def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant þ
Filed by a
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Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 |
FREDS, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. |
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Per unit price or other underlying value of transaction computed pursuant to
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state how it was determined): |
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Fee paid previously with preliminary materials: |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form or Schedule and the date of its
filing. |
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TABLE OF CONTENTS
4300 NEW GETWELL ROAD
MEMPHIS, TENNESSEE 38118
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on Wednesday, June 16, 2010
TO THE SHAREHOLDERS OF FREDS, INC.:
Notice is hereby given that the Annual Meeting of Shareholders of FREDS, Inc. (the Company
or FREDS) will be held at the Holiday Inn Express, 2192 S. Highway 441, Dublin, Georgia, on
Wednesday, June 16, 2010, at 5:00 p.m., Eastern Daylight Time, for the following purposes:
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To elect the Companys Board of Directors; |
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To ratify the designation of BDO Seidman, LLP as our independent
registered public accounting firm of the Company, as described in the Proxy
Statement; and |
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To consider and vote on a shareholder proposal, as described in the
Proxy Statement; and |
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To consider and act upon any other matters which properly come before
the Annual Meeting or any adjournment of the meeting. |
The accompanying Proxy Statement contains further information with respect to these matters.
Only shareholders of record at the close of business on April 30, 2010, will be entitled to
vote at the meeting or any adjournment thereof.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE REQUESTED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED FOR MAILING IN THE
UNITED STATES.
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By order of the Board of Directors, |
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Charles S. Vail |
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Secretary |
May 20, 2010
FREDS, INC.
4300 NEW GETWELL ROAD
MEMPHIS, TENNESSEE 38118
PROXY STATEMENT
For Annual Meeting of Shareholders, June 16, 2010
The enclosed proxy is solicited by the Board of Directors (the Board or Board of
Directors) of FREDS, Inc. (the Company or FREDS) to be voted at the Annual Meeting of
Shareholders to be held on June 16, 2010, at 5:00 p.m., Eastern Daylight Time, at the Holiday Inn
Express, 2192 S. Highway 441, Dublin, Georgia, or any adjournment thereof (the Annual Meeting).
At the Annual Meeting, the presence in person or by proxy of the holders of a majority of the total
number of shares of outstanding Class A common stock (Common Stock) will be necessary to
constitute a quorum.
All shares represented by properly executed proxies will be voted in accordance with the
instructions indicated thereon unless such proxies previously have been revoked. If any proxies of
holders of Common Stock do not contain voting instructions, the shares represented by such proxies
will be voted FOR Proposals 1 and 2 and AGAINST Proposal 3. The Board of Directors does not know
of any business to be brought before the Annual Meeting, other than as indicated in the notice, but
it is intended that, as to any other such business properly brought before the meeting, votes may
be cast pursuant to the proxies in accordance with the judgment of the persons acting thereunder.
Any shareholder who executes and delivers a proxy may revoke it at any time prior to its use
upon: (a) receipt by the Secretary of the Company of written notice of such revocation; (b) receipt
by the Secretary of the Company of a duly executed proxy bearing a later date; or (c) appearance by
the shareholder at the meeting (with proper identification) and his request for the return of his
proxy or his request for a ballot.
A copy of this Proxy Statement and the enclosed Proxy Card are first being sent to
shareholders on or about May 20, 2010.
Voting Securities
Only shareholders of record at the close of business on April 30, 2010, will be entitled to
vote at the Annual Meeting. As of such date, the Company had outstanding and entitled to vote at
the Annual Meeting 39,305,234 shares of Common Stock. Each share of Common Stock is entitled to
one vote for all matters before the Annual Meeting.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by the election
inspectors appointed for the meeting. A quorum must be present in order for the Annual Meeting to
be held. In order for the quorum requirement to be satisfied, a majority of the issued and
outstanding shares of Common Stock entitled to vote at the meeting must be present in person or
represented by proxy. The election inspectors will treat abstentions as shares that are present and
entitled to vote for purposes of determining the presence of a quorum. If a broker indicates on the
proxy that it does not have discretionary authority as to specified shares to vote on a particular
matter, those shares will not be considered as present and entitled to vote with respect to that
matter. The nominees for Director receiving a plurality of the votes cast at the Annual Meeting in
person or by proxy will be elected. The ratification of BDO Seidman, LLP as our independent
registered public accounting firm will be approved if the votes cast favoring the action exceed the
votes cast opposing the action. The Shareholder Proposal will be rejected if the votes cast
against the action exceed the votes cast favoring the action. Abstentions and broker non-votes
have no effect on the vote for the election of Directors, the ratification of BDO Seidman, LLP as
the independent registered public accounting firm of FREDS, and the shareholder proposal.
Ownership of Common Stock by Directors,
Officers and Certain Beneficial Owners
The following table sets forth the Common Stock beneficial ownership known to the Company as
of April 30, 2010, by (i) beneficial owners of more than five percent of the outstanding Common
Stock, (ii) each director, (iii) each of the persons named in the Summary Compensation Table, and
(iv) all directors and executive officers of FREDS as a group.
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Shares of Common Stock Beneficially Owned (1) |
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Number of Shares |
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Beneficial Owner |
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Options (2) |
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Total (3) |
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Percent (4) |
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Franklin Resources, Inc (5) |
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3,642,900 |
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9.3 |
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BlackRock Inc. (6) |
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3,176,850 |
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8.1 |
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River Road Asset Management, LLC (7) |
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2,310,033 |
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5.9 |
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Dimensional Fund Advisors LP (8) |
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2,179,200 |
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5.5 |
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T. Rowe Price Associates, Inc. (9) |
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2,063,215 |
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5.2 |
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Michael J. Hayes (10) |
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28,976 |
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2,249,438 |
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5.4 |
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Bruce A. Efird |
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127,217 |
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184,748 |
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John R. Eisenman |
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13,250 |
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25,044 |
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Roger T. Knox |
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13,250 |
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28,310 |
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Thomas H. Tashjian |
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13,250 |
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309,109 |
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B. Mary McNabb |
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15,750 |
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17,000 |
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Michael T. McMillan |
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12,750 |
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14,000 |
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Jerry A. Shore |
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39,800 |
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100,463 |
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David B. Mueller |
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1,000 |
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10,229 |
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Rick Chambers |
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15,490 |
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33,714 |
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Keith Curtis |
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26,240 |
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53,550 |
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All Directors and Executive Officers
As a Group (14 persons) |
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358,753 |
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3,162,068 |
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7.4 |
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Less than 1% |
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As used in this table, beneficial ownership means the sole or shared power to vote, or
direct the voting of, a security, or the sole or shared power to dispose, or direct the
disposition, of a security. Except as otherwise indicated, all persons listed above have (i)
sole voting power and investment power with respect to their shares of Common Stock, except to
the extent that authority is shared by spouses under applicable law, and (ii) record and
beneficial ownership with respect to their shares of Common Stock. The address for all except
Franklin Resources, Inc., BlackRock, Inc., River Road Asset Management LLC, Dimensional Fund
Advisors LP, and T. Rowe Price Associates is 4300 New Getwell Rd., Memphis, TN 38118. The
address of Franklin Resources, Inc. is One Franklin Parkway, San Mateo, California
94403-1906, BlackRock Inc. is 40 East 52nd Street, New York, New York, 10022,
River Road Asset Management LLC is 462 S. 4th Street, Suite 1600, Louisville,
Kentucky 40202, , Dimensional Fund Advisors LP is Palisades West, Building One, 6300 Bee Cove
Road, Austin, TX 78746, T. Rowe Price Associates, Inc. is 100 E. Pratt Street, Baltimore,
Maryland 21202. |
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Represents stock options that are exercisable within sixty (60) days of April 30, 2010. |
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Includes stock options that are exercisable by beneficial owners within sixty (60) days of
April 30, 2010. |
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Based on outstanding shares of Common Stock as of April 30, 2010, (39,305,234) and the
respective options exercisable within sixty (60) days of April 30, 2010 for the individual
being tested. |
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This information is based on Schedule 13G filed on January 25, 2010 Franklin Resources, Inc.
which reported that as of December 31, 2009, it had sole power to vote or direct the vote of
3,545,900 shares and sole power to dispose of or direct the disposition of 3,642,900. |
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This information is based on Schedule 13G filed on January 20, 2010 by BlackRock, Inc. which
reported that as of December 31, 2009 it had sole power to vote or direct the vote 3,176,850
shares and sole power to dispose of or direct the disposition of 3,176,850 shares. |
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This information is based on Schedule 13G filed on February 9, 2010 by River Road Asset
Management, LLC which reported that as of December 31, 2009, it had sole power to vote or
direct the vote of 1,928,863 shares and sole power to dispose of or direct the disposition of
2,310,033 shares. |
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This information is based on Schedule 13G filed on February 10, 2010 by Dimensional Fund
Advisor LP which reported that as of December 31, 2009, it had sole power to vote or direct
the vote of 2,111,149 shares and sole power to dispose of or direct the disposition of
2,179,200 shares. |
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This information is based on Schedule 13G filed on February 12, 2010 by T. Rowe Price
Associates, Inc. which reported that as of December 31, 2009, it had sole power to vote or
direct the vote of 750,900 shares and sole power to dispose of or direct the disposition of
2,063,215 shares. |
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Includes 131,518 shares owned by Mr. Hayes wife and 36,812 shares owned by Memphis Retail
Limited Partnership which are attributable to Mr. Hayes and two of his children. |
- 2 -
PROPOSAL 1 ELECTION OF DIRECTORS
Seven directors, constituting the entire Board of Directors, are to be elected at the Annual
Meeting to serve one year or until their successors are elected and qualified. The Board of
Directors proposes the election of the following nominees:
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Nominee |
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Michael J. Hayes
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68 |
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Director and Chairman of the Board |
John R. Eisenman
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68 |
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Director |
Roger T. Knox
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72 |
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Director |
Thomas H. Tashjian
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55 |
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Director |
B. Mary McNabb
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61 |
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Director |
Michael T. McMillan
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50 |
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Director |
Bruce A. Efird
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51 |
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Director, Chief Executive Officer and President |
Business Experience, Directorships for the last five years and Reasons for Nomination
Michael J. Hayes was elected a Director of the Company in January 1987 and was named Chairman
of the Board in November 2001. Mr. Hayes was the Chief Executive Officer from October 1989 through
January 2009 and served as a Managing Director of the Company from 1989 to 2002 when that position
was eliminated. He was previously employed by Oppenheimer & Company, Inc. in various capacities
from 1976 to 1985, including Managing Director and Executive Vice President Corporate Finance and
Financial Services. Chairman Hayes considerable experience with Freds and his years spent on
Wall Street position him to serve as Chairman and guide the Board in its critical mission of
protecting the shareholders.
John R. Eisenman is involved in real estate investment and development located in Greensboro,
North Carolina. Mr. Eisenman has been engaged in commercial and industrial real estate brokerage
and development since 1983. Previously, he founded and served as President of Sallys, a chain of
fast food restaurants, from 1976 to 1983, and prior thereto held various management positions in
manufacturing and in securities brokerage. Mr. Eisenman has served as a Director since the
Companys initial public offering in March 1992. Mr. Eisenman was selected to serve on our Board
because of this retail experience as well as his ability to advise the Board on real estate matters
affecting the Company.
Roger T. Knox is President Emeritus of the Memphis Zoological Society and was its President
and Chief Executive Officer from January 1989 through March 2003. Mr. Knox was the President and
Chief Operating Officer of Goldsmiths Department Stores, Inc. (a full-line department store in
Memphis and Jackson, Tennessee) from 1983 to 1987 and its Chairman and Chief Executive Officer from
1987 to 1989. Prior thereto, Mr. Knox was with Foleys Department Stores in Houston, Texas for 20
years. Mr. Knox has served as a Director since the Companys initial public offering in March
1992. Additionally, Mr. Knox is a former Director of Hancock Fabrics, Inc. Mr. Knox brings to the
Board over thirty years of retail experience as well as executive leadership experience.
Thomas H. Tashjian was elected a Director of the Company in March 2001. Mr. Tashjian is a
private investor. Prior to 2001, he served as a Managing Director and Consumer Group Leader at
Banc of America Montgomery Securities in San Francisco. Prior to that, Mr. Tashjian held similar
positions at First Manhattan Company, Seidler Companies, and Prudential Securities. Mr. Tashjians
earlier retail operating experience was in discount retailing at the Ayrway Stores, which were
acquired by Target Corporation, and in the restaurant business at Noble Romans. Mr. Tashjian was
selected to serve on our Board because of his discount retail experience as well as his standing as
a financial expert.
B. Mary McNabb was elected a Director of the Company in April 2005. Most recently, she served
as Chief Executive Officer for Kids Outlet, California. Kids Outlet, California filed for
bankruptcy on May 14, 2009. Previously, she served as Executive Vice President and a Director of
The Mowbray Group from 2004-2005, a California-based retail consulting firm that specializes in
problem-solving, cost reductions, importing, and retail management. She has served as a member of
the Board of Directors of C-ME (Cyber Merchants Exchange), a public company since 2001. Ms.
McNabb was formerly Executive Vice President of merchandising and marketing for Factory 2-U, Vice
President of sourcing for S-Q of California, and West Coast Manager/Buyer for One Price Clothing,
Inc. Ms. McNabb brings a wealth of retail experience to our Board, with specific experience in the
soft lines areas of our business. Ms. McNabb also brings executive leadership experience to the
Board.
- 3 -
Michael T. McMillan was elected a Director of the Company in February 2007. Mr. McMillan
currently serves as Director of Franchise Development for Pepsi-Cola North America, a Division of
PepsiCo, where he has spent the last 25 years in various roles including marketing, sales,
franchise development, and general management of its bottling operations. Mr. McMillan was chosen
to serve on our Board because of his experience in sales and marketing.
Bruce A. Efird was elected a Director of the Company in June 2008. Mr. Efird joined the
Company September 22, 2007 as President and became Chief Executive Officer effective February 1,
2009. Prior to joining the Company, Mr. Efird was Executive Vice-President-Merchandising at
Meijer, Inc. as well as being responsible for marketing and advertising. Before joining Meijer,
Inc. in 2005, Mr. Efird was Executive Vice-President /General Manager for Brunos Supermarkets,
Inc. in Birmingham, AL beginning in 2003. He began his retail career with Food Lion, Inc. in 1984.
Mr. Efird brings an entire career in the retail industry, with specific experience in the
consumable areas of our business. Mr. Efird also brings executive leadership experience to the
Board.
If, for any reason, any of the nominees shall become unavailable for election, the individuals
named in the enclosed proxy may exercise their discretion to vote for any substitutes chosen by
FREDS Board of Directors, unless the Board of Directors should decide to reduce the number of
directors to be elected at the Annual Meeting. FREDS has no reason to believe that any nominee
will be unable to serve as a director.
Although the Company does not have a formal policy regarding attendance by members of the
Board of Directors at the Annual Meeting, the Company encourages all of its directors to attend.
All directors attended the 2009 Annual Meeting of Shareholders.
For information concerning the number of shares of Common Stock owned by each director, and
all directors and executive officers as a group as of April 30, 2010, see Ownership of Common
Stock by Directors, Officers and Certain Beneficial Owners. There are no family relationships
between any directors or executive officers of FREDS.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION OF
THE NOMINEES TO FREDS BOARD OF DIRECTORS.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of reports of beneficial ownership of FREDS Common Stock and
written representations furnished to FREDS by its officers, directors and principal shareholders,
FREDS is not aware of the failure of any such reporting person to file with the Securities and
Exchange Commission (the Commission) on a timely basis any required reports of changes in
beneficial ownership during fiscal year 2009 except for the following instances of untimely
reporting: Sherri Brown and James Brown on March 16, 2010 pursuant to their respective promotions,
Kevin Flanagan on January 8, 2010 pursuant to his hiring, Kim Ragan on July 6, 2009 pursuant to his
hiring, and Jimmy Sykes on June 15, 2009 pursuant to the sale of 893 shares of ESPP stock.
Board of Directors
During the last fiscal year, FREDS Board of Directors held nine meetings. All of the then
directors attended all of the Board meetings and the prior years annual meeting, with the
exception of Mr. Knox who was present at all but one Board meeting due to weather related travel
delays. Mr. Hayes is Chairman of the Board of Directors. Non-employee Directors of FREDS, with
the exception of the Chairman of the Board of Directors, are paid for their services as such
$24,000 per year plus reasonable expenses for meeting attendance, and are granted stock options
from time to time. John R. Eisenman, Roger T. Knox, Thomas H. Tashjian, B. Mary McNabb, and
Michael T. McMillan were considered independent as defined in the listing standards of the National
Association of Securities Dealers Automated Quotation System (NASDAQ) as of the end of fiscal
2009.
The Board of Directors has a process for shareholders to send communications to the Board.
Shareholders may send communications to our Board by sending a letter to: Board of Directors,
FREDS Inc., c/o General Counsel, 4300 New Getwell Rd., Memphis, TN 38118. All communication will
be reviewed by our Legal Department and appropriate communications will be forwarded to the Board
of Directors on a quarterly basis, unless requested by the Board on a more frequent basis.
Shareholder communications will be treated confidentially, subject to applicable laws, regulations
or legal proceedings, if so marked on the envelope or in the communication.
- 4 -
Leadership Structure
We currently have separate individuals serving as Chairman of the Board and as Chief Executive
Officer. We believe that this separation of the positions represents the appropriate structure for
us at this time. The Board does not have a policy regarding the separation of the roles of Chief
Executive Officer and Chairman of the Board. The Board believes it is in the best interests of the
Company and our stockholders to be free to make that determination based on the position and
direction of the Company and the membership of the Board. Under our current structure both the
Chairman and Chief Executive Officer have responsibility for our business strategy and financial
performance. Our Chief Executive Officer is responsible for the strategic direction for the
Company and the day to day leadership and performance of the Company, while our Chairman provides
guidance to the Chief Executive Officer and presides over meetings of the full Board.
Boards Role in Risk Management
The Boards role in risk management is primarily one of oversight and occurs as an integral
and continuous part of the Boards oversight of our business. The primary responsibility for the
identification, assessment and management of the various risks that we face belongs with our
management team. The entire Board regularly reviews information with management on our business
strategy, financial position and operations and considers associated key risks (that can include
business, legal, regulatory, compliance, public policy, reputational and other risks).
In addition, the Board executes its oversight role through its Audit and other committees
which report regularly to the whole Board on their activities. For our Audit Committee some areas
of specific committee level focus include risk associated with financial reporting, internal
control and related party transactions. The Compensation Committee reviews risks associated with
our executive incentive compensation policies. Our Governance Committee reviews risks in corporate
governance structure, business conduct and ethics.
Governance Committee
The Board of Directors believes the Company has observed sound corporate governance practices
in the past. However, following enactment of the Sarbanes-Oxley Act of 2002 and the adoption of
new rules and regulations by the Financial Industry Regulatory Authority (formerly known as the
National Association of Securities Dealers, Inc.) and the Securities and Exchange Commission, the
Company, like many public companies, has addressed the changing governance environment by reviewing
its policies and procedures and, where appropriate, modifying and/or adopting new practices.
The Company has a code of ethics that applies to all of its directors, officers (including its
Chief Executive Officer, President, Chief Financial Officer, Chief Information Officer, Senior Vice
President of Finance, Controller and any person performing similar functions) and employees. Also,
the Company has a vendor code of conduct that applies to its vendors.
The Companys code of ethics and vendor code of conduct are available on the Companys website
at www.fredsinc.com and can be found under the Investor Relations and Corporate Governance links.
The Board of Directors has adopted a written charter for the Governance Committee, which is also
available Companys website. The information contained on the website is not incorporated by
reference in, or considered part of, this Proxy Statement.
The Governance Committee makes recommendations to the Board of Directors regarding corporate
governance matters and practices. The Governance Committee is comprised of Michael T. McMillan,
Chairman of the Committee, John R. Eisenman, Roger T. Knox, Tom H. Tashjian, and B. Mary McNabb all
of whom meet the independence requirements of NASDAQ listing standards. The Governance Committee
of the Board of Directors met three times during the Companys latest fiscal year with all
committee members in attendance except Mr. Roger Knox who missed one meeting due to weather related
travel delays. Governance members are paid for their services $3,500 per year for the Chair and
$1,500 per year for the other members, plus reasonable expenses for meeting attendance.
- 5 -
Nominating Committee
The Committee recommends nominees for election to the Board by the shareholders at the annual
meeting. The committee is comprised of Roger T. Knox, Chairman of the Committee, John R. Eisenman,
Tom H. Tashjian, B. Mary McNabb, and Michael T. McMillan, all of whom meet the independence
requirements of NASDAQ listing standards. The Nominating Committee met three times with all
committee members in attendance. Nominating members are paid for their services $3,500 per year
for the Chair and $1,500 per year for the other members, plus reasonable expenses for meeting
attendance. The Board of Directors has adopted a written charter for the Nominating Committee,
which is available Companys website at www.fredsinc.com.
The Nominating Committee identifies candidates for nomination based upon its criteria for
evaluation as described below. Additionally, the Nominating Committee may use the services of a
search company in identifying nominees. Although the Nominating Committee has not determined
specific minimum qualifications for its nominees, it evaluates candidates that it has identified
based upon:
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character, personal and professional ethics, integrity and values; |
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executive level business experience and acumen; |
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relevant business experience or knowledge (although preference may be shown for
experience in or knowledge of the retail industry, it is not a prerequisite); |
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skills and expertise necessary to make significant contributions to the Company, its
Board and its shareholders; |
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business judgment; |
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availability and willingness to serve on the Board; |
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independence requirements of NASDAQ listing standards; |
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potential conflicts of interest with the Company or its shareholders taken as a whole;
and |
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accomplishment within the candidates own field. |
The Company does not have a formal policy with regard to the consideration of diversity in
identifying director nominees, but the Nominating Committee strives to nominate directors with a
variety of skills and experience so that the Board will have the necessary expertise to oversee the
Companys business.
The Nominating Committee has adopted the following policy with regard to considering a
shareholders nominee. To submit a nominee for consideration, a shareholder must provide the
Nominating Committee:
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proof of the shareholders eligibility to submit proposals in accordance with Rule
14a-8(b) of the Securities Exchange Act of 1934, as amended; |
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a complete description of the candidates qualifications, experience, accomplishments
and background; and |
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the candidates signed consent to serve on the Board. |
In general, the Nominating Committee will evaluate a candidate identified by a shareholder
using the same standards as it uses for candidates it identifies. Before recommending a
shareholders candidate, the Nominating Committee may also:
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consider whether the shareholder candidate will significantly add to the diverse range
of talents, skills and expertise of the Board; |
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conduct appropriate verifications of the background of the candidate; and |
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interview the candidate or ask the candidate for additional information. |
The Nominating Committee has full discretion not to include a shareholders candidate in its
recommendation of nominees to the Board. If the Nominating Committee does not recommend a
shareholders candidate to the Board, it will not make public the reason or reasons for its
decision.
- 6 -
Audit Committee
The Audit Committee of the Board of Directors, which is comprised of John R. Eisenman,
Chairman of the Committee, Roger T. Knox, Thomas H. Tashjian, B. Mary McNabb, and Michael T.
McMillan met seven times during the last fiscal year. All of the members attended all of the
Committee meetings, with the exception of Mr. Knox who missed one meeting due to weather related
travel delays. Each of the members of the Audit Committee is an independent director as defined
in the NASDAQ listing standards. Audit Committee members are paid for their services $10,000 per
year for the Chair and $4,500 per year for the other members plus reasonable expenses for meeting
attendance.
The Audit Committee is responsible for the engagement of the independent registered public
accounting firm; considering the range of audit and non-audit fees; assisting the Board in
fulfilling its oversight responsibilities by reviewing the financial reports and other financial
information provided by the Company to any governmental body or the public; reviewing the Companys
system of internal controls regarding finance, accounting, legal compliance, and ethics that
management and the Board have established; and reviewing the Companys auditing, accounting, and
financial reporting processes generally.
Audit Committee members have the requisite financial experience to serve on the Audit
Committee. The management of the Company has the primary responsibility for the financial
statements and reporting process. The independent registered public accounting firm is responsible
for conducting and reporting on the audit of the Companys financial statements and internal
controls over financial reporting in accordance with generally accepted auditing standards. The
Companys independent registered public accounting firm is ultimately accountable to the Audit
Committee. The Board of Directors has adopted a written charter for the Audit Committee, which is
available Companys website at www.fredsinc.com. The Board of Directors has determined that Mr.
Tashjian meets the Commissions definition of audit committee financial expert.
Audit Committee Report
In the context of the role of the Audit Committee as outlined above, the Audit Committee has
reviewed and discussed the Companys audited financial statements for 2009 with management of the
Company. BDO Seidman, LLP, the Companys independent registered public auditing firm, is
responsible for performing independent audits of the consolidated financial statements in
accordance with generally accepted auditing standards and the effectiveness of the Companys
internal control over financial reporting. The Audit Committee also discussed with BDO Seidman,
LLP the matters required to be discussed by Statement on Auditing Standards (SAS) No. 114, The
Auditors Communication with Those Charged with Governance as amended, the Sarbanes-Oxley Act of
2002, and other matters required by the Audit Committees charter. The Audit Committee has received
the written disclosures and the letter from BDO Seidman, LLP as required by PCAOB Rule 3526 and has
discussed with BDO Seidman, LLP their independence, including consideration of whether the payment
to BDO Seidman, LLP of audit related, tax, and permissible non-audit fees is compatible with
maintaining their independence. Based upon its review and discussions with Company management and
BDO Seidman, LLP, the Audit Committee has recommended to the Board of Directors that FREDS, Inc.
audited financial statements for fiscal 2009 be included in the 2009 Annual Report on Form 10-K for
filing with the Securities and Exchange Commission, and that BDO Seidman, LLP be considered for
selection as the Companys independent registered public accounting firm for 2010.
The members of the Audit Committee are not professionally engaged in the practice of
accounting or auditing and, as such, rely without independent verification on the information
provided to them and on the representations made by management and BDO Seidman, LLP. Accordingly,
the Audit Committees oversight does not provide an independent basis to determine that management
has maintained appropriate accounting and financial reporting processes or appropriate internal
controls and procedures designed to assure compliance with accounting standards and applicable laws
and regulations. Furthermore, the Audit Committees reviews and discussions referred to above do
not assure that the audit of the Companys financial statements has been carried out in accordance
with generally accepted auditing standards, that the Companys audited consolidated financial
statements are presented in accordance with generally accepted accounting principles, or that BDO
Seidman, LLP is in fact independent.
John R. Eisenman
Roger T. Knox
Thomas H. Tashjian
B. Mary McNabb
Michael T. McMillan
- 7 -
Compensation Committee
The Compensation Committee reviews and approves the salaries and cash incentive compensation
of executive officers and recommends the grants of stock-based incentive compensation under FREDS
long-term incentive plan. The Compensation Committee, which is comprised of B. Mary McNabb,
Chairperson of the Committee, John R. Eisenman, Roger T Knox, Thomas H. Tashjian, and Michael T.
McMillan, met three times during the last fiscal year. All of the members attended all of the
Committee meetings with the exception of Mr. Knox who missed one meeting due to weather related
travel delays. Compensation Committee members are paid for their services $5,000 per year for the
Chair and $1,500 per year for the other members, plus reasonable expenses for meeting attendance.
The Board of Directors receives the grant recommendations of the Committee and may approve, amend
or reject the grant of restricted stock and stock options recommended by the Committee. The Board
of Directors has not adopted a written charter for the Compensation Committee.
Transactions with Related Persons and the Companys Approval Policy
During the year ended February 2, 2008, Atlantic Retail Investors, LLC, which is partially
owned by Michael J. Hayes, a director and Chairman of the Board, purchased the land and buildings
occupied by thirteen FREDS stores. The stores were purchased by Atlantic Retail Investors, LLC
from an independent landlord/developer. Prior to the purchase by Atlantic Retail Investors, LLC the
Company was offered the right to purchase the same stores and declined the offer. The terms and
conditions regarding the leases on these locations are consistent in all material respects with
other stores leases of the Company. The total rental payments related to these leases was
$1.3 million for the year ended January 30, 2010. Total future commitments under related party
leases are $9.7 million. Any future transactions which are required to be described by Item 404(a)
of Regulation S-K under the Securities Exchange Act of 1934 which are required to be described will
be reviewed and either rejected or approved by the Board of Directors.
Compensation Discussion and Analysis
Introduction
This section of the Proxy Statement details the compensation plans for our executive team. In
it we describe our compensation philosophy, policies and practices as they relate to our management
team and especially to our chief executive officer (CEO), chief financial officer (CFO) and the
three most highly compensated executive officers (collectively, the Named Executive Officers).
The Named Executive Officers for 2009 include: Michael J. Hayes (Chairman and former CEO), Bruce A.
Efird (CEO & President), Jerry A. Shore (CFO), David B. Mueller (SVP, Sales/Marketing), Rick
Chambers (EVP Pharmacy Operations) and Keith Curtis (SVP, DMM Merchandising Support).
Changes to executive compensation as well as general guidelines for other employees are
considered and approved by the Compensation Committee of the Company.
Objective
It is the philosophy of FREDS that executive compensation be linked to corporate performance
and increases in shareholder value. The following objectives have been adopted by the Committee as
guidelines for compensation decisions:
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Provide a competitive total compensation package that enables FREDS to attract,
motivate and retain a strong leadership team. |
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Reinforce a high performance culture with integrated programs tied to our short and
long term objectives. |
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Create alignment of interest between executives and shareholders focused on long
term value creation. |
Role of Compensation Committee
The Compensation Committee is responsible for evaluating and monitoring adherence to the
compensation philosophy of the Company. It is responsible for balancing the financial requirements
of the Company with the need to attract and retain high caliber individuals for key roles within
the Company. The Compensation Committee consists of all five of the non-employee directors. Ms.
B. Mary McNabb chairs the committee. The Committee met three times during 2009 to consider the
compensation plan as well as option and restricted stock grant recommendations. The meetings were
attended by all committee members with the exception of Mr. Roger Knox who missed one meeting due
to weather related travel delays.
- 8 -
Based on its review of all relevant programs, the Compensation Committee believes that the
total compensation program for executives of FREDS is competitive with the compensation programs
provided by other companies with which FREDS competes. The Committee believes that any amounts
paid under the incentive compensation plan will be appropriately related to corporate and
individual performance, yielding awards that are linked to the annual financial and operational
results of FREDS. The Committee also believes that the stock option program provides
opportunities to participants that are consistent with the returns that are generated on behalf of
FREDS shareholders.
Executive Compensation Philosophy
The Compensation Committee is charged with oversight of the Companys executive compensation
strategy and practices. In the past, the Company engaged an independent consulting firm for the
purpose of evaluating the annual compensation review process. They provided a standardized
structure for salary performance reviews, tailoring reviews to be more pertinent to the job
function. Later, another independent consultant was appointed to define and add structure to the
review process. Their evaluation consisted of interviews with key employees to determine the job
responsibilities, skill level requirements and importance of the function within the organization.
Employment Agreements
We have amended employment agreements with Michael J. Hayes (April 30, 2003, amended December
16, 2008) and Bruce A. Efird (September 22, 2007, amended December 22, 2008 and February 16, 2009).
The amendments are described below.
Michael J. Hayes. Mr. Hayes retired effective February 1, 2009. His amended
employment agreement provides that he will receive continued payment of his most recent salary and
other Company-provided benefits (including a monthly allowance of $6,000 to defray costs of an
office and assistant) for three years from the effective date of his separation from service. Mr.
Hayes has agreed not to compete with us for a period of six months from the date of any separation
from service. The Company will continue to provide health and dental benefits for the remainder of
Mr. and Mrs. Hayes lives.
Bruce A. Efird. Mr. Efird became Chief Executive Officer effective February 1, 2009.
His employment agreement provides that we will employ him for an initial period which automatically
extends for successive one year terms unless terminated by either party. The agreement now
provides that we will pay Mr. Efird an annual base salary of $650,000 annually. Also, Mr. Efird
participates in any executive bonus plans of the Company. Should Mr. Efird be separated from
service or die, his heirs will receive compensation at the same rate for the balance of the term
(not less than 6 months and not more than twelve months salary). All stock options and the 25,000
shares of restricted stock shall accelerate and immediately vest and be payable to the Executive or
his heirs.
The Compensation Committee shall annually review his salary and bonus. We may terminate Mr.
Efirds employment with or without cause. Mr. Efird has agreed not to compete with the Company for
a period of one year following the termination of the employment agreement.
Perquisites and Other Personal Benefits
Other than the following item, the Company does not provide perquisites or other personal
benefits for its executive officers. Mr. Hayes is permitted to use the Company plane for personal
use, but has done so infrequently and not at all during 2009. The value of past usage was recorded
as taxable compensation in the year in which it occurred.
Employee Compensation Components
The Company and the Compensation Committee have implemented compensation programs designed to
align our executives pay with the achievement of long and short term performance goals. Base
salary and cash bonus are geared to near term performance, whereas stock awards blend near-term
performance with longer-term earnings that result in share price growth.
Additionally, the Company believes that these compensation incentive practices, based on
balanced performance metrics, do not encourage excessive short-term risk taking and do promote
disciplined progress towards longer-term Company goals.
- 9 -
Base Salary
Base salaries are determined through comparisons with other retailing companies trading within
our area and recognize individual skills, competencies, experience and organizational impact. Base
pay levels for the executive officers are competitive within the middle of a range that the
Committee considers to be reasonable and necessary. Various increases in base salary were
recommended by the Chief Executive Officer in fiscal 2009 for the other Named Executives Officers,
based on performance and competitive considerations, and the Committee considered those
recommendations in making its determinations.
Incentive Compensation
The fiscal 2010 management incentive plan allows for a graduated bonus payout based on a
tiered Earnings Per Share (EPS) structure and includes a potential restricted stock payout in
addition to the cash payout.
The base tier of the cash component begins with a minimum of $.68 of EPS. This payment would
vary by position depending on the departmental budget and individual core goals performance. The
maximum bonus compensation for Senior Executives ranges from 25% to 50% of their salary. Forty
percent of the bonus payment contingent upon the Company meeting its EPS corporate goal for the
year, while the remaining sixty percent is contingent upon achievement of the employees individual
and department goals for 2010. The base tier of the new restricted stock component begins at $.72
of EPS. The maximum bonus compensation for Senior Executives ranges from 25% to 50% of their
salary paid in the form of restricted stock. Per Mr. Efirds employment agreement, he is eligible
for an incentive bonus of 40% to 100% of his base salary.
Should the Company fail to achieve its base tier EPS goal for each bonus component described
above, then that component of the bonus is null and void. The Company did not achieve its EPS goal
in fiscal 2009 or fiscal 2008.
The Plan is governed by the Compensation Committee of the Board of Directors. The Board of
Directors reserves the right to determine eligibility, performance measurements, final award
values, payment timing and terms based upon events of the fiscal year.
The EPS target was $.83 and $.77 for the years ended January 30, 2010 and January 31, 2009,
respectively.
The Companys Merchandising Division management bonus compensation is based on specific
product department profit and inventory turn goals.
The Compensation Committee believes that targeted awards for executive officers of FREDS
under these plans are consistent with targeted awards of other retailing companies of similar size
and complexity to FREDS. Specified awards were recommended by the Chief Executive Officer for the
other Named Executives Officers of FREDS for fiscal 2009, based upon the Companys performance,
and the Committee considered these recommendations in making its determination.
2002 Long Term Incentive Plan
Stock Options. The Committee strongly believes that by providing those persons who have
substantial responsibility for the management and growth of FREDS with an opportunity to increase
their ownership of Common Stock, the interests of shareholders and executives will be closely
aligned. Therefore, executives and certain other senior employees are eligible to participate and
receive stock options.
Annually, the Incentive Plan participants may receive an option grant which is contingent upon
achieving the EPS corporate goal, which gives them the right to purchase shares of Common Stock in
the future at a specified price. Options to the executive group are awarded at the first Board
meeting after the beginning of the fiscal year so as to provide ample time for performance of
stated targets and goals. New hire and promotion grants are made as of the effective date of the
employment/promotion date. The number of stock options granted to executive officers is based on
competitive practices, with the value of such options estimated by using a Black-Scholes pricing
model.
The Company ties stock option grants to the Companys performance for the respective fiscal
year. After achieving the EPS goal, the stock options then commence vesting on a specified
schedule over time. Vesting is intended to not only retain the employee, but provide an incentive
to continually improve the profitability of the Company.
- 10 -
A senior executive group of twelve employees received a performance option grant on April 15,
2009. The share would have then vested 20% a year upon achievement of $0.83 of EPS in 2009.
However, because the EPS goal was not achieved, the grant was cancelled.
Restricted Stock. Restricted stock is granted as a component of some executive employment
arrangements as well as special purpose incentives. A special purpose incentive was granted on
January 18, 2005, and has a ten-year restriction period but allows accelerated vesting if the
Operating Profit Margin reaches specific goals.
Other Compensation
Guaranteed bonus. Certain positions, particularly newly hired, may be provided with a
guaranteed bonus up to 15% of the employees annual compensation upon their first year anniversary.
Director Compensation
Base Salary
Non-employee Directors of FREDS, with the exception of the Chairman of the Board of
Directors, are paid for their services as such $24,000 per year plus reasonable expenses for
meeting attendance. Also, the non-employee Directors are paid an additional amount for their
service on the Audit, Compensation, Nominating and Governance committees.
2002 Long Term Incentive Plan
Previously the Directors were awarded a non qualified stock option grant for 3,000 shares of
immediately vested stock with a five year expiration. In fiscal 2010, the directors were awarded a
non qualified grant of 1,250 options that immediately vest. They also received for the first time
a grant of 1,250 shares of restricted stock whose restrictions lapse after two years..
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee has at any time during the past year been
one of our officers or employees. Furthermore, no member of the Compensation Committee has any
relationship requiring disclosure under Item 404 of Regulation S-K. No executive officer of the
Company served during 2009 as a director or a member of a compensation committee of any entity that
had an executive officer serving as a director of the Company or a member of the Compensation
Committee.
Compensation Committee Report
The Compensation Committee has reviewed and discussed the above Compensation Discussion and
Analysis with management and, based on such review and discussions, the Compensation Committee
recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy
Statement.
B. Mary McNabb, Compensation Committee Chairperson
John R. Eisenman
Roger T. Knox
Thomas H. Tashjian
Michael T. McMillan
- 11 -
Summary Compensation Table
The following Summary Compensation Table sets forth the compensation earned by or paid to the
Chief Executive Officer, Chief Financial Officer and the three other mostly highly compensated
executive officers, collectively referred to as the Named Executive Officers (NEOs) for services
rendered to us during the fiscal years indicated. Also included is Mr. Hayes whom disclosure would
have been provided except for the fact that he was not serving as an executive officer for the most
recent fiscal year ended January 30, 2010.
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Change in |
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Pension Value |
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and Non-Qualified |
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Non-Equity |
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Deferred |
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Stock |
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Option |
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Incentive Plan |
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Compensation |
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All other |
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Salary |
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Bonus |
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Awards |
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Awards |
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Compensation |
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Earnings |
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Compensation |
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Name & Principle Position |
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Year |
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$ |
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$ (1) |
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$ (2) |
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$ (2) |
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$ (3) |
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$ |
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$ (4) |
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Total |
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Bruce A. Efird |
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2009 |
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$ |
650,000 |
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$ |
578,101 |
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$ |
9,288 |
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$ |
1,237,389 |
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Chief Executive Officer & President (5,6) |
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2008 |
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$ |
595,000 |
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$ |
86,600 |
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$ |
10,257 |
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$ |
691,857 |
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2007 |
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$ |
217,404 |
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$ |
265,250 |
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$ |
1,105,185 |
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$ |
500 |
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$ |
1,588,339 |
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Jerry A. Shore |
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2009 |
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$ |
275,000 |
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$ |
2,350 |
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$ |
277,350 |
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Executive Vice President, |
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2008 |
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$ |
232,692 |
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$ |
15,000 |
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$ |
43,300 |
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$ |
1,200 |
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$ |
292,192 |
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Chief Financial Officer & |
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2007 |
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$ |
200,577 |
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$ |
800 |
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$ |
201,377 |
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Chief Administrative Officer (7) |
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David B. Mueller |
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2009 |
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$ |
177,621 |
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$ |
32,459 |
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$ |
210,080 |
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Senior Vice President - |
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2008 |
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$ |
42,500 |
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$ |
22,272 |
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$ |
57,480 |
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$ |
19,000 |
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$ |
- |
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$ |
141,252 |
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Marketing & Strategic Initiatives (9) |
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Dennis K. Curtis |
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2009 |
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$ |
202,404 |
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$ |
2,466 |
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$ |
204,870 |
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Senior Vice President - |
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2008 |
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$ |
187,500 |
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$ |
25,980 |
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$ |
1,040 |
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$ |
214,520 |
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Merchandising Support (8) |
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2007 |
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$ |
172,461 |
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$ |
1,220 |
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$ |
173,681 |
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Rick A. Chambers |
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2009 |
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$ |
189,808 |
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$ |
1,915 |
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$ |
191,723 |
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Executive Vice President - |
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2008 |
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$ |
180,000 |
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$ |
25,980 |
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$ |
2,698 |
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$ |
208,678 |
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Pharmacy Operations |
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2007 |
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$ |
170,961 |
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$ |
61,250 |
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$ |
1,183 |
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$ |
233,394 |
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Michael J. Hayes |
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2009 |
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$ |
296,632 |
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$ |
296,632 |
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Chairman (6) |
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2008 |
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$ |
250,000 |
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$ |
4,722 |
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|
$ |
254,722 |
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2007 |
|
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$ |
220,000 |
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$ |
18,405 |
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|
$ |
238,405 |
|
|
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(1) |
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Pursuant to SEC reporting requirements, the Named Executive Officers did not receive
payments that would be classified as bonus payments for the fiscal years ended January 30,
2010 and February 2, 2008. |
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(2) |
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The amounts in the columns captioned Stock Awards and Option Awards reflect the aggregate
grant date fair value of the awards according to accounting for share-based payments. For a
description of the assumptions used by the Company in valuing these awards for fiscal 2009,
please see Note 7 Equity Incentive Plans to our consolidated financial statements included
on our Annual Report filed with the Commission on April 15, 2010 |
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(3) |
|
The amounts in this column reflect cash bonuses earned for the indicated fiscal years
performance pursuant to the Management Incentive Plan (MIP). |
|
(4) |
|
The amounts reported include the following: |
|
|
|
Matching contributions to the FREDS 401(k) plan, which all participating employees
receive. |
|
|
|
|
Dividends paid on restricted stock awards that have not vested. |
|
|
|
|
Reimbursement of moving expenses. Mr. Mueller received $32,459 in moving reimbursement
in FY 2009. |
|
|
|
|
Employment severance for retirement. Mr. Hayes, pursuant to his employment agreement,
receives pay continuation for three years as well as a stipend of $6,000 monthly to offset
office related expenses upon retirement. Mr. Hayes retired effective February 1, 2009.
Mr. Hayes has $220,000 of pay continuation and $72,000 of office stipend included in the
All Other Compensation column. |
|
|
|
|
Perquisites, which include personal use of Company car, airline tickets for non-business
commuting, repair and maintenance costs on personal car and medical insurance premium
payments. |
|
|
|
(5) |
|
Mr. Efirds date of hire was September 22, 2007. |
|
(6) |
|
Effective February 1, 2009 Mr. Efird was promoted to the position of Chief Executive Officer,
while maintaining the title of President. Mr. Hayes, effective February 1, 2009 is no longer
the Chief Executive Officer, but maintains his role as Chairman of the Board of Directors. |
|
(7) |
|
Mr. Shore was promoted to Chief Administrative Officer effective June 1, 2008. Mr. Shore
will retain the titles of Executive Vice President and Chief Financial Officer. |
|
(8) |
|
Mr. Curtiss role was changed to Senior Vice President Merchandising from Executive Vice
President General Merchandising Manager effective December 28, 2009. |
|
(9) |
|
Mr. Muellers date of hire was October 27, 2008. |
- 12 -
Grants of Plan-Based Awards
The following table presents information with respect to the grants of plan-based awards made
by the Company to each of its Named Executive Officers during the fiscal year ended January 30,
2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
Option |
|
|
|
|
|
|
Grant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards: |
|
|
Awards: |
|
|
Exercise |
|
|
Date Fair |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Number of |
|
|
or Base |
|
|
Value of |
|
|
|
|
|
|
|
|
|
|
|
Estimated Future |
|
|
Estimated Future |
|
|
Shares of |
|
|
Securities |
|
|
Price of |
|
|
Stock and |
|
|
|
|
|
|
|
|
|
|
|
Payouts Under Non- |
|
|
Payouts Under |
|
|
Stock or |
|
|
Underlying |
|
|
Option |
|
|
Option |
|
|
|
Grant |
|
|
Award |
|
|
Equity Incentive |
|
|
Equity Incentive |
|
|
Units |
|
|
Options |
|
|
Awards |
|
|
Awards |
|
Name |
|
Date |
|
|
Type |
|
|
Plan Awards (1) |
|
|
Plan Awards |
|
|
(#) |
|
|
(#) |
|
|
($/Sh) |
|
|
$ (3) |
|
|
|
|
|
|
|
|
|
|
|
Target |
|
|
Maximum |
|
|
Target |
|
|
Maximum |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
# |
|
|
# |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce A. Efird |
|
|
3/9/2009 |
(2) |
|
Stock Option |
|
|
260,000 |
|
|
|
650,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145,985 |
|
|
$ |
9.59 |
|
|
$ |
578,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerry A. Shore |
|
|
4/15/2009 |
(4) |
|
Stock Option |
|
|
87,500 |
|
|
|
175,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,285 |
|
|
$ |
12.34 |
|
|
$ |
114,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David B. Mueller |
|
|
4/15/2009 |
(4) |
|
Stock Option |
|
|
42,500 |
|
|
|
85,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,776 |
|
|
$ |
12.34 |
|
|
$ |
70,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dennis K. Curtis |
|
|
4/15/2009 |
(4) |
|
Stock Option |
|
|
50,000 |
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,207 |
|
|
$ |
12.34 |
|
|
$ |
82,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rick A. Chambers |
|
|
4/15/2009 |
(4) |
|
Stock Option |
|
|
64,750 |
|
|
|
129,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,992 |
|
|
$ |
12.34 |
|
|
$ |
76,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J. Hayes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Awards represent potential payouts under the MIP for fiscal 2009. Payments are based on a
combination of the Company achieving specified EPS and Individuals achieving specific goals.
No amounts were earned for fiscal 2009. Amounts are reported in the Summary Compensation
Table as Non-Equity Incentive Plan Compensation. |
|
(2) |
|
Mr. Efird received this grant as part of his promotion to Chief Executive Officer Effective
February 1, 2009. |
|
(3) |
|
This amount represents the full grant date fair value of the stock option awards ($3.96 and
$5.12 per option), as computed in accordance with FASB ASC Topic 718. |
|
(4) |
|
This grant was a performance based grant and was tied to the Company achieving its target EPS
of $0.83. Since the EPS was not achieved for FY 2009, the grant was cancelled and therefore
does not appear in the Summary Compensation table. |
- 13 -
Outstanding Equity Awards at 2009 Fiscal Year-End
The following table reflects stock option and restricted stock awards granted to the Named
Executive Officers under the Companys 2002 Long-Term Incentive Plan that were outstanding as of
January 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
|
Stock Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive |
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Awards: |
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive |
|
|
Market or |
|
|
|
|
|
|
|
|
|
|
|
Plan Awards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Awards: |
|
|
Payout Value |
|
|
|
Number of |
|
|
Number of |
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Market |
|
|
Number of |
|
|
of Unearned |
|
|
|
Securities |
|
|
Securities |
|
|
Securities |
|
|
|
|
|
|
|
|
|
|
Shares or |
|
|
Value of |
|
|
Unearned Shares, |
|
|
Shares, Units |
|
|
|
Underlying |
|
|
Underlying |
|
|
Underlying |
|
|
|
|
|
|
|
|
|
|
Units of |
|
|
Shares or |
|
|
Units or |
|
|
or Other |
|
|
|
Unexercised |
|
|
Unexercised |
|
|
Unexercised |
|
|
Option |
|
|
|
|
|
|
Stock That |
|
|
Units that |
|
|
Other rights |
|
|
Rights That |
|
|
|
Options |
|
|
Options |
|
|
Unearned |
|
|
Exercise |
|
|
Option |
|
|
Have Not |
|
|
Have Not |
|
|
That Have |
|
|
Have Not |
|
|
|
(#) |
|
|
(#) |
|
|
Options |
|
|
Price |
|
|
Expiration |
|
|
Vested |
|
|
Vested |
|
|
Not Vested |
|
|
Vested |
|
Name |
|
Exercisable |
|
|
Unexercisable |
|
|
(#) |
|
|
($) |
|
|
Date |
|
|
(#) |
|
|
($) |
|
|
(#) |
|
|
($) |
|
Bruce A. Efird |
|
|
98,020 |
|
|
|
147,032 |
|
|
|
|
|
|
$ |
10.61 |
|
|
|
9/22/2014 |
(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145,985 |
|
|
|
|
|
|
$ |
9.59 |
|
|
|
3/9/2016 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
$ |
250,750 |
(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
(8) |
|
$ |
100,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerry A. Shore |
|
|
21,600 |
|
|
|
|
|
|
|
|
|
|
$ |
17.67 |
|
|
|
9/11/2010 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,400 |
|
|
|
|
|
|
|
|
|
|
$ |
20.60 |
|
|
|
9/19/2010 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000 |
|
|
|
|
|
|
|
|
|
|
$ |
14.60 |
|
|
|
9/8/2011 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,100 |
|
|
|
3,400 |
|
|
|
|
|
|
$ |
13.25 |
|
|
|
3/21/2013 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
(5) |
|
$ |
100,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
(8) |
|
$ |
50,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David B. Mueller |
|
|
1,000 |
|
|
|
4,000 |
|
|
|
|
|
|
$ |
9.58 |
|
|
|
10/27/2015 |
(10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000 |
(8) |
|
$ |
60,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dennis K. Curtis |
|
|
7,200 |
|
|
|
|
|
|
|
|
|
|
$ |
17.67 |
|
|
|
9/11/2010 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,800 |
|
|
|
|
|
|
|
|
|
|
$ |
20.60 |
|
|
|
9/19/2010 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
$ |
14.60 |
|
|
|
9/8/2011 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,680 |
|
|
|
3,120 |
|
|
|
|
|
|
$ |
13.25 |
|
|
|
3/21/2013 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
(5) |
|
$ |
100,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000 |
(8) |
|
$ |
30,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rick A. Chambers |
|
|
3,000 |
|
|
|
|
|
|
|
|
|
|
$ |
17.67 |
|
|
|
9/11/2010 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
750 |
|
|
|
|
|
|
|
|
|
|
$ |
20.60 |
|
|
|
9/19/2010 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,500 |
|
|
|
|
|
|
|
|
|
|
$ |
14.60 |
|
|
|
9/8/2011 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,680 |
|
|
|
3,120 |
|
|
|
|
|
|
$ |
13.25 |
|
|
|
3/21/2013 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
(5) |
|
$ |
100,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000 |
(8) |
|
$ |
30,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J. Hayes |
|
|
14,000 |
|
|
|
|
|
|
|
|
|
|
$ |
14.60 |
|
|
|
9/8/2011 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,232 |
|
|
|
7,488 |
|
|
|
|
|
|
$ |
13.25 |
|
|
|
3/21/2013 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Award was granted on March 11, 2003, and vests 10% on August 20, 2004 and 10% each year
thereafter until August 20, 2008, when 60% vests. The vesting for these awards can accelerate
by 10% per year for each of the first four years that the Company meets an operating income
margin of 5% or greater. |
|
(2) |
|
Award was granted on May 19, 2003, and vests 10% on August 20, 2004, and 10% each year
thereafter until August 20, 2008 when 60% vests. The vesting for these awards can accelerate
by 10% per year for each of the first four years for each year that the Company meets an
operating income margin of 5% or greater. |
|
(3) |
|
Award was approved on August 23, 2004, with a grant date of September 8, 2004, and vests 10%
on the first, second, third and fourth anniversary of the date of grant with the residual
vesting on the fifth anniversary. The vesting for these awards can accelerate by 10% per year
for each of the first four years for each year that the Company meets an operating income
margin of 5% or greater. |
|
(4) |
|
Award was granted on March 21, 2006. These are performance based awards and require that the
Company meet or exceed its 2006 financial plan. They become null and void in the event the
plan is not achieved unless otherwise agreed to by the Board of Directors, in its sole
discretion. The Company did not meet its 2006 financial plan, however the Board decided
against rescinding the grant in lieu of granting additional shares for fiscal 2007. The
options vest in equal installments on the first, second, third, fourth and fifth anniversaries
of the grant date. The options expire seven years from the date of grant. |
|
(5) |
|
These awards are performance and/or service based restricted stock granted on January 18,
2005. The performance criteria were changed May 26, 2008. One third vest upon the Company
achieving an operating profit margin of 3.35% or better. Once a 3.35% or better operating
profit margin is achieved, the next one third will vest upon the Company achieving an
operating profit margin of 3.85% or better. Once the Company has achieved a 3.35% or better
and a 3.85% or better operating profit margin, the remaining third will vest upon the Company
achieving an operating profit margin of 4.35% or better. To date, none of these performance
criteria has been achieved. If the performance measurements are not met, the shares vest on
the tenth anniversary of the date of grant. |
|
(6) |
|
Award was granted on September 22, 2007, and vests 20% on each anniversary of the grant date. |
|
(7) |
|
This award was granted September 22, 2007, and cliff vests on the fifth anniversary of the
grant date. |
|
(8) |
|
These awards are performance and/or service based restricted stock granted on February 8,
2008. The performance criteria were changed May 26, 2008. One third vest upon the Company
achieving an operating profit margin of 3.35% or better. Once a 3.35% or better operating
profit margin is achieved, the next one third will vest upon the Company achieving an
operating profit margin of 3.85% or better. Once the Company has achieved a 3.35% or better
and a 3.85% or better operating profit margin, the remaining third will vest upon the Company
achieving an operating profit margin of 4.35% or better. To date, none of these performance
criteria has been achieved. If the performance measurements are not met, the shares vest on
the tenth anniversary of the date of grant. |
|
(9) |
|
Award was granted on March 9, 2009 and vests 20% on each anniversary of the grant date. |
|
(10) |
|
Award was granted on October 27, 2008 and vests 20% on each anniversary date. |
- 14 -
Option Exercises and Stock Vested
There were no options exercised or restricted stock that vested during the fiscal year ended
January 30, 2010, with respect to each of the Named Executive Officers.
Director Compensation
There are four primary components of compensation to our non-management directors: a cash
retainer, committee chair, committee member fee, and stock options. Members of Company management
who also serve as members of the Board of Directors are not eligible for compensation for their
services in their capacity as a director. The following table sets forth the types and amounts of
compensation paid to our directors as of January 30, 2010:
|
|
|
|
|
Annual Retainer |
|
|
|
|
|
Standard |
|
$ |
24,000 |
|
|
|
|
|
|
Committee Chair Fees |
|
|
|
|
|
Audit |
|
$ |
10,000 |
|
Financial Expert |
|
$ |
9,000 |
|
Compensation |
|
$ |
5,000 |
|
Nominating |
|
$ |
3,500 |
|
Governance |
|
$ |
3,500 |
|
|
|
|
|
|
Committee Member Fees |
|
|
|
|
|
Audit |
|
$ |
4,500 |
|
Nominating |
|
$ |
1,500 |
|
Governance |
|
$ |
1,500 |
|
Compensation |
|
$ |
1,500 |
|
|
|
|
|
|
Annual Stock Option Grant (1) |
|
3,000 Shares |
|
|
|
(1) |
|
Stock options granted to directors in fiscal 2009 have a five-year term and vested fully on
grant date. |
Non-management directors also receive reimbursement for reasonable out-of-pocket expenses
incurred in connection with their Board or committee service.
- 15 -
The following table sets forth the compensation paid to directors during the fiscal year ended
January 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Non-Qualified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred |
|
|
|
|
|
|
Fees earned or |
|
|
Stock |
|
|
Option |
|
|
Compensation |
|
|
|
|
|
|
Paid in Cash |
|
|
Awards |
|
|
Awards |
|
|
Earnings |
|
|
|
|
Name |
|
$ |
|
|
$ |
|
|
$(1) |
|
|
$ |
|
|
Total |
|
John R. Eisenman |
|
$ |
38,500 |
|
|
|
|
|
|
$ |
14,010 |
|
|
|
|
|
|
$ |
52,510 |
|
Roger T. Knox |
|
$ |
35,000 |
|
|
|
|
|
|
$ |
14,010 |
|
|
|
|
|
|
$ |
49,010 |
|
Thomas H. Tashjian |
|
$ |
43,500 |
|
|
|
|
|
|
$ |
14,010 |
|
|
|
|
|
|
$ |
57,510 |
|
B. Mary McNabb |
|
$ |
36,500 |
|
|
|
|
|
|
$ |
14,010 |
|
|
|
|
|
|
$ |
50,510 |
|
Michael T. McMillan |
|
$ |
33,000 |
|
|
|
|
|
|
$ |
14,010 |
|
|
|
|
|
|
$ |
47,010 |
|
|
|
|
(1) |
|
This represents the full grant date fair value ($4.67 per option) of the 2009 option awards
to non-employee directors. Stock option values are based on the Black-Scholes Option
Valuation Model. See Note 7 Equity Incentive Plans to our consolidated financial statements
included on our Annual Report filed with the Commission on April 15, 2010, regarding the
assumptions underlying the valuation of stock option awards. |
The following chart sets forth outstanding stock options at fiscal year end held by
non-management directors; all option awards outstanding are vested.
|
|
|
|
|
|
|
Stock |
|
Name |
|
Options |
|
John R. Eisenman |
|
|
15,000 |
|
Roger T. Knox |
|
|
15,000 |
|
Thomas H. Tashjian |
|
|
15,000 |
|
B. Mary McNabb |
|
|
17,500 |
|
Michael T. McMillan |
|
|
11,500 |
|
Potential Post Employment Payments or Benefits
This section explains the payments and benefits to which the Named Executive Officers are
entitled in various termination of employment scenarios. These are hypothetical situations only,
as all of our Named Executive Officers are currently employed by the Company, with the exception of
Mike Hayes who retired as CEO effective February 1, 2009. For purposes of this explanation, we
have assumed that termination of employment occurred on January 30, 2010, the last day of our 2009
fiscal year.
The intent of this section is to isolate those payments and benefits for which the amount,
vesting or time of payment is altered by a termination of employment. This section does not cover
all amounts the Named Executive Officers would receive following termination. Specifically, the
Named Executive Officers are entitled to retain their vested stock option awards, and if they meet
specified minimum age at the time of termination, the unvested portion of certain stock option
awards are not forfeited, and vesting will continue according to the original schedule. The
minimum age is 65 and none of the Named Executive Officers has reached the minimum age as of 2009
fiscal year end.
- 16 -
The following table reflects compensation upon the occurrence of a range of potential separation
events for each of the Named Executive Officers, calculated as if the separation event occurred on
January 30, 2010. The actual amounts to be paid can only be determined at the time of an actual
event.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary |
|
|
|
|
|
|
|
|
|
Change in |
|
|
(Not for Cause) |
|
|
|
|
|
|
|
|
|
Control |
|
|
Termination |
|
|
Retirement |
|
|
Death |
|
Name |
|
($) (1) |
|
|
($) |
|
|
($) (3) |
|
|
($) |
|
Bruce A. Efird
Salary (2) |
|
$ |
433,333 |
|
|
$ |
433,333 |
|
|
|
|
|
|
$ |
433,333 |
|
Stock Options (4) |
|
|
64,233 |
|
|
|
64,233 |
|
|
|
|
|
|
|
64,233 |
|
Restricted Stock (5) |
|
|
250,750 |
|
|
|
250,750 |
|
|
|
|
|
|
|
250,750 |
|
Health Benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
748,316 |
|
|
$ |
748,316 |
|
|
$ |
|
|
|
$ |
748,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerry A. Shore
Salary
Stock Options (4)
Health Benefits |
|
| |
|
|
|
| |
|
| |
|
|
| | |
Totals |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David B. Mueller
Salary
Stock Options (4)
Health Benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,250
|
|
|
|
|
Totals |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dennis K. Curtis
Salary
Stock Options (4)
Health Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rick A. Chambers
Salary
Stock Options (4)
Health Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
(1) |
|
There is no predetermined executive severance or change in control programs applicable to
our Named Executive Officers, beyond those provided generally to our employees or as provided
for in the employment agreement with Mr. Efird. |
|
(2) |
|
Under Mr. Efirds employment agreement, in the event the Company terminates his employment
without cause or in the case of death, Mr. Efird is entitled to continuation of base pay for
the remainder of his initial term (The initial term is two years and ends on September 22,
2009) or after the initial term any additional term (additional terms are one year in length).
See Employment Agreements in the Compensation Discussion and Analysis section. |
|
(3) |
|
There are no payouts for retirement. |
|
(4) |
|
Only Mr. Efird and Mr. Mueller had in the money options at January 30, 2010. |
|
(5) |
|
Under Mr. Efirds employment agreement, in the event the Company terminates his employment
without cause or in the case of death, Mr. Efirds shares of restricted stock granted
September 22, 2007 will have their vesting accelerated. |
- 17 -
PROPOSAL 2 APPROVE SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BDO Seidman, LLP audited the Companys consolidated financial statements and internal control
over financial reporting for the year ended January 30, 2010. BDO Seidman, LLP is an independent
registered public accounting firm. The Board of Directors is asking the shareholders to approve
the appointment of BDO Seidman, LLP as such independent registered public accounting firm for the
fiscal year ending January 29, 2011. Although not required by law, NASDAQ listing standards, or
the Companys bylaws, the Board of Directors is submitting the selection of BDO Seidman, LLP to the
shareholders for ratification as a matter of good corporate practice. Even if the selection is
ratified, the Audit Committee in its discretion may select a different independent registered
public accounting firm at any time during the year if it determines that such a change would be in
the best interests of the Company and its shareholders, including economic considerations.
The Board of Directors will offer a resolution at the Annual Meeting to ratify this selection.
BDO Seidman LLP, which has acted as independent registered public accounting firm of FREDS since
July 30, 2004, is expected to be represented at the Annual Meeting and will have the opportunity to
make a statement, if they desire to do so, and will be available to respond to appropriate
questions.
THE BOARD OF DIRECTORS RECOMMENDS SHAREHOLDERS VOTE FOR THE APPROVAL OF
THE SELECTION OF BDO SEIDMAN, LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM FOR FISCAL YEAR 2009.
Fees Paid to Independent Registered Public Accounting Firms
The following table sets forth certain fees billed and to be billed to us by BDO Seidman, LLP
in fiscal 2009 and 2008 in connection with various services provided to us throughout those fiscal
years:
|
|
|
|
|
|
|
|
|
Service |
|
2009 Aggregate Fees Billed |
|
|
2008 Aggregate Fees Billed |
|
Audit Fees (1) |
|
$ |
839,816 |
|
|
$ |
953,985 |
|
Audit-Related Fees (2) |
|
|
62,904 |
|
|
|
67,879 |
|
Tax Fees (3) |
|
|
93,236 |
|
|
|
39,407 |
|
All Other Fees |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Audit fees include fees and expenses associated with the annual audit of consolidated
financial statements, reviews of quarterly financial statements, and Sarbanes-Oxley Section
404 attestation services. |
|
(2) |
|
Audit related fees include audits of employee benefit plans, statutory audits of a
subsidiary, and consultation on accounting and reporting matters. |
|
(3) |
|
Tax fees represent billings for professional services for tax planning, structuring and
compliance (including federal, state, and local). |
The Audit Committee has the responsibility to pre-approve all audit and permissible
non-audit services provided by our independent registered public accounting firm. Where feasible,
the Audit Committee considers and, when appropriate, pre-approves such services at regularly
scheduled meetings after being informed by management as to the nature of the services to be
performed and projected fees. The Committee also has authorized its Chairman to consider and, when
appropriate, pre-approve audit and non-audit services in situations where pre-approval is necessary
prior to the next regularly scheduled meeting of the Audit Committee. Company management and the
Chairman must report to the Audit Committee at its next meeting with respect to all services
pre-approved by him since the last Audit Committee meeting.
In fiscal 2009, all audit and permissible non-audit services provided by our independent
registered public accounting firm were pre-approved by the Audit Committee.
- 18 -
PROPOSAL 3STOCKHOLDER PROPOSAL REGARDING VENDOR CODE OF CONDUCT AND CORPORATE STANDARDS FOR HUMAN
RIGHTS
Please note that the Company is not responsible for the contents of the following proposal or
supporting statement. This stockholder proposal is sponsored by the General Board of Pension and
Health Benefits of the United Methodist Church (the GBOPHB). (Upon oral or written request to
Charles S. Vail, Esq., General Counsel, Freds, Inc., 4300 New Getwell Rd., Memphis, TN 38118, the
Company will provide the name, address and number of voting securities held by GBOPHB.)
WHEREAS: Reports of human rights abuses in the international subsidiaries and suppliers of some
U.S.-based corporations has increased public awareness of the problems of child labor, forced labor
and the denial of basic labor rights.
As investors, we believe it is prudent for our company to ensure that its employees, suppliers
and vendors comply with the United Nations International Labor Organizations (ILO) core labor
standards. Human rights violations in the workplace or supply chain can damage our companys
reputation, lead to the loss of brand value and result in costly litigation.
A large number of U.S. companies are purchasing agricultural raw materials grown or
manufactured in countries or regions with alleged and well-documented human rights abuses and
unfair labor practices. According to the U.S. Department of Labor, forced child labor in hazardous
conditions is widespread in the cotton fields of Uzbekistan and the cocoa farms of West Africa.
(U.S. Department of Labors 2009 List of Goods Produced by Child Labor or Forced Labor).
Freds sells products wholly or partially sourced from areas of the world where national
policies are weak and/or unenforced. Our companys Vendor Code of Conduct expressly prohibits child
labor and forced labor, and states that vendors should take steps to ensure that subcontractors
also operate in a manner that is consistent with the Code. However, there are no mechanisms
described within the Code for monitoring, enforcement, or reporting.
Retailers including Walmart, Target and Kohls have taken steps to monitor their supply chain,
in some cases down to the commodity level. We believe adopting a more comprehensive Code may result
in significant commercial advantages through enhanced corporate reputation, improved community and
stakeholder relations and reduced risk of adverse publicity, consumer boycotts, divestment
campaigns and lawsuits.
We believe Freds Vendor Code should conform to the ILO core labor standards and the United
Nations Universal Declaration of Human Rights. Furthermore, we believe that a credible code
compliance program includes independent monitoring, a transparent verification process and regular
public reporting of monitoring results.
RESOLVED: Shareholders request that the Board of Directors:
|
1. |
|
Strengthen its Code of Vendor Conduct based on the ILO standards and the United
Nations Universal Declaration of Human Rights, |
|
|
2. |
|
Establish an independent monitoring process that assesses adherence to these
standards throughout the supply chain, and, |
|
|
3. |
|
Prepare an annual report, at reasonable cost and omitting proprietary
information, that documents adherence to the Code; the first such report to be
completed by December 2010. |
Supporting Statement: Freds is a highly regarded company with a commendable reputation for
community involvement. Despite the well-documented human rights violations in sourcing agricultural
commodities, Freds does not have a program for monitoring its supply chain for the use of child
labor, forced labor, or unfair labor practices, which may violate the companys Vendor Code.
- 19 -
BOARD OF DIRECTORS RESPONSE
The Companys Board of Directors does not believe that it is in the best interest of our
stockholders to implement the proposal and recommends a vote against this proposal.
The Company agrees with the principles on which this proposal is based and already addresses
the concerns it raises, making this proposal unnecessary. In fact, the Companys Vendor Code of
Conduct, which is posted on our website, already addresses the core human rights issues discussed
in the proposal and sets forth our expectations related to human rights, employment practices and
working conditions of our vendors. Our vendors are required to certify to us that they operate
within the ILO core labor standards, as well as the Companys policies which reflect a
comprehensive understanding of human rights and support the following important areas:
|
|
Compliance with applicable laws |
|
|
|
Anti-discrimination |
|
|
|
No forced labor |
|
|
|
No child labor |
|
|
|
No harsh or inhumane treatment |
|
|
|
Fair working hours and wages |
|
|
|
Safe and healthy working conditions |
|
|
|
Freedom of association and collective bargaining |
As part of the Companys management practices, we periodically perform thorough reviews of the
aforementioned policies and update them to keep them in alignment with internationally recognized
human rights standards.
Our stockholders should recognize that implementing a program of the sort urged by the
proposal has the potential to dramatically increase the Companys costs and decrease the Companys
already slender margins by imposing an expensive monitoring and reporting regimen, lengthening our
purchasing cycle as verifications of vendor compliance are obtained, eliminating our ability to
make quick opportunistic purchases of goods as they become available at distressed prices, and
providing opportunities for litigation on the part of stockholders who may believe that we are not
adequately complying with the proposed monitoring and reporting regimen. Moreover, notwithstanding
our desire to improve the conditions affecting all persons laboring on behalf of our customers, our
ability to effectively impose on vendors our expectations and to monitor and enforce compliance are
limited as a practical matter. For example, there are many links in the chain of supply between
our immediate vendor and the original overseas manufacturing source of the goods we sell
(especially as to agricultural raw materials referenced in the proposal) and our purchases also
constitute a relatively small portion of the production of any single supplier. In addition to the
limited ability to enhance human rights by establishing a costly monitoring and reporting regime,
your Board of Directors believes that even such a costly regime is not likely to produce
significant commercial advantages for your Company.
THE BOARD OF DIRECTORS BELIEVES THAT THE COMPANYS POLICIES EFFECTIVELY
ARTICULATE OUR LONG-STANDING SUPPORT FOR AND CONTINUED COMMITMENT TO
HUMAN RIGHTS, THUS RENDERING THE PROPOSAL DUPLICATIVE AND UNNECESSARY.
FOR THESE REASONS, AND OTHERS STATED ABOVE, THE BOARD OF
DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 3. PROXIES SOLICITED BY THE BOARD OF
DIRECTORS WILL BE VOTED AGAINST THIS PROPOSAL UNLESS STOCKHOLDERS SPECIFY
A DIFFERENT CHOICE.
- 20 -
OTHER BUSINESS
The Board of Directors knows of no other business which will be presented at the Annual
Meeting. If any other matters properly come before the Annual Meeting, it is intended that the
persons named in the proxy are authorized by you to act, and will act, in respect thereof in
accordance with recommendations of management and their best judgment.
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be included in the proxy statement and presented at the 2011
Annual Meeting must be received by the Company no later than January 20, 2011 and the proposals
must meet certain eligibility requirements of the Securities and Exchange Commission. Proposals
may be mailed to FREDS, Inc., to the attention of the Secretary, 4300 New Getwell Road, Memphis,
Tennessee 38118.
SOLICITATION OF PROXIES AND COST THEREOF
The cost of solicitation of the proxies will be borne by the Company. In addition to
solicitation of the proxies by use of mail systems, employees of the Company, without extra
remuneration, may solicit proxies personally or by telecommunications. The Company will reimburse
brokerage firms, nominees, custodians and fiduciaries for their out-of-pocket expenses for
forwarding proxy materials to beneficial owners and seeking instruction with respect thereto.
SHAREHOLDERS MAY OBTAIN A COPY OF THE COMPANYS ANNUAL REPORT ON FORM 10-K AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION WITHOUT CHARGE (EXCEPT FOR EXHIBITS), BY WRITING TO: FREDS,
INC., ATTN: SECRETARY, 4300 NEW GETWELL ROAD, MEMPHIS, TENNESSEE 38118.
By order of the Board of Directors,
Charles S. Vail
Secretary
May 20, 2010
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FREDS, INC.
Holiday Inn Express
2192 S. Highway 441
Dublin, Georgia
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS JUNE 16, 2010
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Charles S. Vail and Jerry A. Shore, or either of them with full power of substitution, are hereby
authorized to represent and vote all the shares of common stock of the undersigned at the Annual
Meeting of the Shareholders of FREDS, Inc., to be held June 16, 2010, at 5:00 p.m., Eastern
Daylight Time, or any adjournment thereof, with all powers which the undersigned would possess if
personally present, in the following manner:
1. Election of Directors for the term of one year.
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o FOR all nominees listed below
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o WITHHOLD ALL AUTHORITY * |
(except as marked to the contrary below)
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to vote for all nominees listed below |
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INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE THROUGH THE
NOMINEES NAME BELOW. |
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Michael J. Hayes
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John R. Eisenman
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Roger T. Knox
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Thomas H. Tashjian |
B. Mary McNabb
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Michael T. McMillan
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Bruce A. Efird |
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2. Approval of BDO Seidman, LLP as independent registered public accounting firm of the Company,
as described in the Proxy Statement.
o FOR o AGAINST o ABSTAIN
3. Shareholder Proposal Regarding Vendor Code of Conduct and Corporate Standards for Human Rights,
as described in the Proxy Statement.
o FOR o AGAINST o ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2 AND RECOMMENDS A VOTE AGAINST
PROPOSAL 3.
In their discretion, the Proxies are authorized to vote upon such other business (none at the time
of the solicitation of this Proxy) as may properly come before the meeting or any adjournment
thereof.
WHEN PROPERLY EXECUTED, THIS PROXY SHALL BE VOTED AS DIRECTED. IN THE ABSENCE OF A CONTRARY
DIRECTION, IT SHALL BE VOTED FOR THE PROPOSALS 1 AND 2 AND AGAINST PROPOSAL 3. THE PROXIES MAY
VOTE IN THEIR DISCRETION UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR
ADJOURNMENT THEREOF.
The undersigned acknowledges receipt of Notice of said Annual Meeting and the accompanying Proxy
Statement, and hereby revokes all proxies heretofore given by the undersigned for said Annual
Meeting. THIS PROXY MAY BE REVOKED AT ANY TIME PRIOR TO VOTING THEREOF.
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Dated:
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, 2010 |
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Signature of Shareholder |
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Signature of Shareholder (if held jointly) |
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Please Date this Proxy and Sign Your Name or Names Exactly as Shown Hereon. When signing as an
Attorney, Executor, Administrator, Trustee or Guardian, Please Sign Your Full Title as Such. If
There Are More than One Trustee, or Joint Owners, All must Sign. Please Return the Proxy Card
Promptly Using the Enclosed Envelope.
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