NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The 2003 Non-Employee Director Stock Option Plan provides non-qualified stock options to non- employee members of the Company’s Board of Directors. The stock options are functionally equivalent to such options issued under the EIP discussed above. The exercise price of each stock option granted equals the market price of the Company’s stock at the date of grant. The options generally vest immediately. The 2003 Director Deferred Compensation Plan permits any of the Company’s directors who receive a retainer or other fees for Board or committee service to defer all or a portion of such fees until a future date, at which time they may be paid in cash or shares of the Company’s common stock, or to receive all or a portion of such fees in non-statutory stock options. Deferred fees that are paid out in cash will earn interest at the 30-year Treasury Bond Rate. If a director elects to be paid in common stock, the number of shares will be determined by dividing the deferred fee amount by the current market price of a share of the Company’s common  stock. The number of options issued to a director will equal the deferred fee amount divided by 33% of the price of a share of the Company’s common stock. The exercise price will equal the fair market value of the Company’s common stock at the date the option was issued. The options are fully vested when issued and  have a term of 10 years. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: The following tables summarize the Company’s various option plans as of January 29, 2005, January 31, 2004, February 1, 2003 and December 31, 2002 and for the years ended January 29, 2005 and January 31, 2004, the month ended February 1, 2003, and the year ended December 31, 2002, and information about fixed options outstanding at January 29, 2005: Fiscal Fiscal Fiscal  2004 2003 2002 Expected term in years 5.3 5.4 5.7 Expected volatility 59.8% 60.7% 63.8% Annual dividend yield — — — Risk free interest rate 3.7% 3.4% 3.0% Stock Option Activity January 29, 2005 January 31, 2004 February 1, 2003 December 31, 2002 Weighted Weighted Weighted Weighted Average Average Average Average Per Share Per Share Per Share Per Share Exercise Exercise Exercise Exercise Shares Price Shares Price Shares Price Shares Price Outstanding, beginning of period 6,007,471 $23.81 5,414,023 $24.19 5,440,547 $24.17 5,683,827 $20.39 Granted 1,682,572 25.52 1,904,057 20.54 6,000 25.26 1,723,000 31.54 Exercised (608,432) 19.58 (993,841) 19.57 (12,402) 12.93 (1,632,942) 18.64 Forfeited (534,192) 25.90 (316,768) 24.01 (20,122) 25.89 (333,338) 25.02 Outstanding, end of period 6,547,419 24.47 6,007,471 23.81 5,414,023 24.19 5,440,547 24.17 Options exercisable at end of period 3,282,102 24.52 2,649,188 24.31 2,340,921 21.84 2,343,879 21.77 Weighted average fair value of options granted during the period $14.27 $17.08 $15.24 $18.66 DOLLAR TREE STORES, INC. • 2004 ANNUAL REPORT 45