DEF 14A
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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Title of each class of securities to which transaction applies: |
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Aggregate number of securities to which transaction applies: |
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Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and
state how it was determined): |
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Proposed maximum aggregate value of transaction: |
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Total fee paid: |
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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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Amount Previously Paid: |
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Form, Schedule or Registration Statement No.: |
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Date Filed: |
4300 NEW GETWELL ROAD
MEMPHIS, TENNESSEE 38118
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on Wednesday, June 17, 2009
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 17, 2009, 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 May 1, 2009, 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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/s/ Charles S. Vail
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Charles S. Vail |
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Secretary |
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May 20, 2009
FREDS, INC.
4300 NEW GETWELL ROAD
MEMPHIS, TENNESSEE 38118
PROXY STATEMENT
For Annual Meeting of Shareholders, June 17, 2009
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 17, 2009, 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. 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, 2009.
Voting Securities
Only shareholders of record at the close of business on May 1, 2009, 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 40,036,561 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 May 1, 2009, 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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Barclays Global Investors NA (5) |
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2,857,186 |
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7.1 |
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Dimensional Fund Advisors LP (6) |
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2,795,261 |
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7.0 |
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Franklin Resources, Inc. (7) |
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2,752,300 |
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6.9 |
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Michael J. Hayes (9) |
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25,232 |
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2,222,482 |
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5.3 |
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RiverSource Investments, LLC (8) |
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2,008,803 |
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5.6 |
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Bruce A. Efird |
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49,010 |
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84,010 |
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John R. Eisenman |
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18,000 |
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10,544 |
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Roger T. Knox |
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18,000 |
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31,810 |
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Thomas H. Tashjian |
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18,000 |
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312,609 |
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B. Mary McNabb |
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17,500 |
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17,500 |
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Michael T. McMillan |
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11,500 |
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11,500 |
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Jerry A. Shore |
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34,500 |
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85,630 |
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James Fennema |
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12,679 |
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31,779 |
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Keith Curtis |
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21,680 |
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45,433 |
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All Directors and Executive Officers
As a Group (15 persons) |
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309,991 |
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3,041,653 |
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7.5 |
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Less than 1%
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(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 Barclays
Global Investors, Dimensional Fund Advisors LP, Franklin Resources, Inc., and RiverSource
Investments, LLC is 4300 New Getwell Rd., Memphis, TN 38118. The address of Barclays Global
Investors NA is 400 Howard Street, San Francisco, CA 94105, Dimensional Fund Advisors LP is
Palisades West, Building One, 6300 Bee Cove Road, Austin, TX 78746, Franklin Resources, Inc.
is One Franklin Parkway, San Mateo, CA 94403-1906, and RiverSource Investments, LLC is c/o
Ameriprise Financial, Inc., 145 Ameriprise Financial Center, Minneapolis, MN 55474.. |
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Represents stock options that are exercisable within sixty (60) days of May 1, 2009. |
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Includes stock options that are exercisable by beneficial owners within sixty (60) days of
May 1, 2009. |
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Based on outstanding shares of Common Stock as of May 1, 2009, (40,036,561) and the
respective options exercisable within sixty (60) days of May 1, 2009 for the individual being
tested. |
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This information is based on Schedule 13G filed on February 6, 2009 by Barclays Global
Investors NA which reported that as of December 31, 2008, it had sole power to vote or direct
the vote of 2,197,108 shares and sole power to dispose of or direct the disposition of
2,857,186 |
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This information is based on Schedule 13G filed on February 9, 2009 by Dimensional Fund
Advisors LP which reported that as of December 31, 2009 it had sole power to vote or direct
the vote 2,687,899 shares and sole power to dispose of or direct the disposition of 2,795,261
shares. |
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This information is based on Schedule 13G filed on January 26,2009 by Franklin Resources,
Inc. which reported that as of December 31, 2008, it had sole power to vote or direct the vote
of 2,671,600 shares and sole power to dispose of or direct the disposition of 2,752,300
shares. |
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This information is based on Schedule 13G filed on February 10, 2009 by RiverSource
Investments, LLC which reported that as of December 31, 2008, it had sole power to vote or
direct the vote of 0 shares and sole power to dispose of or direct the disposition of
2,008,803 shares. |
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Includes 131,518 shares owned by Mr. Hayes wife and 36,832 shares owned by Memphis Retail
Limited Partnership which are attributable to Mr. Hayes and two of his children. |
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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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67 |
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Director and Chairman of the Board |
John R. Eisenman |
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67 |
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Director |
Roger T. Knox |
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71 |
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Director |
Thomas H. Tashjian |
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54 |
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Director |
B. Mary McNabb |
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60 |
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Director |
Michael T. McMillan |
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49 |
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Director |
Bruce A. Efird |
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50 |
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Director, Chief Executive Officer and President |
Principal Occupation, Business, and Directorships
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.
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.
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 of the Board 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.
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.
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. 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, and now as an advisor to that board is involved in the development of the
companys ASAP Trade Show. 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.
Michael T. McMillan was elected a Director of the Company in February 2007. Mr. McMillan
currently serves as Director of Sales Operations for Pepsi-Cola North America, a Division of
PepsiCo, where he has spent the last 22 years in various roles including marketing, sales,
franchise development, and general management of its bottling operations.
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.
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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 2008 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 May 1, 2009, 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 2008 except for the following instances of untimely
reporting: Roger Tyler on February 15, 2008 pursuant to his termination, Barry Maxwell on September
5, 2008 pursuant to the sale of 161 shares of stock, Joel Bivins on August 28, 2008 pursuant to his
termination, James Fennema on October 21, 2008 pursuant to a change in responsibilities, David
Mueller on October 27, 2008 pursuant to an employment stock grant, Ricky Pruitt on March 3, 2008
pursuant to his promotion, Tom Sowa on October 20, 2008 pursuant to an employment stock grant,
Barry Maxwell on January 23, 2009 pursuant to his termination, John Reier on December 31, 2008
pursuant to his separation of service and Tommy Burkley on January 31, 2009 pursuant to his
retirement.
Board of Directors
During the last fiscal year, FREDS Board of Directors held seven (7) meetings. All of the
then directors attended all of the Board meetings and the prior years annual meeting. Mr. Hayes
is Chairman of the Board of Directors. Non-employee Directors of FREDS 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 2008.
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.
Nominating and Governance Committee
The Nominating and Governance Committee of the Board of Directors (the Nominating and
Governance Committee) met one time during the Companys latest fiscal year. The Nominating and
Governance Committee was comprised of Thomas H. Tashjian, Chairman of the committee, John R.
Eisenman, Roger T. Knox, B. Mary McNabb, and Michael T. McMillan, all of whom meet the independence
requirement of NASDAQ listing standards.
In August, 2008 the Board of Directors divided the Nominating and Governance Committee into
two separate committees: the Governance Committee, which is chaired by Michael T. McMillan, and the
Nominating Committee, which is chaired by Roger T. Knox.
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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, 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, vendor code of conduct, and all of the current board committee
charters are available on the Companys website, and can be found under the Investor Relations and
Governance links. The Companys website is www.fredsinc.com. The information contained on the
website is not incorporated by reference in, or considered part of, this Proxy Statement.
The Governance Committee of the Board of Directors met one time after the split of the
committees during the Companys latest fiscal year. 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. 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.
Nominating Committee
The Committee recommends nominees for election to the Board by the shareholders at the annual
meeting. The Nominating Committee met one time after the split during the year and is now
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. 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 Nominating Committee identifies candidates for nominees based upon both its criteria for
evaluation and the candidates previous service on the Board. 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 Nominating Committee has adopted a 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 and background; and |
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the candidates signed consent to serve on the Board. |
5
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 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.
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 six times during the last fiscal year. All of the members attended all of the
Committee meetings. 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 2008 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. 61,
Communication with Audit Committees 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 2008 be included in the 2008 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 2009.
6
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
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 two times during the last fiscal year. All of the members attended all of the
Committee meetings. 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.
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 officer of the Company, 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 $1.4 million for the
year ended January 31, 2009. Total future commitments under related party leases are $10.9 million.
Any future transactions described in Item 404(a) of Regulation S-K under the Securities Exchange
Act of 1934 that may arise will be reviewed and 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 2008 include: Michael J. Hayes (former CEO, now Chairman), Bruce
A. Efird (CEO & President), Jerry A. Shore (CFO), James R. Fennema (SVP & Divisional Merchandise
Manager) and Keith Curtis (EVP & General Merchandising Manager).
Changes to executive compensation as well as general guidelines for other employees are
considered and approved by the Compensation Committee of the Company. The Compensation Committee
consists of all five of the non-employee directors. Ms. B. Mary McNabb chairs the committee. The
Committee met two times during 2008 to consider the compensation plan as well as option and
restricted stock grant recommendations.
7
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 and
retain key executives. |
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Integrate all pay programs with FREDS annual and long-term business objectives and
strategy, and focus executive behavior on the fulfillment of those objectives. |
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Provide variable compensation opportunities that are linked with the performance of
FREDS and that align executive remuneration with the interests of shareholders. |
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.
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 2000, the Company engaged the Centre Group, 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. In 2004, The Hay Group was appointed as an independent consultant to define and
add structure to the review process. The 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 his 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 a period of two years commencing on
September 22, 2007, with automatic employment extensions of one year unless terminated by either
party. The agreement provides that we will pay Mr. Efird an annual base salary of $595,000, which
increased to $650,000 annually when he was elected to the office of Chief Executive Officer of the
Company. Also, Mr. Efird will participate in any bonus plans of the Company. Should Mr. Efird be
separated from service or dies, 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.
8
Perquisites and Other Personal Benefits
Other than the following item discussed, 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 2008. The value of past usage was
recorded as taxable compensation in the year in which it occurred.
Employee Compensation Components
The Company believes that pairing the attainment of Company objectives with executive
compensation results in both long and short term improvement in the Companys ultimate earnings
performance. Employee incentives of cash bonus and stock awards are predicated upon achieving both
employee goals and Company 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.
Base Salary
Base pay levels are largely determined through comparisons with other retailing companies.
Actual salaries are based on individual performance contributions within a salary structure that is
established through job evaluation and job market considerations. 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 2008 for the other Named Executives Officers, based on performance and
competitive considerations, and the Committee considered those recommendations in making its
determinations.
In general, the Committee believes that base salary should make up approximately 55% to 65% of
the compensation package for its executives.
Incentive Compensation
The current annual incentive compensation plan has been modified for fiscal 2009 to allow for
a graduated bonus payout based on a tiered Earnings Per Share (EPS) structure. The base tier
begins with a minimum of $.77 of EPS. This payment would vary by employee depending on the
Departmental Budget and Individual Core Goals Performance. A maximum bonus compensation for Senior
Executives ranging from 35% to 45% of salary was established. Forty percent of the bonus payment
is comprised of the Company meeting its EPS corporate goal for the year, while the remaining sixty
percent of bonus payment is contingent upon achievement of the employees individual and department
goals for 2009. 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.
EPS target was $.77 and $.74 for the years ended February 2, 2008 for the year ended February
3, 2007, respectively.
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 EPS corporate goal, all other components of
the bonus would be in jeopardy. In 2007 and 2008, the Company did not achieve its EPS corporate
goal.
The Companys Merchandising Division management bonus compensation is based on specific
product, departmental 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 2008, based upon the Companys performance,
and the Committee considered these recommendations in making its determination.
In general, the Committee believes that incentive non-equity compensation should make up
approximately 25% to 35% of the compensation package for its executives.
9
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 to 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.
Since 2005, the Company has tied the stock option grants to the Companys performance for the
respective fiscal year. After achieving the operating profit 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.
The EPS corporate goal for the 2006 Stakeholder Grant was not achieved, but the Compensation
Committee waived the requirement due to the extraordinary effort and achievement in the fourth
quarter of 2006. No annual grant for 2007 or 2008 was made.
A senior executive group of twelve employees received a performance option grant on April 15,
2009. Upon achievement in fiscal 2009 of $0.83 cents of EPS, the shares will then vest 20% per
year.
Additional 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 a specified goal.
In general, the Committee believes that the 2002 Long Term Incentive Plan compensation should
make up approximately 10% to 15% of the compensation package for its executives.
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 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
Annually, the Directors are awarded a non qualified stock option grant for 3,000 shares of
immediately vested stock with a five year expiration.
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. Finally, no executive officer
of the Company served during 2008 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.
10
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
Summary Compensation Table
The following Summary Compensation Table sets forth the compensation earned by or paid to the
Named Executive Officers for services rendered to us during the fiscal years indicated.
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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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$(3) |
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$(4) |
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$ |
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$(5) |
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Total |
Michael J. Hayes |
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2008 |
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$ |
250,000 |
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$ |
19,216 |
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$ |
4,722 |
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$ |
273,938 |
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Chairman & Chief Executive
Officer (7) |
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2007 |
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$ |
220,000 |
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$ |
31,888 |
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$ |
18,405 |
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$ |
270,293 |
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2006 |
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$ |
224,231 |
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$ |
44,590 |
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$ |
75,000 |
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$ |
12,927 |
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$ |
356,748 |
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Bruce A. Efird |
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2008 |
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$ |
595,000 |
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$ |
61,600 |
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$ |
425,392 |
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$ |
10,257 |
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$ |
1,092,249 |
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Chief Executive Officer &
President (6,7) |
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2007 |
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$ |
217,404 |
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$ |
19,151 |
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$ |
181,875 |
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$ |
500 |
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$ |
418,930 |
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Jerry A. Shore |
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2008 |
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$ |
232,692 |
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$ |
15,000 |
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$ |
19,518 |
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$ |
25,211 |
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$ |
1,200 |
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$ |
293,621 |
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Executive Vice President, |
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2007 |
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$ |
200,577 |
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$ |
15,255 |
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$ |
43,134 |
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$ |
800 |
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$ |
259,766 |
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Chief Financial Officer & |
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2006 |
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$ |
192,885 |
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$ |
16,286 |
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$ |
55,370 |
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$ |
50,000 |
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$ |
1,142 |
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$ |
315,683 |
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Chief Administarative Officer (8) |
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James R. Fennema |
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2008 |
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$ |
176,500 |
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$ |
40,701 |
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$ |
30,767 |
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$ |
1,400 |
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$ |
249,368 |
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Senior Vice President & |
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2007 |
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$ |
192,000 |
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$ |
40,571 |
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$ |
41,140 |
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$ |
1,400 |
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$ |
275,111 |
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Divisional Merchandise Manager (9) |
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2006 |
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$ |
190,384 |
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$ |
40,571 |
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$ |
54,082 |
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$ |
28,800 |
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$ |
1,050 |
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$ |
314,887 |
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Dennis K. Curtis |
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2008 |
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$ |
187,500 |
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$ |
17,829 |
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$ |
19,132 |
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$ |
1,040 |
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$ |
225,501 |
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Executive Vice President - |
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2007 |
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$ |
172,461 |
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$ |
15,255 |
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$ |
31,884 |
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$ |
1,220 |
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$ |
220,820 |
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General Merchandising Manager (9) |
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2006 |
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$ |
163,433 |
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$ |
15,255 |
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$ |
41,460 |
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$ |
45,917 |
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$ |
2,317 |
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$ |
268,381 |
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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 February 2, 2008 and
February 3, 2007. |
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(2) |
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Amounts expensed in fiscal 2008, 2007 and 2006 pursuant to FAS 123(R) for restricted stock
awarded in 2008 and prior years. The amount reported has been adjusted to eliminate
service-based forfeiture assumptions used for financial reporting purposes. See Note 7
Equity Incentive Plans to our consolidated financial statements included on our Annual Report
filed with the Commission on April 16, 2009 for a discussion of our accounting for restricted
stock. |
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(3) |
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Amounts expensed in fiscal 2008, 2007 and 2006 pursuant to FAS 123(R) for stock options
awarded in 2008 and prior years. The amount reported has been adjusted to eliminate
service-based forfeiture assumptions used for financial reporting purposes. 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 16, 2009, regarding the assumptions underlying the valuation of stock
option awards. |
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(4) |
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The amounts in this column reflect cash bonuses earned for the indicated fiscal years
performance pursuant to the Corporate Cash Incentive Plan (CCIP). |
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(5) |
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The amounts reported include the following: |
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Matching contributions to the FREDS 401(k) plan, which all participating employees
receive. |
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Dividends paid on restricted stock awards that have not vested. |
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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. |
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(6) |
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Mr. Efirds date of hire was September 22, 2007. |
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(7) |
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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. |
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(8) |
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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. |
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(9) |
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Mr. Curtis was promoted to General Merchandising Manager effective February 4, 2008. He
retains the title of Executive Vice President. Mr. Fennemas role was changed to Senior Vice
President Divisional Merchandise Manager effective February 4, 2008. |
11
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 31,
2009.
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All Other |
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All Other |
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Stock |
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Option |
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Grant |
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Awards: |
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Awards: |
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Exercise |
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Date Fair |
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Number of |
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Number of |
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or Base |
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Value of |
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Estimated Future |
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Estimated Future |
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Shares of |
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Securities |
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Price of |
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Stock and |
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Payouts Under Non- |
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Payouts Under |
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Stock or |
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Underlying |
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Option |
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Option |
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Grant |
|
Award |
|
Equity Incentive |
|
Equity Incentive |
|
Units |
|
Options |
|
Awards |
|
Awards |
Name |
|
Date |
|
Type |
|
Plan Awards (1) |
|
Plan Awards |
|
(#) |
|
(#) |
|
($/Sh) (2) |
|
$ (3) |
|
|
|
|
|
|
|
|
|
|
Target |
|
Maximum |
|
Target |
|
Maximum |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
$ |
|
# |
|
# |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J. Hayes |
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce A. Efird |
|
|
2/8/2008 |
|
|
Restricted Stock |
|
|
238,000 |
|
|
|
595,000 |
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
$ |
86,600 |
|
Jerry A. Shore |
|
|
2/8/2008 |
|
|
Restricted Stock |
|
|
87,500 |
|
|
|
175,000 |
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
$ |
43,300 |
|
James R. Fennema |
|
|
|
|
|
|
|
|
|
|
63,700 |
|
|
|
127,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dennis K. Curtis |
|
|
2/8/2008 |
|
|
Restricted Stock |
|
|
70,000 |
|
|
|
140,000 |
|
|
|
|
|
|
|
|
|
|
|
3,000 |
|
|
|
|
|
|
|
|
|
|
$ |
25,980 |
|
|
|
|
(1) |
|
Awards represent potential payouts under the CCIP for fiscal 2008. Payments are based on a
combination of the Company achieving specified EPS and Individuals achieving specific goals.
No amounts were earned for fiscal 2008 are reported in the Summary Compensation Table as
Non-Equity Incentive Plan Compensation. |
|
(2) |
|
The Named Executive Officers did not receive any option awards during the fiscal year ended
January 31, 2009. |
|
(3) |
|
This amount represents the full grant date fair value of the stock option award ($8.66 per
option), as computed in accordance with FAS 123(R). |
12
Outstanding Equity Awards at 2008 Fiscal Year-End
The following table reflects stock option and restricted stock awards granted to the Named
Executive Officers under the Companys 2002 Long-Term Incentive Plan that were outstanding as of
January 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
Stock Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive |
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Awards: |
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive |
|
Market or |
|
|
|
|
|
|
|
|
|
|
Plan Awards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Awards: |
|
Payout Value |
|
|
Number of |
|
Number of |
|
Number of |
|
|
|
|
|
|
|
|
|
Number of |
|
Market |
|
Number of |
|
of Unearned |
|
|
Securities |
|
Securities |
|
Securities |
|
|
|
|
|
|
|
|
|
Shares or |
|
Value of |
|
Unearned Shares, |
|
Shares, Units |
|
|
Underlying |
|
Underlying |
|
Underlying |
|
|
|
|
|
|
|
|
|
Units of |
|
Shares or |
|
Units or |
|
or Other |
|
|
Unexercised |
|
Unexercised |
|
Unexercised |
|
Option |
|
|
|
|
|
Stock That |
|
Units that |
|
Other rights |
|
Rights That |
|
|
Options |
|
Options |
|
Unearned |
|
Exercise |
|
Option |
|
Have Not |
|
Have Not |
|
That Have |
|
Have Not |
|
|
(#) |
|
(#) |
|
Options |
|
Price |
|
Expiration |
|
Vested |
|
Vested |
|
Not Vested |
|
Vested |
Name |
|
Exercisable |
|
Unexercisable |
|
(#) |
|
($) |
|
Date |
|
(#) |
|
($) |
|
(#) (7) |
|
($) |
Michael J. Hayes |
|
|
14,000 |
|
|
|
|
|
|
|
|
|
|
$ |
14.60 |
|
|
|
9/8/2011 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,488 |
|
|
|
11,232 |
|
|
|
|
|
|
$ |
13.25 |
|
|
|
3/21/2013 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce A. Efird |
|
|
49,010 |
|
|
|
196,042 |
|
|
|
|
|
|
$ |
10.61 |
|
|
|
9/22/2014 |
(8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
$ |
256,500 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
(10) |
|
$ |
102,600 |
|
Jerry A. Shore |
|
|
21,600 |
|
|
|
|
|
|
|
|
|
|
$ |
17.67 |
|
|
|
9/11/2010 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,400 |
|
|
|
|
|
|
|
|
|
|
$ |
20.60 |
|
|
|
9/19/2010 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,400 |
|
|
|
3,600 |
|
|
|
|
|
|
$ |
14.60 |
|
|
|
9/8/2011 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,400 |
|
|
|
5,100 |
|
|
|
|
|
|
$ |
13.25 |
|
|
|
3/21/2013 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
(7) |
|
$ |
102,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
(10) |
|
$ |
51,300 |
|
James R. Fennema |
|
|
7,999 |
|
|
|
12,001 |
|
|
|
|
|
|
$ |
16.90 |
|
|
|
12/13/2009 |
(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,120 |
|
|
|
4,680 |
|
|
|
|
|
|
$ |
13.25 |
|
|
|
3/21/2013 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,500 |
|
|
$ |
76,950 |
(5) |
|
|
10,000 |
(7) |
|
$ |
102,600 |
|
Dennis K. Curtis |
|
|
7,200 |
|
|
|
|
|
|
|
|
|
|
$ |
17.67 |
|
|
|
9/11/2010 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,800 |
|
|
|
|
|
|
|
|
|
|
$ |
20.60 |
|
|
|
9/19/2010 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
3,000 |
|
|
|
|
|
|
$ |
14.60 |
|
|
|
9/8/2011 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,120 |
|
|
|
4,680 |
|
|
|
|
|
|
$ |
13.25 |
|
|
|
3/21/2013 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
(7) |
|
$ |
102,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000 |
(10) |
|
$ |
30,780 |
|
|
|
|
(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) |
|
This award was granted December 13, 2004, and cliff vests on the fifth anniversary of the
grant date. |
|
(6) |
|
Award was granted on December 13, 2004, and vests 10% on December 13, 2005, and 10% each year
thereafter until December 13, 2009, 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 |
|
(7) |
|
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 have been achieved. If the performance measurements are not met, the shares vest on
the tenth anniversary of the date of grant. |
|
(8) |
|
Award was granted on September 22, 2007, and vests 20% on each anniversary of the grant date. |
|
(9) |
|
This award was granted September 22, 2007, and cliff vests on the fifth anniversary of the
grant date. |
|
(10) |
|
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 have been achieved. If the performance measurements are not met, the shares vest on
the tenth anniversary of the date of grant. |
13
Option Exercises and Stock Vested
There were no options exercised or restricted stock that vested during the fiscal year ended
January 31, 2009, 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:
|
|
|
|
|
Annual Retainer
|
|
| |
|
Standard |
|
$ |
24,000 |
|
|
|
|
|
|
Committee Chair Fees
|
|
| |
|
Audit |
|
$ |
10,000 |
|
Nominating |
|
$ |
3,500 |
|
Governance |
|
$ |
3,500 |
|
Compensation |
|
$ |
5,000 |
|
Financial Director |
|
$ |
9,000 |
|
|
|
|
|
|
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 2008 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.
14
The following table sets forth the compensation paid to directors during the fiscal year ended
January 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
32,235 |
|
|
|
|
|
|
$ |
11,910 |
|
|
|
|
|
|
$ |
44,145 |
|
Roger T. Knox |
|
$ |
30,160 |
|
|
|
|
|
|
$ |
11,910 |
|
|
|
|
|
|
$ |
42,070 |
|
Thomas H. Tashjian |
|
$ |
34,910 |
|
|
|
|
|
|
$ |
11,910 |
|
|
|
|
|
|
$ |
46,820 |
|
B. Mary McNabb |
|
$ |
30,535 |
|
|
|
|
|
|
$ |
23,360 |
2 |
|
|
|
|
|
$ |
53,897 |
|
Michael T. McMillan |
|
$ |
31,660 |
|
|
|
|
|
|
$ |
11,910 |
|
|
|
|
|
|
$ |
43,570 |
|
|
|
|
(1) |
|
This represents the full grant date fair value ($3.97 per option and $4.58 per option) of the
2008 option awards to non-employee directors as the options were fully vested on the date of
grant. 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 16, 2009, regarding the assumptions underlying the
valuation of stock option awards. |
|
(2) |
|
B. Mary McNabb received an additional grant of 2,500 shares in 2008 related to her initial
Board service. |
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 |
|
|
14,500 |
|
Michael T. McMillan |
|
|
8,500 |
|
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 (except Mr. Hayes) are currently employed by the Company.
For purposes of this explanation, we have assumed that termination of employment occurred on
January 31, 2009, the last day of our 2008 fiscal year. In the case of Mr. Hayes, he retired
effective February 1, 2009, therefore we are only showing the benefits for retirement to reflect
actual benefits.
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 Mr. Hayes has reached the minimum age as of 2008 fiscal year end.
15
The following table provides for a range of potential separation events for each of the Named
Executive Officers, calculated as if the separation event occurred on January 31, 2009. The actual
amounts to be paid can only be determined at the time of the actual event.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary |
|
|
|
|
|
|
Change in |
|
(Not for Cause) |
|
|
|
|
|
|
Control |
|
Termination |
|
Retirement |
|
Death |
Name |
|
($) (1) |
|
($) |
|
($) (3) |
|
($) |
|
Michael J. Hayes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary (4) |
|
|
|
|
|
|
|
|
|
$ |
966,000 |
|
|
|
|
|
Stock Options (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health Benefits (6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
966,000 |
|
|
$ |
0 |
|
Bruce A. Efird |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary (2) |
|
$ |
396,667 |
|
|
$ |
396,667 |
|
|
|
|
|
|
$ |
396,667 |
|
Stock Options (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock (7) |
|
|
265,500 |
|
|
|
265,500 |
|
|
|
|
|
|
|
265,500 |
|
Health Benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
662,167 |
|
|
$ |
662,167 |
|
|
$ |
0 |
|
|
$ |
662,167 |
|
Jerry A. Shore |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health Benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
James R. Fennema |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health Benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Dennis K. Curtis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health Benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
|
|
(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 agreements with Mr. Hayes and 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, except for Mr. Hayes according to his employment
agreement. Mr. Hayes retired February 1, 2009 from his position as Chief Executive Officer.
However, he remains Chairman of the Board. |
|
(4) |
|
Under Mr. Hayes employment agreement, in the event that Mr. Hayes terminates the agreement
or the Company terminates his employment without cause, Mr. Hayes is entitled to continuation
of base pay for three years and a stipend of $6,000 per month for three years to offset office
related expenses. If Mr. Hayes is terminated for cause, the above amounts are paid for only
eighteen months. See Employment Agreements in the Compensation Discussion and Analysis
section. Mr. Hayes retired effective February 1, 2009 and is therefore entitled to the
continuation of base pay for three years and a stipend of $6,000 per month for three years to
offset office related expenses. |
|
(5) |
|
There were no in-the-money options at January 31, 2009. |
|
(6) |
|
Under Mr. Hayes employment agreement, in the event Mr. Hayes is terminated for any reason,
whether by the Company or not, Mr. and Mrs. Hayes are entitled to Company paid medical and
dental coverage for life. In addition, Mr. Hayes is entitled to continuation of any Company
paid life insurance policies that are in force at the time of termination. Currently there is
no such policy in effect. The quantification of the health benefit is very subjective and
depends upon multiple variables such as the life span and overall health of Mr. and Mrs.
Hayes, supplemental coverage from government agencies (i.e. Medicare) and any coverage from
future employers, if any. The cost of a one-year policy for medical and dental insurance, in
accordance with Mr. Hayes employment agreement is estimated to be $22,250. |
|
(7) |
|
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. |
16
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 February 2, 2008. 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 February 2, 2008. 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 2008 and 2007 in connection with various services provided to us throughout those fiscal
years:
|
|
|
|
|
|
|
|
|
Service |
|
2008 Aggregate Fees Billed |
|
2007 Aggregate Fees Billed |
Audit Fees (1) |
|
$ |
953,985 |
|
|
$ |
938,859 |
|
Audit-Related Fees (2) |
|
|
67,879 |
|
|
|
97,491 |
|
Tax Fees (3) |
|
|
39,407 |
|
|
|
89,937 |
|
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 disclosure 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 2008, all audit and permissible non-audit services provided by our independent
registered public accounting firm were pre-approved by the Audit Committee.
PROPOSAL 3SHAREHOLDER PROPOSAL REGARDING MAJORITY VOTING FOR
DIRECTOR ELECTIONS
The Company has received a shareholder proposal co-sponsored by California Public Employees
Retirement System (CalPERS) and Stichting Pensioenfonds ABP (Stichting) regarding majority
voting for director elections. The Company will provide the address and number of shares held by
CalPERS and Stichting upon a request for such information sent to the Secretary of the Company. In
accordance with Securities and Exchange Commission rules, the text of the shareholder proposal and
supporting statement are printed below exactly as they were submitted to the Company. The Company
is not responsible for the contents of the proposal or supporting statement. If properly
presented, this proposal will be voted on at the Annual Meeting.
17
SHAREOWNER PROPOSAL
RESOLVED, that the shareowners of FREDS Inc. (Company) amend the Companys bylaws, in
compliance with applicable law, to replace Section 4 with the following:
An annual meeting of Shareholders shall be held at such date and time as shall be
stated in the Notice of Meeting when they shall elect a Board of Directors, and
transact such other business as may properly be brought before the meeting. The
holder of each share of Class A stock shall have one vote.
At each meeting of the Shareholders for the election of directors, at which a quorum
is present, each Director shall be elected by the vote of the majority of the votes
cast (meaning the number of shares voted for a nominee must exceed the number of
shares voted against such nominee), provided that each Director shall be elected
by a plurality vote of all votes cast at any meeting at which a quorum is present
and for which (i) the Secretary of the Corporation receives a notice in compliance
with applicable requirements for shareholder nominations for Directors set forth in
these Bylaws that a Shareholder proposes to nominate a person for election to the
Board of Directors and (ii) such proposed nomination has not been withdrawn by such
Shareholder on or prior to the tenth day preceding the date the corporation first
mails or otherwise transmits its notice of meeting for such meeting to the
shareowners.
In addition, the following shall be added to Section 17:
The Board of Directors shall nominate for re-election as a Director only an
incumbent candidate who has tendered, prior to the mailing of the proxy statement
for the annual meeting at which he or she is to be nominated for re-election as a
Director, an irrevocable resignation that will be effective upon (i) the failure of
the Director to receive the required vote at any annual meeting at which such
Director is nominated for re-election and (ii) acceptance by the Board of Directors
of such resignation (an Irrevocable Resignation). The Board shall fill Director
vacancies and new Directorships only with candidates who tender, at or prior to the
time of their appointment to the Board, an Irrevocable Resignation.
SUPPORTING STATEMENT
Is accountability by the Board of Directors important to you? As a long-term shareowner of
the Company, CalPERS thinks accountability is of paramount importance. This is why we are
sponsoring this proposal which would remove a plurality vote standard for uncontested elections
that currently allows a director to be elected even if a majority of shareowners do not support the
director and instead implement a majority vote standard.
CalPERS believes that corporate governance procedures and practices, and the level of
accountability they impose, are closely related to financial performance. It is intuitive that,
when directors are accountable for their actions, they perform better. That is one reason why more
than 66% of the companies in the S&P 500 have adopted majority voting for uncontested director
elections.
Please vote FOR this proposal.
END OF SHAREHOLDER PROPOSAL
Your Board of Directors unanimously recommends that you vote Against this proposal for the
reasons set forth below:
The Board of Directors carefully considered this proposal and believes that it is not in the
best interests of the Company or our shareholders at this time to amend our Bylaws to provide for
the election of directors by a majority of votes cast. We believe the proposed change is
unnecessary and has the potential to disrupt the Companys effective governance practices.
The plurality voting standard used by our shareholders for the election of directors is the
overwhelmingly prevailing method used to elect a corporations board of directors in the United
States. Under the plurality voting standard, the director nominees receiving the highest number of
votes are elected even though the votes to elect them may be less than a majority of the votes
cast. The Board of Directors is committed to accountability to our shareholders and believes the
plurality voting system maintains such accountability, as is evidenced by FREDS corporate
governance record to date.
18
The Board of Directors believes that FREDS already has a strong corporate governance process
in place that is designed to identify and nominate qualified director candidates who will best
serve the interests of the Company and its shareholders. The Nominating Committee, which is
comprised solely of independent directors, evaluates and recommends director nominees for election,
including nominees proposed by shareholders, based on: character, personal and professional ethics,
integrity and values; executive level business experience and acumen; relevant business experience
or knowledge; skills and expertise necessary to make significant contributions to the Company, its
Board and its shareholders; business judgment; availability and willingness to serve on the Board;
independence requirements of NASDAQ listing standards; potential conflicts of interest with the
Company or its shareholders taken as a whole; and accomplishment within the candidates own field.
The Board of Directors has had great success in nominating strong, highly qualified directors.
Indeed, our shareholders have consistently elected directors with a vast majority of the votes
cast, even with the plurality voting standard in place. In addition, the Company includes in this
proxy statement information on how shareholders can communicate their views on potential nominees
for director, or any other matters of importance to shareholders, to the Board of Directors.
Moreover, the Company does not have a classified or staggered Board of Directors, so each director
is elected annually. Annual director elections ensure that the Companys shareholders are able to
communicate their confidence in or concerns over the Companys performance on a regular basis.
FREDS shareholders also have the ability under the plurality voting standard to withhold votes for
directors, which allows shareholders to communicate any concerns they may have about the directors.
Thus, we believe that the Company already maintains appropriate mechanisms for electing a
qualified Board of Directors.
The Company regularly monitors developments in the area of corporate governance, including
majority voting for corporate directors. While some large public companies have adopted a majority
vote standard and/or adopted director resignation policies when a director does not receive a
majority of the votes cast, the Board of Directors believes that the Company should proceed
carefully in this developing area of corporate governance. For example, the proposal does not deal
fully with the removal of incumbent directors who are up for re-election but do not receive a
majority vote. Under Tennessee law, directors continue to serve until his or her successor is
elected and qualified. Therefore, even if the proposal were adopted, the Company could not force a
director who failed to receive a majority vote to leave the Board until his or her successor is
elected at a subsequent shareholder meeting.
Moreover, the shareholder proposal fails to address vacancies on the Board if a director is
not elected because he fails to receive a majority of the votes cast. Tennessee law and the
Companys Bylaws allow the Board to appoint a director to fill the vacancy or let the position
remain vacant. Alternatively, another meeting of shareholders could be held for the sole purpose
of filling the vacancy. If the shareholder proposal were adopted, the Board could have vacancies
for an indefinite period of time, causing the Board to confront potential problems in complying
with NASDAQ listing requirements relating to maintaining a majority of independent directors or a
qualified Audit Committee.
The proposal also may increase unnecessarily the cost to the Company of soliciting shareholder
votes. Implementation of this proposal could provide special interest shareholder groups with the
power to promote vote no campaigns that are not in the best interests of all of the Companys
shareholders, which could force the Company to resort to expensive strategies to obtain the
required majority vote, to the detriment of the majority of FREDS shareholders. A majority voting
standard could result in every annual meeting of shareholders turning into an expensive,
distracting and disruptive contest for votes. As a result, preparing for and responding to vote
no campaigns may significantly increase the Companys costs for routine director elections.
The proposal is complicated further by a proposed change to the New York Stock Exchange
(NYSE) Rule 452. Under the current Rule 452, brokers of shares held in street name have
discretionary voting authority in uncontested director elections on behalf of beneficial owners who
do not give the broker voting instructions, as uncontested director elections are currently
considered routine matters under Rule 452. The proposed amendment to Rule 452 would make
uncontested director elections non-routine matters, thus prohibiting brokers from voting shares for
which the beneficial owner has not given voting instructions. As a result, this amendment could
substantially reduce the number of votes being cast in uncontested director elections, thus leading
to failed elections and more uncertainty and expense for the Company. The proposed amendments to
Rule 452 would apply to the Companys director elections even though the Company is listed on
NASDAQ because the NYSE rules regulate how brokers licensed by the NYSE, who hold stock of a NASDAQ
listed company on behalf of a client, may vote in the election of a NASDAQ listed companys
directors.
19
Because of the problems with the majority voting standard, plurality voting for directors has
been and continues to be the prevailing legal rule throughout the United States. Plurality voting
for directors is the default system under Tennessee law. Furthermore, we believe that it has yet
to be shown whether the purported benefits of a majority voting system outweigh the benefits of a
plurality voting system. Plurality voting is both fair and impartial because it applies whether a
candidate is in a contested or a non-contested election, and it is simple, efficient and
transparent. Plurality voting also provides certainty and maintains stability in corporate
governance, ensuring that the Board of Directors has the minimum number of members required by the
Companys Bylaws.
In summary, we do not believe that the proposal, at this time, is in the best interest of the
Company or its shareholders.
FOR THE REASONS STATED ABOVE, THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST THIS
PROPOSAL.
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 2009
Annual Meeting must be received by the Company no later than January 25, 2010 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,
|
|
|
/s/ Charles S. Vail
|
|
|
Charles S. Vail |
|
|
Secretary |
|
|
May 20, 2009
21
FREDS,
INC.
Holiday Inn Express, 2192 S. Highway 441, Dublin,
Georgia
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS JUNE
17, 2009
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 17, 2009, 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.
|
|
|
|
|
|
|
|
|
|
|
|
o
|
|
|
FOR all nominees listed below
(except as marked to the contrary below)
|
|
|
o
|
|
|
WITHHOLD ALL AUTHORITY *
to vote for all nominees listed below
|
* INSTRUCTION: To withhold
authority to vote for any individual nominee, strike through the
nominees name below.
|
|
|
|
|
Michael J. Hayes
|
|
John R. Eisenman
|
|
Roger T. Knox
|
Thomas H. Tashjian
|
|
B. Mary McNabb
|
|
Michael T. McMillan
|
Bruce A. Efird
|
|
|
|
|
|
|
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 Majority Voting for Director
Elections, as described in the Proxy Statement.
|
|
|
|
|
|
|
|
|
|
|
|
o
|
|
FOR
|
|
o
|
|
AGAINST
|
|
o
|
|
ABSTAIN
|
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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
PROPOSALS 1 AND 2 AND RECOMMENDS A VOTE AGAINST
PROPOSAL 3.
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:
|
|
|
|
, 2009
|
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Signature of Shareholder
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Signature of Shareholder (if held jointly)
|
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.