Please sign exactly as your name appears at
left. If there is more than one owner, each
should sign. When signing as a fiduciary or
representative, please give full title as such.
If the signer is a corporation, please sign full
corporate name by duly authorized officer. If a
partnership, please sign in partnership name by
authorized person.)
PLEASE SIGN AND RETURN PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE.
NO POSTAGE IS REQUIRED.
EXHIBIT 10
Amended as of
November 6, 1997
FAMILY DOLLAR STORES, INC.
1989 NON-QUALIFIED STOCK OPTION PLAN
1. PURPOSE. The purpose of the 1989 Non-Qualified Stock
Option Plan (the "Plan") of Family Dollar Stores, Inc. is to
encourage ownership of a stock interest in Family Dollar Stores,
Inc. by certain officers and other key employees of the Company
(as such term is defined below) as an added incentive to remain
in the employ of the Company and to increase their efforts on its
behalf, and in order for the Company to retain and attract
persons of competence, and to gain for the organization the
advantages inherent in key employees having a sense of
proprietorship.
The term "subsidiary," as used herein, shall be deemed to
mean any corporation (other than Family Dollar Stores, Inc.), in
an unbroken chain of corporations beginning with and including
Family Dollar Stores, Inc. if, at the time of the granting of the
option, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50 percent or more of
the total combined voting power of all classes of stock in one of
the other corporations in such chain. The term "Company," as
used herein, shall include Family Dollar Stores, Inc. and any
present or future subsidiary thereof.
2. THE STOCK. The shares of stock which may be issued
and sold under the Plan shall not, except as such number may be
adjusted pursuant to Article 10 hereof, exceed 5,522,185 shares
of Common Stock of Family Dollar Stores, Inc. which may be either
authorized and unissued shares or issued shares reacquired by
Family Dollar Stores, Inc. Any shares subjected to an option
under the Plan which terminates, is cancelled or expires for any
reason unexercised as to such shares may again be sub-jected to
an option under the Plan notwithstanding the above limitation.
3. ELIGIBILITY. Options shall be granted only to
officers and other key employees (including those who are also
directors) who, at the time of the grant of the option, (a) are
employees of the Company and (b) are primarily responsible for
the management and growth of the Company or who otherwise
materially contribute to the conduct and direction of its
business and affairs. A person eligible to receive an option
under the Plan is hereinafter sometimes referred to as an
"employee" and a person to whom an option is granted hereunder is
hereinafter sometimes referred to as an "optionee."
<PAGE>
4. GRANT OF OPTIONS. The Stock Option Committee (the
"Committee") of the Board of Directors of Family Dollar Stores,
Inc. (the "Board") shall determine the employees who are to be
granted options under the Plan, the number of shares subject to
each option and the consideration to the Company for the granting
of options under the Plan, as well as the conditions, if any,
which it may deem appropriate to insure that such consideration
will be received by, or will accrue to, the Company. In the
discretion of the Committee, such consideration need not be the
same but may vary for options granted under the Plan at the same
time or from time to time.
The Committee may grant more than one option to an
employee during the life of the Plan and such option may be in
addition to, or in substitution for, an option or options,
previously granted. The maximum aggregate number of shares of
Common Stock of Family Dollar Stores, Inc. subject to options
which may be granted under the Plan to any optionee during any
twelve-month period is 150,000. No options shall be granted
under the Plan after November 30, 2008.
Each option granted pursuant to the Plan shall be
evidenced by a written option agreement between Family Dollar
Stores, Inc. and the optionee which shall contain such
provisions, terms and conditions (which need not be the same for
all options) as the Committee shall in its discretion determine
to be appropriate and within the contemplation of the Plan. Each
option agreement shall provide that the option granted thereby
will not be treated as an "incentive stock option" within the
meaning of Section 422A of the Internal Revenue Code of 1986.
5. OPTION PRICE. (a) The price or prices per share for
shares of Common Stock of Family Dollar Stores, Inc. to be sold
pursuant to an option shall be such as shall be fixed by the
Committee, but not less in any case than 100 percent of the fair
market value per share for such stock on the date of the granting
of the option, subject to adjustment as provided in Article 10
hereof.
For the purpose hereof, the term "fair market value" per
share shall mean the mean between the average high bid and low
asked prices quoted by the National Quotations Bureau Inc. for
the over-the-counter market on the date of the grant of such
option or, if no bid and asked prices are quoted on such day,
then on the next preceding day on which there were such
quotations, or if such stock is listed on a national securities
exchange, then the average of the highest price and the lowest
price at which the Common Stock shall have been sold regular way
on the national securities exchange on the date of the grant of
such option or, if no sales occur on such day, then on the next
preceding day on which there were such sales of Common Stock or,
<PAGE>
if any time the Common Stock shall not be quoted by the National
Quotations Bureau Inc. for the over-the-counter market and the
Common Stock shall not be listed on any national securities
exchange, the Committee shall determine the fair value on the
basis of available prices for such stock or in such manner as the
Board may deem reasonable.
(b) For the purposes of Articles 5 and 6 hereof, the date
of the granting of an option under the Plan shall be the date
fixed by the Committee as the date for such option for the
employee who is to be the recipient thereof.
6. PERIOD OF OPTION AND CERTAIN
LIMITATIONS ON RIGHT TO EXERCISE.
Options will be exercisable over the Option Period, which,
in the case of each option, shall be a period of not more than
five years from the date of the grant of such option, as follows:
(i) at any time during the third year of the Option Period the
optionee may purchase up to 40 percent of the total number of
shares to which his option relates (adjusted, if a fraction of a
share would otherwise result thereby, to the nearest full number
of shares);
(ii) at any time during the Option Period after the end of the
third year the optionee may purchase on a cumulative basis up to
70 percent of the total number of shares to which his option
relates (adjusted, if a fraction of a share would otherwise
result thereby, to the nearest full number of shares); and
(iii) at any time during the Option Period after the end of the
fourth year the optionee may purchase on a cumulative basis up to
100 percent of the total number of shares to which his option
relates; provided, however, that except as provided in Articles 8
and 9 hereof, no option may be exercised unless the optionee is
then in the employ of the Company and shall have been
continuously so employed since the date of the grant of his
option. Absence on leave approved by the Committee shall not be
considered an interruption of employment for any purpose of the
Plan. Family Dollar Stores, Inc. may, if it or its counsel shall
deem it necessary or desirable for any reason, require the
optionee (or the purchaser acting under Article 9 hereof) to
represent in writing to Family Dollar Stores, Inc. at the time of
the exercise of such option that it is his then intention to
acquire the shares of Common Stock as to which his option is then
being exercised for investment and not with a view to the
distribution thereof.
<PAGE>
7. NON-TRANSFERABILITY OF OPTION. No option granted under
the Plan to an employee shall be transferable by him otherwise
than by will or by the laws of descent and distribution, and such
option shall be exercisable, during his lifetime, only by him or
by his guardian or legal representative.
8. TERMINATION OF EMPLOYMENT. If an optionee shall cease
to be employed by the Company for any reason (other than death or
discharge for cause), he may, but only within three months after
the date he ceases to be an employee of the Company (and in no
event after the expiration of the Option Period), exercise his
option to the extent that he was entitled to exercise it at the
date of such cessation. The Plan shall not confer upon any
optionee any right with respect to continuation of employment by
the Company, nor shall it interfere in any way with his right or
the Company's right to terminate his employment at any time.
Notwithstanding any of the provisions hereinabove set forth, in
the event that any optionee shall be discharged for cause, he
shall forthwith forfeit all rights under any options granted to
him under the Plan. "Cause" shall be deemed to include, but not
be limited to, dishonesty, the proven commission of crime,
disclosure of the Company's affairs to competitors or other
unfaithfulness to the interests of the Company, continued
absence except on account of illness or disability, or gross
insubordination.
9. DEATH OF OPTIONEE. If an optionee dies while in the
employ of the Company, or within three months after the date he
ceases to be an employee of the Company (other than by reason of
discharge for cause), the option theretofore granted to him shall
be exercisable by the estate of the optionee, or by a person who
acquired the right to exercise such option by bequest or
inheritance or by reason of the death of the optionee, but only
within a period of fifteen calendar months next succeeding such
death (and in no event after expiration of the Option Period),
and then only if and to the extent that he was entitled
to exercise it at the date of his death, except as the number of
shares may be adjusted in accordance with the provisions of
Article 10 hereof.
10. STOCK ADJUSTMENTS.
(a) In the event of a recapitalization, stock split, reverse
stock split, stock dividend, reclassification, or merger,
consolidation, or reorganization in which the Company is the
surviving corporation, or any other change in the corporate
structure or Common Stock of the Company, the Committee shall
make such adjustments, if any, proportionate to such change, as
it may deem appropriate in the number of shares authorized by the
Plan, in the number of shares covered by the options granted, and
in the option price.
<PAGE>
(b) In the event of dissolution or liquidation of the
Company, or a reorganization, merger or consolidation of the
Company with one or more corporations in which the Company is not
the surviving corporation, or a sale of substantially all the
property or more than eighty percent (80%) of the then
outstanding stock of the Company to another corporation, the Plan
shall terminate and any option heretofore granted pursuant to the
Plan shall terminate unless provision be made in writing in
connection with such transaction for the continuance of the Plan
and/or for the assumption of options theretofore granted, or the
substitution for such options of new options covering the stock
of a successor employer corporation, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kind
of shares and prices, in which event the Plan and options
theretofore granted shall continue in the manner and under the
terms so provided.
(c) Adjustments under Article 10 hereof shall be made by
the Committee whose determination as to what adjustments shall be
made, and the extent thereof, shall be final, binding and
conclusive. No fractional shares of Common Stock shall be issued
pursuant to any such adjustment, and any fraction resulting from
any such adjustment shall be eliminated in each case by rounding
downward to the nearest whole share or unit.
11. ADMINISTRATION OF THE PLAN. The Plan shall be
administered by the Committee. The Committee shall consist of
two or more members of the Board who are appointed to the
Committee by the Board, and each of whom is an "outside director"
as such term is defined in Section 162(m) of the Internal Revenue
Code and any regulations thereunder. If any member of the
Committee does not meet the qualifications for an "outside
director," then that member shall be replaced with another
director meeting such qualifications such that the Committee
shall always be comprised of at least two persons meeting such
qualifications. The Committee is authorized to establish such
rules and regulations for the proper administration of the Plan
as it may deem advisable and not inconsistent with the provisions
of the Plan. All questions arising under the Plan or under any
rule or regulation with respect to the Plan adopted by the
Committee, whether such questions involve an interpretation of
the Plan or otherwise, shall be decided by the Committee.
12. PAYMENT FOR SHARES. Payment for shares purchased shall
be made in full at the time of the exercise of the option. No
loan or advance shall be made by the Company for the purpose of
financing, in whole or in part, the purchase of optioned shares.
An optionee or his legal representatives shall have none of the
rights of a stockholder with respect to shares subject to option
until such shares shall be issued upon exercise of the option.
<PAGE>
13. AMENDMENT AND TERMINATION OF PLAN.
(a) The Board may at any time suspend or terminate the
Plan. The Board may also at any time amend or revise the terms
of the Plan or any option to be granted thereunder, provided
that no such amendment or revision shall affect the determination
of officers and directors to participate in the Plan or of
the timing, pricing and amount of a grant, all of which
determinations and amendments and revisions thereof shall be
made by the Committee, and provided further that, without
stockholder approval, no such amendment or revision shall:
(i) materially increase the benefits accruing to employees
under the Plan; or
(ii) increase the number of shares subject to the Plan
(except as permitted under the provisions of Article 10 hereof);
or
(iii) materially modify the requirements as to eligibility
for participation in the Plan.
(b) No amendment, suspension or termination of the Plan
shall, without the consent of the optionee, alter or impair any
rights or obligations under any option theretofore granted under
the Plan.
14. COMPLIANCE WITH LAW AND OTHER CONDITIONS. No shares
shall be issued pursuant to the exercise of any option granted
under the Plan prior to compliance by Family Dollar Stores, Inc.
to the satisfaction of its counsel with any applicable laws.
15. WITHHOLDING OF TAXES. Each optionee who exercises an
option shall agree that no later than the date of such exercise
or receipt of shares pursuant thereto he will pay to the Company,
or make arrangements satisfactory to the Committee regarding
payment of, any federal, state or local taxes of any kind
required by law to be withheld with respect to the transfer to
him of such shares of Common Stock.
16. APPROVAL BY STOCKHOLDERS. The Plan shall become
effective December 1, 1988, subject to approval thereof by vote
(in person or by proxy) of the holders of a majority of all
outstanding shares of Common Stock of Family Dollar Stores, Inc.
entitled to vote at the annual meeting of stockholders on
January 19, 1989, called to take action thereon.
