Family Dollar Stores (FDO)

AMENDMENT TO 2006 PLAN

On November 5, 2007, the Board of Directors, upon the recommendation of the Compensation Committee, authorized an amendment to the 2006 Plan. This amendment is subject to stockholder approval. The purpose of the amendment is to increase the maximum total dollar value of any performance-based cash awards or other cash-based awards that can be paid to any participant in the 2006 Plan in a single calendar year from $1,000,000 to $3,000,000.

Under Section 162(m) of the Internal Revenue Code (“Section 162(m)”), publicly traded companies cannot deduct for federal income tax purposes any annual compensation in excess of $1 million paid to the company’s chief executive officer and the other three most highly-compensated officers (collectively referred to as the “covered individuals”), unless such compensation qualifies as “qualified performance-based compensation” (as defined by Section 162(m)). Compensation that is paid in accordance with stockholder-approved plans, constitutes “qualified performance-based compensation” so long as:

We are submitting this amendment to the 2006 Plan for stockholder approval, as required by Section 162(m).

We currently issue annual performance-based cash bonus awards to our executives. These awards are made in the form of a “Target Bonus” under the Cash Bonus Award Guidelines, and are further described in the foregoing Compensation Discussion and Analysis. If the stockholders approve the proposed amendment of the 2006 Plan, we believe that Target Bonus awards to covered individuals not exceeding $3,000,000 in any year will qualify as “qualified performance-based compensation” for the purposes of Section 162(m) because:

We believe that the current limitation on cash-based performance awards must be increased to enable us to attract, retain and reward our executives. As discussed in the Compensation Discussion and Analysis section of this Proxy Statement, we seek to provide meaningful incentives to drive performance well above the pre-tax earnings goal established by the Compensation Committee. In order to encourage such performance, the Compensation Committee recently amended the Cash Bonus Award Guidelines to provide for a payout of 200% of a participant’s annual base salary if we exceed the target performance goals by 25%. If we achieved these performance levels, the $1,000,000 cap on total cash compensation paid in any year would prevent us from paying a bonus at the 200% level to Messrs. Levine or Kelly and, therefore, would not achieve our goal of providing a meaningful incentive to achieve such performance. For this reason, we are seeking stockholder approval to amend the current $1,000,000 limitation.

The Compensation Committee has consulted with its compensation consultants in determining that an increase in this limitation supports and facilitates our overall compensation philosophy. In making such determination and in establishing a revised cap of $3,000,000 on such payments, the Compensation Committee

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considered benchmarking information provided by Hay Group with respect to limits on similar payments established by the companies that are included in the peer group for purposes of our awards of PSRs and general advice from Steven Hall & Partners regarding the appropriate amount of such cap.

No other provisions of the 2006 Plan, which was adopted by the stockholders on January 19, 2006, are being amended at this time. The other principal features of the 2006 Plan are summarized below. This summary does not contain all information about the 2006 Plan, and a copy of the complete text of the 2006 Plan, with the proposed amendment, is included in Exhibit A to this Proxy Statement.