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family dollar stores 10k 2005
family dollar stores 10k 2005
family dollar stores 10k 2005
family dollar stores 10k 2005
family dollar stores 10k 2005
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family dollar stores 10k 2005

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  • 1. FORM 10−K FAMILY DOLLAR STORES INC − FDO Filed: November 07, 2005 (period: August 27, 2005) Annual report which provides a comprehensive overview of the company for the past year
  • 2. Table of Contents PART I BUSINESS ITEM 1. PROPERTIES ITEM 2. LEGAL PROCEEDINGS ITEM 3. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ITEM 4. EXECUTIVE OFFICERS OF THE REGISTRANT ITEM 4A. PART II MARKET FOR REGISTRANT S COMMON EQUITY AND RELATED ITEM 5. STOCKHOLDER MATTERS AND ISSUER PURCHASES O ITEM 6. SELECTED FINANCIAL DATA ITEM 7. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ITEM 9A. CONTROLS AND PROCEDURES ITEM 9B. OTHER INFORMATION PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATT ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10−K SIGNATURES EXHIBIT INDEX EX−4.2 (Instruments defining the rights of security holders) EX−10.24 (Material contracts) EX−10.25 (Material contracts) EX−10.26 (Material contracts)
  • 3. EX−10.27 (Material contracts) EX−10.28 (Material contracts) EX−10.29 (Material contracts) EX−10.30 (Material contracts) EX−10.31 (Material contracts) EX−10.32 (Material contracts) EX−10.33 (Material contracts) EX−21 (Subsidiaries of the registrant) EX−23 (Consents of experts and counsel) EX−31.1 EX−31.2 EX−32.1 EX−32.2
  • 4. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10−K ý Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended August 27, 2005 or o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File No. 1−6807 FAMILY DOLLAR STORES, INC. (Exact name of registrant as specified in its charter) Delaware 56−0942963 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 10401 Monroe Road, Matthews, North Carolina 28105 (Address of principal executive offices) (Zip Code) P. O. Box 1017, Charlotte, North Carolina 28201−1017 (Mailing address) Registrant’s telephone number, including area code (704) 847−6961 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, $.10 Par Value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), Yes ý No o and (2) has been subject to such filing requirements for the past 90 days. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S−K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III o of this Form 10−K or any amendment to this Form 10−K. Yes ý No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b−2 of the Act). Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b−2 of the Exchange Act). Yes o No ý The aggregate market value of voting and non−voting common equity held by non−affiliates of the registrant on February 26, 2005, based on the closing price on February 25, 2005, was approximately $5.1 billion. The number of shares of the registrant’s Common Stock outstanding as of October 17, 2005, was 155,264,313. DOCUMENTS INCORPORATED BY REFERENCE The information required in Part III of this Form 10−K is incorporated by reference to the registrant’s definitive proxy statement to be filed for the Annual Meeting of Stockholders to be held on January 19, 2006.
  • 5. PART I This report contains “forward−looking statements” that are based on the current expectations of Family Dollar Stores, Inc. Actual results in future periods may differ materially from those expressed or implied by those forward−looking statements because of a number of factors set forth in this Annual Report on Form 10−K (“Report”). Statements that are forward−looking may be identified by the use of the words “plan,” “estimate,” “expect,” “anticipate,” “probably,” “should,” “project,” “intend,” “continue,” and similar terms and expressions. For a discussion of the factors that may affect the Company’s future business and prospects, see Management’s Discussion and Analysis (“MD&A”) − Cautionary Statement Regarding Forward−Looking Statements. Information is provided herein with respect to the Company’s operations related to the Company’s fiscal years ended on August 27, 2005 (“fiscal 2005”); on August 28, 2004 (“fiscal 2004”); on August 30, 2003 (“fiscal 2003”); on August 31, 2002 (“fiscal 2002”); and on September 1, 2001 (“fiscal 2001”); and the fiscal year ending on August 26, 2006 (“fiscal 2006”). ITEM 1. BUSINESS General Family Dollar Stores, Inc., (together with its wholly−owned subsidiaries and entities referred to herein as the “Company”) operates a chain of almost 6,000 retail discount stores in a 44−state area, providing primarily low to lower−middle income consumers with a wide range of general merchandise at highly competitive prices in convenient neighborhood stores. The goods offered by the Company generally have price points that range from under one dollar to ten dollars and include apparel, food, cleaning and paper products, home decor, beauty and health aids, toys, pet products, automotive products, domestics and seasonal goods. The original predecessor of the Company was organized in 1959 to operate a self−service retail store in Charlotte, North Carolina. In subsequent years, additional stores were opened, and separate corporations generally were organized to operate these stores. Family Dollar Stores, Inc., was incorporated in Delaware in 1969, and all then−existing corporate entities became its wholly−owned subsidiaries. Overview of Business Operations The Company owns or leases and operates all of its retail discount stores located in 44 states of the United States. The Company’s stores are operated on a self−service basis, and low overhead permits the sale of merchandise at a relatively moderate markup. As discussed below, the Company’s merchandise consists of a variety of hardline and softline merchandise. The Company’s stores are located in urban, suburban, small town and rural markets. See Properties herein. The Company’s relatively small store size allows the Company to select store locations that provide neighborhood convenience to its customers in each of these areas. The Company generally prices merchandise uniformly in all of its stores, but some merchandise may carry higher prices in stores in less competitive markets where operating costs are higher. Most items available for sale are priced under ten dollars. The Company’s “everyday low price” strategy relies on offering consistently low prices on its products and utilizing limited advertising and promotional activity. The Company traditionally advertises through circulars available in stores or, occasionally, circulars which are inserted in newspapers or mailed directly to consumers’ residences. In the years immediately prior to and during fiscal 2004, the Company distributed one circular in each December period to boost holiday sales. In fiscal 2005, the Company distributed circulars in November and December 2004; and, in April and August 2005. The Company continues to utilize circulars that are passed out in stores monthly, and limited advertising is used to support the opening of new stores. The Company accepts cash, checks and, in most stores, PIN−based debit cards but does not currently accept credit cards. The Company is currently testing systems that will allow it to accept a broad range of electronic benefits, including food stamps. As discussed in MD&A elsewhere in this Report, the Company focused on four primary initiatives during fiscal 2005: (i) the installation of refrigerated coolers; (ii) the “Treasure Hunt” merchandise program; (iii) new store openings; and (iv) the Urban Initiative. 2
  • 6. No single store accounted for more than one−quarter of one percent of sales during fiscal 2005. The Company’s stores are open at least six days a week, with most open on Sundays. Merchandise The Company’s stores offer a variety of hardline and softline merchandise. Hardline merchandise includes household chemical and paper products, candy, snacks and other food, health and beauty aids, electronics, housewares and giftware, pet food and supplies, toys, stationery and school supplies, seasonal goods, hardware and automotive supplies. Softline merchandise includes men’s, women’s, boys’, girls’ and infants’ clothing, shoes, and domestic items such as blankets, sheets and towels. During fiscal 2005, hardline merchandise accounted for approximately 78.8% of the Company’s sales. Softline merchandise accounted for approximately 21.2% of sales. During fiscal 2005, nationally advertised brand name merchandise accounted for approximately 37% of sales versus 36% in fiscal 2004. Family Dollar private label merchandise accounted for approximately 4% of sales, and merchandise sold under other labels, or which was unlabeled, accounted for the balance of sales. During fiscal 2005, irregular merchandise accounted for less than one−half of 1% of sales, and closeout merchandise accounted for less than 2% of sales. For a number of years, the Company has added more hardline consumable merchandise, including nationally recognized brand name merchandise, to its merchandise assortments while reducing the amount of space allocated to apparel and shoes. During fiscal 2005, the Company continued to adjust the merchandise selection in stores, including the introduction of an expanded assortment of hardline consumable merchandise, such as paper products, household chemicals and food. However, approximately the same amount of space was allocated to hardline merchandise and softline merchandise as at the end of fiscal 2004, except in a limited number of stores in which all or most hanging apparel and shoes were removed from the merchandise assortment. During fiscal 2005, the Company implemented adjustments to its merchandising strategy by increasing levels of opportunistically purchased goods supplementing the basic assortment of merchandise. This “Treasure Hunt” merchandise is designed to create more excitement in stores and attract customers throughout the year, with particular emphasis on the holiday seasons. In fiscal 2006, the Company expects to continue to develop this merchandising strategy. During fiscal 2005, the Company expanded its food assortment to include perishable foods by installing refrigerated coolers in approximately 1,000 stores. In fiscal 2006, the Company plans to install coolers in approximately 2,500 additional stores. The Company purchases merchandise from approximately 1,500 suppliers and generally has not experienced difficulty in obtaining adequate quantities of merchandise. Approximately 60% of the merchandise is manufactured in the U.S., and substantially all such merchandise is purchased directly from the manufacturer. Purchases of imported merchandise are made directly from the manufacturer or from importers, and the Company’s vendor arrangements provide for payment for such merchandise in U.S. Dollars. No single supplier accounted for more than 8% of the merchandise sold by the Company in fiscal 2005. The Company maintains a substantial variety and depth of basic and seasonal merchandise inventory in stock in its stores (and in its distribution centers for weekly store replenishment) to attract customers and meet their shopping needs. Vendors’ trade payment terms are negotiated to help finance the cost of carrying this inventory. The Company must balance the value of maintaining high inventory levels to meet customers’ demands with the potential cost of having inventories at levels that exceed such demands and that may need to be marked down in price in order to sell. Distribution and Logistics During fiscal 2005, approximately 4.7% of the merchandise purchased by the Company was shipped directly to stores by the manufacturer or importer. The balance of the merchandise was received at one of the Company’s eight distribution centers described below. Merchandise is delivered to stores from the Company’s distribution centers by Company−owned trucks and by common and contract carriers. During fiscal 2005, approximately 85% of the merchandise delivered was by common or contract carriers. At the end of fiscal 2005, the average distance between the distribution centers and the stores served by each facility was: 3
  • 7. Number of Average Distribution Center Stores Served Distance (Miles) Matthews, NC 775 173 West Memphis, AR 704 260 Front Royal, VA 848 306 Duncan, OK 772 306 Morehead, KY 800 241 Maquoketa, IA 744 310 Odessa, TX 657 566 Marianna, FL 598 267 Totals 5,898 300 During fiscal 2005, the Company also acquired a 90−acre site in Rome, New York, on which the Company is currently constructing its ninth distribution center, which is expected to be operational during the third quarter of fiscal 2006. Technology The Company has an integrated system to improve inventory management through merchandise planning and inventory control departments. The inventory management system maintains by−item inventories at all stores and supports a demand forecasting system for replenishment of distribution centers. The Company also utilizes software for automatic store replenishment of basic merchandise and for forecasting−based allocation of non−basic merchandise. These systems give the Company improved tools to facilitate optimum merchandise in−stock positions in stores, reduce markdowns and improve inventory turnover. During fiscal 2003, the Company began implementation of a new transportation management system designed to improve visibility and cost control for both import and domestic freight movement. The import and domestic inbound portions of this project have been completed. During fiscal 2004, as part of the Company’s “store of the future” multi−year initiative, a new hiring system was designed to provide consistent pre−employment assessments and interviews for prospective employees and was tested in a major urban market. Currently, the new hiring system is utilized in approximately 1,200 stores. The Company also has begun implementing plans to upgrade the stores’ communications infrastructure to facilitate communications and provide more interactive training for store employees. Competition The business in which the Company is engaged is highly competitive. The principal competitive factors include store locations, price and quality of merchandise, in−stock consistency, merchandise assortment and presentation, and customer service. The Company competes for sales and store locations in varying degrees with international, national, regional and local retailing establishments, including discount stores, department stores, variety stores, dollar stores, discount clothing stores, drug stores, grocery stores, convenience stores, outlet stores, warehouse stores and other stores. Many of the nation’s other large retailers have stores in areas in which the Company operates. The relatively small size of the Company’s stores permits it to open new stores in rural areas, small towns and in large urban markets, in locations convenient to the Company’s low and lower−middle income customer base. The Company’s stores offer customers a reasonable selection of competitively priced, basic merchandise within a relatively narrow range of price points. Seasonality The Company’s sales are slightly seasonal. Historically, sales have been highest in the second fiscal quarter (December, January, and February), representing approximately 27% of total annual sales. Trademarks The Company has registered with the U.S. Patent and Trademark Office the name “Family Dollar Stores” as a service mark and also has registered a number of other names as trademarks for certain merchandise sold in stores. 4
  • 8. Employees As of October 1, 2005, the Company had approximately 24,000 full−time employees and approximately 18,000 part−time employees. None of the Company’s employees are covered by collective bargaining agreements. The Company considers its employee relations generally to be good. Available Information The mailing address of the Company’s Executive Offices is P.O. Box 1017, Charlotte, North Carolina 28201−1017, and the telephone number at that location is 704−847−6961. The Company’s Internet Website is www.familydollar.com. Through a link on the Investors section of the Website, the Company makes available the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission: Annual Reports on Form 10−K, Quarterly Reports on Form 10−Q, Current Reports on Form 8−K and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. These reports and amendments also are available at the Website of the Securities and Exchange Commission at www.sec.gov. All such filings are available free of charge. ITEM 2. PROPERTIES The Company operates a chain of self−service retail discount stores. As of October 1, 2005, there were 5,908 stores in 44 states and the District of Columbia as follows: Texas 739 Ohio 371 Florida 319 North Carolina 309 Michigan 306 Georgia 289 New York 258 Pennsylvania 227 Louisiana 211 Virginia 203 Illinois 202 Tennessee 192 Kentucky 179 South Carolina 175 Indiana 172 Alabama 144 Wisconsin 133 Arizona 120 Oklahoma 112 West Virginia 110 Mississippi 109 Arkansas 98 Missouri 89 Massachusetts 87 New Mexico 86 Maryland 86 Colorado 82 Minnesota 63 New Jersey 61 Utah 52 Connecticut 50 Maine 39 Iowa 36 Kansas 34 Nebraska 26 Delaware 22 Idaho 22 New Hampshire 20 Rhode Island 20 Nevada 19 Vermont 9 Wyoming 9 South Dakota 7 North Dakota 6 District of Columbia 5
  • 9. The stores listed above include approximately 41 stores temporarily closed, including stores closed due to Hurricane Katrina and Hurricane Rita, which struck the U.S. Gulf Coast in August 2005 and September 2005, respectively. See MD&A and Note 13 to the Consolidated Financial Statements included in this Report for more information about the impact of these storms. The number of stores operated by the Company at the end of each of its last five fiscal years is as follows: 5,898 stores for fiscal 2005; 5,466 stores for fiscal 2004; 5,027 stores for fiscal 2003; 4,616 stores for fiscal 2002; and 4,141 stores for fiscal 2001. 5
  • 10. During fiscal 2005, 500 stores were opened, 68 stores were closed, 16 stores were relocated within the same shopping center or market area, 33 stores were expanded in size, and 105 stores were renovated. During fiscal 2006, the Company plans to open approximately 400 stores, close approximately 65 stores, and relocate, expand or renovate approximately 75 stores. Such plans are continually reviewed and subject to change. From August 27, 2005, through October 1, 2005, the Company opened 12 new stores, closed 2 stores, and relocated, expanded or renovated 6 stores. As of October 1, 2005, the Company had in the aggregate approximately 49.9 million square feet of total store space (including receiving rooms and other non−selling areas) and approximately 41.4 million square feet of selling space. The typical store has approximately 7,500 to 9,500 square feet of total area. The Company’s stores are located in large urban, suburban and rural areas, and they are typically freestanding or located in shopping centers with adequate parking available. At the end of fiscal 2005, approximately 20% of the Company’s stores were located in large urban markets (markets with populations above 200,000), and approximately 26% of the Company’s stores were located in small urban markets (markets with populations greater than 75,000 but less than 200,000) or suburban areas. During fiscal 2005, approximately 35% of new store locations were opened in large urban markets and 28% of new locations were opened in small urban or suburban markets. With the exception of 481 stores owned by the Company, all of the Company’s stores are leased. Most of the leases are for initial terms of five years and for fixed rentals. A large majority of the leases contain provisions that may require additional payments based upon a percentage of sales, property taxes, insurance premiums or common area maintenance charges. Of the Company’s 5,427 leased stores at October 1, 2005, all but 396 leases grant the Company options to renew for additional terms; in most cases for a number of successive five−year periods. The following table sets forth certain data, as of October 1, 2005, concerning the expiration dates of all leases with renewal options: Approximate Number of Approximate Number of Leases Expiring Assuming No Leases Expiring Assuming Full Fiscal Years Exercise of Renewal Options Exercise of Renewal Options 2006 149 0 2007−2009 2,435 10 2010−2012 1,756 106 2013−2015 647 426 2016 and thereafter 44 4,489 Of the 481 Company−owned stores, 127 are located in Texas, with no more than 30 located in any other state. In these owned stores, there are approximately 4.0 million total square feet of space. The Company also owns its corporate headquarters and distribution center located on a 108−acre tract of land in Matthews, North Carolina, just outside of Charlotte, in two buildings containing approximately 1.13 million square feet. Approximately 890,000 square feet are used for the distribution center which includes receiving, warehousing, shipping and storage facilities. Approximately 240,000 square feet are used for the corporate headquarters. The Company also owns seven additional full−service distribution centers described in the table below: Facility Size Distribution Center Land Building Date Operational West Memphis, AR 75 acres 550,000 sq. ft. April 1994 300,000 sq. ft. addition August 1996 Front Royal, VA 75 acres 907,000 sq. ft. January 1998 Duncan, OK 85 acres 907,000 sq. ft. July 1999 Morehead, KY 94 acres 907,000 sq. ft. June 2000 Maquoketa, IA 74 acres 907,000 sq. ft. March 2002 Odessa, TX 89 acres 907,000 sq. ft. July 2003 Marianna, FL 76 acres 907,000 sq. ft January 2005 In the summer of 2005, the Company began construction of a ninth full−service distribution center on a 90−acre tract of land owned by the Company in Rome, New York. The building will contain approximately 907,000 square feet and is expected to be operational during the third quarter of fiscal 2006. 6
  • 11. ITEM 3. LEGAL PROCEEDINGS On January 30, 2001, Janice Morgan and Barbara Richardson, two individuals who have held the position of Store Manager for subsidiaries of the Company, filed a Complaint against the Company in the United States District Court for the Northern District of Alabama. Thereafter, pursuant to the Court’s ruling, notice of the pendency of the lawsuit was sent to approximately 13,000 current and former Store Managers holding the position on or after July 1, 1999. Approximately 2,550 of those receiving such notice filed consent forms and joined the lawsuit as plaintiffs, including approximately 2,300 former Store Managers and approximately 250 then current employees. After rulings by the Court on motions to dismiss certain plaintiffs filed by the Company and motions to reconsider filed by plaintiffs, 1,424 plaintiffs remained in the case at the commencement of trial. The case has proceeded as a collective action under the Fair Labor Standards Act (“FLSA”). The Complaint alleges that the Company violated the FLSA by classifying the named plaintiffs and other similarly situated current and former Store Managers as “exempt” employees who are not entitled to overtime compensation. Plaintiffs seek to recover unpaid overtime compensation in an amount currently estimated to be up to approximately $50 million, liquidated damages equal to the overtime award, if any, plus an award of attorneys’ fees, costs and expenses, and such other relief as the Court may deem proper. A jury trial in this case commenced on June 13, 2005, in Tuscaloosa, Alabama, and ended on June 28, 2005, with the judge declaring a mistrial after the jury was unable to reach a unanimous decision in the matter. The case is scheduled to be retried commencing on February 21, 2006. In general, the Company continues to believe that the Store Managers are “exempt” employees under the FLSA and have been properly compensated and that the Company has meritorious defenses that should enable it ultimately to prevail. However, the outcome of any litigation is inherently uncertain. Resolution of this matter could have a material adverse effect on the Company’s financial position, liquidity or results of operation. The Company is involved in numerous other legal proceedings and claims incidental to its business, including litigation related to alleged failures to comply with various state and federal employment laws. While the ultimate outcome cannot be determined, the Company currently believes that these proceedings and claims, both individually and in the aggregate, should not have a material adverse effect on the Company’s financial position, liquidity or results of operations. However, the outcome of any litigation is inherently uncertain and, if decided adversely to the Company, the Company may be subject to liability that could have a material adverse effect on the Company’s financial position, liquidity or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders through the solicitation of proxies or otherwise during the fourth quarter of fiscal 2005. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The following information is furnished with respect to each of the executive officers of the Company as of October 1, 2005: 7
  • 12. Name Position and Office Age Howard R. Levine (1) Chairman of the Board and 46 Chief Executive Officer R. James Kelly (2) Vice Chairman and 58 Chief Financial and Administrative Officer Robert George (3) Executive Vice President− 43 Merchandising Charles S. Gibson, Jr. (4) Executive Vice President− 44 Supply Chain Dorlisa K. Flur (5) Senior Vice President− 40 Strategy and Business Development Janet G. Kelley (6) Senior Vice President− 52 General Counsel and Secretary C. Martin Sowers (7) Senior Vice President− 47 Finance Barry Sullivan (8) Senior Vice President− 41 Store Operations (1) 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, President and Chief Operating Officer in April 1997, Chief Executive Officer in August 1998, and Chairman of the Board in January 2003. He is the son of Leon Levine, the founder and Chairman Emeritus of the Company. (2) Mr. R. James Kelly was employed by the Company as Vice Chairman−Chief Financial and Administrative Officer in January 1997. (3) Mr. Robert George was employed by the Company as Executive Vice President−Merchandising in August 2005. Prior to his employment by the Company, he was employed by Staples Corporation, an office supply retailer, from 1986 to July 2005, where his last position was Senior Vice President, General Merchandise Manager — Office Products. (4) Mr. Charles S. Gibson, Jr., was employed by the Company as Vice President−Logistics in September 1997 and was promoted to Senior Vice President−Distribution and Logistics in October 1999 and to Executive Vice President−Supply Chain in September 2003. (5) Ms. Dorlisa K. Flur was employed by the Company as Senior Vice President−Strategy and Business Development in June 2004. Prior to her employment by the Company, she was employed by McKinsey & Company, a global management consulting firm, from 1988 to May 2004, where her last position was Principal with responsibility for McKinsey’s Retail Practice in the Southeast. (6) Ms. Janet G. Kelley was employed by the Company as Senior Vice President−Senior Counsel in January 2004 and promoted to Senior Vice President−General Counsel in May 2005. Prior to her employment by the Company, she was employed by Kmart Corporation, a chain of discount stores, from April 2001 to January 2003, where her last position was Executive Vice President and General Counsel. Kmart Corporation filed a petition for reorganization under Chapter 11 of the Federal bankruptcy laws in January 2002 and 8
  • 13. emerged from bankruptcy in May 2003. From June 1999 to April 2001, she was employed by Limited Brands, Inc., a chain of specialty apparel and personal beauty stores, as Vice President and Senior Counsel. (7) Mr. C. Martin Sowers was employed by the Company as an accountant in October 1984 and was promoted to Assistant Controller in January 1985. He was elected Controller in January 1986, Vice President−Controller in July 1989 and Senior Vice President−Finance in December 1991. (8) Mr. Barry Sullivan was employed by the Company as Vice President−Store Operations in September 2002 and was promoted to Senior Vice President−Store Operations in May 2005. Prior to his employment with the Company, he was employed by Eckerd Corporation, a regional drug store chain, from 1986 to 2002, where his last position was Vice President−Store Operations. All executive officers of the Company are elected annually by and serve at the pleasure of the Board of Directors until their successors are duly elected. PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Company’s Common Stock is traded on the New York Stock Exchange under the ticker symbol FDO. At October 17, 2005, there were approximately 2,300 holders of record of the Common Stock. The accompanying tables give the high and low sales prices of the Common Stock and the dividends declared per share for each quarter of fiscal 2005 and 2004. Market Prices and Dividends 2005 High Low Dividend First Quarter $ 32.30 $ 25.54 $ .08 1/2 Second Quarter 35.25 28.25 .09 1/2 Third Quarter 33.64 23.68 .09 1/2 Fourth Quarter 27.15 20.10 .09 1/2 2004 High Low Dividend First Quarter $ 44.13 $ 38.10 $ .07 1/2 Second Quarter 39.66 32.00 .08 1/2 Third Quarter 38.73 26.51 .08 1/2 Fourth Quarter 34.00 25.09 .08 1/2 The following table sets forth information with respect to purchases of shares of the Company’s Common Stock made during the quarter ended August 27, 2005, by or on behalf of the Company or any “affiliated purchaser” as defined by Rule 10b−18(a)(3) of the Securities Exchange Act of 1934. Total Number of Shares Purchased as Maximum Number of Part of Publicly Shares that May Yet Total Number of Average Price Paid Announced Plans or Be Purchased Under Period Shares Purchased per Share Programs the Plans or Programs June (5/29/05−7/2/05) 446,400 $25.76 446,400 3,883,200 July (7/3/05−7/30/05) — — — 3,883,200 August (7/31/05−8/27/05) — — — 18,705,334(1) Total 446,400 $25.76 446,400 18,705,334 (1) Includes $300 million of the Company’s Common Stock converted to shares using the Company’s closing stock price of $20.24 as of August 26, 2005, which may be acquired pursuant to a repurchase program approved by the Board of Directors on August 18, 2005. See below for additional information. 9
  • 14. During fiscal 2004 and fiscal 2003, the Company purchased in the open market 5.6 million and 2.2 million shares of its Common Stock, respectively, at a cost of $176.7 million and $65.9 million, respectively. On April 13, 2005, the Company announced that the Board of Directors authorized the purchase of up to an additional 5 million shares of the Company’s Common Stock from time to time as market conditions warrant. On August 19, 2005, the Company announced that the Board of Directors authorized the purchase of an additional $300 million of the Company’s Common Stock from time to time as market conditions warrant. During fiscal 2005, the Company purchased in the open market 3.3 million shares of the Company’s Common Stock at a cost of $92.0 million. As of the end of fiscal 2005, the Company had approximately 18.7 million shares authorized to be purchased. There is no expiration date governing the period during which the Company can make share repurchases pursuant to the above referenced authorizations. There are no other repurchase programs under which the Company is authorized to repurchase outstanding shares. Shares purchased prior to the end of fiscal 2005 under the share repurchase authorization are held in treasury or have been reissued under the Family Dollar 2000 Outside Directors Plan. On September 27, 2005, the Company obtained $250 million in aggregate proceeds through a private placement under Section 4(2) of the Securities Act of 1933, as amended, of unsecured Senior Notes (the “Notes”) to a group of institutional accredited investors. On October 4, 2005, the Company executed an overnight share repurchase transaction with a bank for the acquisition of 10 million shares, or approximately 6%, of the Company’s outstanding Common Stock for an initial purchase price of $19.97 per share pursuant to the $300 million repurchase authorization. The transaction was financed with the proceeds of the Notes. Shares that are repurchased with the proceeds of the Notes will be canceled and returned to the status of authorized but unissued shares. See Note 13 to the Consolidated Financial Statements included in this Report for more information on the Notes and the overnight share repurchase transaction. ITEM 6. SELECTED FINANCIAL DATA SUMMARY OF SELECTED FINANCIAL DATA Years Ended (in thousands, except per share amounts August 27, August 28, August 30, August 31, September 1, and store data) 2005 2004 2003 2002 2001 Net sales $ 5,824,808 $ 5,281,888 $ 4,750,171 $ 4,162,652 $ 3,665,362 Cost of sales and operating expenses 5,482,013 4,875,226 4,367,027 3,827,582 3,372,094 Income before income taxes 342,795 406,662 383,144 335,070 293,268 Income taxes 125,286 148,758 139,835 122,288 107,025 Net income 217,509 257,904 243,309 212,782 186,243 Diluted earnings per common share $ 1.30 $ 1.50 $ 1.40 $ 1.22 $ 1.08 Dividends declared $ 61,538 $ 56,077 $ 49,890 $ 44,106 $ 40,352 Dividends declared per common share $ 0.37 $ 0.33 $ 0.29 $ .25 1/2 $ .23 1/2 Total assets $ 2,409,501 $ 2,224,361 $ 2,065,392 $ 1,818,541 $ 1,467,866 Working capital $ 460,157 $ 489,727 $ 541,913 $ 507,945 $ 404,087 Shareholders’ equity $ 1,428,066 $ 1,337,082 $ 1,292,432 $ 1,140,577 $ 948,791 Stores opened 500 500 475 525 502 Stores closed (68) (61) (64) (50) (50) Number of stores − end of year 5,898 5,466 5,027 4,616 4,141 The Company did not have any long−term debt at the end of each of its last five fiscal years. On September 27, 2005, the Company obtained $250 million in aggregate proceeds through the private placement of the Notes to a group of institutional accredited investors. See Note 13 to the Consolidated Financial Statements included in this Report for more information on the Notes. 10
  • 15. ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion summarizes the significant factors affecting the consolidated results of operations and financial condition of the Company for fiscal 2005, fiscal 2004 and fiscal 2003. This discussion should be read in conjunction with, and is qualified by, the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in this Report. Fiscal 2005 Overview and Fiscal 2006 Outlook During fiscal 2005, the Company began the implementation of four key initiatives designed to increase sales and profitability: the installation of refrigerated coolers in selected stores; the introduction of a “Treasure Hunt” merchandise program; the continuation of an aggressive store opening program; and the Urban Initiative. During fiscal 2006, the Company will continue these initiatives as discussed below. • Coolers — The installation of refrigerated coolers for the sale of perishable food began in the second quarter of fiscal 2005. The customer traffic generated by coolers increased sales of food and other merchandise throughout the store. At the end of fiscal 2005, refrigerated coolers were installed in approximately 1,000 stores. The Company plans to have refrigerated coolers installed in approximately 2,500 additional stores by the end of fiscal 2006. In addition, the Company is testing new point−of−sale software in a limited number of stores to facilitate the acceptance of food stamps in stores with refrigerated coolers. • “Treasure Hunt” merchandise program — During fiscal 2005, the Company began supplementing its basic assortment of merchandise with additional opportunistically purchased goods designed to create more excitement in stores throughout the year, with particular emphasis on holiday, spring and back−to−school seasons. The Company will enhance this initiative in fiscal 2006. • New Stores — During fiscal 2005, the Company opened 500 stores and closed 68 stores. In order to build processes that will support a more balanced distribution of store openings throughout the year, the Company plans to open approximately 400 stores and close approximately 65 stores in fiscal 2006. • Urban Initiative — The Urban Initiative is designed to improve the operating performance of high sales volume stores in large metropolitan markets through investments in people, process changes and technology, including organizational changes to support a more mobile and flexible workforce. During fiscal 2005, the Urban Initiative was implemented in approximately 1,200 stores. While the Urban Initiative stores have experienced mid−single−digit sales growth and continue to be profitable, the Company’s profitability goals have not yet been achieved. For fiscal 2006, the Company will continue its investments in the current “Urban Initiative markets” (approximately 1,300 stores) but does not expect to expand the initiative into new markets until processes have been refined to generate improved results. The Company currently expects net income per diluted share of Common Stock to be between $1.30 and $1.39 for fiscal 2006, compared to $1.30 in fiscal 2005. The net income per diluted share of Common Stock guidance for fiscal 2006 includes the impact of the expensing of stock options as required by Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share−Based Payment,” and other new compensation programs, and also includes the accretive benefit of the Company’s share repurchase program and related debt placement. See the Recent Accounting Pronouncements contained in this MD&A for more information on the impact of SFAS No. 123R and the Liquidity and Capital Resources section for more information on the Company’s share repurchase program and issuance of the Notes. Subsequent to the Company’s fiscal 2005 year end, Hurricane Katrina and Hurricane Rita struck the U.S. Gulf Coast, impacting numerous stores in the afflicted areas. The Company has property insurance that covers most of its property damage. Since the Company’s stores are widely dispersed, lost sales due to closed stores are generally limited and are often offset by increased sales in other stores. Therefore, these storms have not had a material impact in the aggregate on the Company’s financial position, liquidity or results of operations. The long−term impact of these storms is more difficult to forecast. The potential increase in energy costs over the long−term could negatively impact the Company and its customers. However, the resources received by customers from government and private organizations and the funds contributed in the rebuilding effort could positively impact sales. Therefore, the Company has not included any impact from these storms in its fiscal 2006 outlook. Net Sales Net sales increased approximately 10.3% ($542.9 million) in fiscal 2005 compared with fiscal 2004, and approximately 11.2% ($531.7 million) in fiscal 2004 compared with fiscal 2003. The increases in fiscal 2005 and in fiscal 2004 were attributable, in part, to increased sales in comparable stores (stores open more than 13 months) of 2.3% ($117.1 million) and 1.9% ($86.3 million), respectively, with the balance of the increases primarily relating to sales from new stores 11
  • 16. opened as part of the Company’s store growth program. The Urban Initiative, the installation of refrigerated coolers and the “Treasure Hunt” merchandise program all had positive impacts on sales in fiscal 2005. Sales of lower−margin basic consumables continued to be stronger than sales of higher−margin discretionary goods during fiscal 2005, reflecting the difficult economic environment, including higher energy prices, faced by the Company’s low and lower−middle income customer base. The 2.3% increase in comparable store sales during fiscal 2005 includes an increase of approximately 3.7% in the sales of hardline merchandise and a decrease of approximately 2.6% in the sales of softline merchandise. In fiscal 2005, the customer count, as measured by the number of register transactions in comparable stores, decreased approximately 0.7%, and the average transaction increased approximately 2.9% to $9.22. Increased sales of hardline merchandise have been the primary contributor to the overall sales increases. Hardline merchandise, as a percentage of net sales, increased to approximately 78.8% in fiscal 2005 compared to approximately 77.7% in fiscal 2004. Softline merchandise, as a percentage of net sales, decreased to approximately 21.2% in fiscal 2005 compared to approximately 22.3% in fiscal 2004. The Company distributed four advertising circulars in fiscal 2005 and one advertising circular in fiscal 2004. The circulars are designed to stimulate traffic and inform customers about the Company’s “Treasure Hunt” merchandise, seasonal values and competitive prices on core consumables. During fiscal 2006, the Company expects to distribute four advertising circulars. The 1.9% increase in comparable store sales during fiscal 2004 as compared with fiscal 2003 includes an increase of approximately 3.2% in the sales of hardline merchandise and a decrease of approximately 2.5% in the sales of softline merchandise. Sales of consumable merchandise were stronger than sales of more discretionary merchandise. In fiscal 2004, the customer count increased approximately 0.7%, and the average transaction increased approximately 0.9% to $8.95. The Company distributed one advertising circular in both fiscal 2004 and fiscal 2003. Hardline merchandise includes household chemical and paper products, candy, snacks and other food, health and beauty aids, electronics, housewares and giftware, pet food and supplies, toys, stationery and school supplies, seasonal goods, hardware and automotive supplies. Softline merchandise includes men’s, women’s, boys’, girls’ and infants’ clothing, shoes, and domestic items such as blankets, sheets and towels. During fiscal 2006, the Company expects comparable store sales to increase 2% to 4% as a result of the ongoing rollout of refrigerated coolers, the impact from “Treasure Hunt” merchandise sales and the operational improvements resulting from the Urban Initiative program. During fiscal 2005, the Company opened 500 stores and closed 68 stores for a net addition of 432 stores, compared with the opening of 500 stores and closing of 61 stores for a net addition of 439 stores during fiscal 2004. The Company also expanded or relocated 49 stores in fiscal 2005, compared with 79 stores that were expanded or relocated in fiscal 2004. In addition, approximately 105 stores in fiscal 2005 and 116 stores in fiscal 2004 were renovated. In order to build processes that will support a more balanced distribution of store openings throughout the year, the Company plans to open approximately 400 stores and close approximately 65 stores in fiscal 2006. The Company also plans to relocate, expand, or renovate approximately 75 stores during fiscal 2006. Store opening, closing, expansion, relocation and renovation plans are continuously reviewed and are subject to change. Cost of Sales and Margin Cost of sales increased approximately 11.8% ($412.3 million) in fiscal 2005 compared with fiscal 2004 and approximately 11.1% ($350.5 million) in fiscal 2004 compared with fiscal 2003. These increases primarily reflected the additional sales volume in each of the years. Cost of sales, as a percentage of net sales, was 67.1% in fiscal 2005 and 66.2% in both fiscal 2004 and fiscal 2003. The increase in cost of sales, as a percentage of net sales, during fiscal 2005 was due primarily to the continuing shift in the merchandise mix of sales to more lower−margin consumables and fewer higher−margin discretionary goods, increased inventory shrinkage and increased freight costs due to higher fuel expense. To address inventory shrinkage, the Company is implementing new loss prevention reports that provide more visibility to transaction level issues and is adding personnel to its Loss Prevention Department. In addition, as part of its Urban Initiative, the Company modified its field management structure to increase management presence and the frequency of inspections in urban markets. The opening of the Company’s eighth distribution center in Marianna, Florida, in the second quarter of fiscal 2005 positively impacted freight costs by lowering the average distance to the stores from the distribution centers. Increases in productivity and efficiency, such as increased back hauls and optimization and consolidation of inbound routing have also offset some of the cost increases. However, these savings did not fully offset the impact of higher year−over−year fuel costs. The Company expects that the opening of the ninth distribution center in Rome, New York, during the third quarter of fiscal 2006 will positively impact freight costs and continue to offset higher fuel costs. Cost of sales, as a percentage of net sales, in fiscal 2004 was unchanged from fiscal 2003. The percentage was 12
  • 17. favorably impacted by a change in the treatment of certain vendor allowances in conformity with an accounting pronouncement, as well as from lower merchandise markdowns. However, the favorable impact of the change in the treatment of certain vendor allowances was offset by a shift in the merchandise mix to more lower−margin basic consumables and relatively less sales of higher−margin discretionary merchandise. Cost of sales, as a percentage of net sales, in fiscal 2004 was also negatively impacted by increased inventory shrinkage and increased freight costs due to higher fuel expense. During fiscal 2006, the Company expects that cost of sales, as a percentage of net sales, will be flat or increase slightly as compared to fiscal 2005 due to the continuing effect of the shift in the merchandise mix to more lower−margin basic consumables and rising fuel costs. Lower markdowns and lower inventory shrinkage are expected to offset these increases. Selling, General and Administrative Expenses Selling, general and administrative (“SG&A”) expenses increased approximately 14.1% ($194.5 million) in fiscal 2005 compared with fiscal 2004, and approximately 12.9% ($157.7 million) in fiscal 2004 compared with fiscal 2003. The increases in these expenses were attributable primarily to additional costs arising from the continued growth in the number of stores in operation and the continued ramp−up of the eighth distribution center. SG&A expenses, as a percentage of net sales, were 27.0% in fiscal 2005, 26.1% in fiscal 2004 and 25.7% in fiscal 2003. The increase in SG&A expenses, as a percentage of net sales, in fiscal 2005 was due primarily to planned payroll expenses incurred in connection with the urban and cooler initiatives (approximately 0.4% of net sales); increased occupancy and store−related costs (approximately 0.4% of net sales); and increased legal−related costs (approximately 0.1% of net sales). Each of these percentages was negatively impacted by the lower than planned increase in sales in comparable stores. A cumulative charge to correct property tax accruals on leased properties and the incremental costs of three additional advertising circulars also impacted this percentage (approximately 0.2% of net sales), but these amounts were offset by a reduction in bonus costs as the Company did not reach the earnings target necessary for payment of management bonuses. In addition, most other costs, as a percentage of net sales, were negatively impacted by the lower than planned increase in sales in comparable stores. The increase in SG&A expenses, as a percentage of net sales, in fiscal 2004 was due primarily to below plan sales which negatively impacted the Company’s ability to leverage its cost structure. In addition, the effect of the change in treatment of certain vendor allowances negatively impacted expense leverage. Continued increases in insurance costs, primarily workers’ compensation, and increased rent expense also adversely impacted expense leverage. The increase in SG&A expense, as a percentage of net sales, for fiscal 2004 was offset slightly by a reduction in bonus costs as the Company did not reach the earnings target necessary for payment of full bonuses. During fiscal 2006, the Company expects SG&A expense, as a percentage of net sales, to increase as compared to fiscal 2005 due to the expanded rollout of the cooler program and the continued investments in the existing Urban Initiative markets. In addition, the required expensing of stock options and other compensation plan changes will increase SG&A expenses, as a percentage of net sales. Income Taxes The effective tax rate was 36.5% in fiscal 2005, 36.6% in fiscal 2004 and 36.5% in fiscal 2003. For fiscal 2006, the Company’s plan is for the effective tax rate to increase to 37.0% due to the effect of changes in state income taxes. Liquidity and Capital Resources The Company has consistently maintained a strong liquidity position. Cash provided by operating activities during fiscal 2005 was $299.4 million as compared to $376.5 million in fiscal 2004 and $302.3 million in fiscal 2003. These amounts have enabled the Company to fund its regular operating needs, capital expenditure program, cash dividend payments and any repurchase of the Company’s Common Stock. In addition, the Company has unsecured revolving credit facilities with banks for short−term borrowings of up to $200 million. On May 25, 2006, $100 million of the facilities will expire, and the remaining $100 million will expire on May 31, 2010. The Company expects that the facilities expiring May 25, 2006, will be extended. The Company had no borrowings against these facilities during fiscal 2005. Merchandise inventories at the end of fiscal 2005 were 11.3% higher than at the end of fiscal 2004. This increase was due primarily to additional inventory for 432 net new stores. Inventory on a per store basis at the end of fiscal 2005 was 1.8% higher than at the end of fiscal 2004, excluding merchandise in transit to the distribution centers. All of this increase was in hardline merchandise, which increased approximately 4.3% per store, reflecting the early receipt of holiday merchandise and new inventory associated with the cooler program. Average softline merchandise inventory per store, 13
  • 18. excluding merchandise in transit to the distribution centers, decreased approximately 5.2% as the Company aggressively managed these items to prevent an inventory buildup. The increase in capital expenditures to $229.1 million in fiscal 2005 from $218.7 million in fiscal 2004 was due primarily to greater distribution center construction expenditures. In addition, the Company installed refrigerated coolers in approximately 1,000 stores. Capital expenditures for fiscal 2006 are expected to be between $210 and $225 million and relate primarily to new store openings; existing store expansions, relocations and renovations; construction of distribution centers; expenditures related to store−focused technology infrastructure; and the continued implementation of a refrigerated cooler program for perishable goods in selected stores. The new store expansion and new distribution centers will require additional investment in merchandise inventories. Capital spending plans, including store opening plans, are continuously reviewed and are subject to change. Cash flow from current operations is expected to be sufficient to meet planned liquidity and operational capital resource needs, including store expansion and other capital spending programs. In addition, the Company has available revolving credit facilities as previously discussed. During fiscal 2004 and fiscal 2003, the Company purchased in the open market 5.6 million and 2.2 million shares of its Common Stock, respectively, at a cost of $176.7 million and $65.9 million, respectively. On April 13, 2005, the Company announced that the Board of Directors authorized the purchase of up to an additional 5 million shares of the Company’s Common Stock from time to time as market conditions warrant. On August 19, 2005, the Company announced that the Board of Directors authorized the purchase of an additional $300 million of the Company’s Common Stock from time to time as market conditions warrant. During fiscal 2005, the Company purchased in the open market 3.3 million shares of the Company’s Common Stock at a cost of $92.0 million. As of the end of fiscal 2005, the Company had approximately 18.7 million shares authorized to be purchased. On September 27, 2005, the Company obtained $250 million in aggregate proceeds through a private placement under section 4(2) of the Securities Act of 1933, as amended, of the Notes. On October 4, 2005, the Company executed an overnight share repurchase transaction with a bank for the acquisition of 10 million shares, or approximately 6%, of the Company’s outstanding Common Stock for an initial purchase price of $19.97 per share pursuant to the $300 million repurchase authorization. The proceeds from the Notes were used to finance this transaction. See Note 13 to the Consolidated Financial Statements included in this Report for more information. The following table shows the Company’s obligations and commitments to make future payments under contractual obligations at the end of fiscal 2005 (in thousands): Payments Due During One Year Fiscal Period Ending Contractual Obligations Total August 2006 August 2007 August 2008 August 2009 August 2010 Thereafter Merchandise letters of credit $ 125,613 $ 125,613 $ — $ — $ — $ — $ — Operating leases 1,135,810 252,588 225,649 188,636 150,096 107,522 211,319 Construction obligations 58,992 58,992 — — — — — Total $ 1,320,415 $ 437,193 $ 225,649 $ 188,636 $ 150,096 $ 107,522 $ 211,319 Most of the Company’s operating leases provide the Company with an option to extend the term of the lease at designated rates. See Properties herein. The following table shows the Company’s other commercial commitments at the end of fiscal 2005 (in thousands): Other Commercial Commitments Total Amounts Committed Standby letters of credit $ 114,979 Surety bonds 6,458 Total $ 121,437 At the end of fiscal 2005, approximately $78.1 million of the merchandise letters of credit were included in accounts payable and accrued liabilities on the Company’s balance sheet. A substantial portion of the outstanding amount of standby letters of credit and surety bonds (which are primarily renewed on an annual basis) are used as surety for future premium and deductible payments to the Company’s workers’ compensation and general liability insurance carrier. The Company accrues 14
  • 19. for these future payment liabilities as described in the Critical Accounting Policies section of this MD&A. Recent Accounting Pronouncements In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R which requires all companies to measure compensation cost for all share−based payments (including employee stock options) at fair value, effective for public companies for interim or annual periods beginning after June 15, 2005. The FASB concluded that companies can adopt the new standard in one of two ways: the modified prospective transition method, in which the company would recognize share−based employee compensation from the beginning of the fiscal period in which the recognition provisions are first applied as if the fair−value−based accounting method had been used to account for all employee awards granted, modified, or settled after the effective date and to any awards that were not fully vested as of the effective date; or the modified retrospective transition method, in which a company would recognize employee compensation cost for periods presented prior to the adoption of SFAS No. 123R in accordance with the original provisions of SFAS No. 123 “Accounting for Stock−Based Compensation,” pursuant to which a company would recognize employee compensation cost in the amounts reported in the pro forma disclosures provided in accordance with SFAS No. 123. The Company will adopt SFAS No. 123R during the first quarter of fiscal 2006 and will use the modified prospective transition method. On August 18, 2005, the Compensation Committee of the Board of Directors of the Company approved the acceleration of the vesting date of certain previously issued and outstanding options under the 1989 Non−Qualified Stock Option Plan, effective as of August 26, 2005. The accelerated vesting program applies to: (i) all unvested options that currently have an exercise price in excess of $40.00/share, including options held by the five most highly compensated executive officers of the Company, and (ii) all unvested options that are “underwater” (i.e. the options have an exercise price in excess of the market value of the stock, determined as of August 26, 2005) and are held by employees at the level of manager or below. The Company implemented the acceleration program to enhance retention incentives for current employees and to reduce the compensation expense the Company would otherwise be required to recognize as a result of the Company’s adoption, effective for fiscal 2006, of SFAS 123R. See Note 1 to the Consolidated Financial Statements included in this Report for information on the impact of the vesting acceleration on the fiscal 2005 pro forma stock−based compensation cost. During fiscal 2006, the Company expects to incur incremental SG&A expense of approximately $6 million to $10 million related to the 1989 Non−Qualified Stock Option Plan as a result of the adoption of SFAS No. 123R. In addition, the Company expects to incur incremental SG&A expense of approximately $4 million to $6 million during fiscal 2006 in connection with the expected implementation of new compensation programs, which are designed to improve the linkage between pay and performance. Critical Accounting Policies Management believes the following accounting principles are critical because they involve significant judgments, assumptions and estimates used in the preparation of the Company’s consolidated financial statements. Merchandise Inventories: Inventories are valued using the retail method, based on retail prices less markon percentages, which approximates the lower of first−in, first−out (FIFO) cost or market. The Company records adjustments to inventory through cost of goods sold when retail price reductions, or markdowns, are taken against on−hand inventory. In addition, management makes estimates and judgments regarding, among other things, initial markups, markdowns, future demand for specific product categories and market conditions, all of which can significantly impact inventory valuation. If actual demand or market conditions are different than those projected by management, additional markdowns may be necessary. This risk is generally higher for seasonal merchandise than for non−seasonal goods. The Company also provides for estimated inventory losses for damaged, lost or stolen inventory for the period from the physical inventory to the financial statement date. These estimates are based on historical experience and other factors. Property and Equipment: Property and equipment is stated at cost. Depreciation for financial reporting purposes is calculated using the straight−line method over the estimated useful lives of the related assets. For leasehold improvements, this depreciation is over the shorter of the term of the related lease (generally five years) or the asset’s useful economic life. The valuation and classification of these assets and the assignment of useful depreciable lives involves significant judgments and the use of estimates. The Company generally assigns no salvage value to property and equipment. Property and equipment is reviewed 15
  • 20. for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Historically, impairment losses on fixed assets have not been material to the Company’s financial position and results of operations. Insurance Liabilities: The Company is primarily self−insured for health care, property loss, workers’ compensation and general liability costs. These costs are significant primarily due to the large number of the Company’s retail locations and employees. Because the nature of these claims is such that there can be a significant lag from the incurrence of the claim (which is when the expense is accrued) until payment is made, the percentage increase in the accrual can be much more pronounced than the percentage increase in the expense. The Company’s self−insurance liabilities are based on the total estimated costs of claims filed and estimates of claims incurred but not reported, less amounts paid against such claims, and are not discounted. Management reviews current and historical claims data in developing its estimates. The Company also uses information provided by outside actuaries with respect to workers’ compensation and general liability claims. If the underlying facts and circumstances of the claims change or the historical trend is not indicative of future trends, then the Company may be required to record additional expense or a reduction to expense which could be material to the reported financial condition and results of operations. Lease Accounting: The Company leases substantially all of its store properties and accounts for store leases in accordance with SFAS 13, “Accounting for Leases.” For purposes of recognizing incentives, premiums and minimum rental expenses on a straight−line basis over terms of the leases, the Company uses the date of initial possession to begin amortization, which is generally when the Company enters the space and begins to make improvements in preparation of intended use. For tenant improvement allowances and rent holidays, the Company records a deferred rent liability at the inception of the lease term and amortizes the deferred rent over the terms of the leases as reductions to rent expense on the Consolidated Statements of Income. Cautionary Statement Regarding Forward−Looking Statements Certain statements contained in this Report, or in other public filings, press releases, or other written or oral communications made by the Company or our representatives, which are not historical facts are forward−looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward−looking statements address the Company’s plans, activities or events which the Company expects will or may occur in the future and may include express or implied projections of revenue or expenditures, statements of plans and objectives for future operations, growth or initiatives, statements of future economic performance, or statements regarding the outcome or impact of pending or threatened litigation. These forward−looking statements may be identified by the use of the words “plan,” “estimate,” “expect,” “anticipate,” “probably,” “should,” “project,” “intend,” “continue,” and other similar terms and expressions. Various risks, uncertainties and other factors may cause the Company’s actual results to differ materially from those expressed or implied in any forward−looking statements. Factors, uncertainties and risks that may result in actual results differing from such forward−looking information include, but are not limited to those listed below, as well as other factors discussed throughout this Report, including without limitation the factors described under “Critical Accounting Policies.” Success of merchandising and marketing programs The Company undertakes new programs and refines existing programs to increase net sales and its customer base. The Company may be adversely impacted if merchandise and marketing programs fail to attract customers into its stores or if the merchandising programs implemented by the Company are not attractive to its customers. Unusual weather or natural disasters that may impact sales and or operations Extreme changes in weather patterns or other natural disasters influence customer trends and purchases. Likewise, weather patterns and natural disasters may negatively impact sales and/or operation of the Company. Competitive factors The Company is in a highly competitive sector of the discount retail merchandise sector with numerous competitors, some of whom may have greater resources than the Company. The Company competes for customers, merchandise, real 16
  • 21. estate locations and employees. This competitive environment subjects the Company to various risks, including the ability to continue its store growth and provide attractive merchandise to its customers at competitive prices that allow the Company to maintain its profitability. Pricing pressures, including inflation and energy prices Increases in the cost of goods and services, including changes resulting from inflationary pressures, may reduce the Company’s profitability and/or sales. The Company’s ability to pass on incremental pricing changes may be limited due to operational and/or competitive factors. Increases in prices, including changes in energy prices, may impact the Company’s customer base by limiting the amount of discretionary spending of its customers and may impact the Company through increased costs of goods and/or increased operating expenses. Changes in consumer demand and product mix; and changes in overall economic conditions A general slowdown in the U.S. economy may adversely affect the spending of the Company’s customers, which may result in lower net sales than expected on a quarterly or annual basis. In addition, changes in the types of products made available for sale and the selection of the products by customers affect sales, product mix and margins. Future economic conditions affecting disposable consumer income, such as employment levels, business conditions, fuel and energy costs, interest rates, and tax rates, could also adversely affect the Company’s business by reducing spending or causing customers to shift their spending to other products. The impact of acts of war or terrorism and transportation and distribution delays or interruptions Significant acts of terrorism, existing U.S. military efforts, as well as the involvement of the U.S. in other military engagements, could have an adverse impact on the Company by, among other things, disrupting its distribution or information systems, causing dramatic increases in fuel prices which increase the cost of doing business, or impeding the flow of imports or domestic products to the Company. Delays or interruptions in the transportation and distribution of products could have an adverse impact on the Company. Merchandise supply and pricing and the interruption of and dependence on imports The Company has generally been able to obtain sufficient quantities of attractive merchandise at prices that allow the Company to profitably sell such merchandise. Any disruption in that supply and/or the pricing of such merchandise could negatively impact the Company’s operations and results. A significant amount of the goods sold by the Company are imported, and changes to the flow of these goods for any reason could have an adverse impact on the Company. Delays associated with building and opening of distribution facilities and stores and costs of operating distribution facilities and stores The Company maintains a network of distribution facilities in its geographic territory, and constructs new facilities to support its growth. In addition, the Company expands its network of stores through opening new stores and remodeling existing stores each year. Delays in opening distribution facilities or stores could adversely affect the Company’s future operations by slowing growth, which may in turn reduce revenue growth. Adverse changes in the cost to operate distribution facilities and stores, such as changes in labor, utility, and other operating costs, could have an adverse impact on the Company. Adverse changes in inventory shrinkage at the store−level or in distribution facilities could have a negative impact on the Company. Operational difficulties The Company’s stores are decentralized and are managed through a network of geographically dispersed management personnel. Inability of the Company to effectively and efficiently operate its stores, including the ability to control losses resulting from inventory shrinkage, may negatively impact the Company’s sales and/or margin. In addition, the Company relies upon its distribution and logistics network to provide goods to stores in a timely and cost−effective manner; any disruption, unanticipated expense or operational failure related to this process could negatively impact store operations. Finally, the Company’s operations are facilitated by the use of various technologies, the disruption or failure of which could negatively impact the Company’s operations. 17
  • 22. Higher costs, potential problems and achievement of targeted results associated with the implementation of new programs, systems and technology The Company is undertaking a variety of operating initiatives as well as infrastructure initiatives. The failure to properly execute any of these initiatives could have an adverse impact on the future operating results of the Company. Changes in state or federal legislation or regulations, including the effects of legislation and regulations on wage levels and entitlement programs; changes in currency exchange rates, trade restrictions, tariffs, quotas and freight rates Unanticipated changes in federal or state wage requirements or other changes in workplace regulation could adversely impact the Company’s ability to achieve its financial targets. Because a substantial amount of the Company’s imported merchandise comes from China, a change in the Chinese currency policy could negatively impact the Company’s merchandise costs. Changes in trade restrictions, new tariffs and quotas, and higher shipping costs for goods could also adversely impact the ability of the Company to achieve anticipated operating results. Success of new store opening program The Company’s growth is dependent on both increases in sales in existing stores and the ability to open new stores. Unavailability of store locations that the Company deems attractive, delays in the acquisition or opening of new stores, difficulties in staffing and operating new store locations and lack of customer acceptance of stores in expanded market areas all may negatively impact the Company’s new store growth, the costs associated with new stores and/or the profitability of new stores. Changes in the Company’s ability to attract and retain employees, and changes in health care and other insurance costs The growth of the Company could be adversely impacted by its inability to attract and retain employees at the store operations level, in distribution facilities, and at the corporate level, including the Company’s senior management team. Adverse changes in health care costs could also adversely impact the Company’s ability to achieve its operational and financial goals and to offer attractive benefit programs to its employees. Adverse impacts associated with legal proceedings and claims The Company is a party in a variety of legal proceedings and claims, including those described elsewhere in this Report. Operating results for the Company could be adversely impacted if legal proceedings and claims against the Company are made, requiring the payment of cash towards those proceedings or changes to the operation of the business. All of the forward−looking statements made by the Company in this Report and other documents or statements are qualified by these and other factors, risks and uncertainties. Readers are cautioned not to place undue reliance on these forward−looking statements, which speak only as of the date of this Report. The Company does not undertake to publicly update or revise its forward−looking statements even if experience or future changes make it clear that projected results expressed or implied in such statements will not be realized. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to market risk from exposure to changes in interest rates based on its financing, investing and cash management activities. The Company maintains unsecured revolving credit facilities at variable interest rates to meet the short−term needs of its expansion program and seasonal inventory increases. 18
  • 23. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS FAMILY DOLLAR STORES, INC. Report of Independent Registered Public Accounting Firm Consolidated Statements of Income for fiscal 2005, fiscal 2004 and fiscal 2003 Consolidated Balance Sheets as of August 27, 2005, and August 28, 2004 Consolidated Statement of Shareholders’ Equity for fiscal 2005, fiscal 2004 and fiscal 2003 Consolidated Statement of Cash Flows for fiscal 2005, fiscal 2004 and fiscal 2003 Notes to Consolidated Financial Statements 19
  • 24. Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Family Dollar Stores, Inc: We have completed an integrated audit of Family Dollar Stores, Inc.’s August 27, 2005 consolidated financial statements and of its internal control over financial reporting as of August 27, 2005 and audits of its August 28, 2004 and August 30, 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below. Consolidated financial statements In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Family Dollar Stores, Inc., and its subsidiaries at August 27, 2005 and August 28, 2004, and the results of their operations and their cash flows for each of the three years in the period ended August 27, 2005 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. Internal control over financial reporting Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of August 27, 2005 based on criteria established in Internal Control − Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 27, 2005, based on criteria established in Internal Control − Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. PricewaterhouseCoopers LLP Charlotte, North Carolina November 2, 2005 20
  • 25. FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years Ended (in thousands, except per share amounts) August 27, 2005 August 28, 2004 August 30, 2003 Net sales $ 5,824,808 $ 5,281,888 $ 4,750,171 Costs and expenses: Cost of sales 3,908,569 3,496,278 3,145,788 Selling, general and administrative 1,573,444 1,378,948 1,221,239 Cost of sales and operating expenses 5,482,013 4,875,226 4,367,027 Income before income taxes 342,795 406,662 383,144 Income taxes (Note 6) 125,286 148,758 139,835 Net income $ 217,509 $ 257,904 $ 243,309 Net income per common share − basic (Note 10) $ 1.30 $ 1.51 $ 1.41 Average shares − basic (Note 10) 166,791 170,770 172,346 Net income per common share − diluted (Note 10) $ 1.30 $ 1.50 $ 1.40 Average shares − diluted (Note 10) 167,092 171,624 173,354 The accompanying notes are an integral part of the consolidated financial statements. 21
  • 26. FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share and share amounts) August 27, 2005 August 28, 2004 ASSETS Current assets: Cash and cash equivalents $ 105,175 $ 87,023 Investment securities (Note 2) 33,530 120,840 Merchandise inventories 1,090,791 980,124 Deferred income taxes (Note 6) 100,493 84,084 Income tax refund receivable — 1,304 Prepayments and other current assets 24,779 16,937 Total current assets 1,354,768 1,290,312 Property and equipment, net (Note 3) 1,027,475 918,449 Other assets 27,258 15,600 $ 2,409,501 $ 2,224,361 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 574,831 $ 534,405 Accrued liabilities (Note 5) 315,508 266,180 Income taxes payable 4,272 — Total current liabilities 894,611 800,585 Deferred income taxes (Note 6) $ 86,824 $ 86,694 Commitments and contingencies (Note 8) Shareholders’ Equity: (Notes 9 and 10) Preferred stock, $1 par; authorized and unissued 500,000 shares Common stock, $.10 par; authorized 600,000,000 shares; issued 188,871,738 shares at August 27, 2005, and 187,671,318 shares at August 28, 2004, and outstanding 165,262,513 shares at August 27, 2005, and 167,396,998 shares at August 28, 2004 18,887 18,767 Capital in excess of par 133,743 106,853 Retained earnings 1,654,861 1,498,890 1,807,491 1,624,510 Less: common stock held in treasury, at cost (23,609,225 shares at August 27, 2005, and 20,274,320 shares at August 28, 2004) 379,425 287,428 1,428,066 1,337,082 $ 2,409,501 $ 2,224,361 The accompanying notes are an integral part of the consolidated financial statements. 22
  • 27. FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Years Ended August 27, 2005, August 28, 2004, and August 30, 2003 Common Capital in Retained Treasury (in thousands, except per share and share amounts) stock excess of par earnings stock Balance, August 31, 2002 (185,830,901 shares common stock; 12,501,666 shares treasury stock) $ 18,583 $ 63,294 $ 1,103,644 $ 44,944 Net income for the year 243,309 Issuance of 1,079,092 common shares under employee stock option plan, including tax benefits (Note 9) 108 24,098 Purchase of 2,202,200 common shares for treasury 65,851 Issuance of 2,583 shares of treasury stock under the Family Dollar 2000 Outside Directors Plan 65 (16) Less dividends on common stock, $.29 per share (49,890) Balance, August 30, 2003 (186,909,993 shares common stock; 14,701,283 shares treasury stock) 18,691 87,457 1,297,063 110,779 Net income for the year 257,904 Issuance of 761,325 common shares under employee stock option plan, including tax benefits (Note 9) 76 19,318 Purchase of 5,576,100 common shares for treasury 176,674 Issuance of 3,063 shares of treasury stock under the Family Dollar 2000 Outside Directors Plan 78 (25) Less dividends on common stock, $.33 per share (56,077) Balance, August 28, 2004 (187,671,318 shares common stock; 20,274,320 shares treasury stock) 18,767 106,853 1,498,890 287,428 Net income for the year 217,509 Issuance of 1,200,420 common shares under employee stock option plan, including tax benefits (Note 9) 120 26,829 Purchase of 3,338,500 common shares for treasury 92,049 Issuance of 3,595 shares of treasury stock under the Family Dollar 2000 Outside Directors Plan 61 (52) Less dividends on common stock, $.37 per share (61,538) Balance, August 27, 2005 (188,871,738 shares common stock; 23,609,225 shares treasury stock) $ 18,887 $ 133,743 $ 1,654,861 $ 379,425 The accompanying notes are an integral part of the consolidated financial statements. 23
  • 28. FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended (in thousands) August 27, 2005 August 28, 2004 August 30, 2003 Cash flows from operating activities: Net income $ 217,509 $ 257,904 $ 243,309 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 114,733 102,010 92,360 Deferred income taxes (16,279) (4,268) (3,740) Tax benefit from stock option exercises 3,700 4,476 6,815 Loss on disposition of property and equipment 3,306 4,311 3,905 Changes in operating assets and liabilities: Merchandise inventories (110,667) (125,754) (87,739) Income tax refund receivable 1,304 (1,304) 6,469 Prepayments and other current assets (7,842) 16,685 (21,069) Other assets (11,658) 1,480 (3,937) Accounts payable and accrued liabilities 100,974 121,608 65,277 Income taxes payable 4,272 (671) 671 299,352 376,477 302,321 Cash flows from investing activities: Purchases of investment securities (280,100) (282,265) (281,859) Sales of investment securities 367,410 365,924 249,110 Capital expenditures (229,065) (218,748) (220,285) Proceeds from dispositions of property and equipment 2,000 1,550 1,051 (139,755) (133,539) (251,983) Cash flows from financing activities: Purchases of stock for treasury (91,997) (176,649) (65,835) Change in cash overdrafts (12,675) (20,501) 18,381 Proceeds from exercise of stock options 23,310 14,996 17,456 Payment of dividends (60,083) (54,755) (48,242) (141,445) (236,909) (78,240) Net increase (decrease) in cash and cash equivalents 18,152 6,029 (27,902) Cash and cash equivalents at beginning of year 87,023 80,994 108,896 Cash and cash equivalents at end of year $ 105,175 $ 87,023 $ 80,994 Supplemental disclosures of cash flow information Cash paid during the period for: Purchases of property and equipment awaiting processing for payment, included in accounts payable $ 12,239 $ 14,272 $ 15,077 Interest — — — Income taxes 132,288 150,525 129,619 The accompanying notes are an integral part of the consolidated financial statements. 24
  • 29. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended August 27, 2005, August 28, 2004, and August 30, 2003 1. Description of Business and Summary of Significant Accounting Policies: Description of business: The Company operates a chain of neighborhood retail discount stores in 44 contiguous states. The Company manages its business on the basis of one reportable segment. The Company’s products include hardline merchandise such as household products, health and beauty aids, and snacks and other food, and softline merchandise such as clothing, shoes and domestic items. Principles of consolidation: The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All significant intercompany balances and transactions have been eliminated. Cash equivalents: The Company considers all highly liquid investments with an original maturity of three months or less to be “cash equivalents.” The carrying amount of the Company’s cash equivalents approximates fair value due to the short maturities of these investments and consists primarily of money market funds and other overnight investments. The Company maintains cash deposits with major banks, which from time to time may exceed federally insured limits. The Company periodically assesses the financial condition of the institutions and believes that the risk of any loss is minimal. Investment securities: The items classified as investment securities are principally auction rate securities and variable rate demand notes. The Company classifies all investment securities as available−for−sale. Securities accounted for as available−for−sale are required to be reported at fair value with unrealized gains and losses, net of taxes, excluded from net income and shown separately as a component of accumulated other comprehensive income within stockholders’ equity. The securities that the Company has classified as available−for sale generally trade at par and as a result typically do not have any realized or unrealized gains or losses. Merchandise inventories: Inventories are valued using retail prices less markon percentages and approximate the lower of first−in, first−out (FIFO) cost or market. Property and equipment: Property and equipment is stated at cost. Depreciation for financial reporting purposes is calculated using the straight−line method over the estimated useful lives of the related assets. For leasehold improvements, this depreciation is over the shorter of the term of the related lease (generally five years) or the asset’s useful economic life. Estimated useful lives are as follows: Buildings and building improvements 10−40 years Furniture, fixtures and equipment 3−10 years Transportation equipment 3−10 years Leasehold improvements 5−10 years The Company capitalizes certain costs incurred in connection with developing, obtaining and implementing software for internal use. Capitalized costs are amortized over the expected economic life of the assets, generally ranging from five to eight years. Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Revenues: The Company recognizes revenue, net of returns, at the time the customer tenders payment for and takes possession of the merchandise. Insurance liabilities: The Company is primarily self−insured for health care, property loss, workers’ compensation and general liability costs. 25
  • 30. These liabilities are based on the total estimated costs of claims filed and estimates of claims incurred but not reported, less amounts paid against such claims, and are not discounted. Advertising costs: Advertising costs, net of co−op recoveries from vendors, are expensed on the commencement of the advertisement and amounted to $4.7 million and $2.0 million in fiscal 2005 and fiscal 2004 respectively. Net advertising expense amounts were not material in fiscal 2003. Vendor allowances: Cash consideration received from a vendor is presumed to be a reduction of the purchase cost of merchandise and is reflected as a reduction of cost of sales unless it can be demonstrated this offsets an incremental expense, in which case it can be netted against that expense. Store opening and closing costs: The Company charges pre−opening costs against operating results when incurred. For properties under operating lease agreements, the present value of any remaining liability under the lease, net of expected sublease and lease termination recoveries, is expensed when the closing occurs. Selling, general and administrative expenses: Buying, distribution center and occupancy costs, including depreciation, are included in selling, general and administrative expenses. Operating leases: Except for its corporate headquarters and distribution centers, the Company generally conducts its operations from leased facilities. Generally, store real estate leases are for initial terms of from five to ten years with multiple renewal options for additional five−year periods. Certain leases provide for contingent rental payments based upon a percentage of store sales. For purposes of recognizing incentives, premiums and minimum rental expenses on a straight−line basis over terms of the leases, the Company uses the date of initial possession to begin amortization, which is generally when the Company enters the space and begins to make improvements in preparation of intended use. For tenant improvement allowances and rent holidays, the Company records a deferred rent liability at the inception of the lease term and amortizes the deferred rent over the terms of the leases as reductions to rent expense on the Consolidated Statements of Income. The Company also has long−term leases for equipment generally with lease terms of five years or less. Income taxes: The Company records deferred income tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting bases and the income tax bases of its assets and liabilities. Stock options: The Company accounts for stock−based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), and related Interpretations. The exercise price of options awarded under the Company’s 1989 Non−Qualified Stock Option Plan has been equal to the fair market value of the underlying Common Stock on the date of grant. Accordingly, no compensation expense has been recognized for options granted under the plan. Income tax benefits attributable to stock options exercised are credited to capital in excess of par. The Company utilizes the disclosure−only provisions of Statement of Financial Accounting Standards No. 148, “Accounting for Stock−Based Compensation−Transition and Disclosure.” If compensation cost for the Company’s stock−based compensation plan had been determined based on fair value at the grant date for awards under this plan consistent with the methodology prescribed under this statement, net income and net income per share would have been reduced to the pro forma amounts indicated in the table below (in thousands, except per share amounts): 26
  • 31. 2005 2004 2003 Net income — as reported $ 217,509 $ 257,904 $ 243,309 Pro forma stock−based compensation cost (15,374) (8,062) (5,988) Net income — pro forma $ 202,135 $ 249,842 $ 237,321 Net income per share — as reported basic $ 1.30 $ 1.51 $ 1.41 diluted $ 1.30 $ 1.50 $ 1.40 Net income per share — pro forma basic $ 1.21 $ 1.46 $ 1.38 diluted $ 1.21 $ 1.46 $ 1.37 The increase in pro forma stock−based compensation cost in fiscal 2005 was a result of the acceleration of certain “underwater” (i.e. the options have an exercise price in excess of the market value of the stock, determined as of August 26, 2005) options. On August 18, 2005, the Compensation Committee of the Board of Directors of the Company approved the acceleration of the vesting date of certain previously issued and outstanding options under the 1989 Non−Qualified Stock Option Plan, effective as of August 26, 2005. The accelerated vesting program applies to: (i) all unvested options that currently have an exercise price in excess of $40.00/share, including options held by the five most highly compensated executive officers of the Company and (ii) all unvested options that are underwater and are held by employees at the level of manager or below. The Company implemented the acceleration program to enhance retention incentives for current employees and to reduce the compensation expense the Company would otherwise be required to recognize as a result of the Company’s adoption, effective for fiscal 2006, of SFAS 123R. The future expense eliminated as a result of the option acceleration program was approximately $12.9 million, or $8.2 million net of taxes over a period of four years during which the options would have vested. New accounting pronouncement In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R which requires all companies to measure compensation cost for all share−based payments (including employee stock options) at fair value, effective for public companies for interim or annual periods beginning after June 15, 2005. The FASB concluded that companies can adopt the new standard in one of two ways: the modified prospective transition method, in which the company would recognize share−based employee compensation from the beginning of the fiscal period in which the recognition provisions are first applied as if the fair−value−based accounting method had been used to account for all employee awards granted, modified, or settled after the effective date and to any awards that were not fully vested as of the effective date; or the modified retrospective transition method, in which a company would recognize employee compensation cost for periods presented prior to the adoption of SFAS No. 123R in accordance with the original provisions of SFAS No. 123 “Accounting for Stock−Based Compensation,” pursuant to which a company would recognize employee compensation cost in the amounts reported in the pro forma disclosures provided in accordance with SFAS No. 123. The Company will adopt SFAS No. 123R during the first quarter of fiscal 2006 and will use the modified prospective transition method. During fiscal 2006, the Company expects to incur incremental SG&A expense of approximately $6 million to $10 million related to the 1989 Non−Qualified Stock Option Plan as a result of the adoption of SFAS No. 123R. Fiscal year: The Company’s fiscal year generally ends on the Saturday closest to August 31. Use of estimates: The preparation of the Company’s consolidated financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Reclassifications and other: Certain reclassifications of the fiscal 2003 and fiscal 2004 amounts have been made to conform to the fiscal 2005 27
  • 32. presentation. The fourth quarter of fiscal 2005 included an $8.4 million cumulative pre−tax charge to correct property tax accruals on leased properties. 2. Investment Securities The Company’s investments consist of the following short−term available−for−sale securities (in thousands): Gross Gross Unrealized Unrealized Amortized Holding Holding Auction Rate Securities And Variable Rate Demand Notes Cost Gains Losses Fair Value August 27, 2005 $ 33,530 — — $ 33,530 August 28, 2004 $ 120,840 — — $ 120,840 Proceeds from sales of short−term investment securities available−for−sale during fiscal 2005, fiscal 2004 and fiscal 2003 were $367,410, $365,924, and $249,110, respectively. No gains or losses were realized on those sales for fiscal 2005, fiscal 2004 and fiscal 2003. 3. Property and Equipment: August 27, August 28, (in thousands) 2005 2004 Buildings and building improvements $ 445,826 $ 390,363 Furniture, fixtures and equipment 779,895 669,011 Transportation equipment 68,173 60,289 Leasehold improvements 270,156 212,968 Construction in progress 38,871 59,453 1,602,921 1,392,084 Less accumulated depreciation and amortization 642,190 535,765 960,731 856,319 Land 66,744 62,130 $ 1,027,475 $ 918,449 4. Revolving Credit Facilities and Short−Term Borrowings: The Company has unsecured revolving credit facilities with banks for short−term borrowings of up to $200 million. On May 25, 2006, $100 million of the facilities will expire, and the remaining $100 million will expire on May 31, 2010. The Company expects that the facilities expiring on May 25, 2006, will be extended. Any borrowings under these facilities are at a variable interest rate based on short−term market interest rates. The Company had no borrowings against these facilities during fiscal 2005, fiscal 2004 or fiscal 2003. 5. Accrued Liabilities: August 27, August 28, (in thousands) 2005 2004 Compensation $ 44,397 $ 46,066 Self−insurance liabilities 157,134 124,343 Taxes other than income taxes 43,217 36,436 Deferred rent 42,728 28,773 Other 28,032 30,562 $ 315,508 $ 266,180 6. Income Taxes: The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of the end of fiscal 2005 and the end of fiscal 2004, were as follows (in thousands): 28
  • 33. August 27, August 28, 2005 2004 Deferred income tax liabilities: Excess of book over tax basis of property and equipment $ 86,824 $ 86,694 Deferred income tax assets: Excess of tax over book basis of inventories $ 14,901 $ 17,019 Currently nondeductible accruals for: Self−insurance 60,308 47,723 Compensation 8,980 7,137 Deferred rent 12,227 6,743 Other 4,077 5,462 Total deferred income tax assets $ 100,493 $ 84,084 The provisions for income taxes in fiscal 2005, fiscal 2004 and fiscal 2003 were as follows (in thousands): 2005 2004 2003 Current: Federal $ 126,497 $ 138,508 $ 130,923 State 15,068 14,518 12,652 141,565 153,026 143,575 Deferred: Federal (14,463) (3,782) (3,773) State (1,816) (486) 33 (16,279) (4,268) (3,740) Total $ 125,286 $ 148,758 $ 139,835 The following table summarizes the components of income tax expense in fiscal 2005, fiscal 2004 and fiscal 2003 (in thousands): 2005 2004 2003 Income tax % of pre−tax Income tax % of pre−tax Income tax % of pre−tax expense income expense income expense income Computed “expected” federal income tax $ 119,978 35.0 $ 142,331 35.0 $ 134,100 35.0 State income taxes, net of federal income tax benefit 8,632 2.5 9,391 2.3 8,179 2.1 Other (3,324) (1.0) (2,964) (0.7) (2,444) (0.6) Actual income tax expense $ 125,286 36.5 $ 148,758 36.6 $ 139,835 36.5 The Internal Revenue Service is currently examining the Company’s consolidated federal income tax returns for fiscal 2004 and fiscal 2003. Although the ultimate outcome of the examination cannot be presently determined, the Company believes that it has made adequate provision for federal income taxes with respect to all open years. 7. Employee Benefit Plans: Incentive compensation plan: The Company has an incentive profit−sharing plan which provides that, at the discretion of the Board of Directors, the Company may pay certain employees and officers an aggregate amount not to exceed 5% of the Company’s consolidated income before income taxes. There were no expenses under the profit−sharing plan in fiscal 2005. Expenses under the profit−sharing 29
  • 34. plan were $5.5 million in fiscal 2004 and $7.3 million in fiscal 2003. Compensation deferral plans: The Company has a voluntary compensation deferral plan, under Section 401(k) of the Internal Revenue Code, available to eligible employees. At the discretion of the Board of Directors, the Company makes contributions to the plan which are allocated to participants, and in which they become vested, in accordance with formulas and schedules defined by the plan. Company expenses for contributions to the plan were $3.0 million in fiscal 2005, $2.7 million in fiscal 2004 and $2.3 million in fiscal 2003. In fiscal 2003, the Company adopted a deferred compensation plan to provide certain key management employees the ability to defer a portion of their base compensation and bonuses. The plan is an unfunded nonqualified plan. The deferred amounts and earnings thereon are payable to participants, or designated beneficiaries, at specified future dates, upon retirement or death. The Company does not make contributions to this plan or guarantee earnings. 8. Commitments and Contingencies: Operating leases: Rental expenses on all operating leases, both cancelable and non−cancelable, for fiscal 2005, fiscal 2004 and fiscal 2003 were as follows (in thousands): 2005 2004 2003 Minimum rentals, net of minor sublease rentals $ 274,562 $ 238,188 $ 210,268 Contingent rentals 4,670 4,722 5,134 $ 279,232 $ 242,910 $ 215,402 The following table shows the Company’s obligations and commitments to make future payments under contractual obligations, including future minimum rental payments required under operating leases that have initial or remaining non−cancelable lease terms in excess of one year at the end of fiscal 2005 (in thousands): Payments Due During One Year Fiscal Period Ending Contractual Obligations Total August 2006 August 2007 August 2008 August 2009 August 2010 Thereafter Merchandise letters of credit $ 125,613 $ 125,613 $ — $ — $ — $ — $ — Operating leases 1,135,810 252,588 225,649 188,636 150,096 107,522 211,319 Construction obligations 58,992 58,992 — — — — — Total $ 1,320,415 $ 437,193 $ 225,649 $ 188,636 $ 150,096 $ 107,522 $ 211,319 Most of the Company’s operating leases provide the Company with an option to extend the term of the lease at designated rates. The following table shows the Company’s other commercial commitments at the end of fiscal 2005 (in thousands): Total Amounts Other Commercial Commitments Committed Standby letters of credit $ 114,979 Surety bonds 6,458 Total $ 121,437 At the end of fiscal 2005, approximately $78.1 million of the merchandise letters of credit are included in accounts payable on the Company’s consolidated balance sheet. A substantial portion of the outstanding amount of standby letters of credit and surety bonds (which are primarily renewed on an annual basis) are used as surety for future premium and deductible payments to the Company’s workers’ compensation and general liability insurance carrier. The Company accrues for these liabilities based on the total estimated costs of claims filed and claims incurred but not reported, and are not discounted. 30
  • 35. Litigation: On January 30, 2001, Janice Morgan and Barbara Richardson, two individuals who have held the position of Store Manager for subsidiaries of the Company, filed a Complaint against the Company in the United States District Court for the Northern District of Alabama. Thereafter, pursuant to the Court’s ruling, notice of the pendency of the lawsuit was sent to approximately 13,000 current and former Store Managers holding the position on or after July 1, 1999. Approximately 2,550 of those receiving such notice filed consent forms and joined the lawsuit as plaintiffs, including approximately 2,300 former Store Managers and approximately 250 then current employees. After rulings by the Court on motions to dismiss certain plaintiffs filed by the Company and motions to reconsider filed by plaintiffs, 1,424 plaintiffs remained in the case at the commencement of trial. The case has proceeded as a collective action under the Fair Labor Standards Act (“FLSA”). The Complaint alleges that the Company violated the FLSA by classifying the named plaintiffs and other similarly situated current and former Store Managers as “exempt” employees who are not entitled to overtime compensation. Plaintiffs seek to recover unpaid overtime compensation in an amount currently estimated to be up to approximately $50 million, liquidated damages equal to the overtime award, if any, plus an award of attorneys’ fees, costs and expenses, and such other relief as the Court may deem proper. A jury trial in this case commenced on June 13, 2005, in Tuscaloosa, Alabama, and ended on June 28, 2005, with the judge declaring a mistrial after the jury was unable to reach a unanimous decision in the matter. The case is scheduled to be retried commencing on February 21, 2006. In general, the Company continues to believe that the Store Managers are “exempt” employees under the FLSA and have been properly compensated and that the Company has meritorious defenses that should enable it ultimately to prevail. However, the outcome of any litigation is inherently uncertain. Resolution of this matter could have a material adverse effect on the Company’s financial position, liquidity or results of operation. The Company is involved in numerous other legal proceedings and claims incidental to its business, including litigation related to alleged failures to comply with various state and federal employment laws. While the ultimate outcome cannot be determined, the Company currently believes that these proceedings and claims, both individually and in the aggregate, should not have a material adverse effect on the Company’s financial position, liquidity or results of operations. However, the outcome of any litigation is inherently uncertain and, if decided adversely to the Company, the Company may be subject to liability that could have a material adverse effect on the Company’s financial position, liquidity or results of operations. 9. Employee Stock Option Plan: The Company’s 1989 Non−Qualified Stock Option Plan provides for the granting of options to key employees to purchase shares of Common Stock at prices not less than fair market value on the date of the grant. Options expire five years from the date of grant and are exercisable to the extent of 40% after the second anniversary of the grant and an additional 30% at each of the following two anniversary dates on a cumulative basis. If the provisions of SFAS No. 123 expensing had been applied, the Company’s net income and net income per common share would have been impacted as summarized in the discussion of the Company’s stock option accounting policy in Note 1. The average fair value of options granted during fiscal 2005, fiscal 2004 and fiscal 2003 is $6.85, $11.47 and $9.14 per share, respectively. The fair value of each option grant is estimated on the date of grant using the Black−Scholes option−pricing model with the following assumptions: 2005 2004 2003 Expected dividend yield 1.25% 0.75% 0.89% Expected stock price volatility 31.82% 36.49% 41.54% Weighted average risk−free interest rate 3.52% 3.06% 2.74% Expected life of options (years) 3.5 3.5 3.5 These assumptions are evaluated and revised, as necessary, to reflect market conditions and experience. The summary of the status of the Company’s stock−based compensation plan as of the end of fiscal 2005, fiscal 2004 and 31
  • 36. fiscal 2003, and changes during the years then ended were as follows (in thousands, except per share amounts): Options Range of Option Prices Weighted Average Outstanding Per Share Exercise Price Balance, August 31, 2002 4,411 $ 11.38 to $ 35.50 $ 20.05 Granted 1,793 24.75 to 39.00 28.99 Exercised (1,079) 11.38 to 27.75 16.11 Canceled (124) 15.00 to 37.50 24.95 Balance, August 30, 2003 5,001 $ 14.75 to $ 39.00 $ 23.99 Granted 2,036 26.00 to 44.00 39.56 Exercised (761) 14.75 to 31.25 19.60 Canceled (320) 16.00 to 42.25 30.55 Balance, August 28, 2004 5,956 $ 14.75 to $ 44.00 $ 29.52 Granted 2,113 20.75 to 33.25 26.99 Exercised (1,200) 14.75 to 32.25 18.71 Canceled (807) 16.00 to 44.00 32.05 Balance, August 27, 2005 6,062 $ 17.75 to $ 44.00 $ 30.44 At the end of fiscal 2005, fiscal 2004 and fiscal 2003, options for 3.6 million, 1.2 million, and 1.0 million shares were exercisable, respectively. The following table summarizes information about stock options outstanding at the end of fiscal 2005 (in thousands, except per share amounts): Options Outstanding Options Exercisable Number Weighted Average Number Outstanding at Remaining Weighted Average Exercisable at Weighted Average Range of Exercise Prices August 27, 2005 Contractual Life Exercise Price August 27, 2005 Exercise Price $17.75 to $ 26.99 1,251 1.81 years $ 24.19 852 $ 24.28 27.00 to 34.75 3,276 3.22 28.14 1,274 28.39 34.76 to 44.00 1,535 3.07 40.46 1,462 40.62 $17.75 to $ 44.00 6,062 2.89 years $ 30.44 3,588 $ 32.40 At the end of fiscal 2005, fiscal 2004 and fiscal 2003, shares available for granting of stock options under the Company’s stock option plan were 4.2 million, 5.5 million and 7.2 million shares, respectively. 10. Common Stock: Basic net income per common share is computed by dividing net income by the weighted average number of shares outstanding during each period. Diluted net income per common share gives effect to all securities representing potential common shares that were dilutive and outstanding during the period. The exercise prices for certain of the outstanding stock options that the Company has awarded exceed the average market price of the Company’s Common Stock. Such stock options are antidilutive (options for 3.4 million, 2.0 million and 0.5 million at the end of fiscal 2005, fiscal 2004 and fiscal 2003, respectively) and were not included in the computation of diluted net income per common share. In the calculation of diluted net income per common share, the denominator includes the number of additional common shares that would have been outstanding if the Company’s outstanding dilutive stock options had been exercised. During fiscal 2004 and fiscal 2003, the Company purchased in the open market 5.6 million and 2.2 million shares of its Common Stock, respectively, at a cost of $176.7 million and $65.9 million, respectively. On April 13, 2005, the Company announced that the Board of Directors authorized the purchase of up to an additional 5 million shares of the Company’s Common Stock from time to time as market conditions warrant. On August 19, 2005, the Company announced that the Board of Directors authorized the purchase of an additional $300 million of the Company’s Common Stock from time to time as market conditions warrant. During fiscal 2005, the Company purchased in the open market 3.3 million shares of the Company’s Common Stock at a cost of $92.0 million. As of the end of fiscal 2005, the Company had approximately 18.7 32
  • 37. million shares authorized to be purchased. The following table sets forth the computation of basic and diluted net income per common share (in thousands, except per share amounts): 2005 2004 2003 Basic net income per share: Net income $ 217,509 $ 257,904 $ 243,309 Weighted average number of shares outstanding 166,791 170,770 172,346 Net income per common share — basic $ 1.30 $ 1.51 $ 1.41 Diluted net income per share: Net income $ 217,509 $ 257,904 $ 243,309 Weighted average number of shares outstanding 166,791 170,770 172,346 Effect of dilutive securities — stock options 301 854 1,008 Average shares — diluted 167,092 171,624 173,354 Net income per common share — diluted $ 1.30 $ 1.50 $ 1.40 11. Unaudited Summaries of Quarterly Results: (in thousands, except per share amounts) First Quarter Second Quarter Third Quarter Fourth Quarter 2005 Net sales $ 1,380,245 $ 1,586,754 $ 1,427,966 $ 1,429,843 Gross margin 460,352 520,919 479,352 455,616 Net income 54,429 80,073 53,774 29,233(1) Net income per common share(2) $ 0.32 $ 0.48 $ 0.32 $ 0.18(1) 2004 Net sales $ 1,244,683 $ 1,402,798 $ 1,310,159 $ 1,324,248 Gross margin 431,325 473,814 457,376 423,095 Net income 63,437 80,432 72,383 41,652 Net income per common share(2) $ 0.37 $ 0.46 $ 0.42 $ 0.25 (1) Includes an $8.4 million cumulative pre−tax charge to correct property tax accruals on leased properties. (2) Figures represent diluted earnings per share. 12. Related Party Transactions: The Company purchased a variety of merchandise in the ordinary course of business from entities owned or represented by non−employee family members of the Company’s former Chairman of the Board and the current Chairman of the Board and Chief Executive Officer. These transactions totaled approximately $1.2 million, $1.2 million, and $17.8 million in fiscal 2005, fiscal 2004 and fiscal 2003, respectively. 13. Subsequent Events On September 27, 2005, the Company obtained $250 million in aggregate proceeds through a private placement under Section 4(2) of the Securities Act of 1933, as amended, of unsecured Senior Notes (the “Notes”) to a group of institutional accredited investors. The Notes were issued in two tranches at par, and rank pari passu in right of payment with the Company’s other unsecured senior indebtedness. The first tranche has an aggregate principal amount of $169 million, is payable in a single installment on September 27, 2015, and bears interest at a rate of 5.41% per annum from the date of issuance. The second tranche has an aggregate principal amount of $81 million, matures on September 27, 2015, with amortization commencing in the sixth year, and bears interest at a rate of 5.24% per annum from the date of issuance. The second tranche has a required principal repayment of $16.2 million on September 27, 2011, and on each September 27 thereafter to and including September 27, 2015. Interest on the Notes will be payable semi−annually in arrears on the 27th day 33
  • 38. of March and September of each year commencing on March 27, 2006. The sale of the Notes was effected in transactions not requiring registration under the Securities Act of 1933, as amended. On October 4, 2005, the Company executed an overnight share repurchase transaction with a bank for the acquisition of 10 million shares, or approximately 6%, of the Company’s outstanding Common Stock for an initial purchase price of $19.97 per share. The transaction was financed with the proceeds of the Company’s issuance of $250 million aggregate principal amount of the Notes. Pursuant to the agreement with the bank, the bank will purchase ten million shares in the open market over the next 3−5 months. At the end of the purchase period, the Company will either receive from or pay to the bank a price adjustment based on the volume weighted average purchase price of the shares acquired compared to the initial purchase price to the bank. Such price adjustment can be either in cash or stock at the discretion of the Company. The Company has limited its potential financial exposure in the event of an increase in its share price above a cap during the purchase period with respect to five million of the repurchased shares. Subsequent to the Company’s fiscal 2005 year end, Hurricane Katrina and Hurricane Rita struck the U.S. Gulf Coast, impacting numerous stores in the afflicted areas. The Company has property insurance that covers most of its property damage. Since the Company’s stores are widely dispersed, lost sales due to closed stores are generally limited and are often offset by increased sales in other stores. Therefore, these storms have not had a material impact in the aggregate on the Company’s financial position, liquidity or results of operations. The long−term impact of these storms is more difficult to forecast. The potential increase in energy costs over the long−term could negatively impact the Company and its customers. However, the resources received by customers from government and private organizations and the funds contributed in the rebuilding effort, could positively impact sales. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures Based on an evaluation by management of the Company (with the participation of the Company’s Chief Executive Officer and Chief Financial Officer), as of the end of the period covered by this report, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a−15(e) and 15d−15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)) were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission (“SEC”) rules and forms and that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. Consistent with the suggestion of the SEC, the Company has formed a Disclosure Committee consisting of key Company personnel designed to review the accuracy and completeness of all disclosures made by the Company. Management’s Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting for Family Dollar Stores. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 34
  • 39. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management (with the participation of the principal executive officer and principal financial officer) conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of August 27, 2005. Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of August 27, 2005, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their attestation report which is included under Item 8. Attestation Report of the Registered Public Accounting Firm Included in Item 8. Changes in Internal Control over Financial Reporting There were no changes in the Company’s internal control over financial reporting during the Company’s fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. ITEM 9B. OTHER INFORMATION None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item as to the Company’s directors, director nominees, audit committee financial expert, audit committee, and procedures for stockholders to recommend director nominees will be included in the Company’s proxy statement to be filed for the Annual Meeting of Stockholders to be held on January 19, 2006, under the captions “Election of Directors” and “Corporate Governance Matters and Committees of the Board of Directors” and is incorporated by reference herein. The information required by this item as to compliance by the Company’s directors, executive officers and certain beneficial owners of the Company’s Common Stock with Section 16(a) of the Securities Exchange Act of 1934 also will be included in said proxy statement under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” and also is incorporated herein by reference. The information required by this item as to executive officers is included in Part I, Item 1 of this Report and also is incorporated herein by reference. The Company has adopted: (i) a Code of Ethics that applies to the Chief Executive Officer and senior financial officers, including the Chief Financial Officer, the principal accounting officer and the controller; (ii) a Code of Business Conduct that governs the actions of all Company employees, including officers; and (iii) a Board of Directors Code of Business Conduct applicable to all directors (collectively the “Codes of Conduct”). The Codes of Conduct are posted within the Investors section of the Company’s Internet Website at www.familydollar.com. The Company will provide a copy of the Codes of Conduct to any stockholder upon request. Any amendments to and/or any waiver from a provision of any of the Codes of Conduct granted to any director, executive officer or any senior financial officer, must be approved by the Board of Directors and will be disclosed on the Company’s Internet Website within three business days following the amendment or waiver. The information contained on or connected to the Company’s Internet Website is not incorporated by reference into this Form 10−K and should not be considered part of this or any other report that the Company files with or furnishes to the Securities and Exchange Commission. 35
  • 40. ITEM 11. EXECUTIVE COMPENSATION The information required by this item will be included in the Company’s proxy statement to be filed for the Annual Meeting of Stockholders to be held on January 19, 2006, under the captions “Executive Compensation” and “Compensation of Directors” and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this item as to security ownership by certain beneficial owners and management will be included in the Company’s proxy statement to be filed for the Annual Meeting of Stockholders to be held on January 19, 2006, under the caption “Ownership of the Company’s Securities” and is incorporated herein by reference. The information required by this item as to securities authorized for issuance under equity compensation plans also will be included in said proxy statement under the caption “Equity Compensation Plan Information” and also is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item will be included in the Company’s proxy statement to be filed for the Annual Meeting of Stockholders to be held on January 19, 2006, under the caption “Related Transactions” and is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this item will be included in the Company’s proxy statement to be filed for the Annual Meeting of Stockholders to be held on January 19, 2006, under the caption “Independent Registered Public Accounting Firm’s Fees and Services” and is incorporated herein by reference. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10−K (a) Documents filed as part of this report: 1. Consolidated Financial Statements (See Item 8): 2. All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions, are inapplicable or the information is included in the Consolidated Financial Statements, and therefore, have been omitted. The Financial Statements of Family Dollar Stores, Inc., (Parent Company) are omitted because the registrant is primarily a holding company and all subsidiaries included in the consolidated financial statements being filed, in the aggregate, do not have minority equity and/or indebtedness to any person other than the registrant or its consolidated subsidiaries in amounts which together exceed 5 percent of the total assets as shown by the most recent year−end consolidated balance sheet. 3. The Exhibits listed below in item (b). (b) The accompanying Index to Exhibits is incorporated herein by reference. 36
  • 41. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FAMILY DOLLAR STORES, INC. (Registrant) Date November 2, 2005 By /s/ Howard R. Levine Howard R. Levine Chairman of the Board (Chief Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the date indicated. Signature Title Date /s/ Howard R. Levine Chairman of the Board, Chief Executive Officer November 2, 2005 Howard R. Levine and Director (Principal Executive Officer) /s/ R. James Kelly Vice Chairman and Chief Financial Officer November 2, 2005 R. James Kelly (Principal Financial Officer) /s/ C. Martin Sowers Senior Vice President−Finance November 2, 2005 C. Martin Sowers (Principal Accounting Officer) /s/ Mark R. Bernstein Director November 2, 2005 Mark R. Bernstein /s/ Sharon Allred Decker Director November 2, 2005 Sharon Allred Decker /s/ Edward C. Dolby Director November 2, 2005 Edward C. Dolby /s/ Glenn A. Eisenberg Director November 2, 2005 Glenn A. Eisenberg /s/ George R. Mahoney, Jr. Director November 2, 2005 George R. Mahoney, Jr. /s/ James G. Martin Director November 2, 2005 James G. Martin 37
  • 42. EXHIBIT INDEX Exhibits incorporated by reference: 3.1.1 Certificate of Incorporation, dated November 24, 1969, (filed as Exhibit 3(a) to the Company’s Registration Statement on Form S−1, No. 2−35468) 3.1.2 Certificate of Amendment, dated February 2, 1972, of Certificate of Incorporation (filed as Exhibit 3(a)(ii) to the Company’s Form 10−K for the year ended August 31, 1980) 3.1.3 Certificate of Amendment, dated January 23, 1979, of Certificate of Incorporation (filed as Exhibit 2 to the Company’s Form 10−Q for the quarter ended February 28, 1979) 3.1.4 Certificate of Amendment, dated January 20, 1983, of Certificate of Incorporation (filed as Exhibit 4(iv) to the Company’s Registration Statement on Form S−3, No. 2−85343) 3.1.5 Certificate of Amendment, dated January 16, 1986, of Certificate of Incorporation (filed as Exhibit 3(a)(v) to the Company’s Form 10−K for the year ended August 31, 1986) 3.1.6 Certificate of Amendment, dated January 15, 1987, of Certificate of Incorporation (filed as Exhibit 3(a)(vi) to the Company’s Form 10−K for the year ended August 31, 1987) 3.1.7 Certificate of Amendment, dated January 15, 1998, of Certificate of Incorporation (filed as Exhibit 3.1 to the Company’s Registration Statement on Form S−8, No. 333−48751) 3.1.8 Certificate of Amendment, dated January 17, 2002, of Certificate of Incorporation filed as Exhibit 3(i) to the Company’s Form 10−Q for the quarter ended March 2, 2002) 3.2 Bylaws, as amended on August 17, 2004 (filed as Exhibit 3(ii) to the Company Form 10−K filing for the fiscal year ended August 28, 2004) 4.1 Sections FOURTH, SIXTH and SEVENTH of the Company’s Certificate of Incorporation and all Amendments thereto (included as Exhibits 3.1.1 – 3.1.8) and Articles II, VII, VIII, XII and XIV of the Company’s Bylaws (included as Exhibit 3.2) * 10.1 Family Dollar Employee Savings and Retirement Plan and Trust, amended and restated as of January 1, 2002 (filed as Exhibit 10 (iii) to the Company’s Form 10−Q for the quarter ended March 2, 2002) 10.2 Amended and Restated Credit Agreement, dated as of May 31, 2001, between the Company and Family Dollar, Inc., as Borrower, and Bank of America, N.A. (filed as Exhibit 10 to the Company’s Form 10−Q for the quarter ended June 2, 2001) 10.3 Amendment dated as of May 29, 2003, between the Company and Family Dollar, Inc., as Borrower, and Bank of America, N.A., amending the Amended and Restated Credit Agreement dated as of May 31, 2001 (filed as Exhibit 10(i) to the Company’s Form 10−Q for the quarter ended May 31, 2003) 10.4 Second Amendment dated as of May 27, 2004, between the Company and Family Dollar, Inc., as Borrower, and Bank of America, N.A., amending the Amended and Restated Credit Agreement dated as of May 31, 2001 (filed as Exhibit 10(a) to the Company’s Report on Form 8−K filed May 27, 2004) 10.5 Credit Agreement, dated as of August 7, 2001, between the Company and Family Dollar, Inc., as Borrower, and First Union National Bank (filed as Exhibit 10(i) to the Company’s Form 10−K for the year ended September 1, 2001) 10.6 First Amendment dated as of May 29, 2003, between the Company and Family Dollar, Inc., as Borrower, and Wachovia Bank, N.A., amending the Credit Agreement dated as of August 7, 2001 (filed as Exhibit 10(ii) to the Company’s Form 10−Q for the quarter ended May 31, 2003) 38
  • 43. 10.7 Second Amendment dated as of May 27, 2004, between the Company and Family Dollar, Inc., as Borrower, and Wachovia Bank, N.A., amending the Credit Agreement dated as of August 7, 2001 (filed as Exhibit 10(b) to the Company’s Report on Form 8−K filed May 27, 2004.) 10.8 Third Amendment to Amended and Restated Credit Agreement between the Company and Family Dollar, Inc., as Borrower, and Bank of America, N.A., dated as of May 16, 2005 (filed as Exhibit 10(a) to the Company’s Report on Form 8−K filed May 17, 2005) 10.9 Third Amendment to Credit Agreement between the Company and Family Dollar, Inc., as Borrower, and Wachovia Bank, National Association, dated as of May 16, 2005 (filed as Exhibit 10(b) to the Company’s Report on Form 8−K filed May 17, 2005) * 10.10 Amendment dated August 29, 2004, to the Employment Agreement dated August 25, 2000, as amended, between the Company and R. David Alexander, Jr. (filed as Exhibit 10(iv) to the Company’s Form 10−K for the year ended August 28, 2004) * 10.11 Retirement Agreement dated September 30, 2002, between the Company and Leon Levine (filed as Exhibit 10 to the Company’s Report on Form 8−K filed October 2, 2002) * 10.12 Family Dollar 2000 Outside Directors Plan, as amended as of November 5, 2003 (filed as Exhibit 10(iv) to the Company’s Form 10−K for the year ended August 30, 2003) 10.13 Enhanced Overnight Share Repurchase Agreement dated October 3, 2005, between Family Dollar Stores, Inc., and Bank of America, N.A. (filed as Exhibit 10 to the Company’s Report on Form 8−K filed October 4, 2005) * 10.14 Employment Agreement dated August 18, 2005, between the Company and Howard R. Levine (filed as Exhibit 10.2 to the Company’s Report on Form 8−K filed August 24, 2005) * 10.15 Employment Agreement dated August 18, 2005, between the Company and R. James Kelly (filed as Exhibit 10.3 to the Company’s Report on Form 8−K filed August 24, 2005) * 10.16 Incentive Profit Sharing Plan, amended as of January 17, 2002 (filed as Exhibit 10(i) to the Company’s Form 10−K for the year ended August 28, 2004) * 10.17 Medical Expense Reimbursement Plan amended as of November 2, 2004 (filed as Exhibit 10(v) to the Company’s Form 10−K for the year ended August 28, 2004) * 10.18 Family Dollar Stores, Inc., 1989 Non−Qualified Stock Option Plan, amended as of August 17, 2004 (filed as Exhibit 10(i) to the Company’s Report on Form 8−K filed January 21, 2005) * 10.19 Resolution of the Board of Directors of Family Dollar Stores, Inc., adopted January 20, 2005 regarding compensation of the Directors (filed as Exhibit 10.2 to the Company’s Report on Form 8−K filed January 21, 2005) * 10.20 Resolution of the Board of Directors of Family Dollar Stores, Inc., adopted August 18, 2005 regarding compensation of the Company’s Lead Director (filed as Exhibit 10.1 to the Company’s Report on Form 8−K filed August 24, 2005) * 10.21 2006 Incentive Plan Guidelines for Long Term Incentive Performance Share Rights Awards (filed as Exhibit 10.1 to the Company’s Report on Form 8−K filed September 29, 2005) * 10.22 Form of Performance Share Rights Award Certificate Awards (filed as Exhibit 10.2 to the Company’s Report on Form 8−K filed September 29, 2005) * 10.23 Letter Agreement dated August 2, 2005 by and between Family Dollar Stores, Inc., and R. David Alexander, Jr. (filed as Exhibit 10 to the Company’s Report on Form 8−K filed August 5, 2005 39
  • 44. 14 Code of Ethics for Chief Executive and Senior Financial Officers (filed as Exhibit 14 to the Company’s Form 10−K for the year ended August 30, 2003) Exhibits filed herewith: 4.2 Form of certificate representing shares of the Company’s Common Stock 10.24 Note Purchase Agreement dated as of September 27, 2005 between Family Dollar Stores, Inc., Family Dollar, Inc., and the various purchasers named therein, relating to $169,000,000 5.41% Series 2005−A Senior Notes, Tranche A, due September 27, 2015; and, $81,000,000 5.24% Series 2005−A Senior Notes, Tranche B, due September 27, 2015 * 10.25 Summary of Family Dollar Stores, Inc., Executive Supplemental Disability Income Plan * 10.26 Family Dollar Stores, Inc., Executive Life Plan * 10.27 Relocation Policy applicable to executive officers of the Company * 10.28 Letter agreement between the Company and Irving Neger dated July 21, 2000 * 10.29 Separation agreement between the Company and Irving Neger dated November 1, 2005 * 10.30 Summary of compensation arrangements of the Company’s named executive officers * 10.31 Letter agreement between the Company and Robert A. George dated July 19, 2005 * 10.32 Employment Agreement dated November 4, 2005 between the Company and Charles S. Gibson, Jr. * 10.33 Amended and Restated Family Dollar Compensation Deferral Plan 21 Subsidiaries of the Company 23 Consent dated November 7, 2005, of PricewaterhouseCoopers LLP, independent registered public accounting firm 31.1 Certification pursuant to Section 302 of the Sarbanes−Oxley Act of Chief Executive Officer 31.2 Certification pursuant to Section 302 of the Sarbanes−Oxley Act of Chief Financial Officer 32.1 Certification pursuant to Section 906 of the Sarbanes−Oxley Act of 2002 of Chief Executive Officer 32.2 Certification pursuant to Section 906 of the Sarbanes−Oxley Act of 2002 of Chief Financial Officer * Exhibit represents a management contract or compensatory plan 40
  • 45. Exhibit 4.2 NUMBER INCORPORATED UNDER THE LAWS SHARES OF THE STATE OF DELAWARE NY 53501 [LOGO] COMMON STOCK PAR VALUE TEN CENTS THIS CERTIFICATE IS TRANSFERABLE IN NEW YORK, NY AND RIDGEFIELD PARK, N.J. CUSIP 307000 10 9 SEE REVERSE SIDE FOR CERTAIN DEFINITIONS FAMILY DOLLAR STORES, INC. [FDO LOGO] This Certifies that Is the owner of FULLY PAID AND NON−ASSESSABLE SHARES OF THE COMMON STOCK OF Family Dollar Stores, Inc., transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate and the share represented hereby are issued and shall be subject to all of the provisions of the Certificate of Incorporation and the By−Laws of the Corporation, as amended from time to time (copies of which are on file with the Transfer Agent), to all of which the holder, by acceptance hereof, assents. This certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. [CORPORATE SEAL] DATED: Countersigned and Registered: MELLON INVESTOR SERVICES LLC BY: TRANSFER AGENT AND REGISTRAR /s/ Howard R. Levine CHAIRMAN OF THE BOARD AUTHORIZED SIGNATURE /s/ George R. Mahoney, Jr. SECRETARY FAMILY DOLLAR STORES, INC.
  • 46. THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS, THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF WHICH IT IS AUTHORIZED TO ISSUE AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS. SUCH REQUEST MAY BE MADE TO THE CORPORATION OR THE TRANSFER AGENT. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM — as tenants in Custodian common UNIF GIFT MIN ACT — TEN ENT — as tenants by the (Cust) (Minor) entireties JT TEN — as joint tenants under Uniform Gifts to Minors Act with right of survivorship and not as tenants in common (State) For value received, hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE Shares represented by the within certificate, and do hereby irrevocably constitute and appoint Attorney to transfer the said shares on the books of the within−named Corporation with full power of substitution in the premises. Dated, NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER. SIGNATURE(S) GUARANTEED: THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad−15.
  • 47. Exhibit 10.24 Conformed Copy Family Dollar Stores, Inc. Family Dollar, Inc. $169,000,000 5.41% Series 2005−A Senior Notes, Tranche A, due September 27, 2015 $81,000,000 5.24% Series 2005−A Senior Notes, Tranche B, due September 27, 2015 Note Purchase Agreement Dated as of September 27, 2005 Table of Contents Section Heading Section 1. Authorization of Notes Section 1.1. Description of Notes Section 1.2. Interest Rate 2 Section 2. Sale and Purchase of Notes 2 Section 2.1. Series A Notes 2 Section 2.2. Additional Series of Notes 2 Section 2.3. Subsidiary Guaranty 4 Section 3. Closing 4 Section 4. Conditions to Closing 5 Section 4.1. Representations and Warranties 5 Section 4.2. Performance; No Default 5 Section 4.3. Compliance Certificates 5 Section 4.4. Opinions of Counsel 6 Section 4.5. Purchase Permitted By Applicable Law, Etc 6 Section 4.6. Sale of Other Notes 6 Section 4.7. Payment of Special Counsel Fees 6 Section 4.8. Private Placement Number 6 Section 4.9. Changes in Corporate Structure 6 Section 4.10. Subsidiary Guaranty 7 Section 4.11. Funding Instructions 7 Section 4.12. Proceedings and Documents 7 Section 5. Representations and Warranties of the Obligors 7 Section 5.1. Organization; Power and Authority 7 Section 5.2. Authorization, Etc 7 Section 5.3. Disclosure 8 Section 5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates 8 Section 5.5. Financial Statements; Material Liabilities 9 Section 5.6. Compliance with Laws, Other Instruments, Etc 9
  • 48. Section 5.7. Governmental Authorizations, Etc 9 Section 5.8. Litigation; Observance of Agreements, Statutes and Orders 9 Section 5.9. Taxes 10 Section 5.10. Title to Property; Leases 10 Section 5.11. Licenses, Permits, Etc 10 Section 5.12. Compliance with ERISA 11 i
  • 49. Section 5.13. Private Offering by the Obligors 11 Section 5.14. Use of Proceeds; Margin Regulations 12 Section 5.15. Existing Debt; Future Liens 12 Section 5.16. Foreign Assets Control Regulations, Etc 12 Section 5.17. Status under Certain Statutes 13 Section 5.18. Environmental Matters 13 Section 5.19. Notes Rank Pari Passu 14 Section 6. Representations of the Purchaser 14 Section 6.1. Purchase for Investment 14 Section 6.2. Accredited Investor 14 Section 6.3. Source of Funds 14 Section 7. Information as to Obligors 16 Section 7.1. Financial and Business Information 16 Section 7.2. Officer’s Certificate 18 Section 7.3. Visitation 19 Section 8. Payment of the Notes 19 Section 8.1. Required Prepayments of Series A Notes 19 Section 8.2. Optional Prepayments with Make−Whole Amount 20 Section 8.3. Allocation of Partial Prepayments 20 Section 8.4. Maturity; Surrender, Etc. 20 Section 8.5. Purchase of Notes 20 Section 8.6. Make−Whole Amount for the Series A Notes 21 Section 8.7. Change in Control 22 Section 9. Affirmative Covenants 24 Section 9.1. Compliance with Law 24 Section 9.2. Insurance 25 Section 9.3. Maintenance of Properties 25 Section 9.4. Payment of Taxes and Claims 25 Section 9.5. Corporate Existence, Etc 25 Section 9.6. Designation of Subsidiaries 26 Section 9.7. Notes to Rank Pari Passu 26 Section 9.8. Additional Subsidiary Guarantors 26 Section 9.9. Books and Records 26 Section 10. Negative Covenants 27 Section 10.1. Consolidated Debt to Consolidated Total Capitalization 27 Section 10.2. Fixed Charges Coverage Ratio 27 Section 10.3. Priority Debt 27 Section 10.4. Limitation on Liens 27 Section 10.5. Sales of Asset 29 ii
  • 50. Section 10.6. Merger and Consolidation 30 Section 10.7. Restricted Subsidiaries 31 Section 10.8. Transactions with Affiliates 31 Section 10.9. Terrorism Sanctions Regulations 31 Section 10.10. Line of Business 31 Section 11. Events of Default 31 Section 12. Remedies on Default, Etc 34 Section 12.1. Acceleration 34 Section 12.2. Other Remedies 34 Section 12.3. Rescission 35 Section 12.4. No Waivers or Election of Remedies, Expenses, Etc 35 Section 13. Registration; Exchange; Substitution of Notes 35 Section 13.1. Registration of Notes 35 Section 13.2. Transfer and Exchange of Notes 36 Section 13.3. Replacement of Notes 36 Section 14. Payments on Notes 37 Section 14.1. Place of Payment 37 Section 14.2. Home Office Payment 37 Section 15. Expenses, Etc 37 Section 15.1. Transaction Expenses 37 Section 15.2. Survival 38 Section 16. Survival of Representations and Warranties; Entire Agreement 38 Section 17. Amendment and Waiver 38 Section 17.1. Requirements 38 Section 17.2. Solicitation of Holders of Notes 39 Section 17.3. Binding Effect, Etc 39 Section 17.4. Notes Held by Obligors, Etc 40 Section 18. Notices 40 Section 19. Reproduction of Documents 41 Section 20. Confidential Information 41 iii
  • 51. Section 21. Substitution of Purchaser 42 Section 22. Miscellaneous 42 Section 22.1. Successors and Assigns 42 Section 22.2. Payments Due on Non−Business Days 43 Section 22.3. Accounting Terms 43 Section 22.4. Severability 43 Section 22.5. Construction 43 Section 22.6. Counterparts 43 Section 22.7. Governing Law 43 Section 22.8. Jurisdiction and Process; Waiver of Jury Trial 44 Section 1. Guaranty 2 Section 2. Representations and Warranties 3 Section 3. Subsidiary Guarantor’s Obligations Unconditional 5 Section 4. Full Recourse Obligations; Pari Passu Ranking 10 Section 5. Waiver 10 Section 6. Waiver of Subrogation 11 Section 7. Subordination 12 Section 8. Effect of Bankruptcy Proceedings, Etc 12 Section 9. Term of Guaranty 13 Section 10. Contribution 13 Section 11. Limitation of Liability 14 Section 12. Negative Pledge 14 Section 13. Supplemental Agreement 14 Section 14. Definitions and Terms Generally 15 iv
  • 52. Section 15. Notices 15 Section 16. Amendments, Etc 16 Section 17. Consent to Jurisdiction; Service of Process 16 Section 18. Waiver of Jury Trial 17 Section 19. Survival 17 Section 20. Severability 18 Section 21. Successors and Assigns 18 Section 22. Table of Contents; Headings 18 Section 23. Counterparts 18 Section 24. Governing Law 18 Section 25. Covenant Compliance 18 v
  • 53. Schedule A — Information Relating to Purchasers Schedule B — Defined Terms Schedule 4.9 — Changes in Corporate Structure Schedule 5.4 — Subsidiaries of the Obligors, Ownership of Subsidiary Stock, Affiliates Schedule 5.5 — Financial Statements Schedule 5.11 — Licenses, Permits, Etc. Schedule 5.15 — Existing Debt Schedule 10.4 — Existing Liens Exhibit 1−(a) — Form of 5.41% Series 2005−A Senior Notes, Tranche A due September 27, 2015 Exhibit 1−(b) — Form of 5.24% Series 2005−A Senior Notes, Tranche B due September 27, 2015 Exhibit 2.3 — Form of Subsidiary Guaranty Exhibit 4.4(a) — Form of Opinion of General Counsel to the Obligors Exhibit 4.4(b) — Form of Opinion of Special Counsel to the Obligors Exhibit 4.4(c) — Form of Opinion of Special Counsel to the Purchasers Exhibit S — Form of Supplement to Note Purchase Agreement vi
  • 54. Family Dollar Stores, Inc. Family Dollar, Inc. 10401 Monroe Road Charlotte, North Carolina 28201 $169,000,000 5.41% Series 2005−A Senior Notes, Tranche A due September 27, 2015 $81,000,000 5.24% Series 2005−A Senior Notes, Tranche B due September 27, 2015 Dated as of September 27, 2005 To the Purchasers listed in the attached Schedule A: Ladies and Gentlemen: Family Dollar Stores, Inc., a Delaware corporation (“FDSI”), and Family Dollar, Inc., a North Carolina corporation (“FDI” and, together with FDSI, the “Obligors”) jointly and severally agree with the Purchasers listed in the attached Schedule A (the “Purchasers”) to this Note Purchase Agreement (this “Agreement”) as follows: Section 1. Authorization of Notes. Section 1.1. Description of Notes. The Obligors will authorize the issue and sale of the following Senior Notes: Series and/or Aggregate Principal Issue Tranche Amount Interest Rate Maturity Date Senior Notes Series 2005−A, Tranche A $ 169,000,000 5.41% September 27, 2015 Senior Notes Series 2005−A, Tranche B $ 81,000,000 5.24% September 27, 2015 The Series 2005−A, Tranche A Senior Notes (the “Tranche A Notes”) and the Series 2005−A, Tranche B Senior Notes (the “Tranche B Notes”) described above (collectively, the “Series A Notes”) together with each Series of Additional Notes which may from time to time be issued pursuant to the provisions of Section 2.2 are collectively referred to as the
  • 55. “Notes” (such term shall also include any such notes issued in substitution therefor pursuant to Section 13 of this Agreement). The Tranche A Notes and Tranche B Notes shall be substantially in the form set out in Exhibit 1(a) and Exhibit 1(b), respectively, with such changes therefrom, if any, as may be approved by the Purchasers and the Obligors. Certain capitalized terms used in this Agreement are defined in Schedule B; references to a “Schedule” or an “Exhibit” are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement. Section 1.2. Interest Rate. The Series A Notes shall bear interest (computed on the basis of a 360−day year of twelve 30−day months) on the unpaid principal thereof from the date of issuance at their respective stated rate of interest payable semi−annually in arrears on the 27th day of March and September in each year and at maturity, commencing on March 27, 2006, until such principal sum shall have become due and payable (whether at maturity, upon notice of prepayment or otherwise) and interest (so computed) on any overdue principal, interest or Make−Whole Amount from the due date thereof (whether by acceleration or otherwise) at the Default Rate until paid. Section 2. Sale and Purchase of Notes. Section 2.1. Series A Notes. Subject to the terms and conditions of this Agreement, the Obligors will issue and sell to each Purchaser and each Purchaser will purchase from the Obligors, at the Closing provided for in Section 3, the Series A Notes in the principal amount specified opposite such Purchaser’s name in Schedule A at the purchase price of 100% of the principal amount thereof. The obligations of each Purchaser hereunder are several and not joint obligations and each Purchaser shall have no obligation and no liability to any Person for the performance or nonperformance by any other Purchaser hereunder. Section 2.2. Additional Series of Notes. The Obligors may, from time to time, in their sole discretion but subject to the terms hereof, issue and sell one or more additional Series of their unsecured promissory notes under the provisions of this Agreement pursuant to a supplement (a “Supplement”) substantially in the form of Exhibit S (with such amendments or modifications thereto as may be agreed to by the parties). Each additional Series of Notes (the “Additional Notes”) issued pursuant to a Supplement shall be subject to the following terms and conditions: (i) each Series of Additional Notes, when so issued, shall be differentiated from all previous Series by sequential alphabetical designation inscribed thereon; (ii) Additional Notes of the same Series may consist of more than one different and separate tranches and may differ with respect to outstanding principal amounts, maturity dates, interest rates and premiums, if any, and price and terms of redemption or payment prior to maturity, but all such different and separate tranches of the same Series shall vote as a single class and constitute one Series; (iii) each Series of Additional Notes shall be dated the date of issue, bear interest at such rate or rates, mature on such date or dates, be subject to such mandatory and optional prepayment on the dates and at the premiums, if any, have such additional or 2
  • 56. different conditions precedent to closing, such representations and warranties and such additional covenants as shall be specified in the Supplement under which such Additional Notes are issued and upon execution of any such Supplement, this Agreement shall be amended (a) to reflect such additional covenants without further action on the part of the holders of the Notes outstanding under this Agreement, provided, that any such additional covenants shall inure to the benefit of all holders of Notes so long as any Additional Notes issued pursuant to such Supplement remain outstanding, and (b) to reflect such representations and warranties as are contained in such Supplement for the benefit of the holders of such Additional Notes in accordance with the provisions of Section 16; (iv) each Series of Additional Notes issued under this Agreement shall be in substantially the form of Exhibit 1 to Exhibit S hereto with such variations, omissions and insertions as are necessary or permitted hereunder; (v) the minimum principal amount of any Note issued under a Supplement shall be $100,000, except as may be necessary to evidence the outstanding amount of any Note originally issued in a denomination of $100,000 or more; (vi) all Additional Notes shall constitute Senior Debt of the Obligors and shall rank pari passu with all other outstanding Notes; and (vii) no Additional Notes shall be issued hereunder if at the time of issuance thereof and after giving effect to the application of the proceeds thereof, any Default or Event of Default shall have occurred and be continuing. The obligations of the Additional Purchasers to purchase any Additional Notes shall be subject to the following conditions precedent, in addition to the conditions specified in the Supplement pursuant to which such Additional Notes may be issued: (a) Compliance Certificate. A duly authorized Senior Financial Officer shall execute and deliver to each Additional Purchaser and each holder of Notes an Officer’s Certificate dated the date of issue of such Series of Additional Notes stating that such officer has reviewed the provisions of this Agreement (including any Supplements hereto) and setting forth the information and computations (in sufficient detail) required in order to establish whether after giving effect to the issuance of the Additional Notes and after giving effect to the application of the proceeds thereof, the Obligors are in compliance with the requirements of Section 10.1 on such date (based upon the financial statements for the most recent fiscal quarter ended prior to the date of such certificate). (b) Execution and Delivery of Supplement. The Obligors and each such Additional Purchaser shall execute and deliver a Supplement substantially in the form of Exhibit S hereto (with such amendments or modifications thereto as may be agreed to by the parties). (c) Representations of Additional Purchasers. Each Additional Purchaser shall have confirmed in the Supplement that the representations set forth in Section 6 are 3
  • 57. true with respect to such Additional Purchaser on and as of the date of issue of the Additional Notes. (d) Execution and Delivery of Guaranty Ratification. Provided a Collateral Release shall not have occurred, each Subsidiary Guarantor shall execute and deliver a Guaranty Ratification in the form attached to the Subsidiary Guaranty. Section 2.3. Subsidiary Guaranty. (a) The payment by the Obligors of all amounts due with respect to the Notes and the performance by the Obligors of their obligations under this Agreement will be absolutely and unconditionally guaranteed by the Subsidiary Guarantors pursuant to the Subsidiary Guaranty Agreement dated as of even date herewith, which shall be substantially in the form of Exhibit 2.3 attached hereto, and otherwise in accordance with the provisions of Section 9.6 hereof (the “Subsidiary Guaranty”). (b) The holders of the Notes agree to discharge and release any Subsidiary Guarantor from the Subsidiary Guaranty upon the written notice of the Obligors, provided that (i) such Subsidiary Guarantor has been released and discharged (or will be released and discharged concurrently with the release of such Subsidiary Guarantor under the Subsidiary Guaranty) as an obligor and guarantor under and in respect of the Bank Credit Agreement and the Obligors so certify to the holders of the Notes in a certificate of a Responsible Officer, (ii) at the time of such release and discharge, the Obligors shall deliver a certificate of a Responsible Officer to the holders of the Notes stating that no Default or Event of Default exists, and (iii) if any fee or other form of consideration is given to any holder of Debt of the Obligors expressly for the purpose of such release, holders of the Notes shall receive equivalent consideration (a “Collateral Release”). Section 3. Closing. The sale and purchase of the Series A Notes to be purchased by each Purchaser shall occur at the offices of Chapman and Cutler LLP, 111 West Monroe Street, Chicago, Illinois 60603 at 10:00 a.m. Central time, at a closing (the “Closing Date”) on September 27, 2005 or on such other Business Day thereafter on or prior to September 27, 2005 as may be agreed upon by the Obligors and the Purchasers. On the Closing Date, the Obligors will deliver to each Purchaser the Series A Notes to be purchased by such Purchaser in the form of a single Tranche A Note or Tranche B Note, as applicable (or such greater number of Tranche A or Tranche B Notes, as applicable, in denominations of at least $100,000 as such Purchaser may request) dated the date of the Closing Date and registered in such Purchaser’s name (or in the name of such Purchaser’s nominee), against delivery by such Purchaser to the Obligors or its order of immediately available funds in the amount of the purchase price therefor by wire transfer of immediately available funds for the account of the Obligors to Account Number , at Bank of America, NA, 11170 N. Central Expressway, Dallas, Texas, ABA Number , in the Account Name of “Family Dollar Stores, Inc.” If, on the Closing Date, the Obligors shall fail to tender such Series A Notes to any Purchaser as provided above in this Section 3, or any of the conditions specified in Section 4 shall not have been fulfilled to any Purchaser’s satisfaction, such Purchaser shall, at such Purchaser’s election, be 4
  • 58. relieved of all further obligations under this Agreement, without thereby waiving any rights such Purchaser may have by reason of such failure or such nonfulfillment. Section 4. Conditions to Closing. Each Purchaser’s obligation to purchase and pay for the Series A Notes to be sold to such Purchaser at the Closing is subject to the fulfillment to such Purchaser’s satisfaction, prior to or at the Closing, of the following conditions applicable to the Closing Date: Section 4.1. Representations and Warranties. (a) Representations and Warranties of the Obligors. The representations and warranties of each Obligor in this Agreement shall be correct when made and at the time of the Closing. (b) Representations and Warranties of the Subsidiary Guarantors. The representations and warranties of the Subsidiary Guarantors in the Subsidiary Guaranty shall be correct when made and at the time of the Closing. Section 4.2. Performance; No Default. Each Obligor and each Subsidiary Guarantor shall have performed and complied with all agreements and conditions contained in this Agreement and the Subsidiary Guaranty required to be performed or complied with by the Obligors and each such Subsidiary Guarantor prior to or at the Closing, and after giving effect to the issue and sale of the Series A Notes (and the application of the proceeds thereof as contemplated by Section 5.14), no Default or Event of Default shall have occurred and be continuing. Neither any Obligor nor any Subsidiary shall have entered into any transaction since the date of the Memorandum that would have been prohibited by Section 10 hereof had such Sections applied since such date. Section 4.3. Compliance Certificates. (a) Officer’s Certificate of the Obligors. The Obligors shall have delivered to such Purchaser an Officer’s Certificate, dated the Closing Date, certifying that the conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled. (b) Secretary’s Certificate of the Obligors. Each Obligor shall have delivered to such Purchaser a certificate, dated the Closing Date, certifying as to the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of the Series A Notes and this Agreement. (c) Officer’s Certificate of the Subsidiary Guarantors. Each Subsidiary Guarantor shall have delivered to such Purchaser an Officer’s Certificate, dated the Closing Date, certifying that the conditions specified in Sections 4.1(b), 4.2 and 4.9 have been fulfilled. (d) Secretary’s Certificate of the Subsidiary Guarantors. Each Subsidiary Guarantor shall have delivered to such Purchaser a certificate, dated the Closing Date, certifying as to the 5
  • 59. resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of the Subsidiary Guaranty. Section 4.4. Opinions of Counsel. Such Purchaser shall have received opinions in form and substance satisfactory to such Purchaser, dated the Closing Date (a) from Janet G. Kelley, General Counsel of the Obligors, covering the matters set forth in Exhibit 4.4(a) and covering such other matters incident to the transactions contemplated hereby as such Purchaser or its counsel may reasonably request (and the Obligors hereby instruct their counsel to deliver such opinion to the Purchasers), (b) from Alston & Bird LLP, special counsel for the Obligors, covering the matters set forth in Exhibit 4.4(b) and covering such other matters incident to the transactions contemplated hereby as such Purchaser or its counsel may reasonably request (and the Obligors hereby instruct their counsel to deliver such opinion to the Purchasers), and (c) from Chapman and Cutler LLP, the Purchasers’ special counsel in connection with such transactions, substantially in the form set forth in Exhibit 4.4(c) and covering such other matters incident to such transactions as such Purchaser may reasonably request. Section 4.5. Purchase Permitted By Applicable Law, Etc. On the date of the Closing such Purchaser’s purchase of Series A Notes shall (a) be permitted by the laws and regulations of each jurisdiction to which such Purchaser is subject, without recourse to provisions (such as section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (b) not violate any applicable law or regulation (including, without limitation, Regulation T, U or X of the Board of Governors of the Federal Reserve System) and (c) not subject such Purchaser to any tax, penalty or liability under or pursuant to any applicable law or regulation, which law or regulation was not in effect on the date hereof. If requested by such Purchaser, such Purchaser shall have received an Officer’s Certificate certifying as to such matters of fact as such Purchaser may reasonably specify to enable such Purchaser to determine whether such purchase is so permitted. Section 4.6. Sale of Other Notes. Contemporaneously with the Closing the Obligors shall sell to each other Purchaser and each other Purchaser shall purchase the Series A Notes to be purchased by it at the Closing as specified in Schedule A. Section 4.7. Payment of Special Counsel Fees. Without limiting the provisions of Section 15.1, the Obligors shall have paid on or before the Closing Date, the reasonable fees, reasonable charges and reasonable disbursements of the Purchasers’ special counsel referred to in Section 4.4 to the extent reflected in a statement of such counsel rendered to the Obligors at least one Business Day prior to the Closing Date. Section 4.8. Private Placement Number. A Private Placement Number issued by Standard & Poor’s CUSIP Service Bureau (in cooperation with the Securities Valuation Office of the National Association of Insurance Commissioners) shall have been obtained for the Series A Notes. Section 4.9. Changes in Corporate Structure. Neither any Obligor nor any Subsidiary Guarantor shall have changed its jurisdiction of organization or, except as reflected in Schedule 4.9, been a party to any merger or consolidation, or shall have succeeded to all or any substantial 6
  • 60. part of the liabilities of any other entity, at any time following the date of the most recent financial statements referred to in Schedule 5.5. Section 4.10. Subsidiary Guaranty. The Subsidiary Guaranty shall have been duly authorized, executed and delivered by each Subsidiary Guarantor, shall constitute the legal, valid and binding contract and agreement of each Subsidiary Guarantor and such Purchaser shall have received a true, correct and complete copy thereof. Section 4.11. Funding Instructions. At least three Business Days prior to the date of the Closing, each Purchaser shall have received written instructions signed by a Responsible Officer on letterhead of an Obligor confirming the information specified in Section 3 including (i) the name and address of the transferee bank, (ii) such transferee bank’s ABA number and (iii) the account name and number into which the purchase price for the Series A Notes is to be deposited. Section 4.12. Proceedings and Documents. All corporate and other organizational proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory to such Purchaser and its special counsel, and such Purchaser and its special counsel shall have received all such counterpart originals or certified or other copies of such documents as such Purchaser or such special counsel may reasonably request. Section 5. Representations and Warranties of the Obligors. Each Obligor represents and warrants to each Purchaser on the date hereof and the Closing Date that: Section 5.1. Organization; Power and Authority. Each Obligor is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each Obligor has the corporate power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver this Agreement and the Series A Notes and to perform the provisions hereof and thereof. Section 5.2. Authorization, Etc. This Agreement and the Notes to be issued on the Closing Date have been duly authorized by all necessary corporate action on the part of each Obligor, and this Agreement constitutes, and upon execution and delivery thereof each such Note upon issuance will constitute, a legal, valid and binding obligation of each Obligor enforceable against each Obligor in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 7
  • 61. Section 5.3. Disclosure. The Obligors, through their agent, Banc of America Securities LLC, have delivered to each Purchaser a copy of a Private Placement Memorandum, dated August, 2005 (the “Memorandum”), relating to the transactions contemplated hereby. The Memorandum fairly describes, in all material respects, the general nature of the business and principal properties of the Obligors and their Restricted Subsidiaries. This Agreement, the Memorandum, the documents, certificates or other writings delivered to the Purchasers by or on behalf of an Obligor in connection with the transactions contemplated hereby and the financial statements listed in Schedule 5.5, in each case, delivered to the Purchasers prior to September 6, 2005 (this Agreement, the Memorandum and such documents, certificates or other writings and such financial statements being referred to, collectively, as the “Disclosure Documents”), taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made. Except as disclosed in the Disclosure Documents, since August 28, 2004, there has been no change in the financial condition, operations, business or properties of the Obligors or any of their Restricted Subsidiaries except changes that individually or in the aggregate would not reasonably be expected to have a Material Adverse Effect. There is no fact known to any Obligor that would reasonably be expected to have a Material Adverse Effect that has not been set forth herein or in the Disclosure Documents. Section 5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates. (a) Schedule 5.4 contains (except as noted therein) complete and correct lists (i) of the Obligors’ Restricted and Unrestricted Subsidiaries, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Obligors and each other Subsidiary, and all other Investments of the Obligors and their Restricted Subsidiaries, (ii) of the Obligors’ Affiliates, other than Subsidiaries, and (iii) of the Obligors’ directors and senior officers. (b) All of the outstanding shares of capital stock or similar equity interests of each Subsidiary shown in Schedule 5.4 as being owned by the Obligors and their Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by the Obligors or another Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule 5.4). (c) Each Subsidiary identified in Schedule 5.4 is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each such Subsidiary has the corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact. (d) No Subsidiary is a party to, or otherwise subject to, any legal restriction or any agreement (other than this Agreement, the agreements listed on Schedule 5.4 and customary limitations imposed by corporate law statutes) restricting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to any Obligor or any of 8
  • 62. its Subsidiaries that owns outstanding shares of capital stock or similar equity interests of such Subsidiary. Section 5.5. Financial Statements; Material Liabilities. The Obligors have delivered to each Purchaser copies of the financial statements of FDSI and its Subsidiaries listed on Schedule 5.5. All of said financial statements (including in each case the related schedules and notes) fairly present in all material respects the consolidated financial position of the FDSI and its Subsidiaries as of the respective dates specified in such Schedule and the consolidated results of their operations and cash flows for the respective periods so specified and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to normal year−end adjustments). The Obligors and its Subsidiaries do not have any Material liabilities that are not disclosed on such financial statements or otherwise disclosed in the Disclosure Documents. Section 5.6. Compliance with Laws, Other Instruments, Etc. The execution, delivery and performance by any Obligor of this Agreement and the Series A Notes will not (a) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of any Obligor or any Subsidiary under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or by−laws, or any other agreement or instrument to which any Obligor or any Subsidiary is bound or by which any Obligor or any Subsidiary or any of their respective properties may be bound or affected, (b) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to any Obligor or any Subsidiary, or (c) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Obligors or any Subsidiary. Section 5.7. Governmental Authorizations, Etc. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by any Obligor of this Agreement or the Series A Notes (other than the filing of a Form 8−K with the Securities and Exchange Commission pursuant to the Securities and Exchange Act of 1934 (as amended)). Section 5.8. Litigation; Observance of Agreements, Statutes and Orders. (a) Except for the FLSA Litigation, there are no actions, suits, investigations or proceedings pending or, to the knowledge of any Obligor, threatened against or affecting any Obligor or any Restricted Subsidiary or any property of any Obligor or any Restricted Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect. (b) The FLSA Litigation, individually or in the aggregate, would not reasonably be expected to have a Limited Material Adverse Effect. (c) Neither any Obligor nor any Restricted Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including without limitation Environmental 9
  • 63. Laws or the USA Patriot Act) of any Governmental Authority, which default or violation, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect. Section 5.9. Taxes. Each Obligor and its Subsidiaries have filed all Material tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments levied upon them or their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (a) the amount of which is not individually or in the aggregate Material or (b) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which an Obligor or a Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. No Obligor knows of any basis for any other tax or assessment that would reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of the Obligors and their Subsidiaries in respect of federal, state or other taxes for all fiscal periods are adequate in all Material respects. The federal income tax liabilities of the Obligors and their Subsidiaries have been finally determined (whether by reason of completed audits or the statute of limitations having run, other than for allegations of fraud) for all fiscal years up to and including the fiscal year ended September 1, 2001. Section 5.10. Title to Property; Leases. Each Obligor and its Restricted Subsidiaries have good and sufficient title to their respective properties which the Obligors and their Restricted Subsidiaries own or purport to own that individually or in the aggregate are Material, including all such properties reflected in the most recent audited balance sheet referred to in Section 5.5 or purported to have been acquired by the Obligors or any Restricted Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by this Agreement. All leases that individually or in the aggregate are Material are valid and subsisting and are in full force and effect in all material respects. Section 5.11. Licenses, Permits, Etc. Except as disclosed in Schedule 5.11, (a) the Obligors and their Restricted Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, proprietary software, service marks, trademarks and trade names, or rights thereto, that individually or in the aggregate are Material, without known conflict with the rights of others; (b) to the best knowledge of each Obligor, no product of such Obligor or any of its Restricted Subsidiaries infringes in any respect any license, permit, franchise, authorization, patent, copyright, proprietary software, service mark, trademark, trade name or other right owned by any other Person that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect; and (c) to the best knowledge of each Obligor, there is no violation by any Person of any right of such Obligor or any of its Restricted Subsidiaries with respect to any patent, copyright, proprietary software, service mark, trademark, trade name or other right 10
  • 64. owned or used by such Obligor or any of its Restricted Subsidiaries that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect. Section 5.12. Compliance with ERISA. (a) Each Obligor and each ERISA Affiliate have operated and administered each Plan in compliance with all applicable laws except for such instances of noncompliance as have not resulted in and would not reasonably be expected to result in a Material Adverse Effect. Neither any Obligor nor any ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans (as defined in section 3 of ERISA), and no event, transaction or condition has occurred or exists that would reasonably be expected to result in the incurrence of any such liability by any Obligor or any ERISA Affiliate, or in the imposition of any Lien on any of the rights, properties or assets of any Obligor or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to section 401(a)(29) or 412 of the Code or section 4068 of ERISA, other than such liabilities or Liens as would not be individually or in the aggregate Material. (b) The present value of the aggregate benefit liabilities under each of the Plans (other than Multiemployer Plans), determined as of the end of such Plan’s most recently ended plan year on the basis of the actuarial assumptions specified for funding purposes in such Plan’s most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities. The term “benefit liabilities” has the meaning specified in section 4001 of ERISA and the terms “current value” and “present value” have the meaning specified in section 3 of ERISA. (c) No Obligor nor any of its ERISA Affiliates has incurred any withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer Plans that individually or in the aggregate are Material. (d) The expected post−retirement benefit obligation (determined as of the last day of FDSI’s most recently ended fiscal year in accordance with Financial Accounting Standards Board Statement No. 106, without regard to liabilities attributable to continuation coverage mandated by section 4980B of the Code) of FDSI and its Subsidiaries is not Material. (e) The execution and delivery of this Agreement and the issuance and sale of the Series A Notes hereunder will not involve any transaction that is subject to the prohibitions of Section 406 of ERISA or in connection with which a tax would be imposed pursuant to Section 4975(c)(1)(A)−(D) of the Code. The representation by each Obligor in the first sentence of this Section 5.12(e) is made in reliance upon and subject to the accuracy of each Purchaser’s representation in Section 6.3 as to the sources of the funds to be used to pay the purchase price of the Series A Notes to be purchased by such Purchaser. Section 5.13. Private Offering by the Obligors. Neither any Obligor nor anyone acting on any Obligor’s behalf has offered the Series A Notes or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any Person other than the Purchasers and not more than 45 other Institutional Investors, each of which has been offered the Series A Notes in connection with a private sale for 11
  • 65. investment. Neither any Obligor nor anyone acting on its behalf has taken, or will take, any action that would subject the issuance or sale of the Series A Notes to the registration requirements of Section 5 of the Securities Act or to the registration requirements of any securities or blue sky laws of any applicable jurisdiction. Section 5.14. Use of Proceeds; Margin Regulations. The Obligors will apply the proceeds of the sale of the Series A Notes to repurchase shares of common stock of FDSI, which shares will be retired upon such repurchase, and for other general corporate purposes of the Obligors. No part of the proceeds from the sale of the Series A Notes hereunder will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System (12 CFR 221), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve any Obligor in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin stock does not constitute more than 5% of the value of the consolidated assets of FDSI and its Subsidiaries and no Obligor has any present intention that margin stock will constitute more than 5% of the value of such assets. As used in this Section, the terms “margin stock” and “purpose of buying or carrying” shall have the meanings assigned to them in said Regulation U. Section 5.15. Existing Debt; Future Liens. (a) Except as described therein, Schedule 5.15 sets forth a complete and correct list of all outstanding Debt of the Obligors and their Restricted Subsidiaries as of June 30, 2005, since which date there has been no Material change in the amounts, interest rates, sinking funds, installment payments or maturities of the Debt of the Obligors or their Restricted Subsidiaries. Neither any Obligor nor any Restricted Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Debt of an Obligor or such Restricted Subsidiary, and no event or condition exists with respect to any Debt of an Obligor or any Restricted Subsidiary, that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Debt to become due and payable before its stated maturity or before its regularly scheduled dates of payment. (b) Except as disclosed in Schedule 5.15, neither an Obligor nor any Restricted Subsidiary has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien not permitted by Section 10.4. (c) Neither any Obligor nor any Subsidiary is a party to, or otherwise subject to any provision contained in, any instrument evidencing Debt of an Obligor or such Subsidiary, any agreement relating thereto or any other agreement (including, but not limited to, its charter or other organizational document) which limits the amount of, or otherwise imposes restrictions on the incurring of, Debt of an Obligor, except as specifically indicated in Schedule 5.15. Section 5.16. Foreign Assets Control Regulations, Etc. (a) Neither the sale of the Series A Notes by any Obligor hereunder nor its use of the proceeds thereof will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United 12
  • 66. States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto. (b) Neither any Obligor nor any Subsidiary is a Person described or designated in the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets Control or in Section 1 of the Anti−Terrorism Order. Each Obligor and its Subsidiaries are in compliance, in all material respects, with the USA Patriot Act. (c) No part of the proceeds from the sale of the Series A Notes hereunder will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended, assuming in all cases that such Act applies to the Obligors. Section 5.17. Status under Certain Statutes. Neither any Obligor nor any Restricted Subsidiary is an “investment company” registered or required to be registered under the Investment Company Act of 1940, as amended, or is subject to regulation under the Public Utility Holding Company Act of 1935, as amended, the ICC Termination Act of 1995, as amended, or the Federal Power Act, as amended. Section 5.18. Environmental Matters. (a) Neither any Obligor nor any Restricted Subsidiary has knowledge of any liability or has received any notice of any liability, and no proceeding has been instituted raising any liability against any Obligor or any of its Restricted Subsidiaries or any of their respective real properties now or formerly owned, leased or operated by any of them, or other assets, alleging any damage to the environment or violation of any Environmental Laws, except, in each case, such as would not reasonably be expected to result in a Material Adverse Effect. (b) Neither any Obligor nor any Restricted Subsidiary has knowledge of any facts which would give rise to any liability, public or private, of violation of Environmental Laws or damage to the environment emanating from, occurring on or in any way related to real properties now or formerly owned, leased or operated by any of them or to other assets or their use, except, in each case, such as would not reasonably be expected to result in a Material Adverse Effect. (c) Neither any Obligor nor any of its Restricted Subsidiaries has stored any Hazardous Materials on real properties now or formerly owned, leased or operated by any of them or has disposed of any Hazardous Materials in each case in a manner contrary to any Environmental Laws in each case in any manner that would reasonably be expected to result in a Material Adverse Effect. (d) All buildings on all real properties now owned, leased or operated by the Obligors or any of their Restricted Subsidiaries are in compliance with applicable Environmental Laws, except where failure to comply would not reasonably be expected to result in a Material Adverse Effect. 13
  • 67. Section 5.19. Notes Rank Pari Passu. The obligations of the Obligors under this Agreement and the Notes rank pari passu in right of payment with all other senior unsecured Debt (actual or contingent) of the Obligors, including, without limitation, all senior unsecured Debt of the Obligors described in Schedule 5.15 hereto. Section 6. Representations of the Purchaser. Section 6.1. Purchase for Investment. Each Purchaser severally represents that it is purchasing the Series A Notes for its own account or for one or more separate accounts maintained by it or for the account of one or more pension or trust funds and not with a view to the distribution thereof (other than any Notes purchased by Banc of America Securities LLC on the Closing Date which are intended to be resold to a “qualified institutional buyer” pursuant to Rule 144A of the Securities Act), provided that the disposition of such Purchaser’s or such pension or trust funds’ property shall at all times be within such Purchaser’s or such pension or trust funds’ control. Each Purchaser understands that the Series A Notes have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Obligors are not required to register the Series A Notes. Section 6.2. Accredited Investor. Each Purchaser represents that it is an “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act acting for its own account (and not for the account of others) or as a fiduciary or agent for others (which others are also “accredited investors”). Each Purchaser further represents that such Purchaser has had the opportunity to ask questions of the Obligors and received answers concerning the terms and conditions of the sale of the Series A Notes. Section 6.3. Source of Funds. Each Purchaser severally represents that at least one of the following statements is an accurate representation as to each source of funds (a “Source”) to be used by such Purchaser to pay the purchase price of the Series A Notes to be purchased by such Purchaser hereunder: (a) the Source is an “insurance company general account” (as the term is defined in the United States Department of Labor’s Prohibited Transaction Exemption (“PTE”) 95−60) in respect of which the reserves and liabilities (as defined by the annual statement for life insurance companies approved by the National Association of Insurance Commissioners (the “NAIC Annual Statement”)) for the general account contract(s) held by or on behalf of any employee benefit plan together with the amount of the reserves and liabilities for the general account contract(s) held by or on behalf of any other employee benefit plans maintained by the same employer (or affiliate thereof as defined in PTE 95−60) or by the same employee organization in the general account do not exceed 10% of the total reserves and liabilities of the general account (exclusive of separate account liabilities) plus surplus as set forth in the NAIC Annual Statement filed with such Purchaser’s state of domicile; or 14
  • 68. (b) the Source is a separate account that is maintained solely in connection with such Purchaser’s fixed contractual obligations under which the amounts payable, or credited, to any employee benefit plan (or its related trust) that has any interest in such separate account (or to any participant or beneficiary of such plan (including any annuitant)) are not affected in any manner by the investment performance of the separate account; or (c) the Source is either (i) an insurance company pooled separate account, within the meaning of PTE 90−1 or (ii) a bank collective investment fund, within the meaning of the PTE 91−38 and, except as disclosed by such Purchaser to an Obligor in writing pursuant to this clause (c), no employee benefit plan or group of plans maintained by the same employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or (d) the Source constitutes assets of an “investment fund” (within the meaning of Part V of PTE 84−14 (the “QPAM Exemption”)) managed by a “qualified professional asset manager” or “QPAM” (within the meaning of Part V of the QPAM Exemption), no employee benefit plan’s assets that are included in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, exceed 20% of the total client assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling or controlled by the QPAM (applying the definition of “control” in Section V(e) of the QPAM Exemption) owns a 5% or more interest in an Obligor and (i) the identity of such QPAM and (ii) the names of all employee benefit plans whose assets are included in such investment fund have been disclosed to an Obligor in writing pursuant to this clause (d); or (e) the Source constitutes assets of a “plan(s)” (within the meaning of Section IV of PTE 96−23 (the “INHAM Exemption”)) managed by an “in−house asset manager” or “INHAM” (within the meaning of Part IV of the INHAM exemption), the conditions of Part I(a), (g) and (h) of the INHAM Exemption are satisfied, neither the INHAM nor a person controlling or controlled by the INHAM (applying the definition of “control” in Section IV(d) of the INHAM Exemption) owns a 5% or more interest in an Obligor and (i) the identity of such INHAM and (ii) the name(s) of the employee benefit plan(s) whose assets constitute the Source have been disclosed to an Obligor in writing pursuant to this clause (e); or (f) the Source is a governmental plan; or (g) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to any Obligor in writing pursuant to this clause (g); or 15
  • 69. (h) the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA. As used in this Section 6.3, the terms “employee benefit plan,” “governmental plan,” and “separate account” shall have the respective meanings assigned to such terms in section 3 of ERISA. Section 7. Information as to Obligors. Section 7.1. Financial and Business Information. The Obligors shall deliver to each holder of Notes that is an Institutional Investor: (a) Quarterly Statements — within 60 days after the end of each quarterly fiscal period in each fiscal year of FDSI (other than the last quarterly fiscal period of each such fiscal year), (i) a consolidated balance sheet of FDSI and its Subsidiaries as at the end of such quarter, and (ii) consolidated statements of income, changes in shareholders’ equity and cash flows of FDSI and its Subsidiaries, for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a Senior Financial Officer as fairly presenting, in all material respects, the financial position of the companies being reported on and their results of operations and cash flows, subject to changes resulting from year−end adjustments, provided that filing with the Securities and Exchange Commission within the time period specified above FDSI’s Quarterly Report on Form 10−Q prepared in compliance with the requirements therefor shall be deemed to satisfy the requirements of this Section 7.1(a); (b) Annual Statements — within 105 days after the end of each fiscal year of FDSI, (i) a consolidated balance sheet of FDSI and its Subsidiaries, as at the end of such year, and (ii) consolidated statements of income, changes in shareholders’ equity and cash flows of FDSI and its Subsidiaries, for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by an opinion thereon of independent certified public accountants of recognized national standing, 16
  • 70. which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, provided that filing with the Securities and Exchange Commission within the time period specified above of FDSI’s Annual Report on Form 10−K for such fiscal year (together with FDSI’s annual report to shareholders, if any, prepared pursuant to Rule 14a−3 under the Exchange Act) prepared in accordance with the requirements therefor shall be deemed to satisfy the requirements of this Section 7.1(b); (c) SEC and Other Reports — except for filings referred to in Section 7.1(a) and (b) above, promptly upon their becoming available and, to the extent applicable, one copy of (i) each financial statement, report, notice or proxy statement sent by FDSI or any Subsidiary to public securities holders generally, and (ii) each regular or periodic report, each registration statement (without exhibits except as expressly requested by such holder), and each prospectus and all amendments thereto filed by FDSI or any Subsidiary with the Securities and Exchange Commission and of all press releases and other statements made available generally by FDSI or any Subsidiary to the public concerning developments that are Material; provided that filing of Form 8−K with the Securities and Exchange Commission within the time periods required by the Securities and Exchange Act of 1934 (as amended) and the posting of press releases on FDSI’s website shall satisfy the obligations under this Section 7.1(c); (d) Notice of Default or Event of Default — promptly, and in any event within five Business Days after a Responsible Officer becomes aware of the existence of any Default or Event of Default or that any Person has given any notice or taken any action with respect to a claimed default hereunder or that any Person has given any notice or taken any action with respect to a claimed default of the type referred to in Section 11(f), a written notice specifying the nature and period of existence thereof and what action the Obligors are taking or proposes to take with respect thereto; (e) ERISA Matters — promptly, and in any event within five Business Days after a Responsible Officer becomes aware of any of the following that would reasonably be expected to have a Material Adverse Effect, a written notice setting forth the nature thereof and the action, if any, that an Obligor or an ERISA Affiliate proposes to take with respect thereto: (i) with respect to any Plan, any reportable event, as defined in Section 4043(c) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date thereof; or (ii) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under Section 4042 of ERISA for the 17
  • 71. termination of, or the appointment of a trustee to administer, any Plan, or the receipt by any Obligor or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or (iii) any event, transaction or condition that would result in the incurrence of any liability by any Obligor or any ERISA Affiliate pursuant to Title I or IV of ERISA or the imposition of a penalty or excise tax under the provisions of the Code relating to employee benefit plans, or the imposition of any Lien on any of the rights, properties or assets of any Obligor or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing; (f) Notices from Governmental Authority — promptly, and in any event within 30 days of receipt thereof, copies of any notice to any Obligor or any Subsidiary from any federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that would reasonably be expected to have a Material Adverse Effect; (g) Supplements — promptly and in any event within 10 Business Days after the execution and delivery of any Supplement, a copy thereof; and (h) Requested Information — with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of any Obligor or any of its Subsidiaries or relating to the ability of any Obligor to perform its obligations hereunder and under the Notes as from time to time may be reasonably requested by any such holder of Notes. Notwithstanding the foregoing, in the event that one or more Unrestricted Subsidiaries shall either (i) own more than 10% of the total consolidated assets of FDSI and its Subsidiaries, or (ii) account for more than 10% of the consolidated gross revenues of FDSI and its Subsidiaries, determined in each case in accordance with GAAP, then, within the respective periods provided in Section 7.1(a) and (b) above, the Obligors shall deliver to each holder of Notes that is an Institutional Investor, unaudited financial statements of the character and for the dates and periods as in said Sections 7.1(a) and (b) covering such group of Unrestricted Subsidiaries (on a consolidated basis), together with a consolidating statement reflecting eliminations or adjustments required to reconcile the financial statements of such group of Unrestricted Subsidiaries to the financial statements delivered pursuant to Sections 7.1(a) and (b). Section 7.2. Officer’s Certificate. Each set of financial statements delivered to a holder of Notes pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a certificate of a Senior Financial Officer setting forth: 18
  • 72. (a) Covenant Compliance — the information required in order to establish whether the Obligors were in compliance with the requirements of Section 10.1 through Section 10.7 hereof, inclusive, during the quarterly or annual period covered by the statements then being furnished (including with respect to each such Section, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections, and the calculation of the amount, ratio or percentage then in existence); and (b) Event of Default — a statement that such officer has reviewed the relevant terms hereof such review shall not have disclosed the existence during the quarterly or annual period covered by the statements then being furnished of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Obligors shall have taken or proposes to take with respect thereto. Section 7.3. Visitation. Each Obligor shall permit the representatives of each holder of Notes that is an Institutional Investor: (a) No Default — if no Default or Event of Default then exists, at the expense of such holder and upon reasonable prior notice to an Obligor, to visit the principal executive office of any Obligor, to discuss the affairs, finances and accounts of any Obligor and its Subsidiaries with any Obligor’s officers, and (with the consent of the Obligors, which consent will not be unreasonably withheld) its independent public accountants, and (with the consent of the Obligors, which consent will not be unreasonably withheld) to visit the other offices and properties of any Obligor and each Restricted Subsidiary, all at such reasonable times and as often as may be reasonably requested in writing; and (b) Default — if a Default or Event of Default then exists, at the expense of the Obligors, to visit and inspect any of the offices or properties of any Obligor or any Restricted Subsidiary, to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision any Obligor authorizes said accountants to discuss the affairs, finances and accounts of any Obligor and its Subsidiaries), all at such times and as often as may be requested. Section 8. Payment of the Notes. Section 8.1. Required Prepayments of Series A Notes. (a) The entire unpaid principal amount of the Tranche A Notes shall become due and payable on September 27, 2015. (b) On September 27, 2011 and on each September 27 thereafter to and including September 27, 2015 the Obligors will prepay $16,200,000 principal amount (or such lesser principal amount as shall then be outstanding) of the Tranche B Notes at par and without payment of the Make−Whole Amount or any premium, provided that upon any partial 19
  • 73. prepayment of the Notes pursuant to Section 8.2 or Section 8.7, the principal amount of each required prepayment of the Tranche B Notes becoming due under this Section 8.1(b) on and after the date of such prepayment shall be reduced in the same proportion as the aggregate unpaid principal amount of the Notes is reduced as a result of such prepayment Section 8.2. Optional Prepayments with Make−Whole Amount. The Obligors may, at their option, upon notice as provided below, prepay at any time all, or from time to time any part of, the Notes, in an amount not less than 10% of the original aggregate principal amount of the Notes then outstanding in the case of a partial prepayment (or such lesser amount as shall be required to effect a partial prepayment resulting from an offer of prepayment pursuant to Section 10.5, which is without any Make−Whole Amount), at 100% of the principal amount so prepaid, together with interest accrued thereon to the date of such prepayment, plus the Make−Whole Amount determined for the prepayment date with respect to such principal amount of each Note then outstanding. The Obligors will give each holder of Notes written notice of each optional prepayment under this Section 8.2 not less than 20 days and not more than 60 days prior to the date fixed for such prepayment. Each such notice shall specify such date, the aggregate principal amount of the Notes to be prepaid on such date, the principal amount of each Note held by such holder to be prepaid (determined in accordance with Section 8.3), and the interest to be paid on the prepayment date with respect to such principal amount being prepaid, and shall be accompanied by a certificate of a Senior Financial Officer as to the estimated respective Make−Whole Amount due in connection with such prepayment (calculated as if the date of such notice were the date of the prepayment), setting forth the details of such computation. Two Business Days prior to such prepayment, the Obligors shall deliver to each holder of Notes a certificate of a Senior Financial Officer specifying the calculation of each such Make−Whole Amount as of the specified prepayment date. Section 8.3. Allocation of Partial Prepayments. In the case of each partial prepayment of the Notes pursuant to the provisions of Section 8.2, the principal amount of the Notes to be prepaid shall be allocated among all of the Notes at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof. All regularly scheduled partial prepayments made with respect to any Series of Additional Notes pursuant to any Supplement shall be allocated as provided therein. Section 8.4. Maturity; Surrender, Etc. In the case of each prepayment of Notes pursuant to this Section 8, the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date and the applicable Make−Whole Amount. From and after such date, unless the Obligors shall fail to pay such principal amount when so due and payable, together with the interest and Make−Whole Amount as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to an Obligor and cancelled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note. Section 8.5. Purchase of Notes. No Obligor will or will permit any Affiliate to purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of the outstanding Notes of any Series except (a) upon the payment or prepayment of the Notes of any Series in 20
  • 74. accordance with the terms of this Agreement (including any Supplement hereto) and the Notes or (b) pursuant to a written offer to purchase any outstanding Notes of any Series made by the Obligors or an Affiliate pro rata to the holders of the Notes of such Series upon the same terms and conditions (except that if such Series has more than one separate tranche, such written offer shall be allocated among all of the separate tranches of such Series at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof but such written offer may otherwise differ among such separate tranches and such written offer shall be made pro rata to the holders of the same tranches of such Series upon the same terms and conditions). The Obligors will promptly cancel all Notes acquired by it or any Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to any provision of this Agreement and no Notes may be issued in substitution or exchange for any such Notes. Section 8.6. Make−Whole Amount for the Series A Notes. The term “Make−Whole Amount” means with respect to any Series A Note an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Series A Note, minus the amount of such Called Principal, provided that the Make−Whole Amount may in no event be less than zero. For the purposes of determining the Make−Whole Amount, the following terms have the following meanings with respect to the Called Principal of such Series A Note: “Called Principal” means, the principal of the Series A Note that is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. “Discounted Value” means, the amount obtained by discounting all Remaining Scheduled Payments from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on such Series A Note is payable) equal to the Reinvestment Yield. “Reinvestment Yield” means, 0.50% plus the yield to maturity calculated by using (i) the yields reported, as of 10:00 A.M. (New York City time) on the second Business Day preceding the Settlement Date on screen “PX−1” on the Bloomberg Financial Market Service (or such other information service as may replace Bloomberg) for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (ii) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable, the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. In either case, the yield will be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond−equivalent yields in accordance with accepted financial practice and (b) interpolating linearly on a straight line basis between (1) the actively traded U.S. Treasury security with the maturity closest to and greater than the Remaining Average 21
  • 75. Life and (2) the actively traded U.S. Treasury security with the maturity closest to and less than the Remaining Average Life. “Remaining Average Life” means, the number of years (calculated to the nearest one−twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) the principal component of each Remaining Scheduled Payment by (b) the number of years (calculated to the nearest one−twelfth year) that will elapse between the Settlement Date and the scheduled due date of such Remaining Scheduled Payment. “Remaining Scheduled Payments” means, all payments of such Called Principal and interest thereon that would be due after the Settlement Date if no payment of such Called Principal were made prior to its scheduled due date, provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of such Series A Note, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 8.2 or 12.1. “Settlement Date” means, the date on which such Called Principal is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. Section 8.7. Change in Control. (a) Notice of Change in Control or Control Event. The Obligors will, within 15 Business Days after any Responsible Officer has knowledge of the occurrence of any Change in Control or Control Event, give written notice of such Change in Control or Control Event to each holder of Notes unless notice in respect of such Change in Control (or the Change in Control contemplated by such Control Event) shall have been given pursuant to subparagraph (b) of this Section 8.7. If a Change in Control has occurred, such notice shall contain and constitute an offer to prepay Notes of each Series as described in subparagraph (c) of this Section 8.7 and shall be accompanied by the certificate described in subparagraph (g) of this Section 8.7. (b) Condition to Obligor Action. The Obligors will not take any action that consummates or finalizes a Change in Control unless (i) at least 15 Business Days prior to such action it shall have given to each holder of Notes written notice containing and constituting an offer to prepay Notes as described in subparagraph (c) of this Section 8.7, accompanied by the certificate described in subparagraph (g) of this Section 8.7, and (ii) contemporaneously with such action, it prepays all Notes required to be prepaid in accordance with this Section 8.7. (c) Offer to Prepay Notes. The offer to prepay Notes contemplated by subparagraphs (a) and (b) of this Section 8.7 shall be an offer to prepay, in accordance with and subject to this Section 8.7, all, but not less than all, the Notes held by each holder (in this case only, “holder” in respect of any Note registered in the name of a nominee for a disclosed beneficial owner shall mean such beneficial owner) on a date specified in such offer (the “Proposed Prepayment Date”). If such Proposed Prepayment Date is in connection with an offer contemplated by subparagraph (a) of this Section 8.7, such date shall be not less than 20 days and not more than 22
  • 76. 30 days after the date of such offer (if the Proposed Prepayment Date shall not be specified in such offer, the Proposed Prepayment Date shall be the 20th day after the date of such offer). (d) Acceptance. A holder of Notes may accept the offer to prepay made pursuant to this Section 8.7 by causing a notice of such acceptance to be delivered to any Obligor at least 5 Business Days prior to the Proposed Prepayment Date. A failure by a holder of Notes to respond to an offer to prepay made pursuant to this Section 8.7 shall be deemed to constitute a rejection of such offer by such holder. (e) Prepayment. Prepayment of the Notes to be prepaid pursuant to this Section 8.7 shall be at 100% of the principal amount of such Notes, together with interest on such Notes accrued to the date of prepayment and without any Make−Whole Amount. The prepayment shall be made on the Proposed Prepayment Date except as provided in subparagraph (f) of this Section 8.7. (f) Deferral Pending Change in Control. The obligation of the Obligors to prepay Notes pursuant to the offers required by subparagraph (b) and accepted in accordance with subparagraph (d) of this Section 8.7 is subject to the occurrence of the Change in Control in respect of which such offers and acceptances shall have been made. In the event that such Change in Control does not occur on the Proposed Prepayment Date in respect thereof, the prepayment shall be deferred until and shall be made on the date on which such Change in Control occurs. The Obligors shall keep each holder of Notes reasonably and timely informed of (i) any such deferral of the date of prepayment, (ii) the date on which such Change in Control and the prepayment are expected to occur, and (iii) any determination by the Obligors that efforts to effect such Change in Control have ceased or been abandoned (in which case the offers and acceptances made pursuant to this Section 8.7 in respect of such Change in Control shall be deemed rescinded). (g) Officer’s Certificate. Each offer to prepay the Notes pursuant to this Section 8.7 shall be accompanied by a certificate, executed by a Senior Financial Officer of an Obligor and dated the date of such offer, specifying: (i) the Proposed Prepayment Date; (ii) that such offer is made pursuant to this Section 8.7; (iii) the principal amount of each Note offered to be prepaid; (iv) the interest that would be due on each Note offered to be prepaid, accrued to the Proposed Prepayment Date; (v) that the conditions of this Section 8.7 have been fulfilled; and (vi) in reasonable detail, the nature and date or proposed date of the Change in Control. (h) Effect on Required Payments. The amount of each payment of the principal of the Notes made pursuant to this Section 8.7 shall be applied against and reduce each of the then remaining principal payments due pursuant to Section 8.7 by a percentage equal to the aggregate principal amount of the Notes so paid divided by the aggregate principal amount of the Notes outstanding immediately prior to such payment. (i) “Change in Control” Defined. “Change in Control” means (1) any sale, lease, exchange or other transfer (in a single transaction or a series of related transactions) of all or substantially all of the assets of FDSI to any Person or “group” (within the meaning of the Exchange Act and the rules of the Securities and Exchange Commission thereunder in effect on 23
  • 77. the date hereof) other than a Restricted Subsidiary in accordance with clause (4) below; (2) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or “group” (within the meaning of the Exchange Act and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof) of 51% or more of the outstanding shares of the voting capital stock of FDSI; (3) the first day on which a majority of the members of the Board of Directors of FDSI are not Continuing Directors; or (4) a merger, consolidation or sale of all or substantially all of the assets of FDSI in respect of which FDSI is not the successor corporation (other than a Restricted Subsidiary which assumes the obligations under this Agreement and the Notes). (j) “Control Event” Defined. “Control Event” means: (i) the execution by FDSI or any of its Subsidiaries or Affiliates of any agreement or letter of intent with respect to any proposed transaction or event or series of transactions or events which, individually or in the aggregate, may reasonably be expected to result in a Change in Control, (ii) the execution of any written agreement which, when fully performed by the parties thereto, would result in a Change in Control, or (iii) the making of any written offer by any person (as such term is used in section 13(d) and section 14(d)(2) of the Exchange Act as in effect on the date of the Closing) or related persons constituting a group (as such term is used in Rule 13d−5 under the Exchange Act as in effect on the date of the Closing) to the holders of the voting capital stock of FDSI, which offer, if accepted by the requisite number of holders, would result in a Change in Control. (k) “Continuing Director” Defined. “Continuing Director” means, as of any date of determination, any member of the board of directors of FDSI who: (i) was a member of such board of directors on the date hereof; or (ii) was nominated for election or elected to such board of directors with the approval of a majority of the Continuing Directors who were members of such board at the time of such nomination or election. Section 9. Affirmative Covenants. Each Obligor covenants that so long as any of the Notes are outstanding: Section 9.1. Compliance with Law. Without limiting Section 10.8, each Obligor will, and will cause each of its Subsidiaries to, comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, ERISA, the USA Patriot Act and Environmental Laws, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non−compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, 24
  • 78. certificates, permits, franchises and other governmental authorizations would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Section 9.2. Insurance. Each Obligor will, and will cause each of its Restricted Subsidiaries to, maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co−insurance and self−insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated except for any non−maintenance that would not reasonably be expected to have a Material Adverse Effect. Section 9.3. Maintenance of Properties. Each Obligor will, and will cause each of its Restricted Subsidiaries to, maintain and keep, or cause to be maintained and kept, their respective properties in good repair (similar to other comparable retailers), working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section shall not prevent an Obligor or any Restricted Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Obligors have concluded that such discontinuance would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Section 9.4. Payment of Taxes and Claims. Each Obligor will, and will cause each of its Subsidiaries to, file all tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies imposed on them or any of their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on properties or assets of any Obligor or any Subsidiary not permitted by Section 10.4, provided that neither any Obligor nor any Subsidiary need pay any such tax or assessment or claims if (i) the amount, applicability or validity thereof is contested by any Obligor or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and such Obligor or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of such Obligor or such Subsidiary or (ii) the non−filing or nonpayment, as the case may be, of all such taxes and assessments in the aggregate would not reasonably be expected to have a Material Adverse Effect. Section 9.5. Corporate Existence, Etc. Subject to Sections 10.5 and 10.6, each Obligor will at all times preserve and keep in full force and effect its corporate existence, and will at all times preserve and keep in full force and effect the corporate existence of each of its Restricted Subsidiaries (unless such Restricted Subsidiary is merged into an Obligor or a Restricted Subsidiary) and all rights and franchises of the Obligors and their Restricted Subsidiaries unless, in the good faith judgment of the Obligors, the termination of or failure to preserve and keep in full force and effect such corporate existence, right or franchise would not, individually or in the aggregate, to have a Material Adverse Effect. 25
  • 79. Section 9.6. Designation of Subsidiaries. The Obligors may from time to time cause any Subsidiary (other than a Subsidiary Guarantor) to be designated as an Unrestricted Subsidiary or any Unrestricted Subsidiary to be designated a Restricted Subsidiary; provided, however, that at the time of such designation and immediately after giving effect thereto, (a) no Default or Event of Default would exist under the terms of this Agreement, and (b) the Obligors and their Restricted Subsidiaries would be in compliance with all of the covenants set forth in this Section 9 and Section 10 (including, without limitation, Section 10.5) if tested on the date of such action and provided, further, that once a Subsidiary has been designated an Unrestricted Subsidiary, it shall not thereafter be redesignated as a Restricted Subsidiary on more than one occasion. Within ten (10) days following any designation described above, the Obligors will deliver to the holders of the Notes a notice of such designation accompanied by a certificate signed by a Senior Financial Officer of the Obligors certifying compliance with all requirements of this Section 9.6 and setting forth all information required in order to establish such compliance. Section 9.7. Notes to Rank Pari Passu. The Notes and all other obligations under this Agreement of the Obligors are and at all times shall remain direct and unsecured obligations of the Obligors ranking pari passu as against the assets of the Obligors with all other Notes from time to time issued and outstanding hereunder without any preference among themselves and pari passu with all other present and future unsecured Debt (actual or contingent) of the Obligors which is not expressed to be subordinate or junior in rank to any other unsecured Debt of the Obligors. Section 9.8. Additional Subsidiary Guarantors. The Obligors will cause any Subsidiary which is required by the terms of the Bank Credit Agreement to become a party to, or otherwise guarantee, Debt in respect of the Bank Credit Agreement, to enter into the Subsidiary Guaranty and deliver to each of the holders of the Notes (concurrently with the incurrence of any such obligation pursuant to the Bank Credit Agreement) the following items: (a) a joinder agreement in respect of the Subsidiary Guaranty; (b) a certificate signed by an authorized Responsible Officer of the Obligors making representations and warranties to the effect of those contained in Sections 5.4, 5.6 and 5.7, with respect to such Subsidiary and the Subsidiary Guaranty, as applicable; and (c) an opinion of counsel (who may be in−house counsel for an Obligor) addressed to each of the holders of the Notes satisfactory to the Required Holders, to the effect that the Subsidiary Guaranty by such Person has been duly authorized, executed and delivered and that the Subsidiary Guaranty constitutes the legal, valid and binding contract and agreement of such Person enforceable in accordance with its terms, except as an enforcement of such terms may be limited by bankruptcy, insolvency, fraudulent conveyance and similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles. Section 9.9. Books and Records. Each Obligor will, and will cause each of its Restricted Subsidiaries to, maintain proper books of record and account in conformity with GAAP and all 26
  • 80. applicable requirements of any Governmental Authority having legal or regulatory jurisdiction over such Obligor or such Restricted Subsidiary, as the case may be. Section 10. Negative Covenants. Each Obligor covenants that so long as any of the Notes are outstanding: Section 10.1. Consolidated Debt to Consolidated Total Capitalization. The Obligors will not at any time permit the ratio of Consolidated Debt to Consolidated Total Capitalization to exceed 60%. Section 10.2. Fixed Charges Coverage Ratio. The Obligors will not permit the ratio of Consolidated EBITDAR to Consolidated Fixed Charges for each period of four consecutive fiscal quarters (calculated as at the end of each fiscal quarter of FDSI for the four consecutive fiscal quarters then ended) to be less than 2.00 to 1.00. Section 10.3. Priority Debt. The Obligors will not at any time permit the aggregate amount of all Priority Debt to exceed 20% of Consolidated Net Worth, determined as of the end of the then most recently ended fiscal quarter of FDSI. Section 10.4. Limitation on Liens. The Obligors will not, and will not permit any of their Restricted Subsidiaries to, directly or indirectly create, incur, assume or permit to exist (upon the happening of a contingency or otherwise) any Lien on or with respect to any property or asset (including, without limitation, any document or instrument in respect of goods or accounts receivable) of any Obligor or any such Restricted Subsidiary, whether now owned or held or hereafter acquired, or any income or profits therefrom, or assign or otherwise convey any right to receive income or profits (unless the Obligors make, or cause to be made, effective provision whereby the Notes will be equally and ratably secured with any and all other obligations thereby secured, such security to be pursuant to an agreement reasonably satisfactory to the Required Holders and, in any such case, the Notes shall have the benefit, to the fullest extent that, and with such priority as, the holders of the Notes may be entitled under applicable law, of an equitable Lien on such property), except: (a) Liens for taxes, assessments or other governmental charges that are not yet due and payable or the payment of which is not at the time required by Section 9.4; (b) any attachment or judgment Lien, if the judgment it secures shall either (i) have been discharged, bonded or execution thereof stayed pending appeal within 60 days after the entry thereof or shall have been discharged within 60 days after the expiration of any such stay or (ii) be covered by insurance and the insurer has acknowledged in writing that it is obligated to pay such judgment; (c) (i) Liens incidental to the conduct of business or the ownership of properties and assets (including landlords’, carriers’, warehousemen’s, mechanics’, materialmen’s and other similar Liens for sums not yet due and payable), (ii) Liens, deposits and pledges to secure the performance of bids, tenders, leases, or trade contracts, 27
  • 81. or, (iii) Liens to secure statutory obligations (including obligations under workers compensation, unemployment insurance and other social security legislation) and under liability insurance, (iv) Liens to secure surety or appeal bonds or performance bonds, (v) other Liens incurred in the ordinary course of business and not in connection with the borrowing of money or (vi) Liens securing letters of credit that are issued to secure any of the foregoing obligations described in this Section 10.4(c); (d) leases or subleases granted to others, easements, rights−of−way, restrictions and other similar charges or encumbrances, in each case incidental to the ownership of property or assets or the ordinary conduct of the business of an Obligor or any of its Restricted Subsidiaries, on Liens incidental to minor survey exceptions and the like, provided that such Liens do not, in the aggregate, materially detract from the value of such property; (e) Liens securing Debt or other obligations of a Restricted Subsidiary to an Obligor or to a Restricted Subsidiary; (f) Liens existing as of the date of Closing and reflected in Schedule 10.4; (g) Liens incurred after the date of Closing given to secure the payment of the purchase price incurred in connection with the acquisition, construction or improvement of property (other than accounts receivable but including inventory) useful and intended to be used (or sold as inventory) in carrying on the business of an Obligor or a Restricted Subsidiary, including Liens existing on such property at the time of acquisition or construction thereof or Liens incurred within 365 days of such acquisition or completion of such construction or improvement, provided that (i) the Lien shall attach solely to the property acquired, purchased, constructed or improved and the proceeds thereof; (ii) at the time of acquisition, construction or improvement of such property (or, in the case of any Lien incurred within three hundred sixty−five (365) days of such acquisition or completion of such construction or improvement, at the time of the incurrence of the Debt secured by such Lien), the aggregate amount remaining unpaid on all Debt secured by Liens on such property, whether or not assumed by an Obligor or a Restricted Subsidiary, shall not exceed the lesser of (y) the cost of such acquisition, construction or improvement or (z) the Fair Market Value of such property (as determined in good faith by one or more officers of an Obligor to whom authority to enter into the transaction has been delegated by the board of directors of such Obligor); and (iii) at the time of such incurrence and after giving effect thereto, no Default or Event of Default would exist; (h) any Lien existing on property of a Person immediately prior to its being consolidated with or merged into an Obligor or a Restricted Subsidiary or its becoming a Restricted Subsidiary, or any Lien existing on any property acquired by an Obligor or any Restricted Subsidiary at the time such property is so acquired (whether or not the Debt secured thereby shall have been assumed), provided that (i) no such Lien shall have been created or assumed in contemplation of such consolidation or merger or such Person’s becoming a Restricted Subsidiary or such acquisition of property, (ii) each such Lien shall extend solely to the item or items of property so acquired and, if required by the 28
  • 82. terms of the instrument originally creating such Lien, other property which is an improvement to or is acquired for specific use in connection with such acquired property, and (iii) at the time of such incurrence and after giving effect thereto, no Default or Event of Default would exist; (i) any extensions, renewals or replacements of any Lien permitted by the preceding subparagraphs (e), (f) and (g) of this Section 10.4, provided that (i) no additional property shall be encumbered by such Liens, (ii) the unpaid principal amount of the Debt or other obligations secured thereby shall not be increased on or after the date of any extension, renewal or replacement, and (iii) at such time and immediately after giving effect thereto, no Default or Event of Default shall have occurred and be continuing; and (j) in addition to the Liens described above, any other Liens securing Debt or other obligations not permitted above, including Liens securing Priority Debt of an Obligor or any Restricted Subsidiary, provided that such Priority Debt does not exceed the limitations set forth in Section 10.3. Section 10.5. Sales of Assets. The Obligors will not, and will not permit any Restricted Subsidiary to, sell, lease or otherwise dispose of any substantial part (as defined below) of the assets of the Obligors and their Restricted Subsidiaries; provided, however, that an Obligor or any Restricted Subsidiary may sell, lease or otherwise dispose of assets constituting a substantial part of the assets of the Obligors and their Restricted Subsidiaries if such assets are sold in an arms length transaction and, at such time and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing and an amount equal to the net proceeds received from such sale, lease or other disposition (but only with respect to that portion of such assets that exceeds the definition of “substantial part” set forth below) shall be used within 365 days of such sale, lease or disposition, in any combination: (1) to acquire productive assets used or useful in carrying on the business of the Obligors and their Restricted Subsidiaries and having a value at least equal to the value of such assets sold, leased or otherwise disposed of (or FDSI or any Restricted Subsidiary is contractually obligated to acquire such productive assets pursuant to a binding contract entered into within such 365 day period so long as such productive assets shall have been acquired within 60 days following such 365 day period); and/or (2) to prepay or retire Senior Debt of any Obligor and/or its Restricted Subsidiaries, provided that (i) the Obligors shall offer to prepay each outstanding Note ratably with all such Senior Debt prepaid or retired, and (ii) any such prepayment of the Notes shall be made in accordance with the terms of Section 8.2 (at par and without the payment of any Make−Whole Amount or any other premium). If any holder of a Note fails to accept such offer of prepayment, then, for purposes of the preceding sentence only, the Obligors nevertheless will be deemed to have paid Senior Debt in an amount equal to the ratable portion for such Note. 29
  • 83. As used in this Section 10.5, a sale, lease or other disposition of assets shall be deemed to be a “substantial part” of the assets of the Obligors and their Restricted Subsidiaries if the book value of such assets, when added to the book value of all other assets sold, leased or otherwise disposed of by the Obligors and their Restricted Subsidiaries during any fiscal year, exceeds 15% of the book value of Consolidated Total Assets, determined as of the end of the fiscal quarter immediately preceding such sale, lease or other disposition; provided that there shall be excluded from any determination of a “substantial part” any (i) sale or disposition of assets in the ordinary course of business of the Obligors and their Restricted Subsidiaries, (ii) any transfer of assets from an Obligor to any other Obligor or a Restricted Subsidiary or from any Restricted Subsidiary to an Obligor or another Restricted Subsidiary and (iii) any sale or transfer of property acquired by any Obligor or any Restricted Subsidiary after the date of this Agreement to any Person within 365 days following the acquisition or construction of such property by such Obligor or any Restricted Subsidiary if an Obligor or a Restricted Subsidiary shall concurrently with such sale or transfer, lease such property, as lessee. For purposes of this Agreement, at any time a Restricted Subsidiary is designated an Unrestricted Subsidiary in accordance with Section 9.6 of this Agreement, the book value of all of the assets of such Subsidiary shall be deemed to be sold for purposes of this Section 10.5 as of the effective date of such designation and such sale of assets shall be subject to the provisions set forth in this Section 10.5. Section 10.6. Merger and Consolidation. The Obligors will not, and will not permit any of its Restricted Subsidiaries to, consolidate with or merge with any other Person or convey, transfer or lease substantially all of its assets in a single transaction or series of transactions to any Person; provided that: (1) any Restricted Subsidiary of an Obligor may (x) consolidate with or merge with, or convey, transfer or lease substantially all of its assets in a single transaction or series of transactions to, (i) an Obligor or a Restricted Subsidiary so long as in any merger or consolidation involving an Obligor, such Obligor shall be the surviving or continuing corporation or (ii) any other Person so long as the survivor is the Restricted Subsidiary, or (y) convey, transfer or lease all of its assets in compliance with the provisions of Section 10.5; and (2) the foregoing restriction does not apply to the consolidation or merger of any Obligor with, or the conveyance, transfer or lease of substantially all of the assets of any Obligor in a single transaction or series of transactions to, any Person so long as: (a) the successor formed by such consolidation or the survivor of such merger or the Person that acquires by conveyance, transfer or lease substantially all of the assets of an Obligor as an entirety, as the case may be (the “Successor Corporation”), shall be a solvent entity organized and existing under the laws of the United States of America, any State thereof or the District of Columbia; (b) if such Obligor is not the Successor Corporation, such Successor Corporation shall have executed and delivered to each holder of Notes its 30
  • 84. assumption of the due and punctual performance and observance of each covenant and condition of this Agreement (and each Supplement thereto) and the Notes (pursuant to such assumption agreements and instruments as shall be reasonably satisfactory to the Required Holders), and the Successor Corporation shall have caused to be delivered to each holder of Notes (A) an opinion of nationally recognized independent counsel, to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and (B) an acknowledgment from each Subsidiary Guarantor that the Subsidiary Guaranty continues in full force and effect; and (c) immediately after giving effect to such transaction no Default or Event of Default would exist. No such conveyance, transfer or lease of substantially all of the assets of any Obligor shall have the effect of releasing any Obligor or any successor entity from its liability under this Agreement or the Notes. Section 10.7. Restricted Subsidiaries. FDSI and its Restricted Subsidiaries shall at all times account for 75% of the consolidated total assets of FDSI and all of its Subsidiaries and 75% of the consolidated gross revenues of the FDSI and all of its Subsidiaries. Section 10.8. Transactions with Affiliates. The Obligors will not and will not permit any Restricted Subsidiary to enter into directly or indirectly any Material transaction or Material group of related transactions (including without limitation the purchase, lease, sale or exchange of properties of any kind or the rendering of any service) with any Affiliate (other than an Obligor or another Restricted Subsidiary), except in the ordinary course and upon fair and reasonable terms that are not materially less favorable to the Obligors or such Restricted Subsidiary, taken as a whole, than would be obtainable in a comparable arm’s−length transaction with a Person not an Affiliate. Section 10.9. Terrorism Sanctions Regulations. No Obligor will or will permit any Subsidiary to (a) become a Person described or designated in the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets Control or in Section 1 of the Anti−Terrorism Order or (b) engage in any dealings or transactions with any such Person. Section 10.10. Line of Business. The Obligors will not and will not permit any Restricted Subsidiary to engage in any business if, as a result, the general nature of the business in which the Obligors and the Restricted Subsidiaries, taken as a whole, would then be engaged would be substantially changed from the general nature of the business in which the Obligors and the Restricted Subsidiaries, taken as a whole, are engaged on the date of this Agreement. Section 11. Events of Default. An “Event of Default” shall exist if any of the following conditions or events shall occur and be continuing: 31
  • 85. (a) any Obligor defaults in the payment of any principal or Make−Whole Amount, if any, on any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or (b) any Obligor defaults in the payment of any interest on any Note for more than five Business Days after the same becomes due and payable; or (c) any Obligor defaults in the performance of or compliance with any term contained in Section 10 or any covenant in a Supplement which specifically provides that it shall have the benefit of this paragraph (c) or any Subsidiary Guarantor defaults in the performance of or compliance with any term of the Subsidiary Guaranty beyond any period of grace or cure period provided with respect thereto; or (d) any Obligor defaults in the performance of or compliance with any term contained herein or in any Supplement (other than those referred to in paragraphs (a), (b) and (c) of this Section 11) and such default is not remedied within 30 days after the earlier of (i) a Responsible Officer obtaining actual knowledge of such default or (ii) any Obligor receiving written notice of such default from any holder of a Note (any such written notice to be identified as a “notice of default” and to refer specifically to this paragraph (d) of Section 11); or (e) any Subsidiary Guaranty of a Material Subsidiary ceases to be a legally valid, binding and enforceable obligation or contract of a Subsidiary Guarantor (other than upon a release of any Subsidiary Guarantor from a Subsidiary Guaranty in accordance with the terms of Section 2.3(b) hereof), or any Subsidiary Guarantor that is a Material Subsidiary or any party by, through or on account of any such Person, challenges the validity, binding nature or enforceability of any such Subsidiary Guaranty of a Material Subsidiary; or (f) any representation or warranty made in writing by or on behalf of any Obligor or Subsidiary Guarantor that is a Material Subsidiary in this Agreement or any Subsidiary Guaranty or by any officer of any Obligor or any Subsidiary Guarantor that is a Material Subsidiary in any writing furnished in connection with the transactions contemplated hereby or by any Subsidiary Guaranty proves to have been false or incorrect in any material respect on the date as of which made; or (g) (i) any Obligor or any Restricted Subsidiary is in default (as principal or as guarantor or other surety) in the payment of any principal of or premium or make−whole amount or interest (in the payment amount of at least $100,000) on any Debt other than the Notes that is outstanding in an aggregate principal amount of at least $25,000,000 beyond any period of grace provided with respect thereto, or (ii) any Obligor or any Restricted Subsidiary is in default in the performance of or compliance with any term of any instrument, mortgage, indenture or other agreement relating to any Debt other than the Notes in an aggregate principal amount of at least $25,000,000 or any other condition exists, and as a consequence of such default or condition such Debt has become, or has been declared, due and payable, or (iii) as a consequence of the occurrence or 32
  • 86. continuation of any event or condition (other than the passage of time or the right of the holder of Debt to convert such Debt into equity interests), any Obligor or any Restricted Subsidiary has become obligated to purchase or repay Debt other than the Notes before its regular maturity or before its regularly scheduled dates of payment in an aggregate outstanding principal amount of at least $25,000,000; or (h) any Obligor or any Material Subsidiary (i) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (ii) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, (v) is adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for the purpose of any of the foregoing; or (i) a court or governmental authority of competent jurisdiction enters an order appointing, without consent by an Obligor or any of its Material Subsidiaries, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding−up or liquidation of any Obligor or any of its Material Subsidiaries, or any such petition shall be filed against any Obligor or any of its Material Subsidiaries and such petition shall not be dismissed within 60 days; or (j) a final judgment or judgments at any one time outstanding for the payment of money aggregating in excess of $25,000,000 (except to the extent of any third party insurance policies in which the insurer has agreed in writing that it is obligated to pay for the amount of such judgment) and which are rendered against one or more of any Obligor, its Restricted Subsidiaries or any Subsidiary Guarantor and which judgments are not, within 60 days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 60 days after the expiration of such stay; or (k) if (i) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such standards or extension of any amortization period is sought or granted under Section 412 of the Code, (ii) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under Section 4042 of ERISA to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified any Obligor or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (iii) the aggregate “amount of unfunded benefit liabilities” (within the meaning of Section 4001(a)(18) of ERISA) under all Plans, determined in accordance with Title IV of ERISA, shall exceed $25,000,000, (iv) any Obligor or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to 33
  • 87. Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (v) any Obligor or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) any Obligor or any Subsidiary establishes or amends any employee welfare benefit plan that provides post−employment welfare benefits in a manner that could increase the liability of any Obligor or any Subsidiary thereunder; and any such event or events described in clauses (i) through (vi) above, either individually or together with any other such event or events, could reasonably be expected to have a Material Adverse Effect. As used in Section 11(k), the terms “employee benefit plan” and “employee welfare benefit plan” shall have the respective meanings assigned to such terms in Section 3 of ERISA. Section 12. Remedies on Default, Etc. Section 12.1. Acceleration. (a) If an Event of Default with respect to any Obligor described in paragraph (h) or (i) of Section 11 (other than an Event of Default described in clause (i) of paragraph (h) or described in clause (vi) of paragraph (h) by virtue of the fact that such clause encompasses clause (i) of paragraph (h)) has occurred, all the Notes of every Series then outstanding shall automatically become immediately due and payable. (b) If any other Event of Default has occurred and is continuing, any holder or holders of more than 50% in aggregate principal amount of the Notes of any Series at the time outstanding may at any time at its or their option, by notice or notices to any Obligor, declare all the Notes of such Series then outstanding to be immediately due and payable. (c) If any Event of Default described in paragraph (a) or (b) of Section 11 has occurred and is continuing with respect to any Notes, any holder or holders of Notes at the time outstanding affected by such Event of Default may at any time, at its or their option, by notice or notices to the Obligors, declare all the Notes held by such holder or holders to be immediately due and payable. Upon any Note’s becoming due and payable under this Section 12.1, whether automatically or by declaration, such Note will forthwith mature and the entire unpaid principal amount of such Note, plus (i) all accrued and unpaid interest thereon (including, but not limited to, interest accrued thereon at the Default Rate) and (ii) the Make−Whole Amount determined in respect of such principal amount (to the full extent permitted by applicable law), shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. Each Obligor acknowledges, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Notes free from repayment by any Obligor (except as herein specifically provided for) and that the provision for payment of a Make−Whole Amount by the Obligors in the event that the Notes are prepaid or are accelerated as a result of an Event of Default, is intended to provide compensation for the deprivation of such right under such circumstances. Section 12.2. Other Remedies. If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Notes have become or have been declared 34
  • 88. immediately due and payable under Section 12.1, the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise. Section 12.3. Rescission. At any time after the Notes have been declared due and payable pursuant to clause (b) or (c) of Section 12.1, the holders of not less than 51% in aggregate principal amount of the Notes of any Series then outstanding, by written notice to the Obligors, may rescind and annul any such declaration and its consequences if (a) the Obligors have paid all overdue interest on the Notes of such Series, all principal of and Make−Whole Amount on any Notes of such Series that are due and payable and are unpaid other than by reason of such declaration, and all interest on such overdue principal and Make−Whole Amount and (to the extent permitted by applicable law) any overdue interest in respect of the Notes of such Series, at the Default Rate, (b) neither any Obligor nor any other Person shall have paid any amounts which have become due solely by reason of such declaration, (c) all Events of Default and Defaults, other than non−payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to Section 17, and (d) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to any Notes of such Series. No rescission and annulment under this Section 12.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon. Section 12.4. No Waivers or Election of Remedies, Expenses, Etc. No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder’s rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Obligors under Section 15, the Obligors will pay to the holder of each Note on demand such further amount as shall be sufficient to cover all costs and expenses of such holder incurred in any enforcement or collection under this Section 12, including, without limitation, reasonable attorneys’ fees, expenses and disbursements. Section 13. Registration; Exchange; Substitution of Notes. Section 13.1. Registration of Notes. The Obligors shall keep at their principal executive office a register for the registration and registration of transfers of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Obligors shall not be affected by any notice or knowledge to the contrary. The Obligors shall give to any holder of a Note that is an Institutional Investor promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Notes. 35
  • 89. Section 13.2. Transfer and Exchange of Notes. Upon surrender of any Note to any Obligor at the address and to the attention of the designated officer (all as specified in Section 18(iv)), for registration of transfer or exchange (and in the case of a surrender for registration of transfer accompanied by a written instrument of transfer duly executed by the registered holder of such Note or such holder’s attorney duly authorized in writing and accompanied by the relevant name, address and other information for notices of each transferee of such Note or part thereof), within ten Business Days thereafter, the Obligors shall execute and deliver, at the Obligors’ expense (except as provided below), one or more new Notes (as requested by the holder thereof) of the same Series (and of the same tranche if such Series has separate tranches) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request and shall be substantially in the form of the Note of such Series originally issued hereunder or pursuant to any Supplement. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Obligors may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $500,000, provided that if necessary to enable the registration of transfer by a holder of its entire holding of Notes, one Note may be in a denomination of less than $500,000. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representation set forth in Section 6.3, provided, that in lieu thereof such holder may (in reliance upon information provided by the Obligors, which shall not be unreasonably withheld) make a representation to the effect that the purchase by any holder of any Note will not constitute a non−exempt prohibited transaction under section 406(a) of ERISA. The Notes have not been registered under the Securities Act or under the securities laws of any state and the holders of the Notes agree that such Notes may not be transferred or resold unless registered under the Securities Act and all applicable state securities laws or unless an exemption from the requirement for such registration is available. Section 13.3. Replacement of Notes. Upon receipt by an Obligor at the address and to the attention of the designated officer (all as specified in Section 18(iv)) of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (provided that if the holder of such Note is, or is a nominee for, an original Purchaser or another holder of a Note with a minimum net worth of at least $50,000,000 or a Qualified Institutional Buyer, such Person’s own unsecured agreement of indemnity shall be deemed to be satisfactory), or (b) in the case of mutilation, upon surrender and cancellation thereof, the Obligors at its own expense shall execute and deliver not more than five Business Days following satisfaction of such conditions, in lieu thereof, a new Note of the same Series (and of 36
  • 90. the same tranche if such Series has separate tranches), dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon. Section 14. Payments on Notes. Section 14.1. Place of Payment. Subject to Section 14.2, payments of principal, Make−Whole Amount and interest becoming due and payable on the Notes shall be made in New York, New York at the principal office of Bank of America, N.A. in such jurisdiction. The Obligors may at any time, by notice to each holder of a Note, change the place of payment of the Notes so long as such place of payment shall be either the principal office of an Obligor in such jurisdiction or the principal office of a bank or trust company in such jurisdiction. Section 14.2. Home Office Payment. So long as any Purchaser or Additional Purchaser or such Purchaser’s nominee or such Additional Purchaser’s nominee shall be the holder of any Note, and notwithstanding anything contained in Section 14.1 or in such Note to the contrary, the Obligors will pay all sums becoming due on such Note for principal, Make−Whole Amount and interest by the method and at the address specified for such purpose for such Purchaser on Schedule A hereto or, in the case of any Additional Purchaser, Schedule A attached to any Supplement pursuant to which such Additional Purchaser is a party, or by such other method or at such other address as such Purchaser or Additional Purchaser shall have from time to time specified to the Obligors in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Obligors made concurrently with or reasonably promptly after payment or prepayment in full of any Note, such Purchaser or Additional Purchaser shall surrender such Note for cancellation, reasonably promptly after any such request, to FDSI at its principal executive office or at the place of payment most recently designated by the Obligors pursuant to Section 14.1. Prior to any sale or other disposition of any Note held by any Purchaser or Additional Purchaser or such Person’s nominee, such Person will, at its election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Obligors in exchange for a new Note or Notes pursuant to Section 13.2. The Obligors will afford the benefits of this Section 14.2 to any Institutional Investor that is the direct or indirect transferee of any Note. Section 15. Expenses, Etc. Section 15.1. Transaction Expenses. Whether or not the transactions contemplated hereby are consummated, the Obligors will pay reasonable attorneys’ fees of one special counsel referred to in Section 4.7 for the Purchasers or any Additional Purchasers and, if reasonably required by any Additional Purchasers, one local counsel selected by such Additional Purchasers. In addition, the Obligors will pay all fees and expenses of the Purchasers, any Additional Purchasers and any other holder of a Note, including reasonable attorneys’ fees of one special counsel for the holders of the Notes and, if reasonably required by the Required Holders, one local counsel for the Holders of the Notes selected by such Required Holders, in connection with any amendments, waivers or consents under or in respect of this Agreement (including any 37
  • 91. Supplement) or the Notes (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement (including any Supplement) or the Notes or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement (including any Supplement) or the Notes, or by reason of being a holder of any Note, and (b) the costs and expenses, incurred in connection with the insolvency or bankruptcy of an Obligor or any Subsidiary or in connection with any work−out or restructuring of the transactions contemplated hereby and by the Notes. The Obligors will pay, and will save each Purchaser, each Additional Purchaser and each other holder of a Note harmless from, all claims in respect of any fees, costs or expenses if any, of brokers and finders (other than those, if any, retained by a Purchaser or other holder in connection with its purchase of the Notes). Section 15.2. Survival. The obligations of the Obligors under this Section 15 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement, any Supplement or the Notes, and the termination of this Agreement or any Supplement. Section 16. Survival of Representations and Warranties; Entire Agreement. All representations and warranties contained herein or in any Supplement shall survive the execution and delivery of this Agreement, such Supplement and the Notes, the purchase or transfer by any Purchaser or any Additional Purchaser of any such Note or portion thereof or interest therein and the payment of any Note may be relied upon by any subsequent holder of any such Note, regardless of any investigation made at any time by or on behalf of any Purchaser or any Additional Purchaser or any other holder of any such Note. All statements contained in any certificate or other instrument delivered by or on behalf of the Obligors pursuant to this Agreement or any Supplement shall be deemed representations and warranties of the Obligors under this Agreement; provided, that the representations and warranties contained in any Supplement shall only be made for the benefit of the Additional Purchasers which are party to such Supplement and the holders of the Notes issued pursuant to such Supplement, including subsequent holders of any Note issued pursuant to such Supplement, and shall not require the consent of the holders of existing Notes. Subject to the preceding sentence, this Agreement (including every Supplement) and the Notes embody the entire agreement and understanding between the Purchasers and the Additional Purchasers and the Obligors and supersede all prior agreements and understandings relating to the subject matter hereof. Section 17. Amendment and Waiver. Section 17.1. Requirements. (a) This Agreement (including any Supplement) and the Notes may be amended, and the observance of any term hereof or of the Notes may be waived (either retroactively or prospectively), with (and only with) the written consent of the Obligors and the Required Holders, except that (i) no amendment or waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof or the corresponding provision of any Supplement, or any defined term (as it is used in any such Section or such corresponding provision of any Supplement), will be effective as to any holder of Notes unless consented to by such holder of 38
  • 92. Notes in writing, and (ii) no such amendment or waiver may, without the written consent of all of the holders of Notes at the time outstanding affected thereby, (A) subject to the provisions of Section 12 relating to acceleration or rescission, change the amount or time of any prepayment or payment of principal of, or reduce the rate or change the time of payment or method of computation of interest (if such change results in a decrease in the interest rate) or of the Make−Whole Amount on, the Notes, (B) change the percentage of the principal amount of the Notes the holders of which are required to consent to any such amendment or waiver, or (C) amend any of Sections 8, 11(a), 11(b), 12, 17 or 20. (b) Supplements. Notwithstanding anything to the contrary contained herein, the Obligors may enter into any Supplement providing for the issuance of one or more Series of Additional Notes consistent with Sections 2.2 and 4.14 hereof without obtaining the consent of any holder of any other Series of Notes. Section 17.2. Solicitation of Holders of Notes. (a) Solicitation. The Obligors will provide each holder of the Notes (irrespective of the amount of Notes then owned by it) with sufficient information, sufficiently far in advance of the date a decision is required, to enable such holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof, any Supplement or of the Notes. The Obligors will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Section 17 to each holder of outstanding Notes promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite holders of Notes. (b) Payment. No Obligor will directly or indirectly pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security or provide other credit support, to any holder of Notes as consideration for or as an inducement to the entering into by any holder of Notes of any waiver or amendment of any of the terms and provisions hereof or any Supplement unless such remuneration is concurrently paid, or security is concurrently granted or other credit support is concurrently provided, on the same terms, ratably to each holder of Notes then outstanding even if such holder did not consent to such waiver or amendment. (c) Consent in Contemplation of Transfer. Any consent made pursuant to this Section 17 by a holder of Notes that has transferred or has agreed to transfer its Notes to any Obligor, any Subsidiary or any Affiliate of any Obligor and has provided or has agreed to provide such written consent as a condition to such transfer shall be void and of no force or effect except solely as to such holder, and any amendments effected or waivers granted or to be effected or granted that would not have been or would not be so effected or granted but for such consent (and the consents of all other holders of Notes that were acquired under the same or similar conditions) shall be void and of no force or effect except solely as to such holder. Section 17.3. Binding Effect, Etc. Any amendment or waiver consented to as provided in this Section 17 applies equally to all holders of Notes and is binding upon them and upon each future holder of any Note and upon the Obligors without regard to whether such Note has been 39
  • 93. marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between any Obligor and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used herein, the term “this Agreement” and references thereto shall mean this Agreement as it may from time to time be amended or supplemented. Section 17.4. Notes Held by Obligors, Etc. Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Agreement or the Notes, or have directed the taking of any action provided herein or in the Notes to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by any Obligor or any of its Affiliates shall be deemed not to be outstanding. Section 18. Notices. All notices and communications provided for hereunder shall be in writing and sent (a) by telecopy if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent: (i) if to a Purchaser or such Purchaser’s nominee, to such Purchaser or such Purchaser’s nominee at the address specified for such communications in Schedule A to this Agreement, or at such other address as such Purchaser or such Purchaser’s nominee shall have specified to any Obligor in writing pursuant to this Section 18; (ii) if to an Additional Purchaser or such Additional Purchaser’s nominee, to such Additional Purchaser or such Additional Purchaser’s nominee at the address specified for such communications in Schedule A to any Supplement, or at such other address as such Additional Purchaser or such Additional Purchaser’s nominee shall have specified to any Obligor in writing, (iii) if to any other holder of any Note, to such holder at such address as such other holder shall have specified to any Obligor in writing pursuant to this Section 18, or (iv) if to any Obligor, to such Obligor at its address set forth at the beginning hereof to the attention of Chief Financial Officer, with a copy to the General Counsel, or at such other address as such Obligor shall have specified to the holder of each Note in writing. Notices under this Section 18 will be deemed given only when actually received. 40
  • 94. Section 19. Reproduction of Documents. This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by any Purchaser at the Closing or by any Additional Purchaser (except the Notes themselves), and (c) financial statements, certificates and other information previously or hereafter furnished to any Purchaser or any Additional Purchaser, may be reproduced by such Purchaser or such Additional Purchaser by any photographic, photostatic, electronic, digital, or other similar process and such Purchaser or such Additional Purchaser may destroy any original document so reproduced. Each Obligor agrees and stipulates that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by such Purchaser or such Additional Purchaser in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 19 shall not prohibit any Obligor or any other holder of Notes from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction. Section 20. Confidential Information. For the purposes of this Section 20, “Confidential Information” means information delivered to any Purchaser or any Additional Purchaser by or on behalf of any Obligor or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified when received by such Purchaser as being confidential information of an Obligor or such Subsidiary, provided that such term does not include information that (a) was publicly known or otherwise known to such Purchaser or such Additional Purchaser prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by such Purchaser or such Additional Purchaser or any Person acting on such Purchaser’s or such Additional Purchaser’s behalf, (c) otherwise becomes known to such Purchaser or such Additional Purchaser other than through disclosure by an Obligor or any Subsidiary or (d) constitutes financial statements delivered to such Purchaser or such Additional Purchaser under Section 7.1 that are otherwise publicly available. Each Purchaser and each Additional Purchaser will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by such Purchaser or such Additional Purchaser in good faith to protect confidential information of third parties delivered to such Purchaser or such Additional Purchaser, provided that such Purchaser or such Additional Purchaser may deliver or disclose Confidential Information to (i) such Purchaser’s or such Additional Purchaser’s directors, trustees, officers, employees, agents, attorneys and affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by such Purchaser’s or such Additional Purchaser’s Notes), (ii) such Purchaser’s or such Additional Purchaser’s financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 20, (iii) any other holder of any Note, (iv) any Institutional Investor to which such Purchaser or such Additional Purchaser sells or offers to sell such Note or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the 41
  • 95. provisions of this Section 20), (v) any Person from which such Purchaser or such Additional Purchaser offers to purchase any security of an Obligor (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (vi) any federal or state regulatory authority having jurisdiction over such Purchaser or such Additional Purchaser, (vii) the National Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about such Purchaser’s or such Additional Purchaser’s investment portfolio, or (viii) any other Person to which such delivery or disclosure may be necessary or appropriate (w) to effect compliance with any law, rule, regulation or order applicable to such Purchaser or such Additional Purchaser, (x) in response to any subpoena or other legal process, (y) in connection with any litigation to which such Purchaser or such Additional Purchaser is a party or (z) if an Event of Default has occurred and is continuing, to the extent such Purchaser or such Additional Purchaser may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under such Purchaser’s or such Additional Purchaser’s Notes, the Subsidiary Guaranty and this Agreement. Each holder of a Note, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 20 as though it were a party to this Agreement. On reasonable request by an Obligor in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or its nominee), such holder will enter into an agreement with an Obligor embodying the provisions of this Section 20. Section 21. Substitution of Purchaser. Each Purchaser and each Additional Purchaser shall have the right to substitute any one of its Affiliates as the purchaser of the Notes that it has agreed to purchase hereunder, by written notice to an Obligor, which notice shall be signed by both such Purchaser or such Additional Purchaser and such Affiliate, shall contain such Affiliate’s agreement to be bound by this Agreement and shall contain a confirmation by such Affiliate of the accuracy with respect to it of the representations set forth in Section 6. Upon receipt of such notice, any reference to such Purchaser or such Additional Purchaser in this Agreement (other than in this Section 21), shall be deemed to refer to such Affiliate in lieu of such original Purchaser or such original Additional Purchaser. In the event that such Affiliate is so substituted as a Purchaser or an Additional Purchaser hereunder and such Affiliate thereafter transfers to such original Purchaser or such original Additional Purchaser all of the Notes then held by such Affiliate, upon receipt by an Obligor of notice of such transfer, any reference to such Affiliate as a “Purchaser” or an “Additional Purchaser” in this Agreement (other than in this Section 21), shall no longer be deemed to refer to such Affiliate, but shall refer to such original Purchaser or such original Additional Purchaser, and such original Purchaser or such original Additional Purchaser shall again have all the rights of an original holder of the Notes under this Agreement. Section 22. Miscellaneous. Section 22.1. Successors and Assigns. All covenants and other agreements contained in this Agreement (including all covenants and other agreements contained in any Supplement) by 42
  • 96. or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors and assigns (including, without limitation, any subsequent holder of a Note) whether so expressed or not. Section 22.2. Payments Due on Non−Business Days. Anything in this Agreement or the Notes to the contrary notwithstanding (but without limiting the requirement in Section 8.4 that the notice of any optional prepayment specify a Business Day as the date fixed for such prepayment), any payment of principal of or Make−Whole Amount or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day; provided that if the maturity date of any Note is a date other than a Business Day, the payment otherwise due on such maturity date shall be made on the next succeeding Business Day and shall include the additional days elapsed in the computation of interest payable on such next succeeding Business Day. Section 22.3. Accounting Terms. All accounting terms used herein which are not expressly defined in this Agreement have the meanings respectively given to them in accordance with GAAP. Except as otherwise specifically provided herein, (i) all computations made pursuant to this Agreement shall be made in accordance with GAAP, and (ii) all financial statements shall be prepared in accordance with GAAP. Section 22.4. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction. Section 22.5. Construction. Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. For the avoidance of doubt, all Schedules and Exhibits attached to this Agreement shall be deemed to be a part hereof. Section 22.6. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. Section 22.7. Governing Law. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York excluding choice−of−law principles of the law of such State that would permit the application of the laws of a jurisdiction other than such State. 43
  • 97. Section 22.8. Jurisdiction and Process; Waiver of Jury Trial. (a) Each Obligor irrevocably submits to the non−exclusive jurisdiction of any New York State or federal court sitting in the Borough of Manhattan, The City of New York, over any suit, action or proceeding arising out of or relating to this Agreement or the Notes. To the fullest extent permitted by applicable law, each Obligor irrevocably waives and agrees not to assert, by way of motion, as a defense or otherwise, any claim that it is not subject to the jurisdiction of any such court, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. (b) Each Obligor consents to process being served by or on behalf of any holder of Notes in any suit, action or proceeding of the nature referred to in Section 22.8(a) by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, return receipt requested, to it at its address specified in Section 18 or at such other address of which such holder shall then have been notified pursuant to said Section. Each Obligor agrees that such service upon receipt (i) shall be deemed in every respect effective service of process upon it in any such suit, action or proceeding and (ii) shall, to the fullest extent permitted by applicable law, be taken and held to be valid personal service upon and personal delivery to it. Notices hereunder shall be conclusively presumed received as evidenced by a delivery receipt furnished by the United States Postal Service or any reputable commercial delivery service. (c) Nothing in this Section 22.8 shall affect the right of any holder of a Note to serve process in any manner permitted by law, or limit any right that the holders of any of the Notes may have to bring proceedings against any Obligor in the courts of any appropriate jurisdiction or to enforce in any lawful manner a judgment obtained in one jurisdiction in any other jurisdiction. (d) The parties hereto hereby waive trial by jury in any action brought on or with respect to this Agreement, the Notes or any other document executed in connection herewith or therewith. ***** 44
  • 98. The execution hereof by the Purchasers shall constitute a contract among the Obligors and the Purchasers for the uses and purposes hereinabove set forth. This Agreement may be executed in any number of counterparts, each executed counterpart constituting an original but all together only one agreement. Very truly yours, Family Dollar Stores, Inc. By /s/ R. James Kelly Name: R. James Kelly Title: Vice Chairman, Chief Financial Officer and Chief Administrative Officer Family Dollar, Inc. By /s/ R. James Kelly Name: R. James Kelly Title: Vice Chairman, Chief Financial Officer and Chief Administrative Officer 45
  • 99. Accepted as of the date first written above. The Prudential Insurance Company of America By /s/ Billy Green Name: Billy Green Title: Senior Vice President Gibraltar Life Insurance Co., Ltd. By: Prudential Private Placement Investors, L.P. (as Investment Advisor) By: Prudential Private Placement Investors, Inc. (as its General Partner) By /s/ Billy Green Name: Billy Green Title: Senior Vice President American Bankers Insurance Company of Florida, Inc. By: Prudential Private Placement Investors, L.P. (as Investment Advisor) By: Prudential Private Placement Investors, Inc. (as its General Partner) By /s/ Billy Green Name: Billy Green Title: Senior Vice President 46
  • 100. American Memorial Life Insurance Company By: Prudential Private Placement Investors, L.P. (as Investment Advisor) By: Prudential Private Placement Investors, Inc. (as its General Partner) By /s/ Billy Green Name: Billy Green Title: Senior Vice President Union Security Insurance Company By: Prudential Private Placement Investors, L.P. (as Investment Advisor) By: Prudential Private Placement Investors, Inc. (as its General Partner) By /s/ Billy Green Name: Billy Green Title: Senior Vice President Time Insurance Company By: Prudential Private Placement Investors, L.P. (as Investment Advisor) By: Prudential Private Placement Investors, Inc. (as its General Partner) By /s/ Billy Green Name: Billy Green Title: Senior Vice President 47
  • 101. ING USA Annuity and Life Insurance Company ReliaStar Life Insurance Company ING Life Insurance and Annuity Company Security Life of Denver Insurance Company By: ING Investment Management LLC, as Agent By /s/ Christopher P. Lyons Name: Christopher P. Lyons Title: Senior Vice President Allstate Insurance Company By /s/ Carrie A. Cazolas Name: Carrie A. Cazolas By /s/ Jerry D. Zinkula Name: Jerry D. Zinkula Authorized Signatories Allstate Life Insurance Company By /s/ Carrie A. Cazolas Name: Carrie A. Cazolas By /s/ Jerry D. Zinkula Name: Jerry D. Zinkula Authorized Signatories 48
  • 102. Allstate Life Insurance Company of New York By /s/ Carrie A. Cazolas Name: Carrie A. Cazolas By /s/ Jerry D. Zinkula Name: Jerry D. Zinkula Authorized Signatories Midland National Life Insurance Company By /s/ Michael Damaso Name: Michael Damaso Title: Director North American Company for Life and Health Insurance By /s/ Michael Damaso Name: Michael Damaso Title: Director Transamerica Life Insurance and Annuity Company By /s/ Debra R. Thompson Name: Debra R. Thompson Title: Vice President 49
  • 103. Transamerica Occidental Life Insurance Company By /s/ Debra R. Thompson Name: Debra R. Thompson Title: Vice President Thrivent Financial for Lutherans By /s/ Glen J. Vanic Name: Glen J. Vanic Title: Portfolio Manager United of Omaha Life Insurance Company By /s/ Edwin H. Garrison, Jr. Name: Edwin H. Garrison, Jr. Title: First Vice President Banc of America Securities LLC By /s/ John J. DeCoursey Name: John J. DeCoursey Title: Principal Modern Woodmen of America By /s/ G.P. Odean Name: G.P. Odean Title: National Secretary 50
  • 104. Security Financial Life Insurance Co. By /s/ Kevin W. Hammond Name: Kevin W. Hammond Title: Senior Director − Investments Assurity Life Insurance Company By /s/ Victor Weber Name: Victor Weber Title: Senior Director − Investments 51
  • 105. Schedule A Principal Amount of Notes Name of Purchaser Tranche to be Purchased ING USA ANNUITY AND LIFE INSURANCE COMPANY A $12,000,000 c/o ING Investment Management LLC 5780 Powers Ferry Road NW, Suite 300 Atlanta, Georgia 30327−4349 Attention: Private Placements Fax Number: (770) 690−5057 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as “Family Dollar Stores, Inc. and Family Dollar, Inc., 5.41 Series 2005−A Senior Notes, Tranche A due September 27, 2015 PPN 30704@ AA 2, principal, premium or interest”) to: The Bank of New York BFN: (for scheduled principal and interest payments) OR BFN: (for all payments other than scheduled principal and interest) ABA # Ref.: ING USA Annuity and Life Company, Acct. No. and PPN 30704@ AA 2 Notices All notices with respect to payments and written confirmation of each such payment to be addressed: ING Investment Management LLC 5780 Powers Ferry Road, NW, Suite 300 Atlanta, Georgia 30327−4349 Attention: Operations/Settlements Fax Number: (770) 690−4886 All other notices and communications to be addressed as follows with a copy to the address first provided above: ING Investment Management LLC 100 Washington Avenue South, Suite 1635 Minneapolis, Minnesota 55401−2121 Attention: Jen Wilson Phone Number: (612) 342−7156 Fax Number: (612) 372−5368 Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 41−0991508 SCHEDULE A (to Note Purchase Agreement)
  • 106. Principal Amount of Notes Name of Purchaser Tranche to be Purchased RELIASTAR LIFE INSURANCE COMPANY A $12,000,000 c/o ING Investment Management LLC 5780 Powers Ferry Road NW, Suite 300 Atlanta, Georgia 30327−4349 Attention: Private Placements Fax Number: (770) 690−5057 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as “Family Dollar Stores, Inc. and Family Dollar, Inc., 5.41 Series 2005−A Senior Notes, Tranche A due September 27, 2015 PPN 30704@ AA 2, principal, premium or interest”) to: The Bank of New York BFN: (for scheduled principal and interest payments) OR BFN: (for all payments other than scheduled principal and interest) ABA # Ref.: ReliaStar Life Insurance Company, Acct. No. and PPN 30704@ AA 2 Notices All notices with respect to payments and written confirmation of each such payment to be addressed: ING Investment Management LLC 5780 Powers Ferry Road, NW, Suite 300 Atlanta, Georgia 30327−4349 Attention: Operations/Settlements Fax Number: (770) 690−4886 All other notices and communications to be addressed as follows with a copy to the address first provided above: ING Investment Management LLC 100 Washington Avenue South, Suite 1635 Minneapolis, Minnesota 55401−2121 Attention: Jen Wilson Phone Number: (612) 342−7156 Fax Number: (612) 372−5368 Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 41−0451140 A−2
  • 107. Principal Amount of Notes Name of Purchaser Tranche to be Purchased ING LIFE INSURANCE AND ANNUITY COMPANY A $12,000,000 c/o ING Investment Management LLC 5780 Powers Ferry Road NW, Suite 300 Atlanta, Georgia 30327−4349 Attention: Private Placements Fax Number: (770) 690−5057 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as “Family Dollar Stores, Inc. and Family Dollar, Inc., 5.41 Series 2005−A Senior Notes, Tranche A due September 27, 2015 PPN 30704@ AA 2, principal, premium or interest”) to: The Bank of New York BFN: (for scheduled principal and interest payments) OR BFN: (for all payments other than scheduled principal and interest) ABA # Attention: P&I Department Ref.: ING Life Insurance and Annuity Company, Acct. No. and PPN 30704@ AA 2 Notices All notices with respect to payments and written confirmation of each such payment to be addressed: ING Investment Management LLC 5780 Powers Ferry Road, NW, Suite 300 Atlanta, Georgia 30327−4349 Attention: Operations/Settlements Fax Number: (770) 690−4886 All other notices and communications to be addressed as follows with a copy to the address first provided above: ING Investment Management LLC 100 Washington Avenue South, Suite 1635 Minneapolis, Minnesota 55401−2121 Attention: Jen Wilson Phone Number: (612) 342−7156 Fax Number: (612) 372−5368 Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 71−0294708 A−3
  • 108. Principal Amount of Notes Name of Purchaser Tranche to be Purchased SECURITY LIFE OF DENVER INSURANCE COMPANY A $4,000,000 c/o ING Investment Management LLC 5780 Powers Ferry Road NW, Suite 300 Atlanta, Georgia 30327−4349 Attention: Private Placements Fax Number: (770) 690−5057 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as “Family Dollar Stores, Inc. and Family Dollar, Inc., 5.41 Series 2005−A Senior Notes, Tranche A due September 27, 2015 PPN 30704@ AA 2, principal, premium or interest”) to: The Bank of New York BFN: (for scheduled principal and interest payments) OR BFN: (for all payments other than scheduled principal and interest) ABA # Attention: P&I Department Reference: Security Life of Denver Insurance Company, Account No. and PPN 30704@ AA 2 Notices All notices with respect to payments and written confirmation of each such payment to be addressed: ING Investment Management LLC 5780 Powers Ferry Road NW, Suite 300 Atlanta, Georgia 30327−4349 Attention: Operations/Settlements Fax Number: (770) 690−4886 All other notices and communications to be addressed as follows with a copy to address first provided above: ING Investment Management LLC 100 Washington Avenue South, Suite 1635 Minneapolis, Minnesota 55401−2121 Attention: Jen Wilson Phone: (612) 342−7156 Fax Number: (612) 372−5368 Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 84−0499703 A−4
  • 109. Principal Amount of Notes Name of Purchaser Tranche to be Purchased ALLSTATE LIFE INSURANCE COMPANY A $5,000,000 3075 Sanders Road, STE G5D $5,000,000 Northbrook, Illinois 60062−7127 $2,400,000 Attention: Private Placements Department Telephone Number: (847) 402−7117 Telecopier Number: (847) 402−3092 Payments All payments by Fedwire transfer of immediately available funds or ACH payments, identifying the name of the Issuer, the Private Placement Number and the payment as principal, interest or premium in the format as follows: Bank: ABA#: Account name: Account #: Reference: OBI PPN 30704@ AA 2, Family Dollar Stores, Inc. and Family Dollar, Inc., 5.41 Series 2005−A Senior Notes, Tranche A due September 27, 2015, Payment Due Date (09/27/2015) and the type and amount of payment being made. For Example: P (enter “P” and the amount of principal being remitted, for example, P5000000.00) I (enter “I” and the amount of interest being remitted, for example, I225000.00) Notices All notices of scheduled payments and written confirmation of each such payment, to be addressed: Allstate Insurance Company Investment Operations—Private Placements 3075 Sanders Road, STE G4A Northbrook, Illinois 60062−7127 Telephone: (847) 402−6672 Private Placements Telecopy: (847) 326−7032 All financial reports, compliance certificates and all other written communications, including notice of prepayments to be sent by email (privatecompliance@allstate.com) or hard copy addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 36−2554642 A−5
  • 110. Principal Amount of Notes Name of Purchaser Tranche to be Purchased ALLSTATE INSURANCE COMPANY A $2,600,000 c/o Allstate Investments LLC Attention: Private Placements Department 3075 Sanders Road, STE G5D Northbrook, Illinois 60062−7127 Telephone: (847) 402−7117 Telecopy: (847) 402−3092 Payments All payments by Fedwire transfer of immediately available funds or ACH payments, identifying the name of the Issuer, the Private Placement Number and the payment as principal, interest or premium in the format as follows: Bank: ABA#: Account name: Account #: Reference: OBI PPN 30704@ AA 2, Family Dollar Stores, Inc. and Family Dollar, Inc., 5.41 Series 2005−A Senior Notes, Tranche A due September 27, 2015, Payment Due Date (09/27/2015) and the type and amount of payment being made. For Example: P (enter “P” and the amount of principal being remitted, for example, P5000000.00) I (enter “I” and the amount of interest being remitted, for example, I225000.00) Notices All notices of scheduled payments and written confirmation of such wire transfer to be sent to: Allstate Investments LLC Investment Operations—Private Placements 3075 Sanders Road, STE G4A Northbrook, Illinois 60062−7127 Telephone: (847) 402−6672 Private Placements Telecopy: (847) 326−7032 Email: PrivateIOD@allstate.com All financial reports, compliance certificates and all other written communications, including notice of prepayments to be sent by email (privatecompliance@allstate.com) or hard copy addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 36−0719665 A−6
  • 111. Principal Amount of Notes Name of Purchaser Tranche to be Purchased MIDLAND NATIONAL LIFE INSURANCE COMPANY A $10,000,000 c/o Midland Advisors Company 200 East 10th Street, Suite 301 Sioux Falls, SD 57104 Attention; Melissa Carlson Phone: (605) 782−1943 Fax: (605) 782−1929 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as “Family Dollar Stores, Inc. and Family Dollar, Inc., 5.41 Series 2005−A Senior Notes, Tranche A due September 27, 2015 PPN 30704@ AA 2, principal, premium or interest”) to: The Bank of New York ABA # BNF: 100 Church Street, 7th Floor New York, NY 10286 Attn: Principal & Interest Dept. Ref: PPN 30704@ AA 2, Family Dollar Stores, Inc. and Family Dollar, Inc., 5.41 Series 2005−A Senior Notes, Tranche A due September 27, 2015 Notices All notices of payment on or in respect of the Notes and written confirmation of each such payment to be addressed as first provided above with a copy to: The Bank of New York F/A/O: P.O. Box 19266 Newark, NJ 07195 Attention: Principal & Interest Department All notices and communications other than those in respect to payments to be addressed as first provided above. Settlements and documentation: Guggenheim Partners 135 East 57th Street, 23rd Floor New York, New York 10022 Attention: Kaitlin Trinh/John Nelson Phone: (212) 651−0840 / (212) 381−7559 Fax: (212) 644−8396 A−7
  • 112. Name of Nominee in which Notes are to be issued: Hare & Co. Taxpayer I.D. Number: 46−0164570 A−8
  • 113. Principal Amount of Notes Name of Purchaser Tranche to be Purchased MIDLAND NATIONAL LIFE INSURANCE COMPANY A $10,000,000 c/o Midland Advisors Company 200 East 10th Street, Suite 301 Sioux Falls, SD 57104 Attention; Melissa Carlson Phone: (605) 782−1943 Fax: (605) 782−1929 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as “Family Dollar Stores, Inc. and Family Dollar, Inc., 5.41 Series 2005−A Senior Notes, Tranche A due September 27, 2015 PPN 30704@ AA 2, principal, premium or interest”) to: The Bank of New York ABA # BNF: 100 Church Street, 7th Floor New York, NY 10286 Attn: Principal & Interest Dept. Ref: PPN 30704@ AA 2, Family Dollar Stores, Inc. and Family Dollar, Inc., 5.41 Series 2005−A Senior Notes, Tranche A due September 27, 2015 Notices All notices of payment on or in respect of the Notes and written confirmation of each such payment to be addressed as first provided above with a copy to: The Bank of New York F/A/O: P.O. Box 19266 Newark, NJ 07195 Attention: Principal & Interest Department All notices and communications other than those in respect to payments to be addressed as first provided above. Settlements and documentation: Guggenheim Partners 135 East 57th Street, 23rd Floor New York, New York 10022 Attention: Kaitlin Trinh/John Nelson Phone: (212) 651−0840 / (212) 381−7559 Fax: (212) 644−8396 A−9
  • 114. Name of Nominee in which Notes are to be issued: Hare & Co. Taxpayer I.D. Number: 46−0164570 A−10
  • 115. Principal Amount of Notes Name of Purchaser Tranche to be Purchased MIDLAND NATIONAL LIFE INSURANCE COMPANY A $6,000,000 c/o Midland Advisors Company 200 East 10th Street, Suite 301 Sioux Falls, SD 57104 Attention; Melissa Carlson Phone: (605) 782−1943 Fax: (605) 782−1929 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as “Family Dollar Stores, Inc. and Family Dollar, Inc., 5.41 Series 2005−A Senior Notes, Tranche A due September 27, 2015 PPN 30704@ AA 2, principal, premium or interest”) to: The Bank of New York ABA # BNF: 100 Church Street, 7th Floor New York, NY 10286 Attn: Principal & Interest Dept. Ref: PPN 30704@ AA 2, Family Dollar Stores, Inc. and Family Dollar, Inc., 5.41 Series 2005−A Senior Notes, Tranche A due September 27, 2015 Notices All notices of payment on or in respect of the Notes and written confirmation of each such payment to be addressed as first provided above with a copy to: The Bank of New York F/A/O: P.O. Box 19266 Newark, NJ 07195 Attention: Principal & Interest Department All notices and communications other than those in respect to payments to be addressed as first provided above. Settlements and documentation: Guggenheim Partners 135 East 57th Street, 23rd Floor New York, New York 10022 Attention: Kaitlin Trinh/John Nelson Phone: (212) 651−0840 / (212) 381−7559 Fax: (212) 644−8396 A−11
  • 116. Name of Nominee in which Notes are to be issued: Hare & Co. Taxpayer I.D. Number: 46−0164570 A−12
  • 117. Principal Amount of Notes Name of Purchaser Tranche to be Purchased MIDLAND NATIONAL LIFE INSURANCE COMPANY A $3,000,000 c/o Midland Advisors Company 200 East 10th Street, Suite 301 Sioux Falls, SD 57104 Attention; Melissa Carlson Phone: (605) 782−1943 Fax: (605) 782−1929 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as “Family Dollar Stores, Inc. and Family Dollar, Inc., 5.41 Series 2005−A Senior Notes, Tranche A due September 27, 2015 PPN 30704@ AA 2, principal, premium or interest”) to: The Bank of New York ABA # BNF: 100 Church Street, 7th Floor New York, NY 10286 Attn: Principal & Interest Dept. Ref: PPN 30704@ AA 2, Family Dollar Stores, Inc. and Family Dollar, Inc., 5.41 Series 2005−A Senior Notes, Tranche A due September 27, 2015 Notices All notices of payment on or in respect of the Notes and written confirmation of each such payment to be addressed as first provided above with a copy to: The Bank of New York F/A/O: P.O. Box 19266 Newark, NJ 07195 Attention: Principal & Interest Department All notices and communications other than those in respect to payments to be addressed as first provided above. Settlements and documentation: Guggenheim Partners 135 East 57th Street, 23rd Floor New York, New York 10022 Attention: Kaitlin Trinh/John Nelson Phone: (212) 651−0840 / (212) 381−7559 Fax: (212) 644−8396 Name of Nominee in which Notes are to be issued: Hare & Co. Taxpayer I.D. Number: 46−0164570 A−13
  • 118. Principal Amount of Notes Name of Purchaser Tranche to be Purchased NORTH AMERICAN COMPANY FOR LIFE AND A $3,000,000 HEALTH INSURANCE c/o Midland Advisors Company 200 East 10th Street, Suite 301 Sioux Falls, SD 57104 Attention; Melissa Carlson Phone: (605) 782−1943 Fax: (605) 782−1929 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as “Family Dollar Stores, Inc. and Family Dollar, Inc., 5.41 Series 2005−A Senior Notes, Tranche A due September 27, 2015 PPN 30704@ AA 2, principal, premium or interest”) to: The Bank of New York ABA # BNF: 100 Church Street, 7th Floor New York, NY 10286 Attn: Principal & Interest Dept. Ref: PPN 30704@ AA 2, Family Dollar Stores, Inc. and Family Dollar, Inc., 5.41 Series 2005−A Senior Notes, Tranche A due September 27, 2015 Notices All notices of payment on or in respect of the Notes and written confirmation of each such payment to be addressed as first provided above with a copy to: The Bank of New York F/A/O: P.O. Box 19266 Newark, NJ 07195 Attention: Principal & Interest Department All notices and communications other than those in respect to payments to be addressed as first provided above. Settlements and documentation: Guggenheim Partners 135 East 57th Street, 23rd Floor New York, New York 10022 Attention: Kaitlin Trinh/John Nelson Phone: (212) 651−0840 / (212) 381−7559 Fax: (212) 644−8396 A−14
  • 119. Name of Nominee in which Notes are to be issued: Hare & Co. Taxpayer I.D. Number: 36−2428931 A−15
  • 120. Principal Amount of Notes Name of Purchaser Tranche to be Purchased NORTH AMERICAN COMPANY FOR LIFE AND A $3,000,000 HEALTH INSURANCE c/o Midland Advisors Company 200 East 10th Street, Suite 301 Sioux Falls, SD 57104 Attention; Melissa Carlson Phone: (605) 782−1943 Fax: (605) 782−1929 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as “Family Dollar Stores, Inc. and Family Dollar, Inc., 5.41 Series 2005−A Senior Notes, Tranche A due September 27, 2015 PPN 30704@ AA 2, principal, premium or interest”) to: The Bank of New York ABA # BNF: 100 Church Street, 7th Floor New York, NY 10286 Attn: Principal & Interest Dept. Ref: PPN 30704@ AA 2, Family Dollar Stores, Inc. and Family Dollar, Inc., 5.41 Series 2005−A Senior Notes, Tranche A due September 27, 2015 Notices All notices of payment on or in respect of the Notes and written confirmation of each such payment to be addressed as first provided above with a copy to: The Bank of New York F/A/O: P.O. Box 19266 Newark, NJ 07195 Attention: Principal & Interest Department All notices and communications other than those in respect to payments to be addressed as first provided above. Settlements and documentation: Guggenheim Partners 135 East 57th Street, 23rd Floor New York, New York 10022 Attention: Kaitlin Trinh/John Nelson Phone: (212) 651−0840 / (212) 381−7559 Fax: (212) 644−8396 A−16
  • 121. Name of Nominee in which Notes are to be issued: Hare & Co. Taxpayer I.D. Number: 36−2428931 A−17
  • 122. Principal Amount of Notes Name of Purchaser Tranche to be Purchased TRANSAMERICA LIFE INSURANCE AND A $30,000,000 ANNUITY COMPANY c/o AEGON USA Investment Management, LLC 4333 Edgewood Road, N.E. Cedar Rapids, Iowa 52499−5335 Attention: Director of Private Placements Phone: (319) 369−2432 Fax: (319) 369−2666 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as “Family Dollar Stores, Inc. and Family Dollar, Inc., 5.41% Series 2005−A Senior Notes, Tranche A due September 27, 2015 PPN 30704@ AA 2, principal, premium or interest”) to: Boston Safe Deposit Trust ABA # Credit DDA Account # Attention: Custody Account: Notices All notices and confirmation of Payment information with respect of the Notes should be sent to: Email: paymentnotifications@aegonusa.com AEGON USA Investment Management, LLC Attention: Custody Operations−Privates 4333 Edgewood Road N.E. Cedar Rapids, Iowa 52499−7013 All other notices and communications (including financial statement and reporting) to be addressed as first provided above with a copy to: AEGON USA Investment Management, LLC Attention: Debbie Thompson – Private Placements 400 West Market Street, 10th Floor Louisville, Kentucky 40202 Phone: (502) 560−2961 Fax: (502) 560−2030 Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 95−6140222 A−18
  • 123. Principal Amount of Notes Name of Purchaser Tranche to be Purchased THRIVENT FINANCIAL FOR LUTHERANS A $15,000,000 625 Fourth Avenue South Minneapolis, Minnesota 55415 Attention: Investment Division Fax Number: (612) 340−5776 Payments All payments of principal, premium or interest on the account of the Notes shall be made by bank wire transfer (in immediately available funds) to: ABA # State Street Bank & Trust Co. DDA # A/C — Fund Number: Fund Name: Thrivent Financial for Lutherans All payments must include the following information: Family Dollar Stores, Inc. and Family Dollar, Inc., 5.41 Series 2005−A Senior Notes, Tranche A due September 27, 2015 PPN 30704@ AA 2, Reference Purpose of Payment and Interest and/or Principal Breakdown Notices All notices and communications to be addressed as first provided above, except notices with respect to payment and written confirmation of each such payment, to be addressed: Thrivent Financial for Lutherans 625 Fourth Avenue South Minneapolis, Minnesota 55415 Attention: Investment Division Fax: (612) 340−5776 with a copy to: Thrivent Accounts State Street Kansas City 801 Pennsylvania Kansas City, Missouri 64105 Attention: Bart Woodson Fax: (816) 691−3610 Name of Nominee in which Notes are to be issued: Swanbird & Co. Taxpayer I.D. Number for Swanbird & Co.: 04−3475606 Taxpayer I.D. Number for Thrivent Financial for Lutherans: 39−0123480 A−19
  • 124. Principal Amount of Notes Name of Purchaser Tranche to be Purchased UNITED OF OMAHA LIFE INSURANCE COMPANY A $16,000,000 Mutual of Omaha Plaza Omaha, Nebraska 68175−1011 Attention: 4−Investment Loan Administration Payments All principal and interest payments on or in respect of the Notes shall be made by wire transfer of immediately available funds to: JPMorgan Chase Bank ABA # Private Income Processing For credit to: United of Omaha Life Insurance Company Account Number a/c PPN: 30704@ AA 2 Interest Amount: Principal Amount: Notices All notices of payments of principal and interest, on or in respect of the Notes and written confirmation of each such payment, corporate actions and reorganization notifications to: JPMorgan Chase Bank 14201 Dallas Parkway, 13th Floor Dallas, Texas 75254−2917 Attention: Income Processing − G. Ruiz a/c: All other notices and communications (i.e., quarterly/annual reports, tax filings, modifications, waivers regarding the indenture) to be addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 47−0322111 A−20
  • 125. Principal Amount of Notes Name of Purchaser Tranche to be Purchased BANC OF AMERICA SECURITIES LLC A $5,000,000 214 North Tryon Street NC1−027−14−01 Charlotte, NC 28255 Phone: (704) 386−4534 Facsimile: (704) 388−9269 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as “Family Dollar Stores, Inc. and Family Dollar, Inc., 5.41 Series 2005−A Senior Notes, Tranche A due September 27, 2015 PPN 30704@ AA 2, principal, premium or interest”) to: The Bank of New York ABA # A/C: FFC: Ref: Family Dollar Stores, Inc. and Family Dollar, Inc., 5.41 Series 2005−A Senior Notes, Tranche A due September 27, 2015 PPN 30704@ AA 2 Notices All notices and communications to be addressed as first provided above with a copy to: John J. DeCoursey Banc of America Securities, LLC 9 W. 57th Street NY1−302−02−01 New York, NY 10019 Phone: (212) 933−3115 Facsimile: (212) 583−8570 Name of Nominee in which Notes are to be issued: Hare & Co. Taxpayer I.D. Number: 56−2058405 A−21
  • 126. Principal Amount of Notes Name of Purchaser Tranche to be Purchased BANC OF AMERICA SECURITIES LLC A $4,000,000 214 North Tryon Street NC1−027−14−01 Charlotte, NC 28255 Phone: (704) 386−4534 Facsimile: (704) 388−9269 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as “Family Dollar Stores, Inc. and Family Dollar, Inc., 5.41 Series 2005−A Senior Notes, Tranche A due September 27, 2015 PPN 30704@ AA 2, principal, premium or interest”) to: The Bank of New York ABA # A/C: FFC: Ref: Family Dollar Stores, Inc. and Family Dollar, Inc., 5.41 Series 2005−A Senior Notes, Tranche A due September 27, 2015 PPN 30704@ AA 2 Notices All notices and communications to be addressed as first provided above with a copy to: John J. DeCoursey Banc of America Securities, LLC 9 W. 57th Street NY1−302−02−01 New York, NY 10019 Phone: (212) 933−3115 Facsimile: (212) 583−8570 Name of Nominee in which Notes are to be issued: Hare & Co. Taxpayer I.D. Number: 56−2058405 A−22
  • 127. Principal Amount of Notes Name of Purchaser Tranche to be Purchased MODERN WOODMEN OF AMERICA A $6,000,000 1701 First Avenue Rock Island, Illinois 61201 Attention: Investment Department Investment.Department@Modern−Woodmen.org Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as “Family Dollar Stores, Inc. and Family Dollar, Inc., 5.41 Series 2005−A Senior Notes, Tranche A due September 27, 2015 PPN 30704@ AA 2, principal, premium or interest”) to: The Northern Trust Company 50 South LaSalle Street Chicago, Illinois 60675 ABA # Account Name: Modern Woodmen of America Account Number Notices All notices and communications to be addressed as first provided above, except notices with respect to payments and written confirmation of each such payment, to be addressed Attention: Investment Accounting Department Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 36−1493430 A−23
  • 128. Principal Amount of Notes Name of Purchaser Tranche to be Purchased SECURITY FINANCIAL LIFE INSURANCE CO. A $2,000,000 4000 Pine Lake Road P. O. Box 82248 Lincoln, Nebraska 68501−2248 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as “Family Dollar Stores, Inc. and Family Dollar, Inc., 5.41 Series 2005−A Senior Notes, Tranche A due September 27, 2015 PPN 30704@ AA 2, principal, premium or interest”) to: Union Bank & Trust Company 4732 Calvert Street Lincoln, Nebraska 68501−2535 ABA # Account of: Security Financial Life Insurance Co. Account Number: Notices All notices and communications to be addressed as first provided above, except notices with respect to payments and written confirmation of each such payment to be addressed: Security Financial Life Insurance Co. 4000 Pine Lake Road Lincoln, Nebraska 68516 Attention: Investment Division Fax: (402) 458−2170 Phone: (402) 437−3600 Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 47−0293990 A−24
  • 129. Principal Amount to be Name of Purchaser Tranche Purchased ASSURITY LIFE INSURANCE COMPANY A $1,000,000 Attention: Investment Division 4000 Pine Lake Road Lincoln, Nebraska 68516 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds to: US Bank National Association 13th and M Street Lincoln, Nebraska 68508 ABA # For credit to Assurity Life Insurance Company Account Number: With sufficient notation to identify the source of the funds. All notices of payments on or in respect of the Notes and written confirmation of each such payment to be addressed to: Assurity Life Insurance Company Attention: Investment Division Overnight Mailing Address: 4000 Pine Lake Road Lincoln, Nebraska 68516 Regular Mailing Address: P.O. Box 82248 Lincoln, Nebraska 68501−2248 All notices and communications other than those in respect to payments to be addressed to: Assurity Life Insurance Company Attention: Vic Weber P.O. Box 82248 Lincoln, Nebraska 68501−2248 Phone: (402) 437−3682 Fax: (402) 458−2170 Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 38−1843471 A−25
  • 130. Principal Amount of Series B Notes to be Name of Purchaser Tranche Purchased GIBRALTAR LIFE INSURANCE CO., LTD. B $21,500,000 c/o Prudential Capital Group Gateway Center 3, 18th Floor 100 Mulberry Street Newark, New Jersey 07102−4077 Attention: Albert Trank, Managing Director Phone: (973) 802−8608 Facsimile: (973) 367−3234 Email: albert.trank@prudential.com Payments All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to: JPMorgan Chase Bank New York, New York ABA No.: Account No.: Account Name: Each such wire transfer shall set forth the name of the Company, a reference to “Family Dollar Stores, Inc. and Family Dollar, Inc., 5.24% Series 2005−A Senior Notes, Tranche B due September 27, 2015, PPN 30704@ AB 0” and the due date and application (as among principal, interest and Make−Whole Amount) of the payment being made. Notices All notices with respect to payments, and written confirmation of each such payment, to be addressed to: The Gibraltar Life Insurance Co., Ltd. 2−13−10, Nagatacho Chiyoda−ku, Tokyo 100−8953, Japan Attention: Yoshiki Saito, Vice President of Investment Operations Team Telephone: 81−3−5501−6680 Facsimile: 81−3−5501−6432 Email: yoshiki.saito@gib−life.co.jp All other notices and communications to be addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 98−0408643 A−26
  • 131. Principal Amount of Series B Notes to be Name of Purchaser Tranche Purchased THE PRUDENTIAL INSURANCE COMPANY B $12,100,000 OF AMERICA c/o Prudential Capital Group 1170 Peachtree Street, Suit 500 Atlanta, GA 30309 Attention: Managing Director Payments All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to: Account No.: Account Name: JPMorgan Chase Bank New York, New York ABA No.: Each such wire transfer shall set forth the name of the Company, a reference to “Family Dollar Stores, Inc. and Family Dollar, Inc., 5.24% Series 2005−A Senior Notes, Tranche B due September 27, 2015, PPN 30704@ AB 0” and the due date and application (as among principal, interest and Make−Whole Amount) of the payment being made. Notices All notices with respect to payments, and written confirmation of each such payment, to be addressed to: The Prudential Insurance Company of America c/o Investment Operations Group Gateway Center Two, 10th Floor 100 Mulberry Street Newark, New Jersey 07102−4077 Attention: Manager, Billings and Collections Recipient of telephonic prepayment notices: Manager, Trade Management Group Telephone: (973) 367−3141 Facsimile: (800) 224−2278 All other notices and communications to be addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 22−1211670 A−27
  • 132. Principal Amount of Series B Notes to be Name of Purchaser Tranche Purchased AMERICAN BANKERS INSURANCE COMPANY B $4,000,000 OF FLORIDA, INC. c/o Prudential Private Placement Investors, L.P. Gateway Center 3, 18th Floor 100 Mulberry Street Newark, New Jersey 07102 Attention: Albert Trank, Managing Director Telephone: (973) 802−8608 Facsimile: (973) 624−6432 Payments All payments on account of the Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to: JP Morgan Chase Bank ABA No.: Account No.: Account Name: JP Morgan Chase For further credit to Account No.: Account Name: Each such wire transfer shall set forth the name of the Company, a reference to “Family Dollar Stores, Inc. and Family Dollar, Inc., 5.24% Series 2005−A Senior Notes, Tranche B due September 27, 2015, PPN 30704@ AB 0” and the due date and application (as among principal, interest and Make−Whole Amount) of the payment being made. Notices All notices of payments and written confirmations of such wire transfers: JP Morgan Chase Bank Investor Services 3 Chase Metrotech Center North America Insurance, 5S5 Brooklyn, New York 11245 Attention: Anna Marie Mazza Telephone: (718) 242−5399 Facsimile: (718) 242−8328 and A−28
  • 133. Fortis, Inc. One Chase Manhattan Plaza New York, New York 10005 Attention: Kevin P. Mahoney AVP, Investment Accounting & Treasury Operations Telephone: (212) 859−7184 Facsimile: (212) 859−7043 Address for all other communications to be addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 59−0593886 A−29
  • 134. Principal Amount of Series B Notes to be Name of Purchaser Tranche Purchased TIME INSURANCE COMPANY B $4,000,000 c/o Prudential Private Placement Investors, L.P. Gateway Center 3, 18th Floor 100 Mulberry Street Newark, New Jersey 07102 Attention: Albert Trank, Managing Director Telephone: (973) 802−8608 Facsimile: (973) 624−6432 Payments All payments on account of the Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to: M&I Marshall & Ilsley Bank Milwaukee, WI ABA No.: DDA Account No.: Account Name: For further credit to Account No.: Account Name: Each such wire transfer shall set forth the name of the Company, a reference to “Family Dollar Stores, Inc. and Family Dollar, Inc., 5.24% Series 2005−A Senior Notes, Tranche B due September 27, 2015, PPN 30704@ AB 0” and the due date and application (as among principal, interest and Make−Whole Amount) of the payment being made. Notices All notices of payments and written confirmations of such wire transfers: Marshall & Ilsley Trust Company 1000 North Water Street Milwaukee, WI 53202 Attention: Kim Palleon Telephone: (414) 287−7084 Facsimile: (414) 287−7125 and Fortis, Inc. One Chase Manhattan Plaza New York, New York 10005 Attention: Kevin P. Mahoney AVP, Investment Accounting & Treasury Operations Telephone: (212) 859−7184 Facsimile: (212) 859−7043 A−30
  • 135. Address for all other communications to be addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 39−0658730 A−31
  • 136. Principal Amount of SERIES B Notes to be Name of Purchaser Tranche Purchased UNION SECURITY INSURANCE COMPANY B $1,400,000 c/o Prudential Private Placement Investors, L.P. Gateway Center 3, 18th Floor 100 Mulberry Street Newark, New Jersey 07102 Attention: Albert Trank, Managing Director Telephone: (973) 802−8608 Facsimile: (973) 624−6432 Payments All payments on account of the Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to: M&I Marshall & Ilsley Bank Milwaukee, WI ABA No.: DDA Account No.: Account Name: For further credit to Account No.: Account Name: Each such wire transfer shall set forth the name of the Company, a reference to “Family Dollar Stores, Inc. and Family Dollar, Inc., 5.24% Series 2005−A Senior Notes, Tranche B due September 27, 2015, PPN 30704@ AB 0” and the due date and application (as among principal, interest and Make−Whole Amount) of the payment being made. Notices All notices of payments and written confirmations of such wire transfers: Marshall & Ilsley Trust Company 1000 North Water Street Milwaukee, WI 53202 Attention: Kim Palleon Telephone: (414) 287−7084 Facsimile: (414) 287−7125 and Fortis, Inc. One Chase Manhattan Plaza New York, New York 10005 A−31
  • 137. Attention: Kevin P. Mahoney AVP, Investment Accounting & Treasury Operations Telephone: (212) 859−7184 Facsimile: (212) 859−7043 Address for all other communications to be addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 81−0170040 A−32
  • 138. Principal Amount of SERIES B Notes to be Name of Purchaser Tranche Purchased THE PRUDENTIAL INSURANCE COMPANY OF B $1,000,000 AMERICA c/o Prudential Capital Group 1170 Peachtree Street, Suite 500 Atlanta, GA 30309 Attention: Managing Director Payments All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to: Account No.: Account Name: JPMorgan Chase Bank New York, New York ABA No.: Each such wire transfer shall set forth the name of the Company, a reference to “Family Dollar Stores, Inc. and Family Dollar, Inc., 5.24% Series 2005−A Senior Notes, Tranche B due September 27, 2015, PPN 30704@ AB 0” and the due date and application (as among principal, interest and Make−Whole Amount) of the payment being made. Notices All notices with respect to payments, and written confirmation of each such payment, to be addressed to: The Prudential Insurance Company of America c/o Investment Operations Group Gateway Center Two, 10th Floor 100 Mulberry Street Newark, New Jersey 07102−4077 Attention: Manager, Billings and Collections Recipient of telephonic prepayment notices: Manager, Trade Management Group Telephone: (973) 367−3141 Facsimile: (800) 224−2278 All other notices and communications to be addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 22−1211670 A−33
  • 139. Principal Amount of SERIES B Notes to be Name of Purchaser Tranche Purchased AMERICAN MEMORIAL LIFE INSURANCE COMPANY B $1,000,000 c/o Prudential Private Placement Investors, L.P. Gateway Center 3, 18th Floor 100 Mulberry Street Newark, New Jersey 07102 Attention: Albert Trank, Managing Director Telephone: (973) 802−8608 Facsimile: (973) 624−6432 Payments All payments on account of the Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to: M&I Marshall & Ilsley Bank Milwaukee, WI ABA No.: DDA Account No.: Account Name: For further credit to Account No.: Account Name: Each such wire transfer shall set forth the name of the Company, a reference to “Family Dollar Stores, Inc. and Family Dollar, Inc., 5.24% Series 2005−A Senior Notes, Tranche B due September 27, 2015, PPN 30704@ AB 0” and the due date and application (as among principal, interest and Make−Whole Amount) of the payment being made. Notices All notices of payments and written confirmations of such wire transfers: Marshall & Ilsley Trust Company 1000 North Water Street Milwaukee, WI 53202 Attention: Kim Palleon Telephone: (414) 287−7084 Facsimile: (414) 287−7125 and Fortis, Inc. One Chase Manhattan Plaza A−34
  • 140. New York, New York 10005 Attention: Kevin P. Mahoney AVP, Investment Accounting & Treasury Operations Telephone: (212) 859−7184 Facsimile: (212) 859−7043 Address for all other communications to be addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 46−0260270 A−35
  • 141. Principal Amount of Notes Name of Purchaser Tranche to be Purchased ALLSTATE LIFE INSURANCE COMPANY B $5,000,000 3075 Sanders Road, STE G5D $5,000,000 Northbrook, Illinois 60062−7127 $5,600,000 Attention: Private Placements Department Telephone Number: (847) 402−8922 Telecopier Number: (847) 402−3092 Payments All payments by Fedwire transfer of immediately available funds or ACH payments, identifying the name of the Issuer, the Private Placement Number and the payment as principal, interest or premium in the format as follows: Bank: ABA#: Account name: Account #: Reference: OBI PPN 30704@ AB 0, Family Dollar Stores, Inc. and Family Dollar, Inc., 5.24% Series 2005−A Senior Notes, Tranche B due September 27, 2015, Payment Due Date (09/27/2015) and the type and amount of payment being made. For Example: P (enter “P” and the amount of principal being remitted, for example, P5000000.00) I (enter “I” and the amount of interest being remitted, for example, I225000.00) Notices All notices of scheduled payments and written confirmation of each such payment, to be addressed: Allstate Insurance Company Investment Operations—Private Placements 3075 Sanders Road, STE G4A Northbrook, Illinois 60062−7127 Telephone: (847) 402−6672 Private Placements Telecopy: (847) 326−7032 All financial reports, compliance certificates and all other written communications, including notice of prepayments to be sent by email (privatecompliance@allstate.com) or hard copy addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 36−2554642 A−36
  • 142. Principal Amount of Notes Name of Purchaser Tranche to be Purchased ALLSTATE LIFE INSURANCE COMPANY OF NEW B $5,000,000 YORK c/o Allstate Investments LLC 3075 Sanders Road, STE G5D Northbrook, Illinois 60062−7127 Attention: Private Placements Department Telephone Number: (847) 402−7117 Telefacsimile Number: (847) 402−3092 Payments All payments on or in respect of the Notes to be made by Fedwire transfer of immediately available funds or ACH Payment, identifying the name of the Issuer, the Private Placement Number and the payment as principal, interest or premium, in the format as follows: Bank: ABA #: Account Name: Account #: Reference: OBI PPN 30704@ AB 0, Family Dollar Stores, Inc. and Family Dollar, Inc., 5.24% Series 2005−A Senior Notes, Tranche B due September 27, 2015, Payment Due Date (09/27/2015) and the type and amount of payment being made. For Example: P (enter “P” and the amount of principal being remitted, for example, P5000000.00) I (enter “I” and the amount of interest being remitted, for example, I225000.00) Notices All notices of scheduled payments and written confirmation of each such payment, to be addressed: Allstate Investments LLC Investment Operations—Private Placements 3075 Sanders Road, STE G4A Northbrook, IL 60062−7127 Telephone: (847) 402−6672 Private Placements Telecopy: (847) 326−7032 Email: PrivateIOD@allstate.com All financial reports, compliance certificates and all other written communications, including notice of prepayments to be sent by email (privatecompliance@allstate.com) or hard copy addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 36−2608394 A−37
  • 143. Principal Amount of Notes Name of Purchaser Tranche to be Purchased ALLSTATE INSURANCE COMPANY B $4,400,000 c/o Allstate Investments LLC Attention: Private Placements Department 3075 Sanders Road, STE G5D Northbrook, Illinois 60062−7127 Telephone: (847) 402−7117 Telecopy: (847) 402−3092 Payments All payments by Fedwire transfer of immediately available funds or ACH payments, identifying the name of the Issuer, the Private Placement Number and the payment as principal, interest or premium in the format as follows: Bank: ABA#: Account name: Account #: Reference: OBI PPN 30704@ AB 0, Family Dollar Stores, Inc. and Family Dollar, Inc., 5.24% Series 2005−A Senior Notes, Tranche B due September 27, 2015, Payment Due Date (09/27/2015) and the type and amount of payment being made. For Example: P (enter “P” and the amount of principal being remitted, for example, P5000000.00) I (enter “I” and the amount of interest being remitted, for example, I225000.00) Notices All notices of scheduled payments and written confirmation of such wire transfer to be sent to: Allstate Investments LLC Investment Operations—Private Placements 3075 Sanders Road, STE G4A Northbrook, Illinois 60062−7127 Telephone: (847) 402−6672 Private Placements Telecopy: (847) 326−7032 Email: PrivateIOD@allstate.com All financial reports, compliance certificates and all other written communications, including notice of prepayments to be sent by email (privatecompliance@allstate.com) or hard copy addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 36−0719665 A−38
  • 144. Principal Amount of Notes Name of Purchaser Tranche to be Purchased TRANSAMERICA OCCIDENTAL LIFE INSURANCE B $5,000,000 COMPANY c/o AEGON USA Investment Management, LLC 4333 Edgewood Road N.E. Cedar Rapids, Iowa 52499−5335 Attention: Director of Private Placements Phone: (319) 369−2432 Fax: (319) 369−2666 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as “Family Dollar Stores, Inc. and Family Dollar, Inc., 5.24% Series 2005−A Senior Notes, Tranche B due September 27, 2015, PPN 30704@ AB 0, principal, premium or interest”) to: Boston Safe Deposit Trust ABA Credit DDA Account: Attention: MBS Income Custody Account No. Notices All notices and confirmation of Payment information with respect of the Notes should be sent to: Email: paymentnotifications@aegonusa.com AEGON USA Investment Management, LLC Attention: Custody Operations−Privates 4333 Edgewood Road N.E. Cedar Rapids, Iowa 52499−7013 All other notices and communications (including financial statement and reporting) to be addressed as first provided above with a copy to: AEGON USA Investment Management, LLC Attention: Debbie Thompson — Private Placements 400 West Market Street, 10th Floor Louisville, Kentucky 40202 Phone: (502) 560−2961 Fax: (502) 560−2030 Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 95−1060502 A−39
  • 145. Principal Amount of Notes Name of Purchaser Tranche to be Purchased THRIVENT FINANCIAL FOR LUTHERANS B $5,000,000 625 Fourth Avenue South Minneapolis, Minnesota 55415 Attention: Investment Division Fax Number: (612) 340−5776 Payments All payments of principal, premium or interest on the account of the Notes shall be made by bank wire transfer (in immediately available funds) to: ABA # State Street Bank & Trust Co. DDA # A/C — Fund Number: Fund Name: Thrivent Financial for Lutherans All payments must include the following information: Family Dollar Stores, Inc. and Family Dollar, Inc., 5.24% Series 2005−A Senior Notes, Tranche B due September 27, 2015, PPN 30704@ AB 0, Reference Purpose of Payment and Interest and/or Principal Breakdown Notices All notices and communications to be addressed as first provided above, except notices with respect to payment and written confirmation of each such payment, to be addressed: Thrivent Financial for Lutherans 625 Fourth Avenue South Minneapolis, Minnesota 55415 Attention: Investment Division Fax: (612) 340−5776 with a copy to: Thrivent Accounts State Street Kansas City 801 Pennsylvania Kansas City, Missouri 64105 Attention: Bart Woodson Fax: (816) 691−3610 Name of Nominee in which Notes are to be issued: Swanbird & Co. Taxpayer I.D. Number for Swanbird & Co.: 04−3475606 Taxpayer I.D. Number for Thrivent Financial for Lutherans: 39−0123480 A−40
  • 146. Principal Amount to be Name of Purchaser Tranche Purchased ASSURITY LIFE INSURANCE COMPANY B $1,000,000 Attention: Investment Division 4000 Pine Lake Road Lincoln, Nebraska 68516 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds to: US Bank National Association 13th and M Street Lincoln, Nebraska 68508 ABA # For credit to Assurity Life Insurance Company Account Number: With sufficient notation to identify the source of the funds. All notices of payments on or in respect of the Notes and written confirmation of each such payment to be addressed to: Assurity Life Insurance Company Attention: Investment Division Overnight Mailing Address: 4000 Pine Lake Road Lincoln, Nebraska 68516 Regular Mailing Address: P.O. Box 82248 Lincoln, Nebraska 68501−2248 All notices and communications other than those in respect to payments to be addressed to: Assurity Life Insurance Company Attention: Vic Weber P.O. Box 82248 Lincoln, Nebraska 68501−2248 Phone: (402) 437−3682 Fax: (402) 458−2170 Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 38−1843471 A−41
  • 147. Defined Terms As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term: “Additional Notes” is defined in Section 2.2. “Additional Purchasers” means purchasers of Additional Notes. “Administrative Agent” means Bank of America, N.A. in its capacity as administrative agent under the Bank Credit Agreement, together with its successors and assigns in such capacity. “Affiliate” means, at any time, and with respect to any Person, (a) any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person, and (b) any Person beneficially owning or holding, directly or indirectly, 10% or more of any class of voting or equity interests of an Obligor or any Subsidiary or any Person of which an Obligor and its Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly, 10% or more of any class of voting or equity interests. As used in this definition, “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise clearly requires, any reference to an “Affiliate” is a reference to an Affiliate of an Obligor. “Anti−Terrorism Order” means Executive Order No. 13,224 of September 24, 2001, Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit or Support Terrorism, 66 U.S. Fed. Reg. 49, 079 (2001), as amended. “Bank Credit Agreement” means the Amended and Restated Credit Agreement dated as of May 31, 2001 by and among the Obligors, certain Subsidiaries of the Obligors named therein, Bank of America, N.A., as administrative agent, and the other financial institutions party thereto, as amended, restated, joined, supplemented or otherwise modified from time to time, and any renewals, extensions or replacements thereof, which constitute the primary bank credit facility of the Obligors and its Subsidiaries. “Bank Lenders” means the banks and financial institutions party to the Bank Credit Agreement. “Business Day” means any day other than a Saturday, a Sunday or a day on which commercial banks in New York, New York are required or authorized to be closed. “Capital Lease” means, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP. SCHEDULE B (to Note Purchase Agreement)
  • 148. “Capital Lease Obligation” means, with respect to any Person and a Capital Lease, the amount of the obligation of such Person as the lessee under such Capital Lease which would, in accordance with GAAP, appear as a liability on a balance sheet of such Person. “Change of Control” is defined in Section 8.7. “Closing” is defined in Section 3. “Code” means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. “Confidential Information” is defined in Section 20. “Consolidated Debt” means as of any date of determination the total amount of all Debt of the Obligors and their Restricted Subsidiaries determined on a consolidated basis in accordance with GAAP. “Consolidated EBITDAR” shall mean, for any period, Consolidated Net Income for such period plus (to the extent deducted or added in computing such Consolidated Net Income and without duplication) (a) depreciation, depletion, if any, and amortization expense for such period, (b) income tax expense for such period, (c) other non−cash items for such period, including without limitation, charges associated with store closings, (d) Consolidated Interest Expense and Lease Rentals for such period, and (e) non−recurring items, all as determined on a consolidated basis in accordance with GAAP. “Consolidated Fixed Charges” shall mean, for any period, the Consolidated Interest Expense for such period plus Lease Rentals for such period, determined on a consolidated basis in accordance with GAAP. “Consolidated Interest Expense” shall mean, for any period, the gross interest expense of FDSI and its Restricted Subsidiaries deducted in the calculation of Consolidated Net Income for such period, determined on a consolidated basis in accordance with GAAP. “Consolidated Net Income” shall mean, for any period, the consolidated net income (or loss) of FDSI and its Restricted Subsidiaries for such period, exclusive of “extraordinary items” (as defined by GAAP), determined on a consolidated basis in accordance with GAAP. “Consolidated Net Worth” shall mean the consolidated stockholder’s equity of FDSI and its Restricted Subsidiaries, as defined according to GAAP. “Consolidated Total Assets” means, as of any date of determination, the total amount of all assets of FDSI and its Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP. “Consolidated Total Capitalization” means, at any time, the sum of (i) Consolidated Net Worth and (ii) Consolidated Debt. B−2
  • 149. “Continuing Directors” is defined in Section 8.7. “Control Event” is defined in Section 8.7. “Debt” means, with respect to any Person, without duplication, (a) its liabilities for borrowed money; (b) its liabilities for the deferred purchase price of property acquired by such Person (excluding accounts payable and other accrued liabilities arising in the ordinary course of business but including, without limitation, all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property); (c) its Capital Lease Obligations; (d) its liabilities for borrowed money secured by any Lien with respect to any property owned by such Person (whether or not it has assumed or otherwise become liable for such liabilities); and (e) Guarantees by such Person with respect to liabilities of a type described in any of clauses (a) through (d) hereof. Debt of any Person shall include all obligations of such Person of the character described in clauses (a) through (e) to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP. For purposes of this Agreement, Debt shall not include reimbursement obligations under trade letters of credit incurred in connection with the acquisition of inventory in the ordinary course of business, provided that any draws under such trade letters of credit are reimbursed within 30 days thereof. “Default” means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. “Default Rate” means with respect to the Notes of any Series that rate of interest that is 2% per annum above the rate of interest stated in clause (a) of the first paragraph of the Notes of such Series (and of such tranche if such Series has separate tranches). “Environmental Laws” means any and all federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to hazardous substances or wastes, air emissions and discharges to waste or public systems. B−3
  • 150. “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect. “ERISA Affiliate” means any trade or business (whether or not incorporated) that is treated as a single employer together with any Obligor under section 414 of the Code. “Event of Default” is defined in Section 11. “Exchange Act” means the Securities Exchange Act of 1934, as amended. “Fair Market Value” means, at any time and with respect to any property, the sale value of such property that would be realized in an arm’s−length sale at such time between an informed and willing buyer and an informed and willing seller (neither being under a compulsion to buy or sell), as reasonably determined in the good faith opinion of the Obligors’ board of directors. “FDSI” means Family Dollar Stores, Inc., a Delaware corporation. “FDI” means Family Dollar, Inc., a North Carolina corporation. “FLSA Litigation” means any existing or future litigations regarding whether any employees of FDSI or any of its Subsidiaries are “exempt employees” (such that such employees are not entitled to receive overtime compensation) under the Fair Labor Standards Act (as amended) or any other similar federal or state law, including but not limited to the litigation as further described in the Memorandum. “GAAP” means those generally accepted accounting principles as in effect from time to time in the United States of America. “Governmental Authority” means (a) the government of (i) the United States of America or any state or other political subdivision thereof, or (ii) any jurisdiction in which any Obligor or any Restricted Subsidiary conducts all or any part of its business, or which has jurisdiction over any properties of any Obligor or any Restricted Subsidiary, or (b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government. “Guaranty” means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any Debt, dividend or other obligation of any other B−4
  • 151. Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person: (a) to purchase such Debt or obligation or any property constituting security therefor primarily for the purpose of assuring the owner of such Debt or obligation of the ability of any other Person to make payment of the Debt or obligation; (b) to advance or supply funds (i) for the purchase or payment of such Debt or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such Debt or obligation; (c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such Debt or obligation of the ability of any other Person to make payment of the Debt or obligation; or (d) otherwise to assure the owner of such Debt or obligation against loss in respect thereof. In any computation of the Debt or other liabilities of the obligor under any Guaranty, the Debt or other obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor, provided that the amount of such Debt outstanding for purposes of this Agreement shall not exceed the maximum amount of Debt that is the subject of such Guaranty. “Hazardous Material” means any and all pollutants, toxic or hazardous wastes or other substances that might pose a hazard to health and safety, the removal of which may be required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage or filtration of which is or shall be restricted, prohibited or penalized by any applicable law including, but not limited to, asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls, petroleum, petroleum products, lead based paint, radon gas or similar restricted, prohibited or penalized substances. “holder” means, with respect to any Note, the Person in whose name such Note is registered in the register maintained by the Obligors pursuant to Section 13.1. “Institutional Investor” means (a) any original purchaser of a Note, (b) any holder of more than $2,000,000 of the aggregate principal amount of the Notes then outstanding, and (c) any bank, trust company, savings and loan association or other financial institution, any pension plan, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form. “Investments” shall mean all investments, in cash or by delivery of property made, directly or indirectly in any Person, whether by acquisition of shares of capital stock, Debt or other obligations or securities or by loan, advance, capital contribution or otherwise. B−5
  • 152. “Lease Rentals” shall mean, for any period, the aggregate amount of fixed rental or operating lease expense payable by FDSI and its Restricted Subsidiaries with respect to leases of real and personal property (excluding Capital Lease Obligations) determined in accordance with GAAP. “Lien” means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement (other than an operating lease) or Capital Lease, upon or with respect to any property or asset of such Person (including, in the case of stock, shareholder agreements, voting trust agreements and all similar arrangements). “Limited Material Adverse Effect” means a material adverse effect on (a) the ability of the Obligors and the Subsidiary Guarantors to perform their obligations under this Agreement (including any Supplement), the Notes or the Subsidiary Guaranties, taken as a whole or (b) the validity or enforceability of this Agreement (including any Supplement), the Notes or the Subsidiary Guaranty, taken as a whole. “Make−Whole Amount” shall have the meaning (i) set forth in Section 8.6 with respect to any Series A Note and (ii) set forth in the applicable Supplement with respect to any other Series of Notes. “Material” means material in relation to the business, operations, affairs, financial condition, assets or properties of the Obligors and their Restricted Subsidiaries taken as a whole. “Material Adverse Effect” means a material adverse effect on (a) the business, operations, affairs, financial condition, assets or properties of the Obligors and their Restricted Subsidiaries taken as a whole, or (b) the ability of the Obligors and the Subsidiary Guarantors to perform their obligations under this Agreement (including any Supplement), the Notes or the Subsidiary Guaranties, taken as a whole or (c) the validity or enforceability of this Agreement (including any Supplement), the Notes or the Subsidiary Guaranty, taken as a whole. “Material Subsidiary” means, at any time, any Restricted Subsidiary of FDSI which, together with all other Restricted Subsidiaries of such Restricted Subsidiary, accounts for more than (i) 5% of the consolidated assets of the Obligors and their Restricted Subsidiaries or (ii) 5% of consolidated revenue of the Obligors and their Restricted Subsidiaries. “Memorandum” is defined in Section 5.3. “Moody’s” shall mean Moody Investors Service, Inc. “Multiemployer Plan” means any Plan that is a “multiemployer plan” (as such term is defined in Section 4001(a)(3) of ERISA). “Notes” is defined in Section 1. B−6
  • 153. “Officer’s Certificate” means a certificate of a Senior Financial Officer or of any other officer of an Obligor whose responsibilities extend to the subject matter of such certificate. “PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto. “Person” means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof. “Plan” means an “employee benefit plan” (as defined in Section 3(3) of ERISA) that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by any Obligor or any ERISA Affiliate or with respect to which any Obligor or any ERISA Affiliate may have any liability. “Priority Debt” means (without duplication), as of the date of any determination thereof, the sum of (i) all unsecured Debt of Restricted Subsidiaries (including all Guaranties of Debt of any Obligor but excluding (w) Debt owing to any Obligor or any other Restricted Subsidiary, (x) Debt outstanding at the time such Person became a Restricted Subsidiary (other than an Unrestricted Subsidiary which is designated as a Restricted Subsidiary pursuant to Section 9.6 hereof), provided that such Debt shall have not been incurred in contemplation of such person becoming a Restricted Subsidiary, (y) all Guaranties of Debt of any Obligor by any Restricted Subsidiary which has also guaranteed the Notes, and (z) Debt of FDI in which FDI is a co−obligor with FDSI under the agreement or instrument pursuant to which such Debt is incurred (including without limitation the Bank Credit Agreement), and (ii) all Debt or other obligations of the Obligors and their Restricted Subsidiaries secured by Liens other than Debt or obligations secured by Liens permitted by subparagraphs (a) through (i), inclusive, of Section 10.4. “property” or “properties” means, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate. “Purchasers” means the purchasers of the Notes named in Schedule A hereto. “QPAM Exemption” means Prohibited Transaction Class Exemption 84−14 issued by the United States Department of Labor. “Qualified Institutional Buyer” means any Person who is a qualified institutional buyer within the meaning of such term as set forth in Rule 144(a)(1) under the Securities Act. “Required Holders” means, at any time, the holders of not less than 51% in principal amount of the Notes of each Series at the time outstanding (exclusive of Notes then owned by any Obligor or any of its Affiliates and any Notes held by parties who are contractually required to abstain from voting with respect to matters affecting the holders of the Notes). B−7
  • 154. “Responsible Officer” means any Senior Financial Officer and any other officer of an Obligor with responsibility for the administration of the relevant portion of this Agreement. “Restricted Subsidiary” means any Subsidiary in which: (i) at least a majority of the voting securities are owned by any Obligor and/or one or more Restricted Subsidiaries and (ii) the Obligors have not designated an Unrestricted Subsidiary by notice in writing given to the holders of the Notes; provided that FDI shall at all times remain a Restricted Subsidiary. “S&P” means Standard & Poor’s Ratings Group, a division of The McGraw−Hill Companies, Inc. “Securities Act” means the Securities Act of 1933, as amended from time to time. “Senior Debt” means, as of the date of any determination thereof, all Consolidated Debt, other than Subordinated Debt. “Senior Financial Officer” means the chief financial officer or principal accounting officer of an Obligor. “Series” means any series of Notes issued pursuant to this Agreement or any Supplement hereto. “Series A Notes” is defined in Section 1 of this Agreement. “Subordinated Debt” means all unsecured Debt of an Obligor that shall contain or have applicable thereto subordination provisions providing for the subordination thereof to other Debt of such Obligor (including, without limitation, subordinated to the obligations of such Obligor under this Agreement, any Supplement or the Notes). “Subsidiary” means, as to any Person, any corporation, association or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a “Subsidiary” is a reference to a Subsidiary of an Obligor. “Subsidiary Guarantor” means each Subsidiary which is party to the Subsidiary Guaranty. “Subsidiary Guaranty” is defined in Section 2.3 of this Agreement. “Supplement” is defined in Section 2.2 of this Agreement. B−8
  • 155. “tranche” means all Notes of a Series having the same maturity, interest rate and schedule for mandatory prepayments. “Unrestricted Subsidiary” means any Subsidiary so designated by the Obligors. “USA Patriot Act” means United States Public Law 107−56, Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect. B−9
  • 156. [FORM OF SERIES 2005−A, TRANCHE A NOTE] Family Dollar Stores, Inc. Family Dollar, Inc. 5.41% Series 2005−A Senior Note, Tranche A due September 27, 2015 No. [ ] [Date] $[ ] PPN 30704@ AA 2 For Value Received, each of the undersigned, Family Dollar Stores, Inc. (herein called “FDSI”), a corporation organized and existing under the laws of the State of Delaware, and Family Dollar, Inc., a corporation organized and existing under the laws of the State of North Carolina, jointly and severally hereby promises to pay to [ ] or registered assigns, the principal sum of [ ] Dollars (or so much thereof as shall not have been prepaid) on September 27, 2015 with interest (computed on the basis of a 360−day year of twelve 30−day months) (a) on the unpaid balance hereof at the rate of 5.41% per annum from the date hereof, payable semi−annually, on the 27th day of March and September in each year and at maturity, commencing on March 27, 2006, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law, at the Default Rate, on any overdue payment of interest and, during the continuance of an Event of Default, on the unpaid balance hereof and on any overdue payment of any Make−Whole Amount, payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand). Payments of principal of, interest on and any Make−Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the principal office of Bank of America, N.A. in New York, New York. This Note is one of a series of Senior Notes (herein called the “Notes”) issued pursuant to the Note Purchase Agreement, dated as of September 27, 2005 (as from time to time amended, supplemented or modified, the “Note Purchase Agreement”), between the Obligors and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, to have (i) agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreement and (ii) made the representations set forth in Sections 6.2 and 6.3 of the Note Purchase Agreement, provided, that in lieu thereof such holder may (in reliance upon information provided by the Obligors, which shall not be unreasonably withheld) make a representation to the effect that the purchase by any holder of any Note will not constitute a non−exempt prohibited transaction under section 406(a) of ERISA. Unless otherwise indicated, capitalized terms used in this Note shall have the respective meanings ascribed to such terms in the Note Purchase Agreement. This Note is a registered Note and, as provided in the Note Purchase Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the EXHIBIT 1(a) (to Note Purchase Agreement)
  • 157. Obligors may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Obligors will not be affected by any notice to the contrary. This Note is subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreement, but not otherwise. Pursuant to the Subsidiary Guaranty Agreement dated as of September 27, 2005 (as amended, restated or otherwise modified from time to time, the “Subsidiary Guaranty”), certain Subsidiaries of the Obligors have absolutely and unconditionally guaranteed payment in full of the principal of, Make−Whole Amount, if any, and interest on this Note and the performance by the Obligors of its obligations contained in the Note Purchase Agreement all as more fully set forth in said Subsidiary Guaranty. If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make−Whole Amount) and with the effect provided in the Note Purchase Agreement. This Note shall be construed and enforced in accordance with, and the rights of the issuer and holder hereof shall be governed by, the law of the State of New York excluding choice−of−law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. Family Dollar Stores, Inc. By Name: R. James Kelley Title: Vice Chairman, Chief Financial Officer and Chief Administrative Officer Family Dollar, Inc. By Name: R. James Kelley Title: Vice Chairman, Chief Financial Officer and Chief Administrative Officer 2
  • 158. [FORM OF SERIES 2005−A, TRANCHE B NOTE] FAMILY DOLLAR STORES, INC. FAMILY DOLLAR, INC. 5.24% SERIES 2005−A SENIOR NOTE, TRANCHE B DUE SEPTEMBER 27, 2015 No. [ ] [Date] $[ ] PPN 30704@ AB 0 For Value Received, each of the undersigned, Family Dollar Stores, Inc. (herein called “FDSI”), a corporation organized and existing under the laws of the State of Delaware, and Family Dollar, Inc., a corporation organized and existing under the laws of the State of North Carolina, jointly and severally hereby promises to pay to [ ] or registered assigns, the principal sum of [ ] Dollars (or so much thereof as shall not have been prepaid) on September 27, 2015 with interest (computed on the basis of a 360−day year of twelve 30−day months) (a) on the unpaid balance hereof at the rate of 5.24% per annum from the date hereof, payable semi−annually, on the 27th day of March and September in each year and at maturity, commencing on March 27, 2006, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law, at the Default Rate, on any overdue payment of interest and, during the continuance of an Event of Default, on the unpaid balance hereof and on any overdue payment of any Make−Whole Amount, payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand). Payments of principal of, interest on and any Make−Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the principal office of Bank of America, N.A. in New York, New York. This Note is one of a series of Senior Notes (herein called the “Notes”) issued pursuant to the Note Purchase Agreement, dated as of September 27, 2005 (as from time to time amended, supplemented or modified, the “Note Purchase Agreement”), between the Obligors and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, to have (i) agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreement and (ii) made the representations set forth in Sections 6.2 and 6.3 of the Note Purchase Agreement, provided, that in lieu thereof such holder may (in reliance upon information provided by the Obligors, which shall not be unreasonably withheld) make a representation to the effect that the purchase by any holder of any Note will not constitute a non−exempt prohibited transaction under section 406(a) of ERISA. Unless otherwise indicated, capitalized terms used in this Note shall have the respective meanings ascribed to such terms in the Note Purchase Agreement. This Note is a registered Note and, as provided in the Note Purchase Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and EXHIBIT 1(b) (to Note Purchase Agreement)
  • 159. registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Obligors may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Obligors will not be affected by any notice to the contrary. The Obligors will make required prepayments of principal on the date and in the amounts specified in the Note Agreement. This Note is subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreement, but not otherwise. Pursuant to the Subsidiary Guaranty Agreement dated as of September 27, 2005 (as amended, restated or otherwise modified from time to time, the “Subsidiary Guaranty”), certain Subsidiaries of the Obligors have absolutely and unconditionally guaranteed payment in full of the principal of, Make−Whole Amount, if any, and interest on this Note and the performance by the Obligors of its obligations contained in the Note Purchase Agreement all as more fully set forth in said Subsidiary Guaranty. If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make−Whole Amount) and with the effect provided in the Note Purchase Agreement. This Note shall be construed and enforced in accordance with, and the rights of the issuer and holder hereof shall be governed by, the law of the State of New York excluding choice−of−law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. FAMILY DOLLAR STORES, INC. By Name: R. James Kelley Title: Vice Chairman, Chief Financial Officer and Chief Administrative Officer FAMILY DOLLAR, INC. By Name: R. James Kelley Title: Vice Chairman, Chief Financial Officer and Chief Administrative Officer 2
  • 160. FAMILY DOLLAR STORES, INC. FAMILY DOLLAR, INC. [NUMBER] SUPPLEMENT TO NOTE PURCHASE AGREEMENT Dated as of Re: $ % Series Senior Notes Due EXHIBIT S (to Note Purchase Agreement)
  • 161. Family Dollar Stores, Inc. Family Dollar, Inc. 10401 Monroe Road Charlotte, North Carolina 28201 Dated as of , 20 To the Purchaser(s) named in Schedule A hereto Ladies and Gentlemen: This [Number] Supplement to Note Purchase Agreement (the “Supplement”) is between Family Dollar Stores, Inc., a Delaware corporation (the “FDSI”), and Family Dollar, Inc., a North Carolina corporation (the “FDI” and collectively with FDSI,, the “Obligors”), and the institutional investors named on Schedule A attached hereto (the “Purchasers”). Reference is hereby made to that certain Note Purchase Agreement dated as of September 27, 2005 (the “Note Purchase Agreement”) between the Obligors and the purchasers listed on Schedule A thereto. All capitalized terms not otherwise defined herein shall have the same meaning as specified in the Note Purchase Agreement. Reference is further made to Section 4.14 of the Note Purchase Agreement which requires that, prior to the delivery of any Additional Notes, the Obligors and each Additional Purchaser shall execute and deliver a Supplement. Each Obligor hereby agrees with the Purchaser(s) as follows: 1. The Obligors have authorized the issue and sale of $ aggregate principal amount of its % Series Senior Notes due , (the “Series Notes”). The Series Notes, together with the Series A Notes [and the Series Notes] initially issued pursuant to the Note Purchase Agreement [and the Supplement] and each series of Additional Notes which may from time to time hereafter be issued pursuant to the provisions of Section 2.2 of the Note Purchase Agreement, are collectively referred to as the “Notes” (such term shall also include any such notes issued in substitution therefor pursuant to Section 13 of the Note Purchase Agreement). The Series Notes shall be substantially in the form set out in Exhibit 1 hereto with such changes therefrom, if any, as may be approved by the Purchaser(s) and the Obligors. 2. Subject to the terms and conditions hereof and as set forth in the Note Purchase Agreement and on the basis of the representations and warranties hereinafter set forth, the Obligors agree to issue and sell to each Purchaser, and each Purchaser agrees to purchase from the Obligors, Series Notes in the principal amount set forth opposite such Purchaser’s
  • 162. name on Schedule A hereto at a price of 100% of the principal amount thereof on the closing date hereinafter mentioned. 3. The sale and purchase of the Series Notes to be purchased by each Purchaser shall occur at the offices of [ ] at 10:00 a.m. Chicago time, at a closing (the “Closing”) on , or on such other Business Day thereafter on or prior to , as may be agreed upon by the Obligors and the Purchasers. At the Closing, the Obligors will deliver to each Purchaser the Series Notes to be purchased by such Purchaser in the form of a single Series Note (or such greater number of Series Notes in denominations of at least $100,000 as such Purchaser may request) dated the date of the Closing and registered in such Purchaser’s name (or in the name of such Purchaser’s nominee), against delivery by such Purchaser to the Obligors or their order of immediately available funds in the amount of the purchase price therefor by wire transfer of immediately available funds for the account of the Obligors to account number [ ] at Bank, [Insert Bank address, ABA number for wire transfers, and any other relevant wire transfer information]. If, at the Closing, the Obligors shall fail to tender such Series Notes to any Purchaser as provided above in this Section 3, or any of the conditions specified in Section 4 shall not have been fulfilled to any Purchaser’s satisfaction, such Purchaser shall, at such Purchaser’s election, be relieved of all further obligations under this Agreement, without thereby waiving any rights such Purchaser may have by reason of such failure or such nonfulfillment. 4. The obligation of each Purchaser to purchase and pay for the Series Notes to be sold to such Purchaser at the Closing is subject to the fulfillment to such Purchaser’s satisfaction, prior to the Closing, of the conditions set forth in Section 4 of the Note Purchase Agreement with respect to the Series Notes to be purchased at the Closing, and to the following additional conditions: (a) Except as supplemented, amended or superceded by the representations and warranties set forth in Exhibit A hereto, each of the representations and warranties of the Obligors set forth in Section 5 of the Note Purchase Agreement shall be correct as of the date of Closing and the Obligors shall have delivered to each Purchaser an Officer’s Certificate, dated the date of the Closing certifying that such condition has been fulfilled. (b) Contemporaneously with the Closing, the Obligors shall sell to each Purchaser, and each Purchaser shall purchase, the Series Notes to be purchased by such Purchaser at the Closing as specified in Schedule A. 5. [Here insert special provisions for Series Notes including prepayment provisions applicable to Series Notes (including Make−Whole Amount) and closing conditions applicable to Series Notes]. 6. Each Purchaser represents and warrants that the representations and warranties set forth in Section 6 of the Note Purchase Agreement are true and correct on the date hereof with respect to the purchase of the Series Notes by such Purchaser. 2
  • 163. 7. Each Obligor and each Purchaser agree to be bound by and comply with the terms and provisions of the Note Purchase Agreement as fully and completely as if such Purchaser were an original signatory to the Note Purchase Agreement. The execution hereof shall constitute a contract between the Obligors and the Purchaser(s) for the uses and purposes hereinabove set forth, and this agreement may be executed in any number of counterparts, each executed counterpart constituting an original but all together only one agreement. FAMILY DOLLAR STORES, INC. By Name: Title: FAMILY DOLLAR, INC. By Name: Title: Accepted as of , [VARIATION] By Name: Title: 3
  • 164. Supplemental Representations Each Obligor represents and warrants to each Purchaser that except as hereinafter set forth in this Exhibit A, each of the representations and warranties set forth in Section 5 of the Note Purchase Agreement is true and correct in all material respects as of the date hereof with respect to the Series Notes with the same force and effect as if each reference to “Series A Notes” set forth therein was modified to refer the “Series Notes” and each reference to “this Agreement” therein was modified to refer to the Note Purchase Agreement as supplemented by the Supplement. The Section references hereinafter set forth correspond to the similar sections of the Note Purchase Agreement which are supplemented hereby: Section 5.3. Disclosure. The Obligors, through their agent, Banc of America Securities LLC has delivered to each Purchaser a copy of a Private Placement Memorandum, dated (the “Memorandum”), relating to the transactions contemplated by the Supplement. The Memorandum fairly describes, in all material respects, the general nature of the business and principal properties of the Obligors and their Restricted Subsidiaries. The Note Purchase Agreement, the Memorandum, the documents, certificates or other writings delivered to each Purchaser by or on behalf of the Obligors in connection with the transactions contemplated by the Note Purchase Agreement and the Supplement and the financial statements listed in Schedule 5.5 to the Supplement, taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made. Since , there has been no change in the financial condition, operations, business, properties or prospects of the Obligors or any Restricted Subsidiary except changes that individually or in the aggregate would not reasonably be expected to have a Material Adverse Effect. There is no fact known to any Obligor that would reasonably be expected to have a Material Adverse Effect that has not been set forth herein or in the Memorandum or in the other documents, certificates and other writings delivered to each Purchaser by or on behalf of any Obligor specifically for use in connection with the transactions contemplated hereby. Section 5.4. Organization and Ownership of Shares of Subsidiaries. (a) Schedule 5.4 to the Supplement contains (except as noted therein) complete and correct lists of (i) the Obligors’ Restricted and Unrestricted Subsidiaries, and showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Obligors and each other Subsidiary, and all other Investments of the Obligors and their Restricted Subsidiaries, (ii) the Obligors’ Affiliates, other than Subsidiaries, and (iii) the Obligors’ directors and senior officers. Section 5.13. Private Offering by the Obligors. Neither any Obligor nor anyone acting on its behalf has offered the Series Notes or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any Person other than the Purchasers and not more than [ ] other Institutional Investors, each of which has been offered the Series Notes at a private sale for investment. Neither any Obligor nor anyone acting on its behalf has taken, or will take, any action that would subject EXHIBIT A (to Supplement)
  • 165. the issuance or sale of the Notes to the registration requirements of Section 5 of the Securities Act. Section 5.14. Use of Proceeds; Margin Regulations. The Obligors will apply the proceeds of the sale of the Series Notes to and for general corporate purposes. No part of the proceeds from the sale of the Series Notes pursuant to the Supplement will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System (12 CFR 221), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve any Obligor in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin stock does not constitute more than 2% of the value of the consolidated assets of any Obligor and its Subsidiaries and no Obligor has any present intention that margin stock will constitute more than 2% of the value of such assets. As used in this Section, the terms “margin stock” and “purpose of buying or carrying” shall have the meanings assigned to them in said Regulation U. Section 5.15. Existing Debt; Future Liens. (a) Schedule 5.15 to the Supplement sets forth a complete and correct list of all outstanding Debt of the Obligors and their Restricted Subsidiaries as of , since which date there has been no Material change in the amounts, interest rates, sinking funds, installment payments or maturities of the Debt of the Obligors or its Restricted Subsidiaries. Neither any Obligor nor any Restricted Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Debt of any Obligor or such Subsidiary and no event or condition exists with respect to any Debt of any Obligor or any Restricted Subsidiary that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Debt to become due and payable before its stated maturity or before its regularly scheduled dates of payment. [Add any additional Sections as appropriate at the time the Series Notes are issued] 2
  • 166. [FORM OF SERIES NOTE] FAMILY DOLLAR STORES, INC. % SERIES SENIOR NOTE DUE No. [ ] [Date] $[ ] PPN [ ] For Value Received, each of the undersigned, Family Dollar Stores, Inc., a corporation organized and existing under the laws of the State of Delaware (herein called the “FDSI”), and Family Dollar, Inc., a corporation organized and existing under the laws of the State of North Carolina (herein called the “FDI”), hereby promises to pay to [ ], or registered assigns, the principal sum of [ ] Dollars (or so much thereof as shall not have been prepaid) on , with interest (computed on the basis of a 360−day year of twelve 30−day months) (a) on the unpaid balance hereof at the rate of % per annum from the date hereof, payable semiannually, on the day of and in each year, commencing on the first of such dates after the date hereof, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law, at a rate per annum from time to time equal to [2% above the stated rate], on any overdue payment of interest and, during the continuance of an Event of Default, on the unpaid balance hereof and on any overdue payment of any Make−Whole Amount, payable [semiannually] as aforesaid (or, at the option of the registered holder hereof, on demand). Payments of principal of, interest on and any Make−Whole Amount with respect to this Note are to be made in lawful money of the United States of America at Bank of America, N.A. in New York. This Note is one of a series of Senior Notes (the “Notes”) issued pursuant to a Supplement to the Note Purchase Agreement dated as of September , 2005 (as from time to time amended, supplemented or modified, the “Note Purchase Agreement”), between the Obligors, the Purchasers named therein and Additional Purchasers of Notes from time to time issued pursuant to any Supplement to the Note Purchase Agreement. This Note and the holder hereof are entitled equally and ratably with the holders of all other Notes of all series from time to time outstanding under the Note Purchase Agreement to all the benefits provided for thereby or referred to therein. Each holder of this Note will be deemed, by its acceptance hereof, to have (i) agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreement and (ii) made the representations set forth in Sections 6.2 and 6.3 of the Note Purchase Agreement, provided that such holder may (in reliance upon information provided by the Obligors, which shall not be unreasonably withheld) make a representation to the effect that the purchase by such holder of any Note will not constitute a non−exempt prohibited transaction under Section 406(a) of ERISA. Unless otherwise indicated, capitalized terms used in this Note shall have the respective meanings ascribed to such terms in the Note Purchase Agreement. EXHIBIT 1 (to Supplement)
  • 167. This Note is registered with the Obligors and, as provided in the Note Purchase Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note of the same series for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Obligors may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Obligors will not be affected by any notice to the contrary. [The Obligors will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreement.] [This Note is not subject to regularly scheduled prepayments of principal.] This Note is [also] subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreement, but not otherwise. Pursuant to the Subsidiary Guaranty Agreement dated as of September , 2005 (as amended or modified from time to time, the “Subsidiary Guaranty”), certain Subsidiaries of the Obligors have absolutely and unconditionally guaranteed payment in full of the principal of, Make−Whole Amount, if any, and interest on this Note and the performance by the Obligors of its obligations contained in the Note Purchase Agreement all as more fully set forth in said Subsidiary Guaranty. If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make−Whole Amount) and with the effect provided in the Note Purchase Agreement. This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York excluding choice−of−law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. 2
  • 168. FAMILY DOLLAR STORES, INC. By Name: Title: FAMILY DOLLAR, INC. By Name: Title: 3
  • 169. CONFORMED COPY SUBSIDIARY GUARANTY AGREEMENT Dated as of September 27, 2005 from THE SUBSIDIARY GUARANTORS NAMED HEREIN for the benefit of THE HOLDERS OF THE NOTES RE: $169,000,000 5.41% SERIES 2005−A SENIOR NOTES, TRANCHE A, DUE SEPTEMBER 27, 2015 $81,000,000 5.24% SERIES 2005−A SENIOR NOTES, TRANCHE B, DUE SEPTEMBER 27, 2015 OF FAMILY DOLLAR STORES, INC. AND FAMILY DOLLAR, INC.
  • 170. Table of Contents SECTION HEADING Section 1. Guaranty 2 Section 2. Representations and Warranties 3 Section 3. Subsidiary Guarantor’s Obligations Unconditional 5 Section 4. Full Recourse Obligations; Pari Passu Ranking 10 Section 5. Waiver 10 Section 6. Waiver of Subrogation 11 Section 7. Subordination 12 Section 8. Effect of Bankruptcy Proceedings, Etc 12 Section 9. Term of Guaranty 13 Section 10. Contribution 13 Section 11. Limitation of Liability 14 Section 12. Negative Pledge 14 Section 13. Supplemental Agreement 14 Section 14. Definitions and Terms Generally 15 Section 15. Notices 15 Section 16. Amendments, Etc 16 Section 17. Consent to Jurisdiction; Service of Process 16 i
  • 171. Section 18. Waiver of Jury Trial 17 Section 19. Survival 17 Section 20. Severability 18 Section 21. Successors and Assigns 18 Section 22. Table of Contents; Headings 18 Section 23. Counterparts 18 Section 24. Governing Law 18 Section 25. Covenant Compliance 18 ii
  • 172. Subsidiary Guaranty Agreement, dated as of September 27, 2005 (the “Guaranty”), from each of: (i) Family Dollar Services, Inc., a North Carolina corporation; (ii) Family Dollar Operations, Inc., a North Carolina corporation; (iii) Family Dollar Trucking, Inc., a North Carolina corporation; and (iv) such Subsidiaries as shall become parties hereto in accordance with Section 13 hereof (each a “Subsidiary Guarantor” and collectively the “Subsidiary Guarantors”), for the benefit of the holders from time to time of the Notes (as defined below) (the “Holders”). Capitalized terms used herein are defined in Section 14 hereof or the Note Purchase Agreement referred to below. Whereas, Family Dollar Stores, Inc., a Delaware corporation, and Family Dollar, Inc., a North Carolina corporation (each individually an “Obligor” and, collectively, the “Obligors”) will authorize the issue and sale of (i) $169,000,000 5.41% Series 2005−A Senior Notes, Tranche A due September 27, 2015 (the “Tranche A Notes”), and (ii) $81,000,000 5.24% Series 2005−A Senior Notes, Tranche B due September 27, 2015 (the “Tranche B Notes” and, together with the Tranche A Notes, the “Series 2005−A Notes”), pursuant to a Note Purchase Agreement, dated as of the date hereof (as amended, modified or supplemented from time to time, the “Note Purchase Agreement”) among the Obligors and the purchasers named therein. Whereas, the Obligors are authorized to issue Additional Notes (as such term is defined in the Note Purchase Agreement) of one or more separate series from time to time pursuant to Section 2.2 of the Note Purchase Agreement. Whereas, the Additional Notes together with the Series 2005−A Notes are collectively referred to as the “Notes”. Whereas, each of the Subsidiary Guarantors is a Subsidiary of the Obligors. Whereas, the Obligors have agreed that their Subsidiaries will guarantee their respective obligations under the Notes and the Note Purchase Agreement. Whereas, the Subsidiary Guarantors each acknowledge that they will derive substantial benefits from the issuance of the Notes. Now, Therefore, in consideration of the premises and to induce the Holders to purchase the Notes, each of the Subsidiary Guarantors, intending to be legally bound, hereby agrees for the benefit of the Holders, as follows:
  • 173. Section 1. Guaranty. Each Subsidiary Guarantor with all other Subsidiary Guarantors, hereby absolutely, unconditionally and irrevocably guarantees, jointly and severally, as a primary obligor and not merely as a surety, to each Holder and its successors and assigns, the full and punctual payment and performance when due, whether at stated maturity, by acceleration or otherwise, of the principal of and Make−Whole Amount, Prepayment Premium, LIBOR Breakage Amount, and interest on (including, without limitation, interest, whether or not an allowable claim, accruing after the date of filing of any petition in bankruptcy, or the commencement of any bankruptcy, insolvency or similar proceeding relating to any Obligor) the Notes and all other amounts under the Note Purchase Agreement and all other obligations, agreements and covenants of the Obligors now or hereafter existing under the Note Purchase Agreement whether for principal, Make−Whole Amount, Prepayment Premium, LIBOR Breakage Amount, interest (including interest accruing or becoming owing both prior to and subsequent to the commencement of any proceeding against or with respect to any Obligor under any chapter of the Bankruptcy Code), indemnification payments, expenses (including reasonable attorneys’ fees and expenses) or otherwise, and all reasonable costs and expenses, if any, incurred by any Holder in connection with enforcing any rights under this Guaranty (all such obligations being the “Guaranteed Obligations”), and agrees to pay any and all reasonable expenses incurred by each Holder in enforcing this Guaranty; provided that, notwithstanding anything contained herein or in the Note Purchase Agreement to the contrary, the maximum liability of each Subsidiary Guarantor hereunder and under the Note Purchase Agreement shall in no event exceed such Guarantor’s Maximum Guaranteed Amount, and provided further, each Subsidiary Guarantor shall be unconditionally required to pay all amounts demanded of it hereunder prior to any determination of such Maximum Guaranteed Amount and the recipient of such payment, if so required by a final non−appealable order of a court of competent jurisdiction, shall then be liable for the refund of any excess amounts. If any such rebate or refund is ever required, all other Subsidiary Guarantors (and the Obligors) shall be fully liable for the repayment thereof to the maximum extent allowed by applicable law. This Guaranty is an absolute, unconditional, present and continuing guaranty of payment and not of collectibility and is in no way conditioned upon any attempt to collect from the Obligors or any other action, occurrence or circumstance whatsoever. Each Subsidiary Guarantor agrees that the Guaranteed Obligations may at any time and from to time exceed the Maximum Guaranteed Amount of such Subsidiary Guarantor without impairing this Guaranty or affecting the rights and remedies of the Holders hereunder. Notwithstanding any stay, injunction or other prohibition preventing such action against any Obligor, if for any reason whatsoever any Obligor shall fail or be unable duly, punctually and fully to perform and (in the case of the payment of Guaranteed Obligations) pay such amounts as and when the same shall become due (subject to any applicable grace periods under the Note Purchase Agreement) and (in the case of the payment of Guaranteed Obligations) payable or to perform or comply with any other Guaranteed Obligation, whether or not such failure or inability shall constitute an “Event of Default” under the Note Purchase Agreement or the Notes, each Subsidiary Guarantor will forthwith (in the case of the payment of Guaranteed Obligations) pay or cause to be paid such amounts to the Holders, in lawful money of the United States of America, at the place specified in the Note Purchase Agreement, or perform or comply with such Guaranteed Obligations or cause such Guaranteed Obligations to be performed or 2
  • 174. complied with, (in the case of the payment of Guaranteed Obligations) together with interest (in the amounts and to the extent required under such Notes) on any amount due and owing. Section 2. Representations and Warranties. Each Subsidiary Guarantor hereby represents and warrants as follows: (a) All representations and warranties contained in the Note Purchase Agreement that relate to such Subsidiary Guarantor are true and correct in all respects and are incorporated herein by reference with the same force and effect as though set forth herein in full. (b) Such Subsidiary Guarantor acknowledges that, any default in the due observance or performance by such Subsidiary Guarantor of any covenant, condition or agreement contained herein (if, after the running of any applicable notice and opportunity to cure periods provided in the Note Purchase Agreement, such default or event of default remains uncured) shall constitute an Event of Default. (c) There are no conditions precedent to the effectiveness of this Guaranty that have not been satisfied or expressly waived. (d) Such Subsidiary Guarantor has, independently and without reliance upon the Holders and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Guaranty. Such Subsidiary Guarantor has investigated fully the benefits and advantages which will be derived by it from execution of this Guaranty, and the Board of Directors of such Subsidiary Guarantor has decided that a direct and/or an indirect benefit will accrue to such Subsidiary Guarantor by reason of the execution of this Guaranty. (e) (i) This Guaranty is not given with actual intent to hinder, delay or defraud any Person to which such Subsidiary Guarantor is or will become, on or after the date hereof, indebted; (ii) such Subsidiary Guarantor has received at least a reasonably equivalent value in exchange for the giving of this Guaranty; (iii) such Subsidiary Guarantor is not insolvent on the date hereof and will not become insolvent as a result of the giving of this Guaranty; (iv) such Subsidiary Guarantor is not engaged in a business or transaction, nor is about to engage in a business or transaction, for which any property remaining with such Subsidiary Guarantor constitutes an unreasonably small amount of capital; and (v) such Subsidiary Guarantor does not intend to incur debts that will be beyond such Subsidiary Guarantor’s ability to pay as such debts mature. (f) Each Subsidiary Guarantor is a corporation or other legal entity duly organized and validly existing under the laws of its state of organization, and has the requisite power, authority and legal right under the laws of its state of organization to conduct its business as presently conducted and to execute, deliver and perform its obligations under this Guaranty. (g) The execution, delivery and performance of this Guaranty have been duly authorized by all necessary corporate action on the part of each Subsidiary Guarantor, and does 3
  • 175. not require any consent or approval of, or the giving of notice to, or the taking of any other action in respect of, any stockholder or trustee or holder of any indebtedness or obligations of such Subsidiary Guarantor. This Guaranty constitutes a legal, valid and binding obligation of each Subsidiary Guarantor, enforceable against such Subsidiary Guarantor in accordance with its terms, except that such enforceability is subject to any limitations arising from bankruptcy, insolvency, liquidation, moratorium, reorganization and other similar laws of general application relating to or affecting the rights of creditors or pledgees and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (h) The execution, delivery and performance of this Guaranty does not and will not conflict with or result in any violation of or default under any provision of the Articles of Incorporation or by−laws or partnership agreement, as the case may be, of any Subsidiary Guarantor, or any indenture, mortgage, deed of trust, instrument, law, rule or regulation binding on any Subsidiary Guarantor or to which a Subsidiary Guarantor is a party. (i) The execution, delivery and performance of this Guaranty does not and will not result in violation of any judgment or order applicable to any Subsidiary Guarantor or result in the creation or imposition of any Lien on any of the properties or revenues of any Subsidiary Guarantor pursuant to any requirement of law or any indenture, mortgage, deed of trust or other instrument to which such Subsidiary Guarantor is a party. (j) The execution, delivery and performance of this Guaranty do not and will not conflict with and do not and will not require any consent, approval or authorization of, or registration or filing with, any governmental authority or agency of the state of organization of any Subsidiary Guarantor or of the United States or any State. (k) There are no pending or, to the knowledge of any Subsidiary Guarantor, threatened actions or proceedings against or affecting such Subsidiary Guarantor or any of its properties by or before any court or administrative agency or arbiter that would adversely affect the ability of such Subsidiary Guarantor to perform its obligations hereunder or call into question the validity or enforceability of this Guaranty. (l) Each Subsidiary Guarantor’s obligations under this Guaranty are at least pari passu in right of payment with all other unsecured claims against the general creditors of such Subsidiary Guarantor. (m) Each Subsidiary Guarantor has validly and irrevocably submitted to the jurisdiction of the Supreme Court of the State of New York, New York County, and the United States District Court for the Southern District of New York. (n) The choice of the laws of the State of New York to govern this Guaranty is valid and binding. (o) No Subsidiary Guarantor is in breach of or default under or with respect to any instrument, document or agreement binding upon such Subsidiary Guarantor which breach or default is reasonably probable to have a Material Adverse Effect or result in the creation of a 4
  • 176. Lien on any property of such Subsidiary Guarantor other than Liens permitted under Section 10.4 of the Note Purchase Agreement. Each Subsidiary Guarantor is in compliance with all applicable requirements of law except such non−compliance as would not have a Material Adverse Effect. (p) The execution, delivery and performance by each Subsidiary Guarantor of this Guaranty will not render such Subsidiary Guarantor insolvent, nor is it being made in contemplation of such Subsidiary Guarantor’s insolvency, and the Subsidiary Guarantor does not have an unreasonably small capital. Section 3. Subsidiary Guarantor’s Obligations Unconditional. (a) This Guaranty shall constitute a guarantee of payment, performance and compliance and not of collection, and each Subsidiary Guarantor specifically agrees that it shall not be necessary, and that such Subsidiary Guarantor shall not be entitled to require, before or as a condition of enforcing the liability of such Subsidiary Guarantor under this Guaranty or requiring payment or performance of the Guaranteed Obligations by any Subsidiary Guarantor hereunder, or at any time thereafter, that any Holder: (a) file suit or proceed to obtain or assert a claim for personal judgment against any Obligor or any other Person that may be liable for or with respect to any Guaranteed Obligation; (b) make any other effort to obtain payment or performance of any Guaranteed Obligation from any Obligor or any other Person that may be liable for or with respect to such Guaranteed Obligation, except for the making of the demands, when appropriate, described in Section 1; (c) foreclose against, or seek to realize upon security now or hereafter existing for such Guaranteed Obligations; (d) except to the extent set forth in Section 1, exercise or assert any other right or remedy to which such Holder is or may be entitled in connection with any Guaranteed Obligation or any security or other guaranty therefor; or (e) assert or file any claim against the assets of any Obligor or any other Person liable for any Guaranteed Obligation. Each Subsidiary Guarantor agrees that this Guaranty shall be continuing, and that the Guaranteed Obligations will be paid and performed in accordance with their terms and the terms of this Guaranty, and are the primary, absolute and unconditional obligations of such Subsidiary Guarantor, irrespective of the value, genuineness, validity, legality, regularity or enforceability or lack thereof of any part of the Guaranteed Obligations or any agreement or instrument relating to the Guaranteed Obligations or this Guaranty, or the existence of any indemnities with respect to the existence of any other guarantee of or security for any of the Guaranteed Obligations, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 3 that the obligations of each Subsidiary Guarantor hereunder shall be irrevocable, primary, absolute and unconditional under any and all circumstances. (b) Each Subsidiary Guarantor hereby expressly waives notice of acceptance of and reliance upon this Guaranty, diligence, presentment, demand of payment or performance, protest and all other notices (except as otherwise provided for in Section 1) whatsoever, any requirement that the Holders exhaust any right, power or remedy or proceed against the Obligors or against any other Person under any other guarantee of, or security for, or any other agreement, regarding 5
  • 177. any of the Guaranteed Obligations. Each Subsidiary Guarantor further agrees that, subject solely to the requirement of making demands under Section 1, the occurrence of any event or other circumstance that might otherwise vary the risk of the Obligors or such Subsidiary Guarantor or constitute a defense (legal or equitable) available to, or a discharge of, or a counterclaim or right of set−off by, any Obligor or such Subsidiary Guarantor (other than the full and indefeasible due payment and performance of the Guaranteed Obligations), shall not affect the liability of the Subsidiary Guarantor hereunder. (c) The obligations of each Subsidiary Guarantor under this Guaranty are not subject to any counterclaim, set−off, deduction, diminution, abatement, recoupment, suspension, deferment or defense based upon any claim such Subsidiary Guarantor or any other Person may have against any Obligor, any Holder or any other Person, and shall remain in full force and effect without regard to, and shall not be released, discharged or in any way affected by, any circumstances or condition whatsoever (whether or not such Subsidiary Guarantor or any Obligor shall have any knowledge or notice thereof), including: (i) any renewal, extension, modification, increase, decrease, alteration or rearrangement of all or any part of the Guaranteed Obligations or any instrument executed in connection therewith, or any contract or understanding with any Obligor, the Holders, or any of them, or any other Person, pertaining to the Guaranteed Obligations; (ii) any adjustment, indulgence, forbearance or compromise that might be granted or given by any Holder to any Obligor or any other Person liable on the Guaranteed Obligations, or the failure of any Holder to assert any claim or demand or to exercise any right or remedy against any Obligor or any other Person under the provisions of the Note Purchase Agreement, the Notes or otherwise; or any rescission, waiver, amendment or modification of, or any release from any of the terms or provisions of, the Note Purchase Agreement, the Notes, any guarantee or any other agreement; (iii) the insolvency, bankruptcy arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of any Obligor or any other Person at any time liable for the payment of all or part of the Guaranteed Obligations; or any dissolution of any Obligor or any other such Person, or any change, restructuring or termination of the partnership structure or existence of any Obligor or any other such Person, or any sale, lease or transfer of any or all of the assets of any Obligor or any other such Person, or any change in the shareholders, partners, or members of any Obligor or any other such Person; or any default, failure or delay, willful or otherwise, in the performance of the Guaranteed Obligations; (iv) the invalidity, illegality or unenforceability of all or any part of the Guaranteed Obligations, or any document or agreement executed in connection with the Guaranteed Obligations, for any reason whatsoever, including the fact that the Guaranteed Obligations, or any part thereof, exceed the amount permitted by law, the act of creating the Guaranteed Obligations or any part is ultra vires, the officers or representatives executing the documents or otherwise creating the Guaranteed Obligations acted in excess of their authority, the Guaranteed Obligations violate 6
  • 178. applicable usury laws, any Obligor or any other Person has valid defenses, claims or offsets (whether at law, in equity or by agreement) which render the Guaranteed Obligations wholly or partially uncollectible from any Obligor or any other Person, the creation, performance or repayment of the Guaranteed Obligations (or the execution, delivery and performance of any document or instrument representing part of the Guaranteed Obligations or executed in connection with the Guaranteed Obligations or given to secure the repayment of the Guaranteed Obligations) is illegal, uncollectible, legally impossible or unenforceable, or the documents or instruments pertaining to the Guaranteed Obligations have been forged or otherwise are irregular or not genuine or authentic; (v) any full or partial release of the liability of any Obligor on the Guaranteed Obligations or any part thereof, of any co−guarantors, or of any other Person now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, to pay, perform, guarantee or assure the payment of the Guaranteed Obligations or any part thereof, it being recognized, acknowledged and agreed by each Subsidiary Guarantor that such Subsidiary Guarantor may be required to pay the Guaranteed Obligations in full without assistance or support of any other Person, and such Subsidiary Guarantor has not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding or agreement that any parties other than the Obligors will be liable to perform the Guaranteed Obligations, or that the Holders will look to other parties to perform the Guaranteed Obligations; (vi) the taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Guaranteed Obligations; (vii) any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including negligent, unreasonable or unjustifiable impairment) of any collateral, property or security, at any time existing in connection with, or assuring or securing payment of, all or any part of the Guaranteed Obligations; (viii) the failure of any Holder or any other Person to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of such collateral, property or security; (ix) the fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Guaranteed Obligations shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by each Subsidiary Guarantor that such Subsidiary Guarantor is not entering into this Guaranty in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of any of the collateral; (x) any payment by any Obligor to any Holder being held to constitute a preference under any Fraudulent Conveyance Law, or for any reason any Holder being required to refund such payment or pay such amount to any Obligor or someone else; 7
  • 179. (xi) any other action taken or omitted to be taken with respect to the Guaranteed Obligations, or the security and collateral therefor, whether or not such action or omission prejudices such Subsidiary Guarantor or increases the likelihood that such Subsidiary Guarantor will be required to pay the Guaranteed Obligations pursuant to the terms hereof, it being the unambiguous and unequivocal intention of such Subsidiary Guarantor that it shall be obligated to pay the Guaranteed Obligations when due, notwithstanding any occurrence, circumstance, event, action or omission whatsoever, whether or not contemplated, and whether or not otherwise or particularly described herein, except for the full and final payment and satisfaction of the Guaranteed Obligations in cash; (xii) the fact that all or any of the Guaranteed Obligations cease to exist by operation of law, including by way of a discharge, limitation or tolling thereof under applicable bankruptcy laws; (xiii) any other circumstance (including any statute of limitations) that might in any manner or to any extent otherwise constitute a defense available to, vary the risk of, or operate as a discharge of, any Obligor or any Person as a matter of law or equity; (xiv) any merger or consolidation of any Obligor or any Subsidiary Guarantor into or with any other Person or any sale, lease or transfer of any of the assets of any Obligor to any other Person; (xv) any change in the ownership of any shares of capital stock of any Obligor, or any change in the relationship between any Obligor and such Subsidiary Guarantor or any termination of any such relationship; (xvi) any default, failure or delay, willful or otherwise, in the performance by any Obligor, any Subsidiary Guarantor or any other Person of any obligations of any kind or character whatsoever under the Note Purchase Agreement or any other agreement; (xvii) any merger or consolidation of any Obligor or any Subsidiary Guarantor or any other Person into or with any other Person or any sale, lease, transfer or other disposition of any of the assets of any Obligor, any Subsidiary Guarantor or any other Person to any other Person, or any change in the ownership of any shares or partnership interests of any Obligor, any Subsidiary Guarantor or any other Person; (xviii) in respect of any Obligor, any Subsidiary Guarantor or any other Person, any change of circumstances, whether or not foreseen or foreseeable, whether or not imputable to any Obligor, any Subsidiary Guarantor or any other Person, or other impossibility of performance through fire, explosion, accident, labor disturbance, floods, droughts, embargoes, wars (whether or not declared), civil commotion, acts of God or the public enemy, delays or failure of suppliers or carriers, inability to obtain materials, action of any Federal or state regulatory body or agency, change of law or any other causes affecting performance, or any other force majeure, whether or not beyond the 8
  • 180. control of any Obligor, any Subsidiary Guarantor or any other Person and whether or not of the kind hereinbefore specified; or (xix) any other occurrence, circumstance, or event whatsoever, whether similar or dissimilar to the foregoing, whether foreseen or unforeseen, and any other circumstance which might otherwise constitute a legal or equitable defense or discharge of the liabilities of a guarantor or surety or which might otherwise limit recourse against such Subsidiary Guarantor; provided that the specific enumeration of the above−mentioned acts, failures or omissions shall not be deemed to exclude any other acts, failures or omissions, though not specifically mentioned above, it being the purpose and intent of this Guaranty and the parties hereto that the obligations of each Subsidiary Guarantor shall be absolute and unconditional and shall not be discharged, impaired or varied except by the payment and performance of all obligations of the Obligors under the Note Purchase Agreement and the Notes in accordance with their respective terms as each may be amended or modified from time to time. Without limiting the foregoing, it is understood that repeated and successive demands may be made and recoveries may be had hereunder as and when, from time to time, any Obligor or any Subsidiary Guarantor shall default under or in respect of the terms of the Note Purchase Agreement and that notwithstanding recovery hereunder for or in respect of any given default or defaults by any Obligor or any Subsidiary Guarantor under the Note Purchase Agreement, this Guaranty shall remain in full force and effect and shall apply to each and every subsequent default. All waivers herein contained shall be without prejudice to the Holders at their respective options to proceed against any Obligor, any Subsidiary Guarantor or other Person, whether by separate action or by joinder. (d) Each Subsidiary Guarantor hereby consents and agrees that any Holder or Holders from time to time, with or without any further notice to or assent from any other Subsidiary Guarantor may, without in any manner affecting the liability of any Subsidiary Guarantor under this Guaranty, and upon such terms and conditions as any such Holder or Holders may deem advisable: (i) extend in whole or in part (by renewal or otherwise), modify, change, compromise, release or extend the duration of the time for the performance or payment of any debt, liability or obligation of any Obligor or any Subsidiary Guarantor or of any other Person secondarily or otherwise liable for any debt, liability or obligations of any Obligor on the Note Purchase Agreement or the Notes, or waive any Default or Event of Default with respect thereto, or waive, modify, amend or change any provision of any other agreement or waive this Guaranty; or (ii) sell, release, surrender, modify, impair, exchange or substitute any and all property, of any nature and from whomsoever received, held by, or for the benefit of, any such Holder as direct or indirect security for the payment or performance of any debt, liability or obligation of any Obligor, any Subsidiary Guarantor or of any other Person secondarily or otherwise liable for any debt, liability or obligation of any Obligor on the Note Purchase Agreement or the Notes; or 9
  • 181. (iii) settle, adjust or compromise any claim of any Obligor or any Subsidiary Guarantor against any other Person secondarily or otherwise liable for any debt, liability or obligation of any Obligor on the Note Purchase Agreement or the Notes; or (iv) purchase Additional Notes form time to time from the Obligors pursuant to the terms and provisions of the Note Purchase Agreement. Each Subsidiary Guarantor hereby ratifies and confirms any such extension, renewal, change, sale, release, waiver, surrender, exchange, modification, amendment, impairment, substitution, settlement, adjustment, compromise or purchase Additional Notes and that the same shall be binding upon it, and hereby waives, to the fullest extent permitted by law, any and all defenses, counterclaims or offsets which it might or could have by reason thereof, it being understood that such Subsidiary Guarantor shall at all times be bound by this Guaranty and remain liable hereunder. (e) All rights of any Holder may be transferred or assigned at any time in accordance with the Note Purchase Agreement and shall be considered to be transferred or assigned at any time or from time to time upon the transfer of such Note in accordance with the Note Purchase Agreement without the consent of or notice to the Subsidiary Guarantors under this Guaranty. (f) No Holder shall be under any obligation: (i) to marshal any assets in favor of the Subsidiary Guarantors or in payment of any or all of the liabilities of any Obligor or any Subsidiary Guarantor under or in respect of the Notes or the obligations of any Obligor and the Subsidiary Guarantors under the Note Purchase Agreement or (ii) to pursue any other remedy that the Subsidiary Guarantors may or may not be able to pursue themselves and that may lighten the Subsidiary Guarantors’ burden, any right to which each Subsidiary Guarantor hereby expressly waives. Section 4. Full Recourse Obligations; Pari Passu Ranking. Subject to the Maximum Guaranteed Amount specified above, the obligations of each Subsidiary Guarantor set forth herein constitute the full recourse obligations of such Subsidiary Guarantor enforceable against it to the full extent of all its assets and properties. The respective obligations under this Guaranty of the Subsidiary Guarantors are and at all times shall remain direct and unsecured obligations of the Subsidiary Guarantors ranking pari passu as against the assets of the Subsidiary Guarantors without any preference among themselves and pari passu with all other present and future unsecured Debt (actual or contingent) of the Subsidiary Guarantors which is not expressed to be subordinate or junior in rank to any other unsecured Debt of the Subsidiary Guarantors. Section 5. Waiver. Each Subsidiary Guarantor unconditionally waives, to the extent permitted by applicable law: 10
  • 182. (a) notice of any of the matters referred to in Section 3; (b) notice to such Subsidiary Guarantor of the incurrence of any of the Guaranteed Obligations, notice to such Subsidiary Guarantor of any breach or default by any Obligor or such Subsidiary Guarantor with respect to any of the Guaranteed Obligations or any other notice that may be required, by statute, rule of law or otherwise, to preserve any rights of any Holder against such Subsidiary Guarantor; (c) presentment to any Obligor or such Subsidiary Guarantor or of payment from any Obligor or such Subsidiary Guarantor with respect to any Note or other Guaranteed Obligation or protest for nonpayment or dishonor; (d) any right to the enforcement, assertion, exercise or exhaustion by any Holder of any right, power, privilege or remedy conferred in any Note, the Note Purchase Agreement or otherwise; (e) any requirement of diligence on the part of any Holder; (f) any requirement to mitigate the damages resulting from any default under the Notes or the Note Purchase Agreement; (g) any notice of any sale, transfer or other disposition of any right, title to or interest in any Note or other Guaranteed Obligation by any Holder, assignee or participant thereof, or in the Note Purchase Agreement; (h) any release of any Subsidiary Guarantor from its obligations hereunder resulting from any loss by it of its rights of subrogation hereunder; and (i) any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge, release or defense of a guarantor or surety or which might otherwise limit recourse against such Subsidiary Guarantor. Section 6. Waiver of Subrogation. Notwithstanding any payment or payments made by any Subsidiary Guarantor hereunder, or any application by any Holder of any security or of any credits or claims, no Subsidiary Guarantor will assert or exercise any rights of any Holder or of such Subsidiary Guarantor against any Obligor to recover the amount of any payment made by such Subsidiary Guarantor to any Holder hereunder by way of any claim, remedy or subrogation, reimbursement, exoneration, contribution, indemnity, participation or otherwise arising by contract, by statute, under common law or otherwise, and such Subsidiary Guarantor shall not have any right of recourse to or any claim against assets or property of any Obligor, in each case unless and until the Guaranteed Obligations have been paid in full. Until such time (but not thereafter), each Subsidiary Guarantor hereby expressly waives any right to exercise any claim, right or remedy which such Subsidiary Guarantor may now have or hereafter acquire against any Obligor or any other Subsidiary Guarantor that arises under the Notes, the Note Purchase Agreement or from the 11
  • 183. performance by any Subsidiary Guarantor of the guaranty hereunder including any claim, remedy or right of subrogation, reimbursement, exoneration, contribution, indemnification or participation in any claim, right or remedy of any Holder against any Obligor or any Subsidiary Guarantor, or any security that any Holder now has or hereafter acquires, whether or not such claim, right or remedy arises in equity, under contract, by statute, under common law or otherwise. If any amount shall be paid to a Subsidiary Guarantor by any Obligor or another Subsidiary Guarantor after payment in full of the Guaranteed Obligations, and all or any portion of the Guaranteed Obligations shall thereafter be reinstated in whole or in part and any Holder is required to repay any sums received by any of them in payment of the Guaranteed Obligations, this Guaranty shall be automatically reinstated and such amount shall be held in trust for the benefit of the Holders and shall forthwith be paid to the Holders to be credited and applied to the Guaranteed Obligations, whether matured or unmatured. The provisions of this paragraph shall survive the termination of this Guaranty, and any satisfaction and discharge of the Obligors by virtue of any payment, court order or any Federal or state law. Section 7. Subordination. If any Subsidiary Guarantor is or becomes the holder of any indebtedness payable by any Obligor or another Subsidiary Guarantor, each Subsidiary Guarantor hereby subordinates all indebtedness owing to it from any Obligor or such other Subsidiary Guarantor to all indebtedness of the Obligors to the Holders, and agrees that, during the continuance of any Event of Default, it shall not accept any payment on the same until payment in full of the Guaranteed Obligations and shall in no circumstance whatsoever attempt to set−off or reduce any obligations hereunder because of such indebtedness. If any amount shall nevertheless be paid in violation of the foregoing to a Subsidiary Guarantor by any Obligor or another Subsidiary Guarantor prior to payment in full of the Guaranteed Obligations, such amount shall be held in trust for the benefit of the Holders and shall forthwith be paid to the Holders to be credited and applied to the Guaranteed Obligations, whether matured or unmatured. Section 8. Effect of Bankruptcy Proceedings, Etc. (a) If after receipt of any payment of, or proceeds of any security applied (or intended to be applied) to the payment of all or any part of, the Guaranteed Obligations, any Holder is for any reason compelled to surrender or voluntarily surrenders (under circumstances in which it believes it could reasonably be expected to be so compelled if it did not voluntarily surrender), such payment or proceeds to any Person (i) because such payment or application of proceeds is or may be avoided, invalidated, declared fraudulent, set aside, determined to be void or voidable as a preference, fraudulent conveyance, fraudulent transfer, impermissible set−off or a diversion of trust funds or (ii) for any other similar reason, including, without limitation, (x) any judgment, decree or order of any court or administrative body having jurisdiction over any Holder or any of their respective properties or (y) any settlement or compromise of any such claim effected by any Holder with any such claimant (including any Obligor), then the Guaranteed Obligations or part thereof intended to be satisfied shall be reinstated and continue, and this Guaranty shall continue in full force as if such payment or proceeds had not been received, notwithstanding any revocation thereof or the cancellation of any Note or any other instrument evidencing any 12
  • 184. Guaranteed Obligations or otherwise, and the Subsidiary Guarantors, jointly and severally, shall be liable to pay the Holders, and hereby do indemnify the Holders and hold them harmless for, the amount of such payment or proceeds so surrendered and all expenses (including reasonable attorneys’ fees, court costs and expenses attributable thereto) incurred by any Holder in defense of any claim made against any of them that any payment or proceeds received by any Holder in respect of all or part of the Guaranteed Obligations must be surrendered. The provisions of this paragraph shall survive the termination of this Guaranty, and any satisfaction and discharge of any Obligor by virtue of any payment, court order or any Federal or state law. (b) If an event permitting the acceleration of the maturity of any of the Guaranteed Obligations shall at any time have occurred and be continuing, and such acceleration shall at such time be prevented by reason of the pendency against any Obligor or any other Person of any case or proceeding contemplated by Section 8(a) hereof, then, for the purpose of defining the obligation of any Subsidiary Guarantor under this Guaranty, the maturity of the principal amount of the Guaranteed Obligations shall be deemed to have been accelerated with the same effect as if an acceleration had occurred in accordance with the terms of such Guaranteed Obligations, and such Subsidiary Guarantor shall forthwith pay such principal amount, all accrued and unpaid interest thereon, and all other Guaranteed Obligations, due or that would have become due but for such case or proceeding, without further notice or demand. Section 9. Term of Guaranty. This Guaranty and all guarantees, covenants and agreements of each Subsidiary Guarantor contained herein shall continue in full force and effect and shall not be discharged until such time as all of the principal of and interest on the Notes, the other Guaranteed Obligations and other independent payment obligations of such Subsidiary Guarantor under this Guaranty shall be paid in cash and performed in full, and all of the agreements of each of the other Subsidiary Guarantors hereunder shall be duly paid in cash and performed in full. Section 10. Contribution. In order to provide for just and equitable contribution among the Subsidiary Guarantors, each Subsidiary Guarantor agrees that, to the extent any Subsidiary Guarantor makes any payment hereunder on any date which, when added to all preceding payments made by such Subsidiary Guarantor hereunder, would result in the aggregate payments by such Subsidiary Guarantor hereunder exceeding its Percentage (as defined below) of all payments then or theretofore made by all Subsidiary Guarantors hereunder, such Subsidiary Guarantor shall have a right of contribution against each other Subsidiary Guarantor whose aggregate payments then or theretofore made hereunder are less than its Percentage of all payments by all Subsidiary Guarantors then or theretofore made hereunder, in an amount such that, after giving effect to any such contribution rights, each Subsidiary Guarantor will have paid only its Percentage of all payments by all Subsidiary Guarantors then or theretofore made hereunder. A Subsidiary Guarantor’s “Percentage” on any date shall mean the percentage obtained by dividing (a) the Adjusted Net Assets of such Subsidiary Guarantor on such date by (b) the sum of the Adjusted Net Assets of all Subsidiary Guarantors on such date. “Adjusted Net Assets” means, for each 13
  • 185. Subsidiary Guarantor on any date, the lesser of (i) the amount by which the fair value of the property of such Subsidiary Guarantor exceeds the total amount of liabilities, including contingent liabilities, but excluding liabilities under this Guaranty, of such Subsidiary Guarantor on such date and (ii) the amount by which the present fair salable value of the assets of such Subsidiary Guarantor on such date exceeds the amount that will be required to pay the probable liability of such Subsidiary Guarantor on its debts, excluding debt in respect of this Guaranty, as they become absolute and matured. Section 11. Limitation of Liability. Each Subsidiary Guarantor hereby confirms that it is the intention of such Subsidiary Guarantor that the guarantee by such Subsidiary Guarantor pursuant to this Guaranty not constitute a fraudulent transfer or conveyance for purposes of Title 11 of the United States Code, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar applicable Federal or state law (all such statutes and laws are collectively referred to as “Fraudulent Conveyance Laws”). To effectuate the foregoing intention, each Subsidiary Guarantor hereby irrevocably agrees that the obligations of such Subsidiary Guarantor under this Guaranty shall be limited to the amount as will, after giving effect to all rights to receive any collections from or payments by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor pursuant to Section 10 hereof, result in the obligations of such Subsidiary Guarantor under this Guaranty not constituting such a fraudulent transfer or conveyance. In the event that the liability of any Subsidiary Guarantor hereunder is limited pursuant to this Section 11 to an amount that is less than the total amount of the Guaranteed Obligations, then it is understood and agreed that the portion of the Guaranteed Obligations for which such Subsidiary Guarantor is liable hereunder shall be the last portion of the Guaranteed Obligations to be repaid. Section 12. Negative Pledge. Except as permitted under Section 10.4 of the Note Purchase Agreement, no Subsidiary Guarantor will create any Lien on its assets to any other Person during the pendency of this Guaranty except for Liens permitted by Section 10.4 of the Note Purchase Agreement. Section 13. Supplemental Agreement. Upon execution and delivery by a Subsidiary of a Supplemental Agreement substantially in the form of Exhibit A hereto, such Subsidiary shall become a Subsidiary Guarantor hereunder with the same force and effect as if originally named as a Subsidiary Guarantor herein. The execution and delivery of any such instrument shall not require the consent of any other Subsidiary Guarantor hereunder. The rights and obligations of each Subsidiary Guarantor hereunder shall remain in full force and effect notwithstanding the addition of any new Subsidiary Guarantor as a party to this Guaranty. 14
  • 186. Section 14. Definitions and Terms Generally. (a) Unless otherwise defined herein, capitalized terms defined in the Note Purchase Agreement are used herein as defined therein. In addition, the following terms shall have the following meanings. “Adjusted Net Assets” has the meaning specified in Section 10 hereof. “Fraudulent Conveyance Laws” has the meaning specified in Section 11 hereof. “Guaranteed Obligations” has the meaning specified in Section 1 hereof. “Guaranty” has the meaning specified in the introduction hereto. “Holders” has the meaning specified in the introduction hereto. “Material Adverse Effect” means a material adverse effect (a) on the business, financial condition, operations or Properties of a Subsidiary Guarantor taken as a whole or (b) on its ability to perform its obligations hereunder. “Maximum Guaranteed Amount” shall mean, for each Subsidiary Guarantor, the maximum amount which any Subsidiary Guarantor could pay under this Guaranty without having such payment set aside as a fraudulent transfer or conveyance or similar action under Fraudulent Conveyance Law. “Note Purchase Agreement” has the meanings specified in the Recitals hereto. “Notes” has the meanings specified in the Recitals hereto. “Percentage” has the meaning specified in Section 10 hereof. “Required Holders” is has the meaning specified in the Note Purchase Agreement. “Subsidiary Guarantor” has the meaning specified in the introduction hereto. (b) Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Guaranty unless the context shall otherwise require. Section 15. Notices. All notices under the terms and provisions hereof shall be in writing (with charges prepaid), and shall be delivered or sent by hand, by telecopy, by express courier service or by registered or certified mail, return receipt requested, postage prepaid, addressed, 15
  • 187. (a) if to any Holder, at the address set forth in the Note Purchase Agreement, or at such other address as any such Holder shall from time to time designate to the Obligors, (b) if to a Subsidiary Guarantor, at the address of such Subsidiary Guarantor set forth on the signature pages hereto or at such other address as such Subsidiary Guarantor shall from time to time designate in writing to each Holder. A notice or communication shall be deemed to have been duly given and effective: (a) when delivered (whether or not accepted), if personally delivered; (b) five business days after being deposited in the mail, postage prepaid, if delivered by first−class mail (whether or not accepted); (c) when sent, if sent via facsimile; (d) when delivered if sent by registered or certified mail (whether or not accepted); and (e) on the next Business Day if timely delivered by an overnight air courier, with charges prepaid (whether or not accepted). Section 16. Amendments, Etc. No amendment, alteration, modification or waiver of any term or provision of this Guaranty, nor consent to any departure by any Subsidiary Guarantor therefrom, shall in any event be effective unless the same shall be in writing and consented to by the Required Holders provided, however, that any amendment, alteration, modification or waiver of the terms and conditions contained in Section 1 hereof shall require consent from all Holders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Section 17. Consent to Jurisdiction; Service of Process.. (a) Each Subsidiary Guarantor irrevocably submits to the nonexclusive in personam jurisdiction of any New York State or federal court sitting in New York City, over any suit, action or proceeding arising out of or relating to this Guaranty or the Notes. To the fullest extent it may effectively do so under applicable law, each Subsidiary Guarantor irrevocably waives and agrees not to assert, by way of motion, as a defense or otherwise, any claim that it is not subject to the in personam jurisdiction of any such court, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. 16
  • 188. (b) Each Subsidiary Guarantor agrees, to the fullest extent it may effectively do so under applicable law, that a final judgment in any suit, action or proceeding of the nature referred to in paragraph (a) of this Section 17 brought in any such court shall be conclusive and binding upon such party, subject to rights of appeal and may be enforced in the courts of the United States of America or the State of New York (or any other courts to the jurisdiction of which such party is or may be subject) by a suit upon such judgment. (c) Each Subsidiary Guarantor consents to process being served in any suit, action or proceeding of the nature referred to in paragraph (a) of this Section 17 by mailing a copy thereof by registered or certified mail, postage prepaid, return receipt requested, to the address of each Subsidiary Guarantor specified in Section 15 or at such other address of which you shall then have been notified pursuant to said Section or to any agent for service of process appointed pursuant to the provisions of Section 27. Each Subsidiary Guarantor agrees that such service upon receipt (i) shall be deemed in every respect effective service of process upon it in any such suit, action or proceeding and (ii) shall, to the full extent permitted by law, be taken and held to be valid personal service upon and personal delivery to such party. Notices hereunder shall be conclusively presumed received as evidenced by a delivery receipt furnished by the United States Postal Service or any reputable commercial delivery service. (d) Nothing in this Section 17 shall affect the right of any holder of Notes to serve process in any manner permitted by law, or limit any right that the holders of any of the Notes may have to bring proceedings against any Subsidiary Guarantor in the courts of any appropriate jurisdiction or to enforce in any lawful manner a judgment obtained in one jurisdiction in any other jurisdiction. Section 18. Waiver of Jury Trial. Each Subsidiary Guarantor and by its acceptance hereof each holder, to the fullest extent permitted by applicable law, irrevocably and unconditionally waives the right to trial by jury in any legal or equitable action, suit or proceeding arising out of or relating to this Guaranty or the Note Purchase Agreement or any transaction contemplated hereby or thereby or the subject matter of any of the foregoing. Section 19. Survival. All warranties, representations and covenants made by each Subsidiary Guarantor herein or in any written certificate or other instrument required to be delivered by it or on its behalf hereunder or under the Note Purchase Agreement shall be considered to have been relied upon by the Holders and shall survive the execution and delivery of this Guaranty, regardless of any investigation made by any Holder or on such Holder’s behalf. All statements in any such certificate or other instrument shall constitute warranties and representations by such Subsidiary Guarantor hereunder. 17
  • 189. Section 20. Severability. Any provision of this Guaranty which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, each Subsidiary Guarantor hereby waives any provision of law that renders any provisions hereof prohibited or unenforceable in any respect. Section 21. Successors and Assigns. The terms of this Guaranty shall be binding upon each Subsidiary Guarantor and its successors and assigns and shall inure to the benefit of the Holders and their respective successors and assigns. Section 22. Table of Contents; Headings. The section and paragraph headings in this Guaranty and the table of contents are for convenience of reference only and shall not modify, define, expand or limit any of the terms or provisions hereof, and all references herein to numbered sections, unless otherwise indicated, are to sections in this Guaranty. Section 23. Counterparts. This Guaranty may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. Section 24. Governing Law. This Guaranty shall in all respects be governed by, and construed and interpreted in accordance with, the laws of the State of New York, without regard to the conflicts of laws principles of such state. Section 25. Covenant Compliance. Each Subsidiary Guarantor agrees to comply with each of the covenants contained herein and in the Note Purchase Agreement that imposes or purports to impose, by reference to such Subsidiary Guarantor, express or otherwise, through agreements with the Obligors, restrictions or obligations on such Subsidiary Guarantor. 18
  • 190. In Witness Whereof, each party hereto has caused this Subsidiary Guaranty Agreement to be duly executed as of the date first above written. Family Dollar Services, Inc., a North Carolina corporation By: /s/ R. James Kelly Name: R. James Kelly Title: Vice Chairman, Chief Financial Officer and Chief Administrative Officer Family Dollar Operations, Inc., a North Carolina corporation By: /s/ R. James Kelly Name: R. James Kelly Title: Vice Chairman, Chief Financial Officer and Chief Administrative Officer Family Dollar Trucking, Inc., a North Carolina corporation By: /s/ R. James Kelly Name: R. James Kelly Title: Vice Chairman, Chief Financial Officer and Chief Administrative Officer 19
  • 191. Exhibit A Form of Supplemental Agreement Supplemental Agreement dated as of , from ,a corporation (the “New Subsidiary”), for the benefit of the Holders (as defined in the Guaranty referred to below). Capitalized terms used herein without definition shall have the respective meanings ascribed thereto in the Subsidiary Guaranty Agreement, dated as of September 27, 2005 (the “Guaranty”), from: (i) [names of guarantors] ( ) such other Subsidiaries (as defined below) as shall become parties thereto in accordance therewith, for the benefit of the Holders (as such term is defined in such Guaranty). Whereas, Family Dollar Stores, Inc., a Delaware corporation, and Family Dollar, Inc., a North Carolina corporation (each individually an “Obligor” and, collectively, the “Obligors”) has authorized the issue and sale of (i) $169,000,000 5.41% Series 2005−A Senior Notes, Tranche A due September 27, 2015 (the “Tranche A Notes”), and (ii) $81,000,000 5.24% Series 2005−A Senior Notes, Tranche B due September 27, 2015 (the “Tranche B Notes” and, together with the Tranche A Notes, the “Series 2005−A Notes”), pursuant to a Note Purchase Agreement, dated as of September 27, 2005 (as amended, modified or supplemented from time to time, the “Note Purchase Agreement”) among the Obligors and the purchasers named therein. Whereas, the Obligors are authorized to issue Additional Notes (as such term is defined in the Note Purchase Agreement) of one or more separate series from time to time pursuant to Section 2.2 of the Note Purchase Agreement. Whereas, the Additional Notes together with the Series 2005−A Notes are collectively referred to as the “Notes”. Whereas, the New Subsidiary is a Subsidiary of the Obligors. Whereas, the existing Subsidiaries of the Obligors have entered into the Guaranty. Whereas, the Note Purchase Agreement requires that certain Subsidiaries become party to the Guaranty (as a Subsidiary Guarantor). Whereas, the New Subsidiary acknowledges that it has derived or will derive substantial benefits from the issuance of the Notes. Whereas, the Guaranty specifies that additional Subsidiaries may become Subsidiary Guarantors under such Guaranty by execution and delivery of an instrument in the form of this Agreement. The undersigned Subsidiary is executing this Agreement in accordance with the requirements of the Note Purchase Agreement in order to become a Subsidiary Guarantor under the Guaranty as consideration for the Notes previously purchased. Now, Therefore, the New Subsidiary Guarantor agrees as follows:
  • 192. Section 1. Guaranty. In accordance with Section 13 of the Guaranty, the New Subsidiary by its signature hereto shall become a Subsidiary Guarantor under such Guaranty with the same force and effect as if originally named therein as a Subsidiary Guarantor and the New Subsidiary hereby (a) agrees to all the terms and provisions of such Guaranty applicable to it as a Subsidiary Guarantor thereunder, (b) represents and warrants that the representations and warranties made by it as a Subsidiary Guarantor under Section 2 of the Subsidiary Guaranty are true and correct on and as of the date hereof, (c) acknowledges receipt of a copy of and agrees to be obligated and bound by the terms of such Guaranty, and (d) agrees that each reference to a “Subsidiary Guarantor” in such Guaranty shall be deemed to include the New Subsidiary. Section 2. Enforceability. The New Subsidiary hereby represents and warrants that this Agreement has been duly authorized, executed and delivered by the New Subsidiary and constitutes a legal, valid and binding obligation of the New Subsidiary enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the applicability of creditors’ rights generally and by equitable principles of general applicability (regardless of whether such enforceability is considered in a proceeding in equity or at law). Section 3. Effect on Guaranty. Except as expressly supplemented hereby, the Guaranty shall continue in full force and effect. Section 4. Governing Law. This Agreement shall in all respects be governed by, and construed and interpreted in accordance with, the laws of the State of New York, without regard to the conflicts of laws principles of such state. Section 5. Savings Clause. To the fullest extent permitted under applicable law, in the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect with respect to the New Subsidiary, no party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, and the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired. The parties shall endeavor in good−faith negotiations to replace any invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. Section 6. Notices. All communications to the New Subsidiary shall be given to it at the address or telecopy number set forth under its signature hereto. 2
  • 193. In Witness Whereof, the New Subsidiary has duly executed this Agreement as of the day and year first above written. [NEW SUBSIDIARY] By: Name: Title: Address: Telecopy: 3
  • 194. Exhibit 10.25 Summary of Family Dollar Stores, Inc. Executive Supplemental Disability Income Plan The Company has established a supplemental disability program for certain of the Company’s officers, including each of the Company’s named executive officers. The following Plan summary, which has been provided to each of the Company’s named executive officers, sets forth the terms of the Plan: [FDO Inc. logo] Executive Supplemental Disability Plan Coordinating with the group LTD plan, the supplemental policy increases your disability income insurance to a maximum of 75% of base salary. It includes the following features: Up to $10,000 guaranteed standard issue benefit – • (subject to MetLife’s risk management criteria) To be eligible for guaranteed issue coverage, you must be actively employed for a minimum of 90 days prior to the application date. You do not have to prove you are insurable to qualify for monthly supplemental disability benefits up to $10,000. Own Occupation protection to age 65 – Your Regular Occupation Period continues until you reach age 65. If, during the • Regular Occupation Period, you become unable to perform the material and substantial duties of your regular occupation, you are considered disabled and are entitled to benefits. To be considered disabled, you must not be gainfully employed and must be under the care of a physician. After the Regular Occupation Period expires, if you become unable to perform the material and substantial duties of any occupation for which you are or have become reasonably qualified by your education, training or experience, you are considered disabled and are entitled to benefits. Non−cancelable/guaranteed renewable to age 65, or 5 policy years if later – As long as your premiums are paid on time, • MetLife cannot change your coverage or your premium rates until the first premium due date on or after your 65th birthday, or on the fifth policy anniversary if later. Conditionally Renewable after age 65 – Your policy, without riders, is renewable after age 65 or after the 5th policy • anniversary if later, so long as you are employed at least 30 hours per week and are not disabled. If Total Disability starts before your 75th birthday, the maximum benefit will be 2 years. If Total Disability starts after your 75th birthday, the maximum benefit period will be 12 months. Premiums will be based on your attained age on each policy anniversary. Premium rates are subject to change. Residual Disability Rider – If you lose 20% or more of your income due to a disability and you are under the care of a • licensed physician, this rider pays you a percentage of your monthly benefit proportional to your loss of income. Presumptive Total Disability Rider – With this rider, if an injury or sickness causes you complete and irreparable loss of • your sight, speech, hearing, or the use of 2 limbs, you will be considered totally and permanently disabled even if you are able to work. Catastrophic Disability Benefit – This rider provides an additional monthly benefit if the insured’s condition meets the • criteria for a catastrophic disability as defined in the rider. The catastrophic disability benefit amount applied for can be up to 100% of the insured’s monthly income minus any other DI coverage inforce or applied for. In no event can the monthly benefit, under this rider, exceed $8,000. For the first 12 months that a catastrophic disability benefit is paid, the catastrophic benefit will be paid at 120%. Cost of Living Adjustment (COLA Rider) – This rider increases your monthly benefit annually (while you remain • disabled), after you have been disabled for 12 months, by a compound rate of 1% to 7%, based on the Consumer Price Index (CPI). Mental Disorder and/or Substance Use Disorder Benefits (MNAD) payable to Age 65 Rider – This MNAD Rider • extends the benefit period for disabilities caused by Mental Disorder and/or Substance Use Disorder to Age 65 (or the longest period available by age). 90 Day Elimination Period – Disability benefits will be payable after 90 days of disability. • Portable – You can take your policy with you if you leave Family Dollar. •
  • 195. 2
  • 196. Exhibit 10.26 Summary of Family Dollar Stores, Inc. Executive Life Plan The Company’s named executive officers receive increased coverage amounts under the Company’s life and accidental death and dismemberment policy generally available to all Company employees. A copy of the policy is attached hereto. [Jefferson Pilot Financial Logo] Jefferson Pilot Financial Insurance Company 8801 Indian Hills Drive, Omaha NE 68114− 4066 (402) 361−7300 A Stock Company CERTIFIES THAT Group Policy No GL 000010006033 has been issued to Family Dollar Stores, Inc. (The Group Policyholder) The Issue Date of the Policy is January 1, 2003. This certificate supercedes and replaces any previously issued certificate with an effective date of January 1, 2003. The insurance is effective only if the Associate is eligible for insurance and becomes and remains insured as provided in the Group Policy. Certificate of Insurance {INSURED} {Schedule of Insurance} {Coverage} {Insurance Amount} {BENEFIT_1} {BENEFIT_2} {BENEFIT_3} {BENEFIT_4} {BENEFIT_5} {BENEFIT_6} {BENEFIT_7} {BENEFIT_8} {BENEFIT_9} {BENEFIT_10} You are entitled to the benefits described in this Certificate if you are eligible for insurance under the provisions of the Policy. This Certificate replaces any other certificates for the benefits described inside. As a Certificate of Insurance, it is not a contract of insurance; it only summarizes the provisions of the Policy and is subject to the Policy’s terms. ACCELERATED BENEFITS PAID UNDER THIS POLICY OR ATTACHED RIDER MAY BE TAXABLE. IF SO, THE INSURED PERSON OR INSURED PERSON’S BENEFICIARY MAY INCUR A TAX OBLIGATION. AS WITH ALL TAX MATTERS, THE INSURED PERSON SHOULD CONSULT A PROFESSIONAL TAX ADVISOR TO ASSESS THE EFFECT OF THIS BENEFIT. ACCELERATED BENEFITS PROVIDED BY A RIDER ARE NOT PAYABLE IF THE POLICY TO WHICH IT IS ATTACHED IS NOT IN EFFECT. IMPORTANT CANCELLATION INFORMATION − PLEASE READ THE PROVISION ENTITLED ‘TERMINATION OF COVERAGE’, FOUND ON FORM ‘2 93’. Chief Executive Officer
  • 197. Family Dollar Stores, Inc. 000010006033 SCHEDULE OF INSURANCE Corporate Executive Corporate Director Chief Pilot Assistant General Counsel Corporate Exempt Corporate Non−exempt Distribution Center Executive (RVP Only) Distribution Center Manager Distribution Center Exempt (non−managerial, includes Supervisor and Area Managers) Distribution Center Non−Exempt District Manager (Stores) Store Manager Store Manager — Trainee, Assistant Store Manager Clerks, New−Remodel Staff WAITING PERIOD: Corporate Executive: None Corporate Director: None Chief Pilot: None Assistant General Counsel: None Distribution Center Executive (RVP Only): None District Manager (Stores): None Corporate Exempt: One Month Corporate Non−exempt: One Month Distribution Center Manager: One Month Distribution Center Exempt (non−managerial, includes Supervisor and Area One Month Managers): Distribution Center Non−Exempt: One Month Store Manager: Six Months Store Manager — Trainee, Assistant Store Manager: Six Months Clerks, New−Remodel Staff: Six Months MINIMUM HOURS: 30 hours per week
  • 198. LIFE AND AD&D INSURANCE Amount of Personal AD&D Insurance Life Insurance Principal Sum Executives Two times Basic Annual Earnings, rounded Two times Basic Annual Earnings, rounded to to the next higher $1,000; subject to a the next higher $1,000; subject to a minimum of minimum of $50,000 and a maximum of $50,000 and a maximum of $75,000 $1,000,000 Distribution Center Managers, One and one−half times Basic Annual One and one−half times Basic Annual Earnings, Corporate Directors, Chief Earnings, rounded to the next higher $1,000; rounded to the next higher $1,000; subject to a Pilot, Assistant General subject to a minimum of $20,000 and a minimum of $20,000 and a maximum of Counsel, Corporate Exempt, maximum of $300,000 $75,000 District Manager (Stores) Distribution Center Exempt, One times Basic Annual Earnings, rounded to One times Basic Annual Earnings, rounded to Store Managers the next higher $1,000; subject to a minimum the next higher $1,000; subject to a minimum of of $10,000 and a maximum of $240,000 $10,000 and a maximum of $75,000 Distribution Center and $5,000 $5,000 Corporate Non−Exempt, Store Manager−Trainee, Assistant Store Manager Store Clerks, New−Remodel $4,000 $4,000 Staff Personal Life and AD&D Insurance will be reduced as follows: − At age 65, benefits will reduce by 35% of the original amount; − At age 70, benefits will reduce an additional 15% of the original amount. Benefits will terminate when your employment terminates. If you first enroll for Personal Life and AD&D Insurance at age 65 or older, the above age reductions will apply to: − Any Guarantee Issue Amount available without evidence of insurability; and − The maximum amount of insurance for which you are eligible.
  • 199. Basic Annual Earnings means your annual base salary or annualized hourly pay from the Employer before taxes on the determination date. The determination date is the last day worked just prior to the loss. It also includes: 1. commissions averaged over the 12 months just prior to the determination date or over the actual period of employment with the Employer just prior to that date, if shorter. It does not include bonuses, overtime pay, or any other extra compensation. It does not include income from a source other than the Employer. It will not exceed the amount shown in the Employer’s financial records or the amount for which premium has been paid, whichever is less. Any reference to Employee or Full−Time Employee refers to an Associate of the Group Policyholder.
  • 200. TABLE OF CONTENTS Amount of Insurance 3 Definitions 3 Eligibility 4 Effective Dates of Coverages 4 Termination of Coverage 4 Death Benefit 5 Beneficiary 5 Extension of Death Benefit 6 Accelerated Death Benefit 7 Conversion Privilege 9 Accidental Death and Dismemberment Insurance 10 Safe Driver Benefit 12 Claims Procedures for Life or Accidental Death and Dismemberment Benefits 13 Prior Insurance Credit Provision 16 Notice 17 2
  • 201. AMOUNT OF INSURANCE The amount of your insurance is determined by the Schedule of Insurance in the Policy. The initial amount of coverage is the amount which applies to your class on the day your coverage takes effect. You may become eligible for increases in the amount of insurance in accord with the Schedule of Insurance. Any such increase will take effect on the latest of: (1) the date on which you become eligible for the increase; provided you are Actively at Work on that day; (2) the day you resume Active Work, if you are not Actively at Work on the day the increase would otherwise take effect; or (3) the day any required evidence of insurability is approved by the Company. Any decrease will take effect on the day of the change; whether or not you are Actively at Work. DEFINITIONS ACTIVE WORK or ACTIVELY AT WORK means an employee’s full−time performance of all customary duties of his or her occupation at: (1) the EMPLOYER’S place of business; or (2) any other business location where the employee is required to travel. Unless disabled on the prior workday or on the day of absence, an employee will be considered Actively at Work on the following days: (1) a Saturday, Sunday or holiday which is not a scheduled workday; (2) a paid vacation day, or other scheduled or unscheduled non−workday; or (3) an excused or emergency leave of absence (except a medical leave). COMPANY means Jefferson Pilot Financial Insurance Company, a Nebraska corporation, whose Home Office address is 8801 Indian Hills Drive, Omaha, Nebraska 68114−4066. DAY or DATE means at 12:01 A.M., Standard Time, at the Group Policyholder’s place of business; when used with regard to eligibility dates and effective dates. It means 12:00 midnight, Standard Time, at the same place; when used with regard to termination dates. EMPLOYER means the Group Policyholder or the Participating Employer named on the Face Page. FULL−TIME EMPLOYEE means an Associate of the EMPLOYER: (1) whose employment with the EMPLOYER is the employee’s principal occupation; (2) who is not a temporary or seasonal employee; and (3) who is regularly scheduled to work at such occupation at least the number of hours as shown in the Schedule of Insurance. INSURANCE MONTH means: (1) that period of time beginning on the Issue Date of the Policy and extending for one month; and (2) each subsequent month beginning on the same day after that. PERSONAL INSURANCE means the insurance provided by the Policy on Insured Persons. PHYSICIAN means a licensed practitioner of the healing arts other than the Insured Person or a relative of the Insured Person. POLICY means the Group Insurance Policy issued by the Company to the Group Policyholder. A copy of the Policy may be examined upon request at the Home Office of the Group Policyholder. 3
  • 202. ELIGIBILITY If you are a Full−Time Employee and a member of an employee class shown in the Schedule of Insurance; then you will become eligible for the coverage provided by the Policy on the later of: (1) the Policy’s date of issue; or (2) the day you complete the Waiting Period. WAITING PERIOD. (See Schedule of Insurance). EFFECTIVE DATES OF COVERAGES Your insurance is effective on the latest of: (1) the day you enroll after becoming eligible for the coverage; (2) the day you resume Active Work, if you are not Actively at Work on the day you become eligible; (3) the day you make written application for coverage; and sign: (a) a payroll deduction order, if you pay any part of the premium; or (b) an order to pay premiums from your Section 125 Plan account, if Employer contributions are paid through a Section 125 Plan; or (4) the day the Company approves your coverage, if evidence of insurability is required. Evidence of insurability is required if: (1) you apply for coverage more than 31 days after you become eligible; or (2) you make written application to re−enroll for coverage after you have requested: (a) to cancel your coverage; (b) to stop payroll deductions for the coverage. EXCEPTION. If your coverage terminates due to an approved leave of absence or a military leave, any Waiting Period or evidence of insurability requirement will be waived upon your return; provided: (1) you return within six months after the leave begins; (2) you apply or are enrolled within 31 days after resuming Active Work; and (3) the reinstated amount of insurance does not exceed the amount which terminated. TERMINATION OF COVERAGE Your coverage terminates on the earliest of: (1) the day the Policy terminates; (2) the first day of the pay period in which you request termination; (3) the last day of the pay period for which the premium for your insurance has been paid; (4) the day you cease to be a member of an employee class shown in the Schedule of Insurance; (5) with respect to any particular insurance benefit, the day the part of the Policy providing that benefit terminates; (6) the day your employment with the Employer terminates; or (7) the day you enter the armed services of any state or country on active duty; except for duty of 30 days or less for training in the Reserves or National Guard. (If you send proof of military service, the Company will refund any unearned premium to the Group Policyholder.) Ceasing Active Work terminates your eligibility. However, it may be possible to continue all or part of your insurance during a temporary layoff, leave of absence or military leave; or while you are unable to work due to sickness or injury. The conditions concerning such a continuance may be found in the Policy. See your Employer for this information. 4
  • 203. DEATH BENEFIT Upon receipt of satisfactory proof of your death, the Company will pay a death benefit equal to the amount of Personal Life Insurance in effect on the date of your death. The benefit will be paid in accord with the Beneficiary section. Arrangements may be made to have this death benefit paid in installments. BENEFICIARY Your Beneficiary is the person or persons named on your enrollment card. The Beneficiary may be changed in accord with the terms of the Policy. If you have not named a Beneficiary, or if no named Beneficiary is living when you die; then the death benefit will be paid to your: (1) surviving spouse; or, if none (2) surviving child or children in equal shares; or, if none (3) surviving parent or parents in equal shares; or, if none (4) surviving brothers and sisters in equal shares; or, if none (5) estate, or in accord with the Facility of Payment section of the Policy. CHANGING THE BENEFICIARY. Only you, or your assignee, may change the Beneficiary. A new Beneficiary may be named by filing a written notice of the change with the Group Policy Holder at its Home Office. The change will be effective as of the date it was signed; subject to any action the Company takes before receiving notice of the change. When applying for a conversion policy under the Conversion Privilege Section, you must name a Beneficiary. The Beneficiary named for the conversion policy may be someone other than the person named under the Policy. In that event, the application for the conversion policy will be treated as a written notice of change of Beneficiary. 5
  • 204. EXTENSION OF DEATH BENEFIT IF YOU BECOME TOTALLY DISABLED Your life insurance will be continued, without payment of premiums, if: (1) you become Totally Disabled while insured and before reaching age 60; (2) you remain Totally Disabled for at least 6 months in a row; and (3) you submit satisfactory proof within the 7th through 12th months of disability; or: (a) as soon as reasonably possible after that; but (b) not later than the 24th month of disability, unless you were legally incapacitated. PREMIUM PAYMENT. Premium payments must continue until you are approved for this benefit, or the Policy terminates, if earlier. Upon receipt of satisfactory proof, the Company will refund up to 12 months’ premium paid for your life insurance, from your 1st day of Total Disability. DEFINITION. For this benefit, Total Disability or Totally Disabled means you: (1) are unable, due to sickness or injury, to engage in any employment or occupation for which you are or become qualified by reason of education, training, or experience; and (2) are not engaging in any gainful employment or occupation. AMOUNT CONTINUED. The amount of Personal Life Insurance and any Dependent Life Insurance continued will be subject to the reductions and terminations in effect under the Policy on the day your Total Disability begins. Any Accidental Death and Dismemberment Benefit will not be continued. ADDITIONAL PROOF. From time to time, you must submit proof that your Total Disability is continuing. Proof will be at your expense; unless the Company requests to have you examined by a Physician of its choice. If you die after submitting proof, further proof must be submitted to the Company showing that you remained continuously and Totally Disabled until death. If you die within 12 months after Total Disability begins, but before submitting proof; then your death benefit will still be paid under the terms of the Policy. But the Company must first receive satisfactory proof of your continuous Total Disability, from your last day of Active Work until your date of death. TERMINATION. Any life insurance continued under this section will terminate automatically on: (1) the day you cease to be Totally Disabled; (2) the day you fail to take a required medical examination; (3) the 60th day after the Company mails a request for additional proof, if it is not given; (4) the effective date of your individual conversion policy, with respect to any amount of life insurance converted in accord with the Conversion Privilege section; (5) the day you reach age 70; or (6) the day you have been Totally Disabled for twelve months (whichever occurs first). If your Total Disability ends, and you do not return to a class eligible for Policy coverage; then you may exercise the Conversion Privilege. If your Total Disability ends, and you do return to an eligible class; then your Policy coverage will resume when premium payments are resumed, and any conversion policy is surrendered as provided in the Policy. 6
  • 205. ACCELERATED DEATH BENEFIT BENEFIT. The Accelerated Death Benefit is an advance payment of part of your Personal Life Insurance. It may be paid to you, in a lump sum, once during your lifetime. To qualify, you must: (1) have satisfied the Active Work requirement under the Policy; (2) have been insured under the Policy: (a) on the date of an injury which results in a Terminal condition; or (b) for 30 days before being diagnosed Terminal as a result of sickness; and (3) have at least $2,000 of Personal Life Insurance under the Policy on the day before the Accelerated Death Benefit is paid. Receiving the Accelerated Death Benefit will reduce the Remaining Life Insurance and the Death Benefit payable at death, as shown on the next page. “Claimant,” as used in this section, means the Terminal Insured Person for whom the Accelerated Death Benefit is requested. “Terminal” means you have a medical condition which is expected to result in death within 12 months, despite appropriate medical treatment. APPLYING FOR THE BENEFIT. To withdraw the Accelerated Death Benefit, you (or your legal representative) must send the Company: (1) written election of the Accelerated Death Benefit, on forms supplied by the Company; and (2) satisfactory proof that the Claimant is Terminal, including a Physician’s written statement. The Company reserves the right to decide whether such proof is satisfactory. Before paying an Accelerated Death Benefit, the Company must also receive the written consent of any irrevocable beneficiary, assignee or bankruptcy court with an interest in the benefit. (See Limitations 3, 4, and 5.) NOTE: THIS IS NOT A LONG−TERM CARE POLICY. RECEIVING THIS ACCELERATED DEATH BENEFIT WILL REDUCE THE BENEFIT PAYABLE AT DEATH. ANY AMOUNT WITHDRAWN MAY BE TAXABLE INCOME, SO YOU SHOULD CONSULT A TAX ADVISOR BEFORE APPLYING FOR THIS BENEFIT. AMOUNT OF THE BENEFIT. You may elect to withdraw an Accelerated Death Benefit in any $1,000 increment; subject to: (1) a minimum of $1,000 or 10% of the Claimant’s amount of Life Insurance (whichever is greater); and (2) a maximum of $250,000 or 75% of the Claimant’s amount of Life Insurance (whichever is less). To determine the Accelerated Death Benefit, the Company will use the lesser of A or B below: A. the Claimant’s amount of Life Insurance which is in force on the day before the Accelerated Death Benefit is paid; or B. the Claimant’s amount of Life Insurance which would be in force 12 months after that date; if the coverage is scheduled to reduce, due to age, within 12 months after the Accelerated Death Benefit is paid. 7
  • 206. ADMINISTRATIVE CHARGE: NONE WITHDRAWAL FEE: NONE EFFECT ON AMOUNT OF LIFE INSURANCE. “Remaining Life Insurance” means the amount of Life Insurance which remains in force on the Claimant’s life after an Accelerated Death Benefit is paid. The Remaining Life Insurance will equal: (1) the Claimant’s amount of Life Insurance which was used to determine the Accelerated Death Benefit (A or B above); minus (2) any percentage by which the Claimant’s coverage is scheduled to reduce, due to age; if the reduction occurs more than 12 months after the Accelerated Death Benefit is paid, and while he or she is still living; minus (3) the amount of the Accelerated Death Benefit withdrawn. PREMIUM: There is no additional charge for this benefit. Continuation of the Remaining Life Insurance will be subject to timely payment of the premium for the reduced amount; unless you qualify for waiver of premium under the Policy’s Extension of Death Benefit provision, if included. CONDITIONS. If the Claimant exercises the Conversion Privilege after an Accelerated Death Benefit is paid, the amount of the conversion policy will not exceed the amount of his or her Remaining Life Insurance. If the Claimant has Accidental Death and Dismemberment benefits under the Policy, the Principal Sum will not be affected by the payment of an Accelerated Death Benefit. EFFECT ON DEATH BENEFIT. When the Claimant dies after an Accelerated Death Benefit is paid, the amount of Remaining Life Insurance in force on the date of death will be paid as a Death Benefit. Your Death Benefit will be paid in accord with the Beneficiary section of the Policy. If the Claimant dies after application for an Accelerated Death Benefit has been made, but before the Company has made payment; then the request will be void and no Accelerated Death Benefit will be paid. The amount of Life Insurance in force on the date of death will be paid in accord with Policy provisions. EFFECT ON TAXES AND GOVERNMENT BENEFITS. Any Accelerated Death Benefit amount withdrawn may be taxable income to you. Receipt of the Accelerated Death Benefit may also affect the Claimant’s eligibility for Medicaid, Supplemental Security Income and other government benefits. The Claimant should consult his or her own tax and legal advisor before applying for an Accelerated Death Benefit. The Company is not responsible for any tax owed or government benefit denied, as a result of the Accelerated Death Benefit payment. LIMITATIONS. No Accelerated Death Benefit will be paid: (1) if any required premium is due and unpaid; (2) on any conversion policy purchased in accord with the Conversion Privilege; (3) without the written approval of the bankruptcy court, if you have filed for bankruptcy; (4) without the written consent of the beneficiary, if you have named an irrevocable beneficiary; (5) without the written consent of the assignee, if you have assigned your rights under the Policy; (6) if any part of the Life Insurance must be paid to your child, spouse or former spouse; pursuant to a legal separation agreement, divorce decree, child support order or other court order; (7) if the Claimant is Terminal due to a suicide attempt, while sane or insane; or due to an intentionally self−inflicted injury; (8) if a government agency requires you or the Claimant to use the Accelerated Death Benefit to apply for, receive or continue a government benefit or entitlement; or (9) if an Accelerated Death Benefit has been previously paid for the Claimant under the Policy. 8
  • 207. CONVERSION PRIVILEGE If your insurance or insurance on a Dependent terminates for any reason except: (1) termination or amendment of the Policy; or (2) your request for: (a) termination of insurance; or (b) cancellation of your payroll deduction, an individual life policy, known as a conversion policy, may be purchased without evidence of insurability. To purchase a conversion policy, application and payment of the first premium must be made within 31 days after the life insurance is terminated. The conversion policy will: (1) be in an amount not to exceed the amount of life insurance which was terminated; (2) be on any form (except term) then issued by the Company at the age and amount for which application is made; (3) be issued at the person’s age at nearest birthday; (4) be issued without disability or other supplemental benefits; and (5) require premiums based on the class of risk to which the person then belongs. A conversion policy also may be purchased if: (1) all or part of your insurance or insurance on a Dependent terminates due to amendment or termination of the Policy; and (2) the person applying for the conversion policy has been covered continuously under the Policy for at least 5 years. The amount of the conversion policy may not exceed the lesser of: (1) $10,000; or (2) the amount of life insurance which terminates, less the amount of any group life insurance for which the person becomes eligible within 31 days after the termination. The conversion policy will take effect on the later of: (1) its date of issue; or (2) 31 days after the date the insurance terminated. If death occurs during the 31 day conversion period, the Company will pay the life insurance which could have been converted even if no one applied for the conversion policy. When your insurance terminates, written notice of your right to convert will be given to you. No death benefit will be payable under the Policy after the 31 day conversion period has expired even though the right to convert may be extended. 9
  • 208. ACCIDENTAL DEATH AND DISMEMBERMENT INSURANCE DEATH OR DISMEMBERMENT BENEFIT FOR AN INSURED PERSON. The Company will pay the benefit listed below, if: (1) you sustain an accidental bodily injury while insured under this provision; and (2) that injury directly causes one of the following losses within 365 days after the date of the accident. The loss must result directly from the injury and from no other causes. BENEFIT FOR BENEFIT FOR COMMON CARRIER OTHER COVERED LOSS ACCIDENT ACCIDENT Loss of Life 2 Times Principal Sum Principal Sum Loss of One Member (Hand, Foot or Eye) Principal Sum 1/2 Principal Sum Loss of Two or More Members 2 Times Principal Sum Principal Sum The Principal Sum for your class is shown in the Schedule of Insurance. MAXIMUM PER PERSON. If you sustain more than one loss resulting from the same accident, the benefit: (1) will be the one largest amount listed; (2) will not exceed two times the Principal Sum for all of your combined losses resulting from a Common Carrier Accident; and (3) will not exceed the Principal Sum for all of your combined losses resulting from any other covered accident. TO WHOM PAYABLE. Benefits for your loss of life will be paid in accord with the Beneficiary section. All other benefits will be paid to you. LIMITATIONS. Benefits are not payable for any loss to which a contributing cause is: (1) intentional self−inflicted injury or self−destruction; (2) disease, bodily or mental infirmity, or medical or surgical treatment of these; except for: (a) a bacterial infection resulting from an accidental cut or wound; (b) the accidental ingestion of a poisonous food substance; (3) participation in a riot; (4) duty as a member of any military, naval or air force; (5) war or any act of war, declared or undeclared; (6) participation in the commission of a felony; (7) voluntary use of drugs; except when prescribed by a Physician; (8) voluntary inhalation of gas, including carbon monoxide; (9) travel or flight in any aircraft, including balloons and gliders; except as a fare paying passenger on a regularly scheduled flight; or (10) driving a vehicle while intoxicated. 10
  • 209. DEFINITIONS. “Beneficiary” means the person(s) named on your enrollment form. You may change the Beneficiary by filing a written notice of the change with the Company at its Home Office. “Common Carrier Accident” means a covered accidental bodily injury, which is sustained while riding as a fare paying passenger (not a pilot, operator or crew member) in or on, boarding or getting off from a Common Carrier “Common Carrier” means any land, air or water conveyance operated under a license to transport passengers for hire. “Intoxicated” shall be defined by the jurisdiction where the accident occurs. The exclusion will apply whether or not the driver is convicted. “Loss of a Member” includes the following: (1) “Loss of Hand or Foot,” means complete severance through or above the wrist or ankle joint. (2) “Loss of an Eye,” means total and irrevocable loss of sight in that eye. 11
  • 210. SAFE DRIVER BENEFIT BENEFIT. If you die as a direct result of a covered auto accident, for which Accidental Death and Dismemberment Benefits are payable; then: (1) an additional Seat Belt Benefit will be payable, if you were wearing a properly fastened seat belt at the time of the accident; and (2) an additional Air Bag Benefit will be payable, if the auto was equipped with air bag(s). The Seat Belt Benefit equals $10,000 or 10% of the Principal Sum, whichever is less; and the Air Bag Benefit equals $10,000 or 10% of the Principal Sum, whichever is less. The Seat Belt Benefit and the Air Bag Benefit will not be less than $1,000. The Principal Sum is the amount payable because of the Insured Person’s accidental death. A copy of the police report must be submitted with the claim. The position of the seat belt or presence of an air bag must be certified by: (1) the official accident report; or (2) the coroner, traffic officer or other investigating officer. Upon receipt of satisfactory written proof, the additional benefit will be paid in accord with the Beneficiary section. DEFINITIONS. As used in this provision: “Auto” means a 4−wheel passenger car, station wagon, jeep, pick−up truck or van−type car. It must be licensed for use on public highways. It includes a car owned or leased by the Employer. “Intoxicated,” “Impaired,” or “Under the Influence of Drugs” shall be defined as by the jurisdiction where the accident occurs. “Seat Belt” means a properly installed: (1) seat belt or lap and shoulder restraint; or (2) other restraint approved by the National Highway Traffic Safety Administration. LIMITATIONS. Safe Driver Benefits will not be paid if: (1) the Accidental Death and Dismemberment Benefit is not paid under the Policy for your death; or (2) at the time of the accident, you or any other person who was driving the auto in which you were traveling: (a) was driving without a valid drivers’ license; (b) was driving in excess of the legal speed limit; or (c) was driving while intoxicated, impaired, or under the influence of drugs (except for drugs taken as prescribed by a Physician for the driver’s use). The above limitations will apply, whether or not the driver is convicted. 12
  • 211. CLAIMS PROCEDURES FOR LIFE OR ACCIDENTAL DEATH AND DISMEMBERMENT BENEFITS NOTE: The Policy may include an Extension of Death Benefit, an Accelerated Death Benefit or a Living Benefit. If so, please refer to that section for special claim procedures. NOTICE AND PROOF OF CLAIM Notice of Claim. Written notice of an accidental death or dismemberment claim must be given within 20 days after the loss occurs; or as soon as reasonably possible after that.* The notice must be sent to the Company’s Home Office. It should include: (1) your name and address; and (2) the number of the Policy. Claim Forms. When notice of claim is received, the Company will send claim forms for filing the required proof. If the Company does not send the forms within 15 days; then you or your Beneficiary (the claimant) may send the Company written proof of claim in a letter. It should state the nature, date and cause of the loss. Proof of Claim. The Company must be given written proof of claim within 180 days after the date of the loss; or as soon as reasonably possible after that.* Proof of claim must be provided at the claimant’s own expense. It must show the nature, date and cause of the loss. In addition to the information requested on the claim form, documentation must include: (1) A certified copy of the death certificate, for proof of death. (2) A copy of any police report, for proof of accidental death or dismemberment. (3) A signed authorization for the Company to obtain more information. (4) Any other items the Company may reasonably require in support of the claim. * Exception: Failure to give notice or furnish proof of claim within the required time period will not invalidate or reduce the claim; if it is shown that it was done: (1) as soon as reasonably possible; and (2) in no event more than one year after it was required. These time limits will not apply while the claimant lacks legal capacity. EXAM OR AUTOPSY. At anytime while a claim is pending, the Company may have you examined: (1) by a Physician of the Company’s choice; (2) as often as reasonably required. If you fail to cooperate with an examiner or fail to take an exam, without good cause; then the Company may deny benefits, until the exam is completed. In case of death, the Company may also have an autopsy done, where it is not forbidden by law. Any such exam or autopsy will be at the Company’s expense. TIME OF PAYMENT OF CLAIMS. Any benefits payable under the Policy will be paid immediately after the Company receives complete proof of claim and confirms liability. TO WHOM PAYABLE Death. Any benefits payable for your death will be paid in accord with the Beneficiary, Facility of Payment and Settlement Options sections of the Policy. If the Policy includes Dependent Life Insurance; then any benefits payable for an insured Dependent’s death will be paid to: (1) you, if you survive that Dependent; or (2) your Beneficiary, or in accord with the Facility of Payment section; if you do not survive that Dependent. Dismemberment. If the Policy includes Accidental Death and Dismemberment Benefits; then any benefit, other than your death benefit, will be paid to you. 13
  • 212. NOTICE OF CLAIM DECISION. The Company will send the claimant a written notice of its claim decision. If the Company denies any part of the claim; then the written notice will explain: (1) the reason for the denial, under the terms of the Policy and any internal guidelines; (2) how the claimant may request a review of the Company’s decision; and (3) whether more information is needed to support the claim. The Company will send this notice within 15 days after resolving the claim. If reasonably possible, the Company will send it within: (1) 90 days after receiving the first proof of a death or dismemberment claim; or (2) 45 days after receiving the first proof of a claim for any Extension of Death Benefit, Living Benefit or Accelerated Death Benefit available under the Policy. Delay Notice. If the Company needs more than 15 days to process a claim, in a special case; then an extension will be permitted. If needed, the Company will send the claimant a written delay notice: by the 15th day after receiving the first proof of claim; and (1) (2) every 30 days after that, until the claim is resolved. The notice will explain the special circumstances which require the delay, and when a decision can be expected. In any event, the Company must send written notice of its decision within: (1) 180 days after receiving the first proof of a death or dismemberment claim; or (2) 105 days after receiving the first proof of a claim for any Extension of Death Benefit, Living Benefit or Accelerated Death Benefit available under the Policy. If the Company fails to do so; then there is a right to an immediate review, as if the claim was denied. Exception: If the Company needs more information from the claimant to process a claim; then it must be supplied within 45 days after the Company requests it. The resulting delay will not count towards the above time limits for claim processing. REVIEW PROCEDURE. The claimant may request a claim review, within: (1) 60 days after receiving a denial notice of a death or dismemberment claim; or (2) 180 days after receiving a denial notice of a claim for any Extension of Death Benefit, Living Benefit or Accelerated Death Benefit available under the Policy. To request a review, the claimant must send the Company a written request, and any written comments or other items to support the claim. The claimant may review certain non−privileged information relating to the request for review. Notice of Decision. The Company will review the claim and send the claimant a written notice of its decision. The notice will explain the reasons for the Company’s decision, under the terms of the Policy and any internal guidelines. If the Company upholds the denial of all or part of the claim; then the notice will also describe: (1) any further appeal procedures available under the Policy; (2) the right to access relevant claim information; and (3) the right to request a state insurance department review, or to bring legal action. For a death or dismemberment claim, the notice will be sent within 60 days after the Company receives the request for review; or within 120 days, if a special case requires more time. For a claim for any Extension of Death Benefit, Living Benefit or Accelerated Death Benefit available under the Policy, the notice will be sent within 45 days after the Company receives the request for review; or within 90 days, if a special case requires more time. 14
  • 213. Delay Notice. If the Company needs more time to process an appeal, in a special case; then it will send the claimant a written delay notice, by the 30th day after receiving the request for review. The notice will explain: (1) the special circumstances which require the delay; (2) whether more information is needed to review the claim; and (3) when a decision can be expected. Exception: If the Company needs more information from the claimant to process an appeal; then it must be supplied within 45 days after the Company requests it. The resulting delay will not count towards the above time limits for appeal processing. Claims Subject to ERISA (Employee Retirement Income Security Act of 1974). Before bringing a civil legal action under the federal labor law known as ERISA, an employee benefit plan participant or beneficiary must exhaust available administrative remedies. Under the Policy, the claimant must first seek two administrative reviews of the adverse claim decision, in accord with this section. If an ERISA claimant brings legal action under Section 502(a) of ERISA after the required reviews; then the Company will waive any right to assert that he or she failed to exhaust administrative remedies. RIGHT OF RECOVERY. If benefits have been overpaid on any claim; then full reimbursement to the Company is required within 60 days. If reimbursement is not made; then the Company has the right to: (1) reduce future benefits until full reimbursement is made; and (2) recover such overpayments from you, or from your Beneficiary or estate. Such reimbursement is required whether the overpayment is due to fraud, the Company’s error in processing a claim, or any other reason. LEGAL ACTIONS. No legal action to recover any benefits may be brought until 60 days after the required written proof of claim has been given. No such legal action may be brought more than three years after the date written proof of claim is required. COMPANY’S DISCRETIONARY AUTHORITY. Except for the functions that the Policy clearly reserves to the Group Policyholder or Employer, the Company has the authority to: (1) manage the Policy and administer claims under it; and (2) interpret the provisions and resolve questions arising under the Policy. The Company’s authority includes (but is not limited to) the right to: (1) establish and enforce procedures for administering the Policy and claims under it; (2) determine your eligibility for insurance and entitlement to benefits; (3) determine what information the Company reasonably requires to make such decisions; and (4) resolve all matters when a claim review is requested. Any decision the Company makes, in the exercise of its authority, shall be conclusive and binding; subject to your or your Beneficiary’s rights to: (1) request a state insurance department review; or (2) bring legal action. 15
  • 214. CERTIFICATE AMENDMENT TO BE ATTACHED TO THE CERTIFICATE FOR GROUP POLICY NO.: 000010006033 ISSUED TO: Family Dollar Stores, Inc. Your Certificate is amended by the addition of the following provisions. PRIOR INSURANCE CREDIT UPON TRANSFER OF LIFE INSURANCE CARRIERS This provision prevents loss of life insurance coverage for you, which could otherwise occur solely because of a transfer of insurance carriers. The Policy will provide the following Prior Insurance Credit, when it replaces a prior plan. “Prior Plan” means a prior carrier’s group life insurance policy, which the Policy replaced within 1 day of the prior plan’s termination date. FAILURE TO SATISFY ACTIVE WORK RULE. Subject to payment of premiums, the Policy will provide life coverage if you: (1) were insured under the prior plan on its termination date; (2) were otherwise eligible under the Policy; but were not Actively−At−Work due to Injury or Sickness on its Effective Date; (3) are not entitled to any extension of life insurance under the prior plan; and (4) are not Totally Disabled (as defined in the Extension of Death Benefit section of the Policy) on the date the Policy takes effect. AMOUNT OF LIFE INSURANCE. Until you satisfy the Policy’s Active Work rule, the amount of your group life insurance under the Policy will not exceed the amount for which you were insured under the prior plan on its termination date. This Amendment takes effect on your effective date of coverage under the Policy. In all other respects, your Certificate remains the same. Jefferson Pilot Financial Insurance Company Officer of the Company 16
  • 215. NOTICE CONCERNING COVERAGE LIMITATIONS AND EXCLUSIONS UNDER THE NORTH CAROLINA LIFE AND HEALTH INSURANCE GUARANTY ASSOCIATION ACT Residents of this state who purchase life insurance, annuities or health insurance should know that the insurance companies licensed in this state to write these types of insurance are members of the North Carolina Life and Health Insurance Guaranty Association. The purpose of this Association is to assure that policyholders will be protected, within limits, in the unlikely event that a member insurer becomes financially unable to meet its obligations. If this should happen, the Guaranty Association will assess its other member insurance companies for the money to pay the claims of insured persons who live in this state and, in some cases, to keep coverage in force. The valuable extra protection provided by these insurers through the Guaranty Association is not unlimited, however. And, as noted below, this protection is not a substitute for consumers’ care in selecting companies that are well−managed and financially stable. The North Carolina Life and Health Insurance Guaranty Association may or may not provide coverage for this policy. If coverage is provided, it may be subject to substantial limitations or exclusions, and require continued residency in North Carolina. You should not rely on coverage by the North Carolina Life and Health Insurance Guaranty Association in selecting an insurance company or in selecting an insurance policy. Coverage is NOT provided for your policy or any portion of it that is not guaranteed by the insurer or for which you have assumed the risk, such as a variable contract sold by prospectus. Insurance companies or their agents are required by law to give or send you this notice. However, insurance companies and their agents are prohibited by law from using the existence of the guaranty association to induce you to purchase any kind of insurance policy. The North Carolina Life and Health Insurance Guaranty Association Post Office Box #10218 Raleigh, North Carolina 27605−0218 North Carolina Department of Insurance, Consumer Division Post Office Box #26387 Raleigh, North Carolina 27611 The state law that provides for this safety−net is called the North Carolina Life and Health Insurance Guaranty Association Act. The following is a brief summary of this law’s coverages, exclusions and limits. This summary does not cover all provisions of the law; nor does it in any way change anyone’s rights or obligations under the Act or the rights or obligations of the Guaranty Association. COVERAGE. Generally, individuals will be protected by the life and health insurance guaranty association if they live in this state and hold a life or health insurance contract, or an annuity, or if they are insured under a group insurance contract, issued by a member insurer. The beneficiaries, payees or assignees of insured persons are protected as well, even if they live in another state. 17
  • 216. EXCLUSIONS. However, persons holding such policies are NOT protected by this Association if: • they are eligible for protection under the laws of another state (this may occur when the insolvent insurer was incorporated in another state whose guaranty association protects insureds who live outside that state); • the insurer was not authorized to do business in this State; • their policy was issued by an HMO, a fraternal benefit society, a mandatory state pooling plan, a mutual assessment company or similar plan in which the policyholder is subject to future assessments, or by an insurance exchange. The Association also does NOT provide coverage for: • any policy or portion of a policy which is not guaranteed by the insurer or for which the individual has assumed the risk, such as a variable contract sold by prospectus; • any policy of reinsurance (unless an assumption certificate was issued); • interest rate yields that exceed the average rate specified by law; • dividends; • experience or other credits given in connection with the administration of a policy for a group contractholder; • employers’ plans to the extent they are self−funded (that is, not insured by an insurance company, even if an insurance company administers them); • unallocated annuity contracts (which give rights to group contractholders, not individuals), unless they fund a government lottery or a benefit plan of an employer, association or union, except that unallocated annuities issued to employee benefit plans protected by the Federal Pension Benefit Guaranty Corporation are not covered. LIMITS ON AMOUNT OF COVERAGE. The Act also limits the amount the Association is obligated to pay out. The Association cannot pay more than what the insurance company would owe under a policy or contract. Also, for any one individual, the Association will pay a maximum of $300,000 − no matter how many policies and contracts there were with the same company, even if they provided different types of coverages. For any one group holder of an unallocated annuity contract, the association will pay a maximum of $5,000,000. NOTICE OF PROHIBITIONS UNDER NORTH CAROLINA GENERAL STATUTE SECTION 58−50−40, NO PERSON, EMPLOYER, PRINCIPAL, AGENT, TRUSTEE OR THIRD PARTY ADMINISTRATOR, WHO IS RESPONSIBLE FOR THE PAYMENT OF GROUP HEALTH OR LIFE INSURANCE OR HEALTH CARE PLAN PREMIUMS, SHALL: (1) CAUSE THE CANCELLATION OR NONRENEWAL OF GROUP HEALTH OR LIFE INSURANCE, HOSPITAL, MEDICAL OR DENTAL SERVICE CORPORATION PLAN, MULTIPLE EMPLOYER WELFARE ARRANGEMENT, OR HEALTH PLAN COVERAGES (AND THE CONSEQUENTIAL LOSS OF THE COVERAGES OF THE PERSONS INSURED) BY WILLFULLY FAILING TO PAY THOSE PREMIUMS IN ACCORDANCE WITH THE TERMS OF THE INSURANCE OR PLAN CONTRACT; AND (2) WILLFULLY FAIL TO DELIVER, AT LEAST 45 DAYS BEFORE THE TERMINATION OF SUCH COVERAGES, TO ALL PERSONS COVERED BY THE GROUP POLICY A WRITTEN NOTICE OF THE PERSON’S INTENTION TO STOP PAYMENT OF PREMIUMS. THIS WRITTEN NOTICE MUST ALSO CONTAIN A NOTICE TO ALL PERSONS COVERED BY THE GROUP POLICY OF THEIR RIGHTS TO HEALTH INSURANCE CONVERSION POLICIES UNDER ARTICLE 53 OF CHAPTER 58 OF THE GENERAL STATUTES AND THEIR RIGHTS TO PURCHASE INDIVIDUAL POLICIES UNDER THE FEDERAL HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT AND UNDER ARTICLE 68 OF CHAPTER 58 OF THE GENERAL STATUES. VIOLATION OF THIS LAW IS A FELONY. ANY PERSON VIOLATING THIS LAW IS ALSO SUBJECT TO A COURT ORDER REQUIRING THE PERSON TO COMPENSATE PERSONS INSURED FOR EXPENSES OR LOSSES INCURRED AS A RESULT OF THE TERMINATION OF THE INSURANCE. 18
  • 217. SUMMARY PLAN DESCRIPTION The following information together with your group insurance certificate issued to you by Jefferson Pilot Financial Insurance Company of Omaha, Nebraska, is the Summary Plan Description required by the Employee Retirement Income Security Act of 1974 to be distributed to participants in the Plan. This Summary Plan Description is only intended to provide an outline of the Plan’s benefits. The Plan Document will govern if there is any discrepancy between the information contained in this Description and the Plan. The name of the Plan is: Group Life and Accidental Death and Dismemberment Insurance for Employees of Family Dollar Stores, Inc.. The name, address and ZIP code of the Sponsor of the Plan is: Family Dollar Stores, Inc., 10301 Monroe Road, Matthews, NC, 28206. Employer Identification Number (EIN): 56−0942963 IRS Plan Number: 501 The name, business address, ZIP code and business telephone number of the Plan Administrator is: Family Dollar Stores, Inc., 10301 Monroe Road, Matthews, NC, 28206, (800) 547−0359. The Plan Administrator is responsible for the administration of the Plan and is the designated agent for the service of legal process for the Plan. Functions performed by the Plan Administrator include: the receipt and deposit of contributions, maintenance of records of Plan participants, authorization and payment of Plan administrative expenses, selection of the insurance consultant, selection of the insurance carrier and assisting Jefferson Pilot Financial Insurance Company. Jefferson Pilot Financial Insurance Company has the sole discretionary authority to determine eligibility and to administer claims in accord with its interpretation of policy provisions, on the Plan Administrator’s behalf. Type of Administration. The Plan is administered directly by the Plan Administrator with benefits provided in accordance with provisions of the group insurance policy issued by Jefferson Pilot Financial Insurance Company whose Home Office address is 8801 Indian Hills Drive, Omaha, Nebraska. Type of Plan. The benefits provided under the Plan are: Group Life and Accidental Death and Dismemberment Insurance benefits. Type of Funding Arrangement: Jefferson Pilot Financial Insurance Company. All employees are given a Certificate of Group Insurance which contains a detailed description of the Benefits. The Certificate also contains the Schedule of Insurance which includes the amount of Personal Life insurance, AD&D Principal Sum, Dependent Life amounts (if any), Waiting Period and age reduction information. If your Booklet, Certificate or Schedule of Insurance has been misplaced, you may obtain a copy from the Plan Administrator at no charge. Eligibility. Full−time employees working at least 30 hours per week. Employees become eligible on the day they complete their waiting period. Contributions. You are not required to make contributions for Personal Life Insurance and AD&D Insurance. The Plan’s year ends on: December 31st of each year. The name and section of relevant Collective Bargaining Agreements: None The name, title and address of each Plan Trustee: None
  • 218. Loss of Benefits. The Plan Administrator may terminate the policy, or subject to Jefferson Pilot Financial Insurance Company’s approval, may modify, amend or change the provisions, terms and conditions of the policy. Coverage will also terminate if the premiums are not paid when due. No consent of any Insured Person or any other person referred to in the policy will be required to terminate, modify, amend or change the policy. See your Plan Administrator to determine what, if any, arrangements may be made to continue your coverage beyond the date you cease active work. Claims Procedures. You may obtain claim forms and instructions for filing claims from the Plan Administrator or from the Home Office of Jefferson Pilot Financial Insurance Company. To expedite the processing of your claim, instructions on the claim form should be followed carefully; be sure all questions are answered fully. In accordance with ERISA, Jefferson Pilot Financial Insurance Company will send you or your beneficiary a written notice of its claim decision within: • 90 days after receiving the first proof of a death or dismemberment claim (180 days under special circumstances); • 45 days after receiving the first proof of a claim for any Extension of Death Benefit or Accelerated Death Benefit, if available under the Policy (105 days under special circumstances). If a claim is partially or wholly denied, this written notice will explain the reason(s) for denial, how a review of the decision may be requested, and whether more information is needed to support the claim. You, or another person on your behalf, may request a review of the claim by making a written request to Jefferson Pilot Financial Insurance Company within: • 60 days after receiving a denial notice of a death or dismemberment claim; • 180 days after receiving a denial notice of a claim for any Extension of Death Benefit or Accelerated Death Benefit, if available under the Policy. This written request for review should state the reasons why you feel the claim should not have been denied and should include any additional documentation to support your claim. You may also submit for consideration additional questions or comments you feel are appropriate, and you may review certain non−privileged information relating to the request for review. Jefferson Pilot Financial Insurance Company will make a full and fair review of the claim and provide a final written decision to you or your beneficiary within: • 60 days after receiving the request for a review of a death or dismemberment claim (120 days under special circumstances); • 45 days after receiving the request for review of a claim for any Extension of Death Benefit or Accelerated Death Benefit, if available under the Policy (90 days under special circumstances). If more information is needed to resolve a claim, the information must be supplied within 45 days after requested. Any resulting delay will not count toward the above time limits for claims or appeals processing. Please refer to your certificate of insurance for more information about how to file a claim, how to appeal a denied claim, and for details regarding the claims procedures. Statement of ERISA Rights The following statement of ERISA rights is required by federal law and regulation. As a participant in this plan, you are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 (ERISA). ERISA provides that all Plan participants shall be entitled to: Receive Information About Your Plan and Benefits. Examine, without charge, at the Plan Administrator’s office and at other specified locations, such as work sites and union halls, all documents governing the plan, including insurance contracts and collective bargaining agreements, and a copy of the latest annual report (Form 5500 Series), if any, filed by the plan with the U.S. Department of Labor and available at the Public Disclosure Room of the Pension and Welfare Benefit Administration. Obtain, upon written request to the Plan Administrator, copies of documents governing the operation of the plan, including insurance contracts and collective bargaining agreements, and copies of the latest annual report (Form 5500 Series), if any, and updated summary plan description. The administrator may make a reasonable charge for copies. Receive a summary of the plan’s annual financial report if the plan covers 100 or more participants. The Plan Administrator is required by law to furnish each participant with a copy of this summary annual report. Prudent Actions by Plan Fiduciaries. In addition to creating rights for plan participants, ERISA imposes duties upon the people who are responsible for the operation of the employee benefit plan. The people who operate your plan, called “fiduciaries” of the plan, have a duty to do so prudently and in the interest of you and other plan participants and beneficiaries. No one, including your employer, your union, or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining a welfare benefit or exercising your rights under ERISA. Enforce Your Rights. If your claim for a welfare benefit is denied or ignored, in whole or in part, you have a right to know why this was done, to obtain copies of documents relating to the decision without charge, and to appeal any denial, all within certain time schedules. Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request a copy of plan documents or the latest annual report from the plan and do not receive them within 30 days, you may file suit in a Federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Administrator. If you have a claim for benefits which is denied or ignored, in whole or in part, you may file suit in a state or Federal court. If it should happen that plan fiduciaries misuse the plan’s money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a Federal court. The court will decide who should pay court costs and legal fees. If you are successful
  • 219. the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous. Assistance with Your Questions. If you have any questions about your plan, you should contact the Plan Administrator. If you have any questions about this statement or about your rights under ERISA, or if you need assistance in obtaining documents from the plan administrator, you should contact the nearest office of the Pension and Welfare Benefits Administration, U.S. Department of Labor, listed in your telephone directory or the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C. 20210. You may also obtain certain publications about your rights and responsibilities under ERISA by calling the publications hotline of the Pension and Welfare Benefits Administration.
  • 220. PRIVACY PRACTICES NOTICE The Jefferson Pilot Financial companies* are concerned about your privacy. In order to issue and service high quality financial products and services, we collect personal information about you. We do not sell your information to third parties, and we disclose your personal information only as necessary to provide the products and services you expect from a financial services leader. This summary of our practices is provided for your information. You do not need to take any action as a result of this notice, but you do have certain rights as describe below. Collecting Information. To conduct our business, we may collect nonpublic personal information about you from: • applications or other forms, such as name, address, Social Security number, assets and income, employment status and dependent information; • your transactions with us, our affiliates, or with others, such as account activity, payment history, and products and services purchased; • consumer reporting agencies, such as credit relationships and credit history. These agencies may retain their reports and share them with others who use their services; • other individuals, businesses and agencies, such as motor vehicle reports, and medical and demographic information; and • visitors to our websites, such as information from on−line forms, site visitorship data and on−line information collecting devices commonly called “cookies.” We do not collect medical or health information, nor do we request financial information from consumer reporting agencies, on our mutual fund and brokerage consumers. How We Treat the Information. Within Jefferson Pilot Financial we restrict access to nonpublic personal information about you to those employees who need to know that information to provide our products or services or to otherwise conduct our business, including actuarial or research studies. We maintain physical, electronic, and procedural safeguards that comply with federal and state regulations to safeguard all your nonpublic personal information. We may also disclose all of the information described above to third parties with which we contract for services. We contractually require these third parties to protect your information. Examples of these third parties are: • financial service providers, such as third party administrators, broker−dealers, insurance agents and brokers, investment companies, registered representatives, investment advisors, companies that perform marketing services on our behalf or on behalf of Jefferson Pilot Financial and another financial institution, or to other financial institutions with whom we have joint marketing agreements; and • non−financial companies and individuals, such as our consultants and vendors and the Medical Information Bureau. In addition, we may disclose your nonpublic personal information to medical care institutions or medical professionals, insurance regulatory authorities, law enforcement or other government authorities, or to affiliated or nonaffiliated third parties as reasonably necessary to conduct our business or as otherwise permitted by law. Our privacy procedures apply even after you stop having any customer relationship with Jefferson Pilot Financial. We retain the right to use ideas, concepts, know−how, or techniques contained in any nonpublic personal information you provide to us for our own purposes, including developing and marketing products and services. We do not disclose to our affiliates any information we receive about you from a consumer reporting agency. We do not disclose your nonpublic personal information to third parties except as necessary to provide you our products and services. You do have the right to review the personal information about you relating to any insurance or annuity product issued by us that we can reasonably locate and retrieve. You also can request that we correct, amend or delete any inaccurate information. If you wish to do this, please write Attn: Privacy Inquiry, to the address you normally use for your correspondence with us. If you don’t have that address, write to: Jefferson Pilot Financial, Attn: Client Services Department−Privacy, P.O. Box 21008, Greensboro, NC 27420, describe the information you wish to see and enclose payment for our $25.00 handling fee. *This Notice applies for the following Jefferson Pilot Financial companies: Allied Professional Advisors, Inc. Jefferson Pilot LifeAmerica Insurance Jefferson Pilot Variable Corporation Company Hampshire Funding, Inc. Jefferson−Pilot Life Insurance Company Polaris Advisory Services, Inc. Jefferson Pilot Securities Corporation Jefferson Pilot Financial Insurance Company Westfield Assigned Benefits Company
  • 221. Exhibit 10.27 Relocation Policy Applicable to Executive Officers The following relocation policy applies to all Company Associates holding the position of Divisional Vice President or above, including the Company’s named executive officers. Family Dollar Stores Inc. Temporary Housing and Relocation Guidelines for Relocating Associates I. General Information A. Introduction The purpose of this policy is to minimize any personal expense and inconvenience you may have due to relocating your household effects at the direct request of Family Dollar Stores Inc. This communication states the relocation assistance program for those employees who are transferred at the Company’s request. If you request a transfer, expenses to relocate are your responsibility. The Corporate Relocation Specialist for company paid relocation shall make all expense item arrangements. These items include, but are not limited to, temporary housing, house hunting and actual moving expenses including any lump sum payments. B. Effective Date This policy is effective on February 3rd, 2003. Any moves prior to this effective date will be handled according to the agreed upon relocation assistance outlined in the relocating individual’s Terms of Employment. C. Eligibility The benefit group upon which you are entering determines the Tier. You are eligible for Tier 1. D. Employee Relocation Expense Agreement The Employee Relocation Expense Agreement form explains the terms of the Relocation and Temporary Housing benefits for which you are eligible. You will receive this information at the time of offer. You will also receive a copy of the form to sign and return to your Recruiter. If this paperwork is not signed, then you are not eligible for the benefits. By signing this form, you agree to all of the terms and will not deviate from them. Any questions should be directed to the Family Dollar Recruiter or in absence of the Recruiter, the Hiring Manager. Once this form is received, the Relocation Specialist will contact you to start the process. 2
  • 222. E. Administration The Human Resources Department will be responsible for relocation development, vendor selection, administration and management. All requests for information concerning the provisions of this policy should be directed to Family Dollar’s Corporate Human Resources Department (Relocation Specialist) at (800) 547−0359 ext. 4461 or (704) 847−6961 ext. 4461. II. Procedures A. The Relocation Specialist will assist you in relocation by: 1. Providing appropriate forms required for you to complete. 2. Contacting the moving company. The moving company representative will in turn call you to coordinate your move and conduct a pre−move survey. Please take advantage of the tips the moving company provides. 3. Serve to interpret and clarify details of this policy. B. Packing and Loading 1. You or your representative should be present during packing and loading to see that the goods are packed carefully and fully inventoried. Let the moving company do all of the packing. Any items packed by you are not the carrier’s liability. Contents of the boxes should be written on the outside of the box and transferred to the inventory. We also recommend that you do not leave articles in drawers and bureaus. If you do, they are shipped uninventoried and make it difficult or impossible to prove a loss. 2. Never allow the moving company to pack and move such items as money, valuable paper, jewelry or other pieces of extraordinary or sentimental value. Carry these items with you. 3. As the packer loads your furniture, they will make notations regarding the furniture’s condition. Discuss these notations with the packer, and do not sign the inventory until you agree to the conditions noted. 4. It is your responsibility to thoroughly check to make sure all goods have been placed on the van before departing. Claims for forgotten items are generally declined. 5. The bill of lading (i.e. inventory) must be signed by you and the moving company driver. Be sure to retain a copy for your records, as this is your key to ensuring proper settlement of any claim. 3
  • 223. C. Valuation (Insurance) Coverage Family Dollar Stores Inc. will cover items in the moving van up to $75,000. Any amount in excess of $75,000 Family Dollar Stores Inc. will bill you for the difference. The moving company will also pay for damages of sets and pairs. For example, if one lamp breaks then the carrier will replace both of your lamps. Family Dollar Stores Inc. will pay for valuation coverage for household goods that are stored in a facility authorized and contracted by Family Dollar Stores Inc. D. Deliver and Unload 1. You or your representative must be present at the time of delivery. Upon delivery, check your inventory copy with the driver’s. If there is no damage or loss to your shipment, write the words “no exceptions” and sign the driver’s inventory as well as the bill of lading. 2. Exceptions need to be noted explicitly per item and number on the driver’s inventory, specify the nature and extent of damage or loss and sign the inventory sheets. Make the same notations on your copy and ask the driver to sign both. Sign the bill of lading and write “exceptions noted” next to your name. 3. Unloading is the responsibility of the carrier. E. Claims Claims for loss or damage should be filed immediately with the moving company according to its procedure. F. Expense Reporting Reimbursement 1. Expense Reports – Please fill out all applicable areas of your expense report and give it to your manager for their approval. It is suggested that you retain copies of everything, for your files, in case of a discrepancy. 2. Receipts – All expense reports must have original receipts attached. You will not be reimbursed for non−receipt items. For mileage, calculate the number of miles traveled and multiply by $.26 to determine your reimbursement amount. 4
  • 224. G. Taxes Under the Internal Revenue Code effective January 1, 1994, moving expenses fall into two different types: • Qualified Moving Expense Reimbursements: These are limited to the actual cost of: • Transportation of household goods and personal effects and • Travel (including lodging, but not meals) to the new residence on the day of the move. • Non−Qualified Moving Expense Reimbursements: • This includes all other reimbursed moving expenses. Any amount reimbursed by Family Dollar Stores Inc. to employees for non−qualified moving expenses or amounts in excess of the actual qualified moving expenses paid or incurred must be included in gross income and will be reported on a W−2 form. Taxable relocation expenses are considered wages received for services rendered and are subject to all applicable withholding. Expenses paid by Family Dollar Stores Inc., other than those under the IRS definition of qualified moving expense reimbursements, as outlined above, are included in the gross wages of the employee. You are responsible for paying any taxes associated with non qualified moving expenses. III. Employee Reimbursement A. Terms If you voluntarily resign within twelve (12) months of your effective start date at the new location, you will reimburse Family Dollar Stores Inc. for those expenses incurred by the company. Examples of expenses incurred are, but not limited to, temporary housing, house hunting trips, lump sum and actual moving. If Family Dollar Stores Inc. incurs any costs or expenses, including but not limited to attorney fees, in the collection of this debt, you agree to pay the attorney fees and expenses associated with the collection of their debt. In addition, if the associate is late in making payments or fails to make any payments under this Agreement, Family Dollar Stores Inc. may in its sole discretion make all monies owed to it immediately due and payable. 5
  • 225. B. Reimbursement Plan You will pay back an amount equal to one−twelfth (1/12) of the total cost incurred by Family Dollar Stores Inc. for each month of the commitment not met. Divide the total amount of the move by twelve (12) to get the payment and then multiply the payment amount by the number of months the commitment was not met. IV. Moving Expenses A. Family Dollar Stores Inc. authorizes the following: 1. Packing, loading and delivery of normal household goods of the employee’s primary residence. Items included in this pack are: Grandfather/Grandmother clocks, breakables, crating, mattresses, wardrobes, and upholstery/fine finish wrap for furniture. 2. Valuation (insurance) coverage up to $75,000. 3. Actual covered expenses are described under Relocation Summary – Tier 1. B. Family Dollar Stores Inc. will not pay for the moving of special items not normally associated with the movement of household goods or effects to include the following: (This is not an exclusive list) 1. Pets 2. Unpacking 3. Popup, travel camper, or utility trailers 4. Hot tub, spa, or tanning bed 3rd party service on all appliances 5. 6. Live plants, shrubs or trees 7. Currency, securities, other valuable papers, jewelry and precious stones or metals 8. Firewood, flagstones, bricks, lumber and other construction materials 9. Perishable food items 10. Ammunition or explosives 11. Combustible liquids, open cans of paint, etc 12. Buildings, storage sheds, awnings, fences, cabanas, gazebos, outside oil tanks, etc 13. Cleaning or maid service 14. Disconnect or hook up of television, radio antennas, CATV or satellites 15. Assembly or disassembly of furniture, tool sheds, playhouses, etc 6
  • 226. C. The cost of the actual move will be billed directly to Family Dollar Stores Inc. provided the employees uses the moving vendor Family Dollar Stores Inc. selects. The use of other moving companies not contracted directly by Family Dollar Stores Inc. is not allowed and expenses WILL NOT BE REIMBURSED. By contracting with one moving company, we are able to : 1. Provide consistency in the moving process 2. Ensure there is a clear understanding with the mover as to which expenses are covered and which are not 3. Obtain an estimate of moving expenses to the Company for planning purposes. V. Temporary Housing Family Dollar Stores Inc. may provide you with temporary housing. Your Tier determines eligibility. You are eligible for up to 90 days of temporary housing. Corporate: The company will pay for the direct leasing costs of a fully furnished apartment for up to 90 days, including monthly rent, electricity, water and basic cable. Expenses incurred by you include phone set up and monthly telephone bill. You will be provided with information on how to set up your phone when the first contact is made with the Relocation Specialist. Vacating the apartment earlier than your agreed upon time, requires that you give the Relocation Specialist a 30 day notice. If you wish to assume your own lease with the apartment complex, after the temporary housing expires, it is your responsibility to make arrangements with the apartment complex. Family Dollar Stores Inc. assumes no charges after the stated amount of time has expired. Remote Locations: Arrangements will go through the designated individual for that location. Your contact person is ____________________. 7
  • 227. VI. Real Estate Assistance You may be reimbursed for certain actual, documented expenses relating to the real estate commissions paid by you on the sale of your house within six (6) months of actual start date. You must submit verification of the amount spent to your supervisor for reimbursement. The amount given will not exceed $5,000. You are required to pay any taxes associated with this money. Real Estate Assistance is considered income, and is taxable. You are required to pay any taxes associated with this. VII. Storage of Household Goods You are eligible to receive up to 60 days of paid storage. Family Dollar Stores Inc. also selects the vendor for storage. It will be the associate’s responsibility to pay for storage if they request a special facility. Family Dollar Stores Inc. will not pay for climate controlled storage or for storage of cars. VIII. Travel A. Pre−Move Travel 1. You are eligible for two (2) house hunting trips up to three (3) days and two (2) nights. 2. Employee authorized to be accompanied on each trip with one (1) additional traveler. Any other travelers will be the responsibility of the employee. 3. Reimbursement will only be made you and your companion. 4. Reasonable priced lodging and meals will be reimbursed for you and your companion. You must fill out an expense report, attach original receipts and forward to your supervisor for signature. B. En Route Reimbursement Family Dollar Stores Inc. will reimburse you the cost of transportation and lodging for you and the members of your household while traveling from your former home to your new home. You are eligible to receive two (2) nights of lodging, and reimbursement for up to 2 cars at $.26 per mile. Airfare is only authorized if your move is over 500 miles. Please do not make the arrangements on your own. If you are eligible for transportation via airfare, please contact the Relocation Specialist. 8
  • 228. This trip is considered business and it must go through our Internal Travel and Relocation Department. Pets are not included in the flight arrangements. En route expense does not cover any expenses at the former location. En route expenses begin upon traveling from the old location for the final move; i.e. lodging or expenses incurred while traveling to the new location. Receipts are required for all expenses submitted for reimbursement (other than personal automobile mileage). Side trips, vacations or excessive mileage will not be covered. IX. Automobile Shipment Expenses associated with the shipping of vehicles to the employee’s new location are Tier specific. You are eligible for: Tier 1 Less than 250 Drive all miles None moved by carrier 250 – 500 miles Drive 1 Move 1 by carrier 500+ miles Move 2 by carrier Fly− Employee and Family 9
  • 229. Exhibit 10.28 IRV NEGER TERMS OF EMPLOYMENT Title: Sr. Vice President – Softlines Weekly Salary: $4,326.92 per week ($225,000 per annum) Starting Date: First week of September, 2000 Bonus: Participation in the Target Bonus Plan with an opportunity to earn 30% of fiscal year base salary in each fiscal year beginning with the fiscal year starting September 2, 2001, subject to all terms and conditions of Plan. Special Bonus: In lieu of participation in any bonus plan for the period through September 1, 2001, the Company will make payments of $25,000 on each of the following dates (subject to continued employment on the date of payment): September 15, 2000, October 15, 2000, April 1, 2001, July 1, 2001, and September 15, 2001. Stock Options: An option of 100,000 shares will be recommended to the Stock Option Committee to be granted under the 1989 Non−Qualified Stock Option Plan within ten (10) days after employment starting date. Temporary Housing: Company will pay for the direct monthly leasing costs of a one (1) bedroom furnished apartment in Charlotte for a period of three (3) months. If a longer period of time is necessary, it will be reviewed on a monthly basis, not to exceed a total of six (6) months. Moving Expenses: Company will make arrangements and pay to move your household effects from Wexford, Pennsylvania to Charlotte. Confirmed /s/ Irv Neger Irv Neger IRV NEGER TERMS OF EMPLOYMENT Pre−Move Travel: Three (3) trips for both you and your wife to travel to and from Charlotte for the purpose of taking care of personal needs relating to your move. Medical and Life Coverage under Group Medical Plan, Medical Expense Reimbursement Plan, and Life Insurance Plan in Insurance: accordance with terms of Plan, effective date of hire. Vacation: Ten working days during the period from September 2000 through April 2001, and fifteen (15) working days during each twelve (12) month period commencing May 1, 2001 accruing rateably during the periods. We will work with you on a reasonable basis so that any vacation you planned in advance in the first prorated vacation year can be taken by permitting you to use vacation from the next year in advance. Severance: Company will pay severance of three (3) months base salary in equal bi−weekly installments during the three (3) month period if the Company terminates your employment for reasons other than “cause”. (“Cause” is defined as willful failure to comply with reasonable written directives of the President, CEO; chronic absenteeism not resulting from medical disability; willful misconduct or gross negligence; willful violation of substantive Company policies, practices or procedures; or indictment for or conviction of a crime involving an act of moral turpitude.) Confirmed: /s/ Irv Neger
  • 230. Irv Neger Dated: 7/31/00 2
  • 231. Exhibit 10.29 SEPARATION BENEFIT AGREEMENT AND RELEASE OF CLAIMS This SEPARATION BENEFIT AGREEMENT AND RELEASE OF CLAIMS (“Agreement”) is made and entered into as of the first day of November, 2005, by and between Family Dollar Stores, Inc. (the “Company”), and Irv Neger (“Employee”). STATEMENT OF PURPOSE Employee and Company agree that their employment relationship will terminate. Employee and Company further agree that it is in the best interest of each that the terms and conditions of his separation of employment be expressly set forth. Accordingly, Employee’s employment with the Company will end on the date stated below. The Company has decided to offer this Agreement to Employee to provide compensation and benefits not otherwise owed to Employee and in exchange for the obligations of Employee described below. AGREEMENT NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the Company and Employee hereby agree as follows: 1. Date of Termination. Employee’s employment with the Company and/or the Company’s subsidiaries is hereby terminated as of October 20, 2005 (the “Termination Date”). 2. Payment. The parties agree that in exchange for Employee’s resignation from his employment, Employer agrees not to treat Employee’s separation from his employment as one for “cause” as defined by the parties’ letter agreement dated July 31, 2000. Moreover, subject to paragraph 9 herein, and to Employee’s full compliance with the terms of this Agreement, including the conditions set forth below, the Company shall continue to pay the base salary of Employee for a period of thirteen (13) weeks from the Termination Date set forth in paragraph 1 above. These payments shall be payable at a time and in accord with the regular payroll practices of the Company as applicable to Employee. All such amounts shall be subject to and reduced by any applicable federal and state withholding taxes and deductions. 3. Benefit Plans and Fringe Benefits. From and after the employment Termination Date set forth in paragraph 1 above, Employee shall not have the right to participate in or receive any benefit under any employee benefit plan of the Company, any fringe benefit plan of the Company, or any other plan, policy or arrangement of the Company providing benefits or perquisites to employees of the Company generally or individually, except as set forth in this paragraph 3. Employee shall be entitled, if otherwise eligible, to exercise Employee’s right to continued coverage under the Company medical benefit plan as provided by COBRA (and with respect to which the Company will provide Employee with a separate notice as required by federal law). No provision of this Agreement shall: (i) prevent Employee from exercising stock options granted to Employee under the Company’s 1989 Non−Qualified Stock Option Plan for shares of Family Dollar Stores, Inc. common stock which were exercisable and outstanding as of the Termination Date; (ii) limit Employee’s distribution options and access to the vested portion of Employee’s individual account in the Family Dollar Savings and Retirement Plan; (iii) limit Employee’s access to any shares purchased by Employee pursuant to the Company’s Employee Stock Purchase Plan; or (iv) limit Employee’s right to a pro rata award of Performance Shares pursuant to the Company’s 2006 Incentive Plan and the Guidelines for Long−Term Incentive Performance Share Rights Awards. 4. Confidential Information. (a) Except as expressly permitted by the Company’s Chief Executive Officer through a written authorization, Employee shall not divulge, communicate, use to the detriment of the Company or any of its affiliates, or for the benefit of any other person, or misuse in any way, any Confidential Information or Proprietary Information (as defined below), or authorize anyone else to do such things, at any time subsequent hereto. Any Confidential Information or Proprietary Information heretofore or hereafter acquired by the Employee shall be deemed a valuable, special and unique asset of the Company received by the Employee in confidence and as a fiduciary, and the Employee shall remain a fiduciary to the Company with respect to all of such information. (b) For purposes of this Agreement (i) the term “Confidential Information” shall include, but not be limited to, (A) information concerning the financial condition, prospects, customers, sources of leads, methods of doing business, and the manner of design, manufacture, importation, marketing and distribution of the products of the Company, and (B) any “trade secret” as defined in the Uniform Trade Secrets Act, as adopted and in effect in the State of North Carolina, and (ii) the term “Proprietary Information” shall include, but not be limited to, information which is or which relates to the property of the Company, irrespective of whether such information comprises Confidential Information. Notwithstanding any provision hereof which may be to the contrary, Confidential Information shall not include information that has been published in a form generally available to the public prior to the date the Employee proposes to disclose or use such information. Confidential Information will not be deemed to have been published merely because individual portions of the information have been separately published, but only if all material features of such information have been published in combination.
  • 232. 5. Return of Company Property. Employee warrants that all records, files, lists, including computer generated lists, drawings, notes, notebooks, letters, handbooks, policy manuals, blueprints, manuals, training materials, sketches, specifications, formulas, financial documents, sales and business plans, customer lists, vendor lists, lists of customer contacts, pricing information, computers, software, cellular phones, credit cards, keys, equipment and similar items relating to the Company’s business, together with any other property of the Company or property which the Employee received in the course of Employee’s employment with the Company, have been returned to the Company. Employee further represents that he will not copy or cause to be copied, print out or cause to be printed out any software, documents or other materials originating with or belonging to the Company. 6. Confidentiality and Nondisparagement. From and after the date hereof, Employee agrees not to make any statements to the Company’s employees, customers or suppliers or to any public or media source, whether written or oral, regarding Employee’s departure from the Company’s employment, except as may be approved by the Chief Executive Officer of the Company in advance. Employee further agrees not to make any statement (including to any media source, or to the Company’s suppliers, customers or employees) or take any action that 2
  • 233. would disrupt, impair, embarrass, harm or affect adversely the Company, its affiliates or any of their employees, officers, directors, or customers, or place the Company, its affiliates or such individuals in any negative light. Employee agrees to keep the terms and existence of this Agreement confidential and to disclose such terms only to Employee’s legal or tax counsel, Employee’s immediate family or as otherwise required by law. 7. Admissions. Employee acknowledges that the payment by the Company of the amounts described herein is made in good faith and shall never for any purpose be considered an admission of liability on the part of the Company, by whom liability is expressly denied, and no past or present wrongdoing on the part of the Company shall be implied by such payment. 8. Release. As consideration for the Company’s obligations pursuant to paragraph 2 hereof, Employee agrees for Employee and for Employee’s heirs, executors, administrators and assigns, to release and forever discharge the Company and all of its subsidiary corporations, together with each of their respective agents, officers, employees, directors and attorneys, from and to waive any and all rights with respect to all manner of claims, actions, causes of action, suits, judgments, rights, demands, debts, damages, or accountings of whatever nature, legal, equitable or administrative, whether the same are now known or unknown, which Employee ever had, now has or may claim to have, upon or by reason of the occurrence of any matter, cause or thing whatsoever up to the date of this Separation Benefit Agreement and Release of Claims, including without limitation: (i) any claim whatsoever (whether under federal or state statutory or common law) arising from or relating to Employee’s employment or changes in Employee’s employment relationship with the Company, including Employee’s termination therefrom; (ii) all claims and rights for additional compensation or benefits of whatever nature; (iii) any claim for breach of contract, implied or express, impairment of economic opportunity, intentional or negligent infliction of emotional distress, wage or benefit claim, prima facie tort, defamation, libel, slander, negligent termination, wrongful discharge, or any other tort, whether intentional or negligent; (iv) any claim under the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq.; (v) age discrimination claims under the Age Discrimination in Employment Act (ADEA), 29 U.S.C. § 621 et seq.; (vi) any race, color, religion, sex, or national origin discrimination claims under Title VII of the 1964 Civil Rights Act, 42 U.S.C. § 2000(e) et seq.; (vii) any claim under the Americans With Disabilities Act (ADA), 42 U.S.C. § 12101 et seq., or any other federal, state, county or municipal statute or ordinance relating to any condition of employment or employment discrimination; and (viii) any claims under the North Carolina Equal Employment Practice Act, N.C. Gen. Stat. § 143−422.1, et seq.; the North Carolina Persons With Disabilities Protection Act, N.C. Gen. Stat. §168A−1 et. seq.; and the North Carolina Retaliatory Employment Discrimination Act, N.C. Gen. Stat. § 95−240 et. seq. Provided, however, this Release shall not (i) include any claims relating to the obligations of the Company under this Agreement, (ii) affect Employee’s vested and accrued rights as a participant in the Company’s pension plans, (iii) affect Employee’s rights to exercise any conversion rights provided to Employee in the Company’s group life insurance plan or (iv) affect any rights or claims that may arise out of events occurring after the Termination Date. 9. Notification Under The Older Workers Benefit Protection Act. a. Time to Consider This Agreement. Employee acknowledges that he has been provided with a copy of this Agreement and has been given twenty−one (21) consecutive calendar days in which to review and consider the Agreement. Employee acknowledges that while he has twenty−one (21) consecutive 3
  • 234. calendar days to review and consider this agreement, he has the right to sign this agreement at any time within the twenty−one (21) consecutive calendar days from his receipt of this document. b. Legal Counsel. Employee is advised to consult with legal counsel and seek clarification of any of the terms of the Agreement prior to signing this Agreement. c. Revocation. Employee acknowledges that he has a period of seven (7) calendar days following his signing of this Agreement to revoke the Agreement. Any such revocation of the Agreement must be in writing, signed by him, and delivered to Janet Kelley, Executive Vice President, General Counsel and Secretary. Any revocation hereunder shall not affect the termination of Employee’s employment. d. When the Terms Become Effective. The terms of the Agreement shall become final and binding only upon expiration of the revocation period provided in subparagraph 10(c) above. No payment shall be made under paragraph 2 until the Agreement becomes final and binding upon the parties. 10. Enforcement. Because the Employee’s services are unique and because the Employee has access to Confidential Information, and Proprietary Information, the parties agree that money damages would be an inadequate remedy for any breach by the Employee of any of the provisions of paragraph 4 of this Agreement. In the event of a breach or threatened breach of any of the provisions of paragraph 4 of this Agreement, the Company or its successors or assigns may, in addition to any other rights and remedies existing in their favor, apply to any court of competent jurisdiction for specific performance and/or injunctive relief or other equitable relief in order to enforce or prevent any violations of any such provision (without posting a bond or other security). In addition to the foregoing and not in any way in limitation thereof, or in limitation of any right or remedy otherwise available to the Company, if the Employee violates any provision of paragraph 4 of this Agreement, any compensation, benefits and/or termination payments then or thereafter due from the Company to the Employee shall be terminated forthwith and the Company’s obligation to pay or provide and the Employee’s right to receive such compensation, benefits and/or termination payments shall terminate and be of no further force or effect, in each case without limiting or affecting the Employee’s obligations under such paragraphs 4 or the Company’s other rights and remedies available at law or in equity. 11. Governing Law and Forum Selection. Employee agrees that any claim against the Company or any of its affiliates or their employees arising out of or relating in any way to this Agreement or to Employee’s employment with the Company, shall be brought exclusively in the Superior Court of Mecklenburg County, North Carolina or the United States District Court for the Western District of North Carolina, and in no other forum. Employee hereby irrevocably consents to the personal and subject matter jurisdiction of these courts for the purpose of adjudicating any claims subject to this forum selection clause. Employee also agrees that any dispute of any kind arising out of or relating to this Agreement or to Employee’s employment (including without limitation any claim released herein by Employee) shall at the Company’s sole election or demand be submitted to final, conclusive and binding arbitration before a single arbitrator and according to the rules then prevailing of the American Arbitration Association in Mecklenburg County, North Carolina, which election or demand may be made by the Company at any time prior to the last day 4
  • 235. to answer and/or respond to a summons and/or complaint or counterclaim made by Employee. The results of any such arbitration proceeding shall be final and binding both upon the Company and upon Employee, and shall be subject to judicial confirmation as provided by the Federal Arbitration Act or the North Carolina Arbitration Act, including specifically the terms of N.C. Gen. Stat. § 1−567.2, which are incorporated herein by reference. This Agreement shall be construed according to the substantive laws of the State of North Carolina, without regard to conflict of laws principles. 12. Further Conditions. The obligations of the Company set forth in this Agreement, including specifically in paragraph 2 hereof are conditional upon Employee’s execution and full ratification of this Agreement, including the release set forth herein, no later than twenty−one (21) days following the date on which this Separation Benefit Agreement and Release is submitted to Employee, as well as upon Employee’s failure to revoke the same following the expiration of seven days following such execution. In the event that Employee fails to execute this Agreement within such 21−day period or revokes the execution thereof within seven days following such execution thereof, the Company’s obligations hereunder shall be null and void. 13. Severability. If any of the provisions set forth in this Agreement are held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. Provided, however, that this provision shall not affect in any way the obligations of Employee set forth in paragraph 10 above, or affect Employee’s ability to ratify any provision of this Agreement. 14. Voluntary Agreement. Employee hereby represents that Employee has carefully read and completely understands the provisions of this Agreement and that Employee has entered into this Agreement voluntarily and without any coercion whatsoever, and in order to receive benefits not otherwise owed to Employee by the Company. 15. Assistance and Cooperation. Employee agrees to cooperate with and provide assistance to the Company and its legal counsel in connection with any litigation (including arbitration or administrative hearings) or investigation affecting the Company, in which, in the reasonable judgment of the Company’s counsel, Employee’s assistance or cooperation is needed. Employee shall, when requested by the Company, provide testimony or other assistance and shall travel at the Company’s request in order to fulfill this obligation. Provided, however, that, in connection with such litigation or investigation, the Company shall attempt to accommodate Employee’s schedule, shall reimburse the employee (unless prohibited by law) for any actual loss wages in connection therewith, shall provide Employee with reasonable notice in advance of the times in which Employee’s cooperation or assistance is needed, and shall reimburse Employee for any reasonable expenses incurred in connection with such matters. In addition, during the time Employee is receiving the payments set forth in paragraph 2 herein, Employee agrees to cooperate fully with the Company on all matters relating to Employee’s employment and the conduct of the Company’s business. This obligation to cooperate, however, shall not be considered to prohibit or restrict other employment by the Employee. 16. Waiver. Any waiver or consent from the Company with respect to any term or provision of this Agreement or any other aspect of Employee’s conduct or employment shall be effective only in the specific instance and for the specific purpose for which given and shall not be deemed, regardless of frequency given, to be a further or continuing waiver or consent. The failure or delay of the Company at any time or times to require performance of, or to exercise 5
  • 236. any of its powers, rights or remedies with respect to, any term or provision of this Agreement or any other aspect of Employee’s conduct or employment in no manner (except as otherwise expressly provided herein) shall affect the Company’s right at a later time to enforce any such term or provision. 17. Entire Agreement. This Agreement contains the entire agreement between the Company and Employee and supersedes all prior agreements relating to the subject matter hereof, and may be changed only by a writing signed by the parties hereto. Any and all prior representations, statements and discussions regarding the subject matter of this Agreement have been merged into and/or replaced by the terms of this Separation Benefit Agreement and Release of Claims. 18. Execution of Agreement. By signing this Separation Benefit Agreement and Release of Claims, you acknowledge that you have carefully read and fully understand it and are signing it voluntarily. You have the right to consult with an attorney of your choice at your expense prior to executing it. Your signature also acknowledges that you were given a period of at least twenty−one days after receiving it to consider its terms before signing it, and you have been afforded seven days after signing this Agreement to revoke your acceptance. Accordingly, this Agreement shall not become effective or enforceable until the seven−day revocation period has expired. If your signature is not revoked by you during the seven−day period, this Agreement shall take full force and effect. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, or caused this Agreement to be duly executed by their authorized representative, as of the day and year first above written. Family Dollar Stores, Inc. By: /s/ R. James Kelly R. James Kelly, Vice Chairman and Chief Administrative Officer /s/ Irv Neger Irv Neger Dated: November 1, 2005 WITNESS: /s/ Dennis C. Merriam 6
  • 237. Exhibit 10.30 Summary of Compensation Arrangements of Named Executive Officers The Compensation Committee of the Board of Directors of the Company approved the following compensation arrangements for the Company’s named executive officers, as set forth below, effective for fiscal 2006: HOWARD R. LEVINE Base Salary: $ 725,000 Incentive Profit Sharing Plan Bonus Percentage: 100 % Option Grants: 150,000 Shares Performance Share Rights Award (3−year performance period): 37,500 Rights Performance Share Rights Award (1−year performance period): 12,500 Rights R. JAMES KELLY Base Salary: $ 460,000 Incentive Profit Sharing Plan Bonus Percentage: 75 % (increase from 65%) Option Grants: 95,000 Shares Performance Share Rights Award (3−year performance period): 24,000 Rights Performance Share Rights Award (1−year performance period): 8,000 Rights CHARLES S. GIBSON, JR. Base Salary: $ 310,000 Incentive Profit Sharing Plan Bonus Percentage: 50% Option Grants: 35,000 Shares Performance Share Rights Award (3−year performance period): 7,500 Rights Performance Share Rights Award (1−year performance period): 2,500 Rights IRVING NEGER(1) Base Salary: $ 270,000 Incentive Profit Sharing Plan Bonus Percentage: 35% Option Grants: 17,000 Shares Performance Share Rights Award (3−year performance period): 4,000 Rights Performance Share Rights Award (1−year performance period): 1,333 Rights JANET G. KELLEY Base Salary: $ 283,000 Incentive Profit Sharing Plan Bonus Percentage: 35% Option Grants: 22,000 Shares Performance Share Rights Award (3−year performance period): 4,000 Rights Performance Share Rights Award (1−year performance period): 1,333 Rights (1) Mr. Neger’s employment was terminated October 20, 2005.
  • 238. Exhibit 10.31 [Company Letterhead] July 19, 2005 Mr. Robert George 10 Saddleridge Road Holliston, MA 01746 Dear Robert: Pursuant to our various conversations, I am confirming the offer by Family Dollar Stores, Inc. (the “Company”) for your employment in the position of Executive Vice President and Chief Merchandising Officer. The terms of your employment are set forth below, subject to your acceptance and the approval of the Compensation Committee of the Company’s Board of Directors. Starting Date of Employment You will begin your employment with the Company on a full−time basis, not later than August 15, 2005. Annual Compensation Your starting annual base salary will be $350,000 and may be increased from time to time in the Compensation Committee’s discretion. In addition, you will qualify for a bonus for the Company’s 2006 fiscal year under our Target Bonus Program with a “target” payment of 50% of your salary, subject to all terms of said Plan and the Company’s achievement of its earnings goals; provided that payment of 50% of your target bonus for the 2006 fiscal year will be made without regard to the Company’s achievement of its target bonus earning goals. Stock Options Within the first week of your employment you will receive a stock option grant for the purchase of 75,000 shares of the Company’s common stock pursuant to the Company’s 1989 Non−Qualified Stock Option Plan. In addition, you will receive a stock option grant for 70,000 shares of the Company’s common stock as a part of the Company’s stock option grant program on or about September of 2005 and will be eligible for additional stock option grants in future years. As discussed, the Company is currently considering adding a stock performance plan to its long−term incentive (“LTI”) plan. If this program is adopted as part of our LTI program, you may receive a combination of performance shares and stock options which will have a combined value at least as great as the 70,000 options noted above. Appropriate valuations with regard to these grants will be made by HayGroup Consulting. Cash Payments In addition to the other payments set forth herein, the Company will pay you the sum of $50,000 within thirty days of the commencement of your employment and, an additional $50,000 on the first anniversary of the date of your initial employment with the Company, whether or not you are still employed by the Company on that date. Severance Payments If your employment with the Company is terminated by the Company for any reason, other than for Cause, within the initial two years of such employment, the Company will provide severance benefits to you equal to your then current annual base salary for a period of one hundred twenty (120) days. Severance payments shall be made in four (4) equal monthly payments and shall be reduced or eliminated by any salary, bonus or other compensation paid, payable or earned by you during such period from any subsequent employment. You will use your best efforts to promptly obtain suitable employment during such severance period. For purposes of
  • 239. this provision, “Cause” shall mean: (i) your willful failure to comply with reasonable written directives of the Board or executive management of the Company; (ii) chronic absenteeism not resulting from an illness or medical condition that prevents you from performing your duties for 90 days or longer; or (iii) willful misconduct or gross negligence. Indemnification The Company will reimburse you for reasonable attorneys’ fees and related expenses you may incur in connection with any action, suit or proceeding to which you may be made a party by reason of restrictive covenants you made with your prior employer as to which you have advised the Company. Other Benefits You will be eligible to receive four weeks (20 days) of vacation per year consistent with the Company’s vacation policies. In addition, you will receive various benefits offered to other officers of the Company in accordance with the terms of the Company’s benefit plans, effective thirty (30) days after your actual start date. A summary of those benefits has previously been provided to you. Please note that you will qualify for our supplemental health care program (MERP) which pays 70% of health care costs in addition to those covered under basic health insurance programs. We will also provide relocation and moving benefits as previously provided to you. Of course, you will receive all of the tools useful to perform your duties at Family Dollar such as a cell phone, computer and “Blackberry” device.
  • 240. Robert, I believe the foregoing fully sets forth our understandings regarding your employment. If you concur, please sign one copy of this letter and return it to me. We are excited that you are joining the Family Dollar team and look forward to seeing you soon. Sincerely, /s/ Howard R. Levine Howard R. Levine Chairman of the Board and Chief Executive Officer Accepted by: /s/ Robert George Robert George Date: 7/19/05
  • 241. Exhibit 10.32 EMPLOYMENT AGREEMENT THIS AGREEMENT, made and entered into effective the 4th day of November, 2005, by and between FAMILY DOLLAR STORES, INC., a Delaware corporation (hereinafter referred to as the “Company”); and Charles S. Gibson, Jr. (hereinafter referred to as the “Employee”); WITNESSETH: WHEREAS, the Company desires to employ the Employee and the Employee desires to be employed by the Company; NOW, THEREFORE, in consideration of the mutual covenants herein contained, the Company and the Employee agree as follows: 1. Definitions. When used in this Agreement, these words shall be defined as follows: 1.01. “Affiliate” – Any corporation, or other entity, directly or indirectly controlling, controlled by or under the common control of or with the Company. 1.02. “Cause” – (1) conviction of a felony, any act involving moral turpitude, or a misdemeanor where imprisonment is imposed, (2) commission of any act of theft, fraud, dishonesty, or falsification of any employment or Company records, (3) improper disclosure of the Company’s confidential or proprietary information, (4) the Employee’s failure to comply with reasonable written directives of the Chairman of the Board, the Chief Executive Officer or the Board of Directors of the Company, (5) a course of conduct amounting to gross incompetence, (6) chronic and unexcused absenteeism, or (7) misconduct in connection with the performance of any of Employee’s duties, including, without limitation, misappropriation of funds or property of the Company, securing or attempting to secure personally any profit in connection with any transaction entered into on behalf of the Company, misrepresentation to the Company, or any violation of law or regulations on Company premises or to which the Company is subject. 1.03. “Competitive Company” – A corporation, partnership, proprietorship or any other legal entity operating discount retail stores in the Territory, the majority of which stores each have 25,000 square feet or less of total space, including non−selling areas, and that sell or offer for sale merchandise similar or identical to the merchandise sold by the Group. 1.04. “Confidential Information” – Any information (including, without limitation, any method of operation, source of supply, organizational details, personnel information, information regarding real estate activities, including landlords, prospective landlords and lease data, business secret, or any formula, pattern, patent, device, plan, process or compilation of information) which (a) is, or is designed to be, used in the business of any member of the Group, (b) is private or confidential in that it is not generally known or available to the public, and (c) gives any member of the Group an opportunity to obtain a significant advantage over competitors who do not know or use it. 1.05. “Group” – The Company and all Affiliates. 1.06. “Territory” – All counties, towns and cities in States in which the Company does business at any time while the Employee is employed by the Company. 1.07. “Medical Disability” – An illness or medical condition preventing the Employee from being able to actively and regularly perform his duties and responsibilities under this Agreement for period of ninety (90) work days or longer during any fiscal year of the Company. 2. Term. The Employee shall be employed by the Company and any Affiliate in the capacity provided for in Paragraph 3 for the period commencing upon the effective date of this Agreement, and unless earlier terminated as provided herein in paragraph 6, the Employee’s employment hereunder shall be for a rolling term of one year (the “Term”) commencing on the date hereof. This agreement shall be deemed to extend each month for an additional month automatically without any action on behalf of either party hereto; provided, however, that either party may, by written notice to the other, cause this Agreement to cease to extend automatically and upon such notice, the “Term” of this Agreement shall be the one year following the date of such notice, and this Agreement shall terminate upon the expiration of such Term, or upon the termination of this Agreement as provided in Paragraph 6. 3. Duties and Responsibilities. The Employee shall be employed as Executive Vice President − Supply Chain of the Company and shall perform such reasonable duties and responsibilities as the Chairman of the Company or Board of Directors of the Company or the Chief Executive Officer of the Company may, from time to time, assign to the Employee. The Employee agrees to accept this employment and to devote his full time and attention and his best efforts, ability and fidelity to the performance of the duties attaching to such employment. In addition, the Employee shall serve as a director and officer of the Company and any corporation in the Group, if appropriately elected. During the period of his employment, the Employee shall not, for remuneration or profit, directly or indirectly, render any service to, or undertake any employment for, any other person, firm or corporation, whether in an advisory or consulting capacity or otherwise, without first obtaining the written consent of the Company. 4. Covenant Not to Compete, Solicit, or Disclose Confidential Information.
  • 242. 4.01. The Employee will not, directly or indirectly, for a period of one (1) year from the date of the termination of his employment with the Company, whether such termination is voluntary or involuntary or due to the expiration of the term of this Agreement, (a) engage in competition with the Company, any Affiliates, or their successors or assigns, for or on behalf of any Competitive Company, or (b) provide
  • 243. information to, or travel, canvass, advertise, solicit or sell for, or acquire an interest in, become employed by, act as agent for, or in any manner assist, any Competitive Company; provided that the Employee may become employed by or act as agent or consultant for, in any capacity, a Competitive Company when his duties and responsibilities with the Competitive Company do not, directly or indirectly, involve any business activity in the Territory; or (c) directly or indirectly approach, solicit, offer employment to or in any manner induce or seek to induce any employee of the Group to become employed by a Competitive Company or to otherwise interfere with the Company’s relationship with any employee in the Group. The foregoing provisions, however, shall not prohibit the Employee from making investments in any securities listed on the New York or American Stock Exchanges or actively traded in the over−the−counter market in amounts not exceeding 1% of any single class of such securities outstanding, nor prohibit the Employee from making investments of any nature in any securities of the Company. 4.02. The Employee acknowledges that the signing of this Agreement is a condition of employment and understands that in the performance of his services hereunder, he may have access to and obtain knowledge of Confidential Information (as hereinbefore defined) relating to the business and activities of the Group. The Employee shall not, without the written consent of the Company, either during the period of his employment or thereafter, divulge, communicate, use to the detriment of the Group, or for the benefit of any other person, or misuse in any way, any Confidential Information, or authorize anyone else to do such things, at any time subsequent hereto. Any Confidential Information acquired by the Employee shall be deemed a valuable, special and unique asset of the Group received by the Employee in confidence and as a fiduciary, and the Employee shall remain a fiduciary to the Group with respect to all of such information. 5. Compensation. 5.01. In consideration of the services to be rendered by the Employee pursuant to this Agreement, the Company shall pay, or cause to be paid, to the Employee a weekly base salary as established by the Board of Directors of the Company. The base salary shall be reviewed annually by the Board in connection with its annual review of executive compensation, unless Employee’s employment shall have been terminated earlier pursuant to this Agreement, to determine if such base salary should be increased for the following year in recognition of services to the Company and shall initially be set at a rate not less than the Employee’s current annual salary. The salary shall be payable at such intervals in conformity with the Company’s prevailing practice as such practice shall be established or modified from time to time. 5.02. In addition, the Employee shall be entitled to: (a) Participate in the Company’s Target Bonus Plan, as it may be amended or modified in any respect, including achievement of established goals. The
  • 244. Target Bonus Plan generally will give the Employee the opportunity to earn a bonus equal to a percentage of the Employee’s base salary actually received in a given year, the precise percentage to be set by the Board of Directors of the Company, subject to the Company’s achievement of certain financial goals to be established, the Employee’s performance, and all terms and conditions of the Target Bonus Plan as in effect for any such fiscal year. The Employee acknowledges that he has received a copy of the form of the Target Bonus Plan and related guidelines for the operation of such Plan and is familiar with the terms and conditions thereof. Nothing contained herein shall limit the Company’s right to alter, amend or terminate the Target Bonus Plan at any time for any reason. The Employee further acknowledges that, except as provided in Section 6.03, pursuant to the terms of the Target Bonus Plan, in the event the Employee is not employed by the Company, for whatever reason, at the time the bonus for the fiscal year is actually paid to participants in the Target Bonus Plan following the end of the fiscal year, the Employee will not be entitled to receive the bonus. (b) Additional benefits and/or compensation in such form and in such manner and at such times as the Board of Directors of the Company, in the exercise of its absolute discretion, shall determine, and/or as otherwise provided by the Company, consistent with benefits and/or compensation currently provided to Company employees in similar positions. 6. Termination. Employee’s employment under this Agreement may be terminated as follows: 6.01. (a) Death. In the event of Employee’s death, Employee’s employment shall be deemed to have terminated effective as of the date of Employee’s death. Upon the death of the Employee, the Company shall pay to his widow if he is married or his estate if he is not married or his wife predeceases him only such amount as was due and payable to the Employee at the time of his death. (b) Disability. The Company may also terminate this Agreement should the Employee experience a Medical Disability, which termination shall be effective upon the Company’s giving written notice to the Employee following the expiration of the Medical Disability period. (c) By Company for Cause. The Company may terminate this Agreement at any time, without notice, for Cause. (d) For Other Reasons. It is agreed that the Company, or Employee, may terminate this Agreement for any reason at any time upon written notice to the other party. Except as provided in Paragraph 4, this Agreement shall no longer be of any force and effect as of the date of such notice or such other date as may be agreed by the Company and the Employee (herein called the “Termination Date”). If either party terminates this Agreement, the Company may relieve the Employee of all duties and responsibilities effective on the date of notice. Upon termination of this Agreement by the Company, except for the provisions of Paragraph 4, the Employee’s employment
  • 245. under the terms of this Agreement and all other agreements and contracts between the Employee, the Company and the Company’s Affiliate and subsidiary corporations, shall be terminated effective on the Termination Date. 6.02. Should the Company terminate this Agreement for reasons other than for Cause or Medical Disability, it shall pay to the Employee, one year of the base salary set forth in Paragraph 5.01 above in effect on the date of the notice (which shall constitute payment in full of the compensation due to the Employee hereunder). Any such payments shall be made in twelve (12) equal monthly installments with the first such installment due and payable not later than thirty (30) days after the Termination Date. Such payments made by the Company to the Employee are herein called “Termination Compensation.” In the event the Employee accepts or begins other employment as an employee, consultant or in any other capacity prior to the date on which the twelfth monthly installment of Termination Compensation is due and payable, the monthly payments of any unpaid balance of the Termination Compensation as of the date of such new employment shall be (i) eliminated if the monthly base salary and all other monthly remuneration and compensation from the new employment exceeds the monthly base salary of the Employee in effect on the date of the notice, or (ii) reduced to the amount by which the monthly base salary of the Employee in effect on the date of the notice exceeds the monthly base salary and all other monthly remuneration and compensation from the new employment. The Employee agrees to pursue reasonable, good faith efforts to obtain other employment in a position suitable to his background and experience. Moreover, the Employee agrees to notify the Company within three business days of obtaining other employment during the time period in which he is receiving Termination Compensation. 6.03. Notwithstanding any other provision of this Agreement, if the Company terminates this Agreement for reasons other than for Cause, or if the Agreement is terminated as a result of the Employee’s Death or Medical Disability, the Employee shall be entitled to receive as additional Termination Compensation an amount equal to the pro rata share of the bonus, or the full bonus, as the case may be, if any, under and subject to the terms and conditions of the Target Bonus Plan referred to in Section 5.02(a). This payment is equal to the amount, if any, the Employee would have received following the end of the fiscal year if the Target Bonus Plan did not have a requirement that the Employee be employed by the Company at the time the bonus is customarily paid. Such payment shall be made to the Employee at the same time the Company makes payments to other participants in the Target Bonus Plan. 6.04. On the Termination Date or at the end of the term of this Agreement, the Employee agrees that he will resign as an officer and director of the Company, its Affiliate and subsidiary corporations (if and when elected), and from any other positions, which resignations shall become effective on the Termination Date. 6.05. After the Termination Date or the end of the term of this Agreement, the Employee covenants to render further advice and assistance to the Company as may be required from time to time, and to provide all information available
  • 246. to him on matters handled by and through him while employed by the Company or of which he has personal knowledge, and by making available to the Company at reasonable times and circumstances, upon request by the Company, information pertinent to its operations in his possession; and, to the extent that it is necessary, to cooperate with and assist the Company to conclude any matters that are pending and which may require his assistance; provided, that he shall be paid reasonable compensation by the Company in the event he is required to expend time in the performance of such services; and provided further, that the Employee may perform such services in a manner that does not unreasonably interfere with other employment obtained by the Employee. The Employee shall be reimbursed for any expenses incurred by him in the performance of the covenants herein set forth in this Section 6.05. In addition, the Employee agrees to cooperate with and provide assistance to the Company and its legal counsel in connection with any litigation (including arbitration or administrative hearings) or investigation affecting the Company, in which, in the reasonable judgment of the Company’s counsel, the Employee’s assistance or cooperation is needed. The Employee shall, when requested by the Company, provide testimony or other assistance and shall travel at the Company’s request in order to fulfill this obligation. In connection with such litigation or investigation, the Company shall attempt to accommodate the Employee’s schedule, shall reimburse the Employee (unless prohibited by law) for any actual loss wages in connection therewith, shall provide the Employee with reasonable notice in advance of the times in which the Employee’s cooperation or assistance is needed, and shall reimburse the Employee for any reasonable expenses incurred in connection with such matters. 6.06. After the Termination Date or the end of the term of this Agreement, the Employee agrees not to make any statements to the Company’s employees, customers or suppliers or to any public or media source, whether written or oral, regarding the Employee’s employment or termination from the Company’s employment, except as may be approved in writing by an executive officer of the Company in advance. The Employee further agrees not to make any statement (including to any media source, or to the Company’s suppliers, customers or employees) or take any action that would disrupt, impair, embarrass, harm or affect adversely the Group or any of their employees, officers, directors, or customers, or place the Group or such individuals in any negative light. 7. Special Provisions. This Agreement shall inure to the benefit of any successor to or assignee of the Company, and the Employee specifically agrees on demand to execute any and all necessary documents in connection with the performance of this Agreement. No waiver by either party of any breach by the other of any provision hereof shall be deemed to be a waiver of any later or other breach thereof or as a waiver of any such or other provision of this Agreement. If any provision of this Agreement shall be declared invalid or unenforceable as a matter of law, such invalidity or unenforceability shall not affect the validity or enforceability of any other provision of this Agreement or of the remainder of this Agreement as a whole.
  • 247. This Agreement sets forth all of the terms of the understanding between the parties with reference to the subject matter set forth herein and may not be waived, changed, discharged or terminated orally or by any course of dealing between the parties, but only by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought. 8. Enforcement. Because the Employee’s services are unique and because the Employee has access to Confidential Information, the parties agree that money damages would be an inadequate remedy for any breach by the Employee of any of the provisions of paragraph 4 of this Agreement. In the event of a breach or threatened breach of any of the provisions of paragraph 4 of this Agreement, the Company or its successors or assigns may, in addition to any other rights and remedies existing in their favor, apply to any court of competent jurisdiction for specific performance and/or injunctive relief or other equitable relief in order to enforce or prevent any violations of any such provision (without posting a bond or other security). In addition to the foregoing and not in any way in limitation thereof, or in limitation of any right or remedy otherwise available to the Company, if the Employee violates any provision of paragraph 4 of this Agreement, any compensation, benefits and/or Termination Compensation then or thereafter due from the Company to the Employee shall be terminated forthwith and the Company’s obligation to pay or provide and the Employee’s right to receive such compensation, benefits and/or Termination Compensation shall terminate and be of no further force or effect, in each case without limiting or affecting the Employee’s obligations under such paragraphs 4 or the Company’s other rights and remedies available at law or in equity. 9. Governing Law and Forum Selection. The Employee agrees that any claim against the Company or any of its Affiliates or their employees arising out of or relating in any way to this Agreement or to the Employee’s employment with the Company, shall be brought exclusively in the Superior Court of Mecklenburg County, North Carolina or the United States District Court for the Western District of North Carolina, and in no other forum. Employee hereby irrevocably consents to the personal and subject matter jurisdiction of these courts for the purpose of adjudicating any claims subject to this forum selection clause. Employee also agrees that any dispute of any kind arising out of or relating to this Agreement or to the Employee’s employment shall at the Company’s sole election or demand be submitted to final, conclusive and binding arbitration before a single arbitrator and according to the rules then prevailing of the American Arbitration Association in Mecklenburg County, North Carolina, which election or demand may be made by the Company at any time prior to the last day to answer and/or respond to a summons and/or complaint or counterclaim made by the Employee. The results of any such arbitration proceeding shall be final and binding both upon the Company and upon the Employee, and shall be subject to judicial confirmation as provided by the Federal Arbitration Act or the North Carolina Arbitration Act, including specifically the terms of N.C. Gen. Stat. § 1−567.2, which are incorporated herein by reference. This Agreement shall be construed according to the substantive laws of the State of North Carolina, without regard to conflict of laws principles.
  • 248. 10. Notices. Any notice or other communications to be given hereunder shall be deemed to have been given or delivered when delivered by hand to the individuals named below or when deposited in United States mail, registered or certified, with proper postage and registration or certification fees prepaid, addressed to the parties as follows (or to such other address as one party shall give the other in the manner provided herein): Family Dollar Stores, Inc. Chairman of the Board Post Office Box 1017 Charlotte, NC 28201−1017 With copy to: General Counsel Family Dollar Stores, Inc. Post Office Box 1017 Charlotte, NC 28201−1017 Family Dollar Stores, Inc. Charles S. Gibson, Jr. Post Office Box 1017 Charlotte, NC 28201−1017 11. Novation of Prior Agreement. This Agreement revokes and supercedes all prior or contemporaneous agreements, representations, promises and understandings, whether written or oral, between the parties. 12. Compliance with Code Section 409A. This Agreement is intended to comply with Code Section 409A. Notwithstanding any provision herein to the contrary, this Agreement shall be interpreted, operated and administered consistent with this intent. In that regard, the payment of any amounts under this Agreement that are subject to Code Section 409A in connection with the Executive’s termination of employment shall not be made earlier than six (6) months after the Executive’s date of termination to the extent required by Code Section 409A(a)(2)(B)(i).
  • 249. IN WITNESS WHEREOF, the parties hereto have executed this Agreement in triplicate, all as of the day and year first above written. FAMILY DOLLAR STORES, INC. By: /s/ R. James Kelly Title: Vice Chairman And CFO Attest: /s/ Janice B. Burris Asst. Secretary EMPLOYEE /s/ Charles S. Gibson, Jr. Charles S. Gibson, Jr. Witness: /s/ Michael P. Mullican
  • 250. Exhibit 10.33 FAMILY DOLLAR COMPENSATION DEFERRAL PLAN (as amended and restated effective January 1, 2005) 1. Name: This plan shall be known as the “Family Dollar Compensation Deferral Plan” (the “Plan”). 2. Purpose and Intent: Family Dollar Stores, Inc. and Family Dollar, Inc. (collectively, the “Corporation”) established this Plan effective March 30, 2003 for the purpose of providing certain of its associates with the opportunity to defer payment of certain base salary and annual bonuses in accordance with the terms and provisions set forth herein. The Corporation is hereby amending and restating the Plan effective as of January 1, 2005 (the “Restatement Date”) to reflect certain design changes in order for the Plan to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended, and to otherwise meet current needs. It is the intent of the Corporation that amounts deferred under the Plan by an associate shall not be taxable to the associate for income tax purposes until the time actually received by the associate. The provisions of the Plan shall be construed and interpreted to effectuate that intent. 3. Definitions: For purposes of the Plan, the following terms have the following meanings: “Account” means the account established to record a Participant’s interest under the Plan attributable to amounts credited to the Participant pursuant to the Plan. The Account shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant, or his or her Beneficiary, pursuant to the Plan. “Annual Bonus” means, with respect to a Participant, any annual bonus payable to the Participant pursuant to any bonus compensation plan of a Participating Employer approved for purposes of this Plan by the Plan Committee, provided that any such plan shall provide for “performance−based compensation” within the meaning of Code Section 409A. “Associate” means an individual employed by a Participating Employer. “Beneficiary” means any person or trust designated by a Participant in accordance with procedures adopted by the Plan Committee to receive the Participant’s Account in the event of the Participant’s death. If the Participant does not designate a Beneficiary, the Participant’s Beneficiary is his or her spouse, or if not then living, his or her estate. “Board” means the Board of Directors of Family Dollar Stores, Inc. “CEO” means the Chief Executive Officer of Family Dollar Stores, Inc. “Class Year Deferrals” means, for each Plan Year beginning on or after January 1, 2006, the deferrals under Paragraph 5(b) below of a Participant’s base salary for the Plan Year plus the deferral of any portion of the Participant’s Annual Bonus earned for services rendered during the fiscal year of the Corporation ending during such Plan Year, including any related adjustments for deemed investments in accordance with Paragraph 5(d) below. “Code” means the Internal Revenue Code of 1986, as amended from time to time, and includes any valid and binding governmental regulations, court decisions and other regulatory and judicial authority issued or rendered thereunder. “Compensation Committee” means the committee of individuals who are serving from time to time as the Compensation Committee of the Board. “Disability” means “disability” as defined under applicable laws for purposes of receiving Social Security benefits. A “Disabled” Participant means a Participant suffering from a Disability. A Participant’s “Date of Disability” is the date that the Plan Committee is first notified that the Participant is Disabled. “Eligible Associate” means an Associate designated as an Eligible Associate pursuant to Paragraph 5(a). “Participant” means an Eligible Associate who has elected to defer compensation under the Plan as provided in Paragraph 5(b). “Participating Employer” means the Corporation and any other incorporated or unincorporated trade or business that adopts the Plan. “Payment Sub−Account” means a portion of a Participant’s Account established by the Plan Committee to facilitate the administration of distributions under the Plan, including without limitation Payment Sub−Accounts representing (i) each separate set of Class Year
  • 251. Deferrals and (ii) each separate set of deferrals related to Plan Years before January 1, 2006. “Plan Committee” means the administrative committee under the Savings Plan. “Plan Year” means the calendar year. “Savings Plan” means the Family Dollar Employee Savings and Retirement Plan and Trust, as in effect from time to time. “Separation from Service” means a Participant’s “separation from service” with the Participating Employers within the meaning of Code Section 409A. 2
  • 252. 4. Administration: The Plan Committee shall be responsible for administering the Plan. The Plan Committee shall have all of the powers necessary to enable it to properly carry out its duties under the Plan. Not in limitation of the foregoing, the Plan Committee shall have the power to construe and interpret the Plan and to determine all questions that arise thereunder. The Plan Committee shall have such other and further specified duties, powers, authority and discretion as are elsewhere in the Plan either expressly or by necessary implication conferred upon it. The Plan Committee may appoint any agents that it deems necessary for the effective performance of its duties, and may delegate to those agents those powers and duties that the Plan Committee deems expedient or appropriate that are not inconsistent with the intent of the Plan. All decisions of the CEO, the Plan Committee and the Compensation Committee upon all matters within the scope of his or its authority shall be made in the Chief Executive Officer’s, Plan Committee’s or Compensation Committee’s sole discretion and shall be final and conclusive on all persons, except to the extent otherwise provided by law. 5. Eligibility, Deferrals and Account Adjustments: (a) Eligibility. For each Plan Year, (i) the Compensation Committee shall designate which Associates who are “named executive officers” in the Corporation’s annual proxy statement shall be Eligible Associates for the Plan Year, and (ii) the CEO shall designate which Associates other than the “named executive officers” shall be Eligible Associates for the Plan Year; provided, however, that the determination of Eligible Associates shall be made consistent with the requirement that the Plan be a “top hat” plan for purposes of the Associate Retirement Income Security Act of 1974, as amended. An Associate designated as an Eligible Associate with respect to one Plan Year need not be designated as an Eligible Associate for any subsequent Plan Year. (b) Elections to Defer. A person who is an Eligible Associate for a Plan Year may elect to defer a percentage of the Eligible Associate’s base salary for the Plan Year and a percentage of any Annual Bonus for performance during the fiscal year of the Corporation ending during the Plan Year. The Plan Committee shall establish from time to time the minimum and maximum percentages for deferral elections, which may be different for elections to defer base salary and elections to defer Annual Bonuses and which may vary among groups of Eligible Associates. Elections to defer base salary or Annual Bonuses for a Plan Year must be made before the first day of the Plan Year, provided that a newly hired Eligible Associate who first becomes eligible to participate in the Plan after the start of the Plan Year may make such deferral election within thirty (30) days after first becoming eligible to participate in the Plan as notified by the Plan Committee. All elections made under this Paragraph 5(b) shall be made in writing on a form, or pursuant to other non−written procedures, as may be prescribed from time to time by the Plan Committee and shall be irrevocable for the Plan Year. An election to defer made by an Eligible Associate with respect to any base salary or Annual Bonus payable for a Plan Year shall not automatically apply with respect to any base salary or Annual Bonus payable for any subsequent Plan Year. Amounts deferred under the Plan shall not be taken into account for purposes of determining contributions or allocations under the Savings Plan. 3
  • 253. (c) Establishment of Accounts. A Participating Employer shall establish (or cause to be established) an Account for each Participant employed by the Participating Employer. Each Account shall be designated by the name of the Participant for whom established. The amount of any base salary or Annual Bonus deferred by a Participant shall be credited to the Participant’s Account as of the date the base salary or Annual Bonus would have otherwise been paid to the Participant. (d) Account Adjustments for Deemed Investments. The Plan Committee shall from time to time designate one or more investment vehicle(s) in which the Accounts of Participants shall be deemed to be invested. Each Participant may designate the investment vehicle(s) in which his or her Account shall be deemed to be invested according to the procedures developed by the Plan Committee, except as otherwise required by the terms of the Plan. No Participating Employer shall be under an obligation to acquire or invest in any of the deemed investment vehicle(s), and any acquisition of or investment in a deemed investment vehicle by a Participating Employer shall be made in the name of the Participating Employer and shall remain the sole property of the Participating Employer. The Plan Committee shall also establish from time to time a default investment vehicle into which a Participant’s Account shall be deemed to be invested if the Eligible Associate fails to provide investment instructions to the Plan Committee. Account adjustments shall be applied pro rata among a Participant’s various Payment Sub−Accounts. (e) Timing of Adjustments. The adjustments to Accounts for deemed investments as provided in Paragraph 5(d) shall be made from time to time at such intervals as determined by the Plan Committee. The Plan Committee may determine the frequency of account adjustments by reference to the frequency of Account adjustments under another plan sponsored by a Participating Employer. The amount of the adjustment shall equal the amount that the Participant’s Account would have earned (or lost) for the period since the last adjustment had the Account actually been invested in the deemed investment vehicle(s) designated by the Participant for the period. (f) Other Contributions. A Participating Employer may from time to time, in its sole and exclusive discretion, elect to credit a Participant’s Account with additional amounts not otherwise contemplated by this Paragraph 5, which amounts shall be subject to the provisions hereof related to Account adjustments and payments. Any such amounts shall be included as part of the Class Year Deferrals for the Plan Year credited. (g) Statements of Account. Each Participant shall receive a statement of the Participant’s Account balance no less frequently than annually. Distribution Provisions for 2005: 6. In−Service Withdrawals. Each Participant who is in the active service of a Participating Employer shall be given (a) the opportunity up through November 30, 2005 (or such other date during 2005 as selected by the Plan Committee) to elect a distribution of some or all of the Participant’s Account balance as of such date and to cancel any deferral elections that would otherwise apply during December 2005. Such distribution shall be made on or before December 31, 2005. Unless otherwise specified, a distribution under this Paragraph 6(a) of less than a 4
  • 254. Participant’s entire Account balance shall be made pro rata from each Payment Sub−Account maintained under the Plan for the Participant. Special Payment Elections. Each Participant employed with the Corporation as of a date specified by the Plan (b) Committee prior to December 31, 2006 shall be given the opportunity during an election window specified by the Plan Committee ending no later than December 31, 2006 to make a payment election applicable separately to each Payment Sub−Account maintained under the Plan for the Participant, in each case to the extent such amounts are not otherwise withdrawn during 2005 pursuant to Paragraph 6(a) above. The Participant may in each case elect from among the payment options set forth in Paragraph 7(b) below, and such election shall be immediately effective. In the event a Participant covered by this Paragraph 6(b) fails to make a payment election with respect to any Payment Sub−Account, the payment method shall be (x) the payment method most recently elected by the Participant under the Plan according to the records of the Plan Committee, even if that prior payment election had not yet become effective, or (y) in the absence of any such prior payment election, a lump sum payment following Separation from Service or Disability as set forth in Paragraph 7(b) below. Any subsequent change to such payment election must comply with the requirements of Paragraph 7(c) below. Payments pursuant to such election shall otherwise be subject to the requirements of Paragraph 7 below. Distribution Provisions After 2005: 7. Class Year Payment Elections. A Participant for any Plan Year beginning on or after January 1, 2006 shall elect (a) from among the available forms of payment set forth in Paragraph 7(b) below the form of payment that shall apply to the Payment Sub−Account comprised of the Class Year Deferrals for each such Plan Year. The payment election shall be made coincident with the deferral elections under Paragraph 5(b) above for such Plan Year. Available Forms of Payment. A Participant shall select from among the following forms of payment for each (b) Payment Sub−Account to which separate payment elections are made available pursuant to Paragraphs 6(b) and 7(a) above. The Participant must select a single form of payment applicable to each Payment Sub−Account (i.e., a Payment Sub−Account may not be “split” among more than one form of payment): (i) Lump Sum Payment Following Separation from Service or Disability. The balance of the applicable Payment Sub−Account shall be payable in a single cash payment as soon as administratively practicable after the earlier of (A) six months after the Participant’s Separation from Service or (B) the Participant’s Date of Disability; or (ii) Lump Sum Payment In Specified Year. The balance of the applicable Payment Sub−Account shall be payable in a single cash payment during the first 90 days of the calendar year elected by the Participant; provided, however, that the payment shall be made as soon as administratively practicable after the earlier of (A) six 5
  • 255. months after the Participant’s Separation from Service or (B) the Participant’s Date of Disability; or (iii) Annual Installments Following Separation from Service or Disability. The balance of the applicable Payment Sub−Account shall be payable in annual installments over a period of five (5) or ten (10) years as selected by the Participant commencing as soon as administratively practicable after the earlier of (A) six months after the Participant’s Separation from Service or (B) the Participant’s Date of Disability; or (iv) Annual Installments Commencing In Specified Year. The balance of the applicable Payment Sub−Account shall be payable in annual installments over a period of five (5) or ten (10) years as selected by the Participant commencing during the first 90 days of the calendar year elected by the Participant; provided, however, that the installments shall commence as soon as administratively practicable after the earlier of (A) six months after the Participant’s Separation from Service or (B) the Participant’s Date of Disability. A Participant who fails to make a payment election for a Payment Sub−Account in accordance with the provisions of this Paragraph 7(b) shall be deemed to have elected for such Payment Sub−Account a lump sum payment following Separation from Service or Disability. Subsequent Changes to Payment Elections. A Participant who is in the active service of a Participating (c) Employer may change the timing or form of payment elected under Paragraph 7(b)(ii) or (iv) above, or the timing or form of payment subsequently elected under this Paragraph 7(c), with respect to a Payment Sub−Account only if (i) such election is made at least twelve (12) months prior to the date the payment of the Payment Sub−Account would have otherwise commenced and (ii) the effect of such election is to defer commencement of such payments by at least five (5) years. Default Lump Sum Payment. Notwithstanding any provision herein to the contrary, a Participant’s entire Account (d) balance shall be payable in a single cash payment on or as soon as administratively practicable after the Participant’s Separation from Service if, as of the Participant’s date of Separation from Service, either (i) the Participant has less than two (2) years of employment (measured from the Participant’s hire date) or (ii) the balance of the Participant’s Account is less than $25,000. (e) Installments. If amounts are payable to a Participant in the form of annual installments, the first annual installment shall be paid commencing per the applicable election set forth in Paragraph 7(b) above, and each subsequent annual installment shall be paid on or about the anniversary of the first installment. The amount payable on each payment date shall be equal to the balance of the applicable Sub−Account Account on the applicable payment date divided by the number of remaining installments (including the installment then payable). 6
  • 256. (f) Death. If a Participant dies after having commenced installment payments, any remaining unpaid installment payments shall be paid to the Participant’s Beneficiary as and when they would have otherwise been paid to the Participant had the Participant not died. If a Participant Separates from Service due to death, the Participant’s Account shall be payable to the Participant’s Beneficiary commencing as soon as administratively practicable after the Participant’s death in the form of either a single cash payment or five (5) or ten (10) annual installments as elected by the Participant pursuant to this Paragraph 7(f). Such payment method election shall be made by the Participant at such time or times and pursuant to such procedures as the Plan Committee may establish from time to time consistent with the requirements of Code Section 409A. If a Participant fails to make a payment method election under this Paragraph 7(f), the method of payment to the Beneficiary shall be a single cash payment. Withdrawals on Account of an Unforeseeable Emergency. A Participant who is in active service with a (g) Participating Employer may, if permitted by the Plan Committee, receive a refund of all or any part of the amounts previously credited to the Participant’s Account in the case of an “unforeseeable emergency.” A Participant requesting a payment pursuant to this Paragraph 7(g) shall have the burden of proof of establishing, to the Plan Committee’s satisfaction, the existence of an “unforeseeable emergency,” and the amount of the payment needed to satisfy the same. In that regard, the Participant must provide the Plan Committee with such financial data and information as the Plan Committee may request. If the Plan Committee determines that a payment should be made to a Participant under this Paragraph 7(g), the payment shall be made within a reasonable time after the Plan Committee’s determination of the existence of the “unforeseeable emergency” and the amount of payment so needed. As used herein, the term “unforeseeable emergency” means a severe financial hardship to a Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent of the Participant, loss of the Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The circumstances that constitute an “unforeseeable emergency” shall depend upon the facts of each case, but, in any case, payment may not be made to the extent that the hardship is or may be relieved (i) through reimbursement or compensation by insurance or otherwise, or (ii) by liquidation of the Participant’s assets, to the extent the liquidation of such assets would not itself cause severe financial hardship. Examples of what are not considered to be “unforeseeable emergencies” include the need to send a Participant’s child to college or the desire to purchase a home. Withdrawals of amounts because of an “unforeseeable emergency” may not exceed an amount reasonably needed to satisfy the emergency need. Other Payment Provisions. To be effective, any elections under Paragraphs 6 or 7 herein shall be made on such (h) form, at such time and pursuant to such procedures as determined by the Plan Committee in its sole discretion from time to time. Any deferral or payment hereunder shall be subject to applicable payroll and withholding taxes. In the event any amount becomes payable under the provisions of the Plan to a Participant, Beneficiary or other person who is a minor or an incompetent, whether or not declared incompetent by a court, such amount may be paid directly to the minor or incompetent person or to such person’s fiduciary (or attorney−in−fact in the case of an incompetent) as the Plan Committee, in its sole discretion, may decide, and the Plan Committee shall not be liable to any person for any such decision or any payment pursuant thereto. 7
  • 257. 8. Amendment, Modification and Termination of the Plan: The Board shall have the right and power at any time and from time to time to amend the Plan in whole or in part and at any time to terminate the Plan; provided, however, that no amendment or termination may reduce the amount actually credited to a Participant’s Account on the date of the amendment or termination, or further defer the due dates for the payment of the amounts, without the consent of the affected Participant. Notwithstanding any provision of the Plan to the contrary but only to the extent permitted by Code Section 409A, in connection with any termination of the Plan the Compensation Committee shall have the authority to cause the Accounts of all Participants (and Beneficiaries of any deceased Participants) to be paid in a single cash payment as of a date determined by the Compensation Committee or to otherwise accelerate the payment of all Accounts in such manner as the Compensation Committee determines in its discretion. 9. Claims Procedures: Claims for benefits under the Plan shall be addressed pursuant to the claims procedures applicable under the Savings Plan. Any decision pursuant to such claims procedures shall be final and conclusive upon all persons interested therein, except to the extent otherwise provided by applicable law. 10. Indemnity of Plan Committee: The Participating Employers shall indemnify and hold harmless the Plan Committee (and each individual member thereof) and any Associate to whom the duties of the Plan Committee may be delegated from and against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to the Plan, except in the case of willful misconduct by the Plan Committee (or any individual member thereof) or any such Associate. 11. Notice: Any notice or filing required or permitted to be given to the Plan Committee under the Plan shall be sufficient if in writing and hand−delivered, or sent by registered or certified mail, postage pre−paid, to the address below: Family Dollar Stores, Inc. Attn: Plan Committee for the Family Dollar Compensation Deferral Plan P.O. Box 1017 Charlotte, NC 28201−1017 Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Any notice or filing required or permitted to be given to a Participant under the Plan shall be sufficient if in writing and hand−delivered, or sent by registered or certified mail, postage pre−paid, to the last known address of the Participant. 8
  • 258. 12. Applicable Law: The Plan shall be construed, administered, regulated and governed in all respects under and by the laws of the United States to the extent applicable, and to the extent such laws are not applicable, by the laws of the state of North Carolina. 13. Compliance With Code Section 409A: The Plan is intended to comply with Code Section 409A. Notwithstanding any provision of the Plan to the contrary, the Plan shall be interpreted, operated and administered consistent with this intent. 14. Miscellaneous: A Participant’s rights and interests under the Plan may not be assigned or transferred by the Participant. In that regard, no part of any amounts credited or payable hereunder shall, prior to actual payment, (i) be subject to seizure, attachment, garnishment or sequestration for the payment of debts, judgments, alimony or separate maintenance owed by the Participant or any other person, (ii) be transferable by operation of law in the event of the Participant’s or any person’s bankruptcy or insolvency or (iii) be transferable to a spouse as a result of a property settlement or otherwise. The Plan shall be an unsecured and unfunded arrangement. To the extent the Participant acquires a right to receive payments from the Participating Employers under the Plan, the right shall be no greater than the right of any unsecured general creditor of the Participating Employers. Nothing contained herein may be deemed to create a trust of any kind or any fiduciary relationship between a Participating Employer and any Participant. Designation as an Eligible Associate or Participant in the Plan shall not entitle or be deemed to entitle the person to continued employment with the Participating Employers. The Plan shall be binding on the Corporation and any successor in interest of the Corporation. IN WITNESS WHEREOF, this Instrument is executed by the respective duly authorized officers of FAMILY DOLLAR STORES, INC. and FAMILY DOLLAR, INC. on November , 2005. FAMILY DOLLAR STORES, INC. By: Name: Title: FAMILY DOLLAR, INC. By: Name: Title: 9
  • 259. Exhibit 21 FAMILY DOLLAR STORES, INC. Listing of Active Corporations and other Entities Entity State of Incorporation/ Organization Family Dollar Stores, Inc. Delaware Family Dollar, Inc. North Carolina Family Dollar Holdings, Inc. North Carolina Family Dollar Services, Inc. North Carolina Family Dollar Operations, Inc. North Carolina Family Dollar Trucking, Inc. North Carolina Family Dollar Merchandising, L.P. Delaware Family Dollar Distribution, L.P. Texas Family Dollar Stores of Alabama, Inc. Alabama Family Dollar Stores of Arkansas, Inc. Arkansas Family Dollar Stores of Colorado, Inc. Colorado Family Dollar Stores of Connecticut, Inc. Connecticut Family Dollar Stores of Delaware, Inc. Delaware Family Dollar Stores of D.C., Inc. District of Columbia Family Dollar Stores of Florida, Inc. Florida Family Dollar Stores of Georgia, Inc. Georgia Family Dollar Stores of Indiana, L.P. Indiana Family Dollar Stores of Iowa, Inc. Iowa Family Dollar Stores of Kentucky, Ltd. Kentucky Family Dollar Stores of Louisiana, Inc. Louisiana Family Dollar Stores of Maryland, Inc. Maryland Family Dollar Stores of Massachusetts, Inc. Massachusetts Family Dollar Stores of Michigan, Inc. Michigan Family Dollar Stores of Mississippi, Inc. Mississippi Family Dollar Stores of Missouri, Inc. Missouri Family Dollar Stores of New Jersey, Inc. New Jersey Family Dollar Stores of New Mexico, Inc. New Mexico Family Dollar Stores of New York, Inc. New York Family Dollar Stores of North Carolina, Inc. North Carolina Family Dollar Stores of Ohio, Inc. Ohio Family Dollar Stores of Oklahoma, Inc. Oklahoma Family Dollar Stores of Pennsylvania, Inc. Pennsylvania Family Dollar Stores of Rhode Island, Inc. Rhode Island Family Dollar Stores of South Carolina, Inc. South Carolina Family Dollar Stores of South Dakota, Inc. South Dakota Family Dollar Stores of Tennessee, Inc. Tennessee Family Dollar Stores of Texas, L.P. Texas Family Dollar Stores of Vermont, Inc. Vermont Family Dollar Stores of Virginia, Inc. Virginia Family Dollar Stores of West Virginia, Inc. West Virginia Family Dollar Stores of Wisconsin, Inc. Wisconsin
  • 260. Exhibit 23 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statements on Form S−8 (File Number 333−122201 and File Number 333−105005) of Family Dollar Stores, Inc., of our report dated November 2, 2005, relating to the financial statements, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10 K. PricewaterhouseCoopers LLP Charlotte, North Carolina November 7, 2005
  • 261. Exhibit 31.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULES 13a−14(a) AND 15d−14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES−OXLEY ACT OF 2002 I, Howard R. Levine, certify that: 1. I have reviewed this annual report on Form 10−K of Family Dollar Stores, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a−15(e) and 15d−15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a−15(f) and 15d−15(f) for the registrant and have: (a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: November 7, 2005 /s/ Howard R. Levine Howard R. Levine Chairman of the Board and Chief Executive Officer (Principal Executive Officer)
  • 262. Exhibit 31.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULES 13a−14(a) AND 15d−14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES−OXLEY ACT OF 2002 I, R. James Kelly, certify that: 1. I have reviewed this annual report on Form 10−K of Family Dollar Stores, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a−15(e) and 15d−15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a−15(f) and 15d−15(f) for the registrant and have: (a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: November 7, 2005 /s/ R. James Kelly R. James Kelly Vice Chairman and Chief Financial Officer (Principal Financial Officer)
  • 263. Exhibit 32.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES−OXLEY ACT OF 2002 I, Howard R. Levine, Chairman of the Board and Chief Executive Officer of Family Dollar Stores, Inc., (the “Company”), do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes−Oxley Act of 2002, that, to my knowledge: • the Annual Report on Form 10−K of the Company for the year ended August 27, 2005, as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and • the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: November 7, 2005 /s/ Howard R. Levine Howard R. Levine Chairman of the Board and Chief Executive Officer (Principal Executive Officer) A signed original of this written statement required by Section 906 has been provided to Family Dollar Stores, Inc., and will be retained by Family Dollar Stores, Inc., and furnished to the Securities and Exchange Commission or its staff upon request.
  • 264. Exhibit 32.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES−OXLEY ACT OF 2002 I, R. James Kelly, Vice Chairman and Chief Financial Officer of Family Dollar Stores, Inc., (the “Company”), do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes−Oxley Act of 2002, that, to my knowledge: • the Annual Report on Form 10−K of the Company for the year ended August 27, 2005, as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and • the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: November 7, 2005 /s/ R. James Kelly R. James Kelly Vice Chairman and Chief Financial Officer (Principal Financial Officer) A signed original of this written statement required by Section 906 has been provided to Family Dollar Stores, Inc., and will be retained by Family Dollar Stores, Inc., and furnished to the Securities and Exchange Commission or its staff upon request. _______________________________________________ Created by 10KWizard Technology www.10KWizard.com

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