SCHEDULE 14A INFORMATION
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. ___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[X] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-12
FRED'S, INC.
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the Appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. 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):
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] 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.
1) Amount Previously Paid:
----------
2) Form, Schedule or Registration Statement No:
------------------
3) Filing Party:
--------------------------------------
4) Date Filed:
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FRED'S, INC.
4300 NEW GETWELL ROAD
MEMPHIS, TENNESSEE
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held on Wednesday, June 26, 2002
TO THE SHAREHOLDERS OF FRED'S, INC.:
Notice is hereby given that the Annual Meeting of Shareholders of
Fred's, Inc. (the "Company" or "Fred's") will be held at the Memphis Marriott
Hotel, 2625 Thousand Oaks Boulevard, Memphis, Tennessee on Wednesday, June 26,
2002, at 10:00 A.M., Central Daylight Time, for the following purposes:
1. To elect the Company's Board of Directors;
2. To ratify the designation of Ernst & Young LLP as
independent auditors of the Company;
3. To amend the Company's Charter to increase authorized
shares;
4. To approve the adoption of the 2002 Long Term Incentive Plan
and ratify grants thereunder.
The accompanying Proxy Statement contains further information with respect to
these matters.
Only shareholders of record at the close of business on May 3, 2002, will be
entitled to vote at the meeting or any adjournment thereof.
WHETHER OR NOT YOU PLAN TO ATTEND THE 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.
By order of the Board of Directors,
Charles S. Vail
Secretary
May 24, 2002
FRED'S, INC.
4300 NEW GETWELL ROAD
MEMPHIS, TENNESSEE 38118
PROXY STATEMENT
For Annual Meeting of Shareholders, June 26, 2002
The enclosed proxy is solicited by the Board of Directors (the "Board"
or "Board of Directors") of Fred's, Inc. (the "Company" or "Fred's") to be voted
at the Annual Meeting of Shareholders to be held on June 26, 2002, at 10:00
A.M., Central Daylight Time, at the Memphis Marriott Hotel, 2625 Thousand Oaks
Boulevard, Memphis, Tennessee, or any adjournments 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.
The election of each director, the ratification of Ernst & Young LLP
as auditors, the approval of the amendment to the Charter of the Company and the
adoption of the 2002 Long Term Incentive Plan each requires approval by a
majority of the votes cast by the holders of Common Stock present in person or
by proxy and entitled to vote on that matter.
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, 2, 3 and 4. 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 24, 2002.
Voting Securities
Only shareholders of record at the close of business on May 3, 2002
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 25,539,313 shares of
Common Stock. All references to shares and share prices reflect the stock splits
effected on June 18, 2001 and February 1, 2002. Each share of Common Stock is
entitled to one vote for all matters before the Annual Meeting.
Ownership of Common Stock
by Directors,
Officers and Certain Beneficial Owners
The following table sets forth the beneficial ownership known to the
Company of Common Stock as of May 3, 2002, by (i) beneficial owners of more than
five percent of Common Stock, (ii) each director, (iii) each of the persons
named in the Summary Compensation Table, and (iv) all directors and executive
officers of Fred's as a group.
Shares of Common
Stock Beneficially Owned (1)
----------------------------
Number of Shares Percent(2)
---------------- ----------
Beneficial Owner Options(3) Total(4)
---------------- ---------- --------
Michael J. Hayes (5)(7) 10,937 1,880,576 7.2
David A. Gardner (6)(7) -- 1,677,893 6.4
John R. Eisenman 26,172 34,374 *
Roger T. Knox 32,030 39,192 *
John D. Reier 53,124 62,499 *
Thomas H. Tashjian 9,062 198,905 *
John A. Casey 13,750 33,671 *
Charles Brunjes 5,624 5,624 *
Reggie Jacobs 13,471 14,596 *
Jerry A. Shore 7,500 11,250 *
All Directors and Executive Officers
as a Group 11 persons including
the directors named above) 173,545 3,984,999 15.3
* Less than 1%
-----------------------
(1) 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.
(2) Calculated as the number of shares beneficially owned, divided by
26,093,180, which consists of the total outstanding shares of Common
Stock (25,539,313) and vested options (553,867) as of May 3, 2002.
(3) Represents stock options that are exercisable as of May 3, 2002.
(4) Includes stock options that are exercisable as of May 3, 2002.
(5) Includes 153,571 shares owned by Mr. Hayes' wife and 37,888 shares
owned by Memphis Retail Limited Partnership which are attributable to
Mr. Hayes and two of his children.
(6) Mr. Gardner was an officer and director of the Company until his death
on December 23, 2001. Mr. Gardner's widow is the beneficial owner of
these shares and of 169,690 shares which she owns in her own name.
(7) The address for all except Mr. Gardner is 4300 New Getwell Rd.,
Memphis, TN 38118. The address of the estate of Mr. Gardner is 445
Park Avenue, Suite 1600, New York, New York 10022.
FRED'S PROPOSAL 1 (ELECTION OF DIRECTORS)
Five 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. The Board of Directors proposes the election of the following nominees:
Principal Occupation,
Nominee Age Business and Directorships
------- --- --------------------------
Michael J. Hayes............................ 60 Director and Chairman
John R. Eisenman............................ 60 Director
Roger T. Knox............................... 64 Director
John D. Reier............................... 62 Director
Thomas H. Tashjian.......................... 47 Director
------------------------
Michael J. Hayes was elected a Director of the Company in January 1987
and has been a Managing Director of the Company since October 1989. Mr. Hayes
has been Chief Executive Officer since October 1989 and was named Chairman of
the Board in November 2000. 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
with REMAX Island Realty, Inc., located in Hilton Head Island, South 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
Sally's, 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 Company's initial public
offering in March 1992.
Roger T. Knox has served the Memphis Zoological Society as its
President and Chief Executive Officer since January 1989. Mr. Knox was the
President and Chief Operating Officer of Goldsmith's 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 Foley's Department Stores in Houston, Texas for
20 years. Mr. Knox has served as a Director since the Company's initial public
offering in March 1992. Additionally, Mr. Knox is a Director of Hancock Fabrics,
Inc.
John D. Reier is President and a Director. Mr. Reier joined the
Company in May of 1999 as President and was elected a Director of the Company in
August 2000. Prior to joining the company, Mr. Reier was President and Chief
Executive Officer of Sunny's Great Outdoors Stores, Inc. from 1997 to 1999, and
was President, Chief Operating Officer, Senior Vice President of Merchandising,
and General Merchandise Manager at Family Dollar Stores, Inc. from 1987 to 1997.
Thomas H. Tashjian was elected a Director of the Company in March
2001. Mr. Tashjian is a private investor. Previously, 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. Tashjian's
earlier retail operating experience was in discount retailing at the Ayrway
Stores, which were acquired by Target, and in the restaurant business at Noble
Roman's.
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 the Fred's Board of Directors,
unless the Board of Directors should decide to reduce the number of directors to
be elected at the Annual Meeting. Fred's has no reason to believe that any
nominee will be unable to serve as a director.
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
3, 2002, see "Ownership of Common Stock by Directors, Officers and Certain
Beneficial Owners". There are no family relationships between any directors or
executive officers of Fred's.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of reports of beneficial ownership of
Fred's Common Stock and written representations furnished to Fred's by its
officers, directors and principal shareholders, Fred's is not aware of any such
reporting person who or which failed to file with the Securities and Exchange
Commission (the "Commission") on a timely basis any required reports of changes
in beneficial ownership.
Audit Committee
The Audit Committee of the Board of Directors, which is comprised of
Messers. Eisenman, Knox and Tashjian, met five times during the last fiscal
year, and all Committee members were in attendance. Each of the members of the
Audit Committee is an Independent Director as defined by the National
Association of Securities Dealers' Automated Quotation System's listing
standard. Mr. Gardner served on the Committee until his death in December 2001.
Mr. Eisenman is the Chairman of the Audit Committee. The Board of Directors has
delegated to the Audit Committee responsibility for making recommendations
concerning the engagement of the independent public accountants; 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 Company's systems of internal controls regarding finance,
accounting, legal compliance and ethics that management and the Board have
established; and reviewing the Company's auditing, accounting, and financial
reporting processes generally. The management of the Company has the primary
responsibility for the financial statements and reporting process. The
accountants are responsible for conducting and reporting on the audit of the
Company's financial statements in accordance with generally accepted auditing
standards. The Company's independent accountants are ultimately accountable to
the Audit Committee and the Board of Directors. The Board of Directors has
adopted a written charter for the Audit Committee.
Review and Discussion of Financial Statements. In the context of the
role of the Audit Committee as outlined above, the Audit Committee has reviewed
and discussed the Company's audited financial statements for 2001 with
management of the Company. It has also discussed with PricewaterhouseCoopers LLP
those matters required by Statement of Auditing Standards 61. The Audit
Committee has received the written disclosures and the letter from
PricewaterhouseCoopers LLP as required by Independence Standards Board Standard
No. 1 and has discussed with PricewaterhouseCoopers LLP their independence,
including consideration of whether the payment to PricewaterhouseCoopers LLP of
other non-audit fees is compatible with maintaining their independence. Based
upon its review and discussions with Company management and
PricewaterhouseCoopers LLP, the Audit Committee has recommended to the Board of
Directors that Fred's, Inc. audited financial statements for fiscal 2001 be
included in the annual report on Form 10-K for 2001 filing with the Securities
and Exchange Commission.
Compensation Committee
The Compensation Committee reviews and approves the salaries and
incentive compensation of executive officers and recommends the grants of
stock-based incentive compensation under Fred's long-term incentive plans. The
Compensation Committee, which is comprised of Messers. Eisenman, and Knox, met
two times during the last fiscal year, and all Committee members were in
attendance. Mr. Knox is the Chairman of the Compensation Committee. Mr. Gardner
was a member of the Committee until his death in December 2001. 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.
Board of Directors
During the last fiscal year, Fred's Board of Directors held five
meetings. Messers. Hayes, Eisenman, Knox, Reier, and Tashjian attended all of
the Board meetings. Mr. Gardner served as director until his death in December
2001 and attended all Board meetings until then. Non-employee directors of
Fred's are paid for their services as such $12,000 per year plus reasonable
expenses for meeting attendance. The Board of Directors does not have a
nominating committee.
Executive Compensation
The following table sets forth the cash compensation paid, as well as
certain other compensation paid or accrued, to Fred's chief executive officers
and to each of the other five most highly compensated executive officers whose
aggregate cash compensation exceeded $100,000 during the indicated fiscal years
(the "Named Executives").
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
-------------------------- --------------------------
Awards
------
Restricted Option All Other
Name and Salary Bonus Stock Awards Awards
Compensation
Principal Position Year ($) (2) ($) ($)(1) (#) ($)
------------------ ----------- ----------- ----------- ----------- ----------- -----------
Michael J. Hayes 2001 195,710 -- -- 27,500 15,078 (3)
Managing Director and 2000 184,242 -- -- 32,813 --
Chief Executive Officer 1999 180,795 -- -- -- --
David A. Gardner (4) 2001 100,000 -- -- -- --
Managing Director 2000 120,000 -- -- -- --
1999 120,000 -- -- -- --
John D. Reier [5] 2001 197,860 84,000 -- 11,250 --
President 2000 190,461 -- -- 32,813 --
1999 101,552 -- 58,150 46,875 --
John A. Casey 2001 113,385 52,800 -- 5,000 --
Executive Vice President- 2000 110,097 -- -- 20,625 --
Pharmacy Operations 1999 105,000 -- -- -- --
Charles A. Brunjes (5) 2001 118,654 24,000 -- 7,500 --
Senior Vice President- 2000 59,711 -- -- 25,313 --
Store Operations
Reggie E. Jacobs 2001 108,654 36,000 -- 7,500 --
Senior Vice President- 2000 101,539 -- -- 15,313 --
Distribution 1999 77,019 14,000 -- 9,375 --
Jerry A. Shore (5) 2001 130,000 10,000 -- 5,000 --
2000 105,000 -- 29,750 16,875 --
-----------------------------
(1) The aggregate restricted stock holdings for the above named executive
officers, using the February 1, 2002 closing price of $27.97 per
share, net of any consideration to be paid, was as follows:
Number Value
----------- ------------------
John D. Reier 9,375 $262,191
John A. Casey -- --
Charles A. Brunjes -- --
Reggie E. Jacobs 1,125 $ 31,463
Jerry A. Shore 3,750 $104,888
No restricted stock awards vest in under three years from the date of
grant. All restricted stock holdings pay dividends at the same
dividend rate as the Company's other common stock.
(2) Fiscal 2000 salaries are based on 53 weeks. Includes Fred's
contributions to defined contribution plans (401(k) and Incentive
Plan).
(3) Consists of miscellaneous reimbursements.
(4) Payments for Mr. Gardner's services were made to Gardner Capital
Corporation under a contractual relationship between that company and
Fred's. Mr. Gardner was a managing director of the Company until his
death on December 23, 2001.
(5) Mr. Reier joined the Company on May 3, 1999. Mr. Brunjes joined the
Company on July 24, 2000. Mr. Shore joined the Company on April 17,
2000.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information on stock option grants
pursuant to the Fred's, Inc. 1993 Long-Term Incentive Plan during the last
fiscal year for each of the Named Executives, all current executive officers as
a group, the non-employee directors as a group and all other recipients as a
group. The Company has not granted any Stock Appreciation Rights ("SARs").
Individual Grants Potential Realizable
---------------------------------------- Value at Assumed
% of Total Annual Rates of
Options/ Options/SARs Exercise Stock Price
SARs Granted to or Base Appreciation for
Granted Employees Price Expiration Option Term (1)
-------------------------
Name (#) in Fiscal Year ($/Sh) Date 5% ($) 10% ($)
----------------- --------- -------------- --------- --------- --------- --------
Michael J. Hayes(2) 27,500 16.1% $18.53 10/09/06 $ 115,307 $ 260,143
John D. Reier(2) 11,250 6.6% $18.53 10/09/06 $ 47,171 $ 106,422
John A. Casey (2) 5,000 2.9% $18.53 10/09/06 $ 20,965 $ 47,299
Charles Brunjes(2) 7,500 4.4% $18.53 10/09/06 $ 31,447 $ 70,948
Reggie Jacobs(2) 7,500 4.4% $18.53 10/09/06 $ 31,447 $ 70,948
Jerry A. Shore (2) 5,000 2.9% $18.53 10/09/06 $ 20,965 $ 47,299
Executive Group
(7 persons) 63,750 $ 267,302 $ 603,059
Non-Executive
Director Group
(3 persons) 14,062 $ 42,033 $ 78,335
Non-Executive
Officer Employee
Group
(81 persons) 106,941 $ 339,645 $ 766,267
----------------------
(1) The potential gain is calculated from the closing price of Common
Stock on the date of grants until the end of the option period at
certain assumed rates of appreciation set by the Commission. They are
not intended to forecast possible future appreciation in the Common
Stock and any actual gains on exercise of options are dependent on the
future performance of the Common Stock.
(2) All options vest and are exercisable in one-third increments on each
of the first three anniversaries after the date of grant, and vesting
is also contingent upon both individual and Company performance
requirements having been met. The exercise price of all options is the
fair market value of the Common Stock at the time of the grant.
The following table shows the stock option exercises by the Named
Executives during the last fiscal year. In addition, this table includes the
number of exercisable and unexercisable stock options held by each of the Named
Executives as of February 2, 2002. The fiscal year-end value of "in-the-money"
stock options is the difference between the exercise price of the option and the
fair market value of the Common Stock (not including options with an exercise
price greater than the fair market value) on February 1, 2002 (the last trading
date before the fiscal year-end), which was $27.97 per share. No SARs have been
granted.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Number of Securities
Stock Option Exercises Underlying Unexercised Value of Unexercised
Shares Options/SARs In-The-Money Options
Acquired Value At Fiscal Year-end At Fiscal Year-end
on Exercise Realized ($)(1) Exercisable Unexercisable Exercisable Unexercisable
----------- --------------- ----------- ------------- ----------- -------------
Michael J. Hayes 37,889 511,167 -- 49,376 $ -- $ 696,316
John D. Reier -- -- 42,187 48,751 $ 898,504 $ 883,027
John A. Casey 17,578 186,327 6,875 18,750 $ 137,273 $ 321,731
Charles A. Brunjes -- -- 14,062 11,250 $ 280,776 $ 224,629
Reggie E. Jacobs 18,590 157,301 9,531 20,000 $ 170,749 $ 318,899
Jerry A. Shore -- -- 1,875 20,000 $ 37,438 $ 346,690
-------------------------
(1) "Value Realized" is the difference between the fair market value of
the underlying shares on the exercise date and the exercise price of
the option.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors of Fred's, Inc.
(the "Committee") hereby presents its report on executive compensation. This
Committee report documents the components of Fred's executive officer
compensation programs and describes the basis on which fiscal 2001 compensation
determinations were made by the Committee with respect to the executive officers
of Fred's, including the Named Executives.
Compensation Philosophy and Overall Objectives of Executive Compensation
Programs
It is the philosophy of Fred's that executive compensation be linked
to improvements in corporate performance and increases in shareholder value. The
following objectives have been adopted by the Committee as guidelines for
compensation decisions:
* Provide a competitive total compensation package that
enables Fred's to attract and retain key executives.
* Integrate all pay programs with Fred's annual and long-term
business objectives and strategy, and focus executive
behavior on the fulfillment of those objectives.
* Provide variable compensation opportunities that are linked
with the performance of Fred's and that align executive
remuneration with the interests of stockholders.
Compensation Program Components
The Committee reviews Fred's compensation program annually to ensure
that pay levels and incentive opportunities are competitive and reflect the
performance of Fred's. The particular elements of the compensation program for
executive officers are further explained below.
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 2001
for the Named Executives, based on performance and competitive considerations,
and the Committee acted in accordance with the recommendation.
Incentive Compensation - Fred's officers are eligible to participate
in an annual incentive compensation plan with awards based primarily on the
attainment of various specified levels of operating profits. The objective of
this plan is to deliver competitive levels of compensation for the attainment of
financial objectives that the Committee believes are primary determinants of
earnings growth. Targeted awards for executive officers of Fred's under this
plan are consistent with targeted awards of other retailing companies of similar
size and complexity to Fred's. Specified awards were recommended by the Chief
Executive Officer for the Named Executives of Fred's for fiscal 2001, based upon
the Company's performance, and the Committee acted in accordance with the
recommendation.
Fred's Stock Option Program - The Committee strongly believes that by
providing those persons who have substantial responsibility for the management
and growth of Fred's with an opportunity to increase their ownership of Common
Stock, the best interests of stockholders and executives will be closely
aligned. Therefore, executives are eligible to receive stock options from time
to time, giving them the right to purchase shares of Common Stock in the future
at a specified price. 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.
Discussion of Compensation for the Chief Executive Officer
The Committee has considered Chief Executive Officer's base salary,
incentive compensation and long-term incentives to be less than or equal to the
total compensation paid to other executives similarly situated, and has deemed
his beneficial ownership of Common Stock to provide adequate linkage between the
interests of Fred's stockholders and Mr. Hayes' personal interests.
Summary
After its review of all existing programs, the Committee continues to
believe that the total compensation program for executives of Fred's is
competitive with the compensation programs provided by other companies with
which Fred's 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 Fred's. 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 Fred's stockholders.
STOCK PRICE PERFORMANCE GRAPH
Comparison of Cumulative Total Return
The total cumulative return on investment assumes that $100 was
invested in Fred's, the Nasdaq Retail Trade Stocks Index and the Nasdaq Stock
Market (U.S.) Index on January 31, 1997 and that all dividends were reinvested.
Compensation Committee Interlocks and Insider Participation
Mr. Gardner served as a managing director of Fred's and as a member of
the Compensation Committee and Audit Committee until his death in December 2001.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE ELECTION OF
THE NOMINEES TO FRED'S BOARD OF DIRECTORS.
FRED'S PROPOSAL 2 (RATIFICATION OF SELECTION OF AUDITORS)
The Board of Directors has selected Ernst & Young LLP to be the
independent accountants of Fred's for the year ending February 1, 2003. The
Board of Directors will offer a resolution at the Annual Meeting to ratify this
selection. On May 9, 2002 the Company retained Ernst & Young LLP as the
Company's new independent auditors to audit the Company's financial statements.
A representative of Ernst & Young LLP is expected to be represented at the
Annual Meeting, 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 RATIFICATION OF
THE SELECTION OF ERNST & YOUNG LLP AS INDEPENDENT ACCOUNTANTS FOR FISCAL YEAR
2002.
Changes in Certifying Accountant
On May 9, 2002, the Company dismissed PricewaterhouseCoopers LLP
("PricewaterhouseCoopers") as its independent accountant and engaged Ernst &
Young LLP ("Ernst & Young") as its new independent accountant. The decision to
change the independent audit firm was recommended by the Company's Audit
Committee and approved by the Board of Directors.
The audit reports of PricewaterhouseCoopers on the consolidated
financial statements of the Company for the years in the two-year period ended
February 2, 2002 did not contain any adverse opinion or disclaimer of opinion,
nor were they qualified or modified as to uncertainty, audit scope, or
accounting principles.
During the two-year period ended February 2, 2002, and the subsequent
interim period ended May 9, 2002, there were no disagreements with
PricewaterhouseCoopers on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, which
disagreements if not resolved to PricewaterhouseCoopers' satisfaction, would
have caused them to make reference to the subject matter of the disagreement in
its reports on the consolidated financial statements for such years.
During the past two fiscal years and through May 9, 2002,
PricewaterhouseCoopers has not advised the Company of any reportable events (as
defined in Item 304(a)(1)(v) of Regulation S-K under the Securities Exchange Act
of 1934).
PricewaterhouseCoopers was provided a copy of the above disclosures,
also as set forth in the Company's Report on Form 8-K dated May 14, 2002 filed
with the Securities and Exchange Commission, and was requested to furnish the
Company with a letter addressed to the Commission stating whether it agreed with
the above statement and, if not, stating the respects in which it did not agree.
PricewaterhouseCoopers' letter concurring with the disclosures was filed as an
exhibit to such report. A representative of PricewaterhouseCoopers LLP is
expected to be represented at the Annual Meeting, will have the opportunity to
make a statement, if they desire to do so, and will be available to respond to
appropriate questions.
The Company engaged Ernst & Young as its new independent accountant as
of May 9, 2002. During the two year period ended February 2, 2002 and through
May 9, 2002, the Company has not consulted with Ernst & Young regarding any
matters specified in Items 304(a)(2)(i) or (ii) of Regulation S-K under the
Securities Exchange Act of 1934. Ernst & Young was also provided a copy of the
above disclosures. The Company has authorized PricewaterhouseCoopers to respond
fully to any inquiries from Ernst & Young relating to its engagement as the
Company's independent accountant.
Fees of Ernst & Young
Audit Fees. There were no fees billed by Ernst & Young in fiscal 2001
for audit services.
Financial Information System Design and Implementation Fees. There
were no fees billed by Ernst & Young in fiscal 2001 for financial information
systems design and implementation services.
All Other Fees. Ernst & Young billed the Company $13,000 in fiscal
2001 for all other services, such as tax-related advice and other expert
services.
Fees of PricewaterhouseCoopers
Audit Fees. PricewaterhouseCoopers billed Fred's $193,725 in fiscal
2001 for audit services and for review of its financial statements included in
its Forms 10-K and 10-Q for 2001.
Financial Information System Design and Implementation Fees. There
were no fees billed by PricewaterhouseCoopers in fiscal 2001 for financial
information systems design and implementation services.
All Other Fees. PricewaterhouseCoopers billed the Company $168,970 in
fiscal 2001 for all other services, such as tax-related advice, services
relating to a completed public offering, and other expert services.
FRED'S PROPOSAL 3 (TO AMEND THE COMPANY'S CHARTER TO INCREASE AUTHORIZED SHARES)
The Board of Directors has determined that it is in the best interests
of the Company and its shareholders to amend the Company's Charter to increase
the number of authorized shares of Class A voting common stock from 30,000,000
to 60,000,000 shares. Accordingly, the Board of Directors has unanimously
approved a proposal to so amend the Charter of the Company, and hereby
recommends that the Company's shareholders approve such an amendment. If this
proposal is approved by the shareholders, the first sentence of Section A of
Article Fourth of the Charter will be amended to read: "Sixty Million
(60,000,000) shares of Class A voting common stock, each having no par value."
Upon approval of this proposal, the Board of Directors intends to file
a Certificate of Amendment with the Secretary of State of the State of Tennessee
as soon as practicable. If the shareholders do not approve the Certificate of
Amendment, the existing Charter will continue in effect.
Currently, the Company has 30,000,000 authorized shares of common
stock. As of May 3, 2002, the number of outstanding shares was 25,539,313 and
there were 1,289,620 authorized shares reserved for issuance pursuant to the
Company's Incentive Stock Option Plan (including grants already made and shares
available for grant). See Proposal 4 for reserved shares if the 2002 Incentive
Stock Option Plan is approved. The number of authorized and unissued shares not
reserved for any specific use and available for future issuances was 3,171,067
as of May 3, 2002 (before the proposed increase in authorization shares), and
would be 33,171,067 after approval of the increase in authorized shares.
The objective of the increase in the authorized number of shares of
common stock is to ensure that the Company has sufficient shares available for
future issuances. The Board of Directors believes that it is prudent to increase
the authorized number of shares of common stock to the proposed level in order
to provide a reserve of shares available for issuance to meet business needs as
they arise. Such needs may include, without limitation, acquiring assets, goods,
or services for use or sale in the conduct of our business, converting preferred
stock, financings, establishing strategic relationships with corporate partners,
providing equity incentives to employees, officers or directors, or effecting
stock splits or dividends. The additional shares of common stock authorized may
also be used to acquire or invest in complementary businesses or products.
If the shareholders approve the proposed amendment, the Board of
Directors may cause the issuance of additional shares of common stock without
further vote of the shareholders of the Company, except as provided under
Tennessee corporate law or under the rules of any securities exchange on which
shares of Common stock are listed. Current holders of common stock have no
preemptive or similar rights, which means that current shareholders do not have
a prior right to purchase any new issue of common stock in order to maintain
their proportionate ownership thereof. An issuance of additional shares of
common stock would decrease the proportionate equity interest of the Company's
current shareholders and, depending upon the price paid for such additional
shares, could result in dilution to the Company's current shareholders.
THE BOARD OF DIRECTORS RECOMMENDS SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE
AMENDMENT TO THE COMPANY'S CHARTER.
FRED'S PROPOSAL 4 (ADOPTION OF 2002 LONG TERM INCENTIVE PLAN)
At the Fred's Annual Meeting, stockholders will be asked to approve
the adoption of the 2002 Long-Term Incentive Plan (the "2002 Plan"). The
Company's 1993 Long-Term Incentive Plan (the "Prior Plan") will expire, by its
terms, in January 2003. Moreover, the Compensation Committee of the Fred's Board
of Directors (the "Committee") expects that by January 2003 the Company will
have exhausted all shares available for grant under the Prior Plan. On March 11,
2002, the Fred's Board of Directors approved the proposed 2002 Plan and
recommended that it be submitted to Fred's stockholders for approval. No grants
have been made under the 2002 Plan. Upon adoption of the 2002 Plan by the
shareholders, no further grants will be made under the Prior Plan.
The 2002 Plan is substantially identical to the Prior Plan, except
that (i) the 2002 Plan would increase the number of shares of the Company's
Common Stock authorized for issuance by 2,067,496 shares, from the 332,504 now
available under the Prior Plan (but which would no longer be available for grant
if the 2002 Plan is adopted by the shareholders), to 2,400,000 shares, (ii) the
2002 Plan expiration date would be March 11, 2012, and (iii) the 2002 Plan
contains explicit language precluding the "repricing" of prior grants (i.e.,
adjusting or amending the exercise price of prior grants by whatever means).
Fred's long-term success depends upon its ability to attract, retain
and encourage dedicated, competent and resourceful key employees. To further
these goals, the Fred's Board of Directors adopted and stockholders approved the
Prior Plan in 1993, and in 1996 amended the Prior Plan to increase the number of
shares authorized for use under the Prior Plan.
The purpose of the Company having a long term incentive plan is to
direct the attention and efforts of participating employees to the long-term
performance of Fred's and its subsidiaries, by relating incentive compensation
to the achievement of long-term corporate economic objectives. The 2002 Plan is
also designed to retain, reward and motivate participating employees by
providing an opportunity for investment in Fred's and the advantages inherent in
stock ownership in Fred's. The Fred's Board of Directors believes that the
adoption of the 2002 Plan is necessary in order to recruit and retain a pool of
skilled and experienced employees.
Summary of the 2002 Plan
The following summary is qualified in its entirety by the full text of
the 2002 Plan, a copy of which may be obtained, without charge, by first class
mail within one business day of receipt of a written request to Secretary,
Fred's, Inc., 4300 New Getwell Road, Memphis, Tennessee 38118, or calling (901)
365-8880.
The 2002 Plan is administered by the Compensation Committee (the
"Committee"). Executive officers (8 persons), other key employees (approximately
350 persons) and non-employee directors (3 persons) of the Company and its
subsidiaries who can make substantial contributions to the Company's long-term
profitability and value are eligible to participate ("Participants") in the 2002
Plan.
The Plan provides for the grant of the following types of incentive
awards: stock options, stock appreciation rights, restricted stock, and
performance units. (As of May 3, 2002, Fred's has outstanding options and
restricted stock granted under the Prior Plan to approximately 360 employees and
directors.)
The Committee has the exclusive discretion to select the Participants
and to determine the type, size, and terms of each award, to modify the terms of
awards, to determine when awards will be granted and paid, and to make all other
determinations which it deems necessary or desirable in the interpretation and
administration of the Plan. The Plan remains in effect until all awards under
the Plan either have been satisfied by the issuance of shares of Fred's Common
Stock or the payment of cash or have expired or otherwise terminated; provided,
however, that no awards may be granted more than ten years after the date of the
Plan's approval. Generally, a Participant's rights and interest under the Plan
will not be transferable except by will or by the laws of descent and
distribution.
Options, which include non-qualified stock options and incentive stock
options, are rights to purchase a specified number of shares of Fred's Common
Stock at a price fixed by the Committee. The exercise price for stock options
issued under the Plan that qualify as incentive stock options within the meaning
of Section 422(b) of the Code shall not be less than 100% of the fair market
value as of the date of grant. The option exercise price may be satisfied in
cash or by exchanging shares of Fred's Common Stock owned by the optionee, or a
combination of cash and shares. If the exercise price is paid by tendering
shares of Fred's Common Stock, the Committee, in its discretion, may grant the
optionee a new stock option for the number of shares used to pay the exercise
price. The Committee has broad discretion as to the terms and conditions upon
which options granted shall be exercised. Options have a maximum term of ten
years from the date of grant. Options granted under the Prior Plan generally
have had a five-year term and become exercisable one-third on the first
anniversary, one-third on the second anniversary, and one-third on the third
anniversary.
Stock Appreciation Rights ("SAR") are rights to receive cash or
shares, or a combination thereof, as the Committee may determine, in an amount
equal to the excess of (i) the fair market value of the shares with respect to
which the SAR is exercised over (ii) a specified price which must not be less
than 100% of the fair market value of the shares at the time the SAR is granted,
or, if the SAR is granted in connection with a previously issued stock option,
not less than 100% of the fair market value of shares at the time such option is
granted.
SARs may be granted in connection with a previously or
contemporaneously granted stock option or independently. If a SAR is granted in
relation to a stock option, (i) the SAR will be exercisable only at such times
and by such persons as the related option is exercisable, and (ii) the grantee's
right to exercise either the related option or the SAR will be canceled to the
extent that the other is exercised. No SAR may be exercised earlier than six
months or later than ten years after the date of grant. The Committee may
provide in the SAR agreement circumstances under which SARs will become
immediately exercisable and may, notwithstanding the foregoing restriction on
time of exercise, accelerate the exercisability of any SAR at any time.
Awards of restricted shares under the 2002 Plan may be made at the
discretion of the Committee and consist of shares of stock granted to a
participant and subject to a stock restriction agreement. At the time of an
award, a Participant may have the benefits of ownership in respect of such
shares, including the right to vote such shares and receive dividends thereon
and other distributions subject to the restrictions set forth in the 2002 Plan
and in the stock restriction agreement. Any shares of Fred's Common Stock issued
as restricted shares are legended and may not be sold, transferred, or disposed
of until such restrictions have elapsed. Upon the expiration, lapse, or removal
of restrictions, shares free of restrictive legend will be granted to the
grantee. The Committee has broad discretion as to the specific terms and
conditions of each award, including applicable rights upon certain terminations
of employment.
Performance unit awards entitle grantees to future payments based upon
the achievement of pre-established long-term performance objectives. A
performance unit agreement will establish with respect to each unit award (i) a
performance period of not fewer than two years, (ii) a value for each unit which
will not thereafter change, or which may vary thereafter pursuant to criteria
specified by the Committee, and (iii) maximum and minimum performance targets to
be achieved during the applicable performance period. Under each agreement, the
grantee will be entitled to full value of a unit award for achievement of
maximum targets and a portion of a unit award for performance exceeding minimum
targets but less than maximum targets. The Committee has discretion to determine
the Participants to whom performance unit awards are to be made, the times in
which such awards are to be made, the size of such awards, and all other
conditions of such awards, including any restriction, deferral periods, or
performance requirements.
The Committee has the discretion to provide financing to a Participant
in a principal amount sufficient for the purchase of shares pursuant to an
option and/or to pay the amount of taxes required to be withheld in connection
with option exercises, awards of shares and performance unit awards. The
Committee also has the discretion to permit a Participant to satisfy such tax
withholding obligations, in whole or in part, by having the Company withhold
shares for the value equal to the amount of taxes required by law to be
withheld.
If there occurs a "Change in Control" of the Company, as defined in
the 2002 Plan, then any SAR outstanding for at least six months and any stock
options awarded and not previously exercisable and vested will become fully
exercisable and vested and all restrictions applicable to any restricted stock,
performance units or other stock-based awards will lapse.
In the event of any change in the outstanding Common Stock of the
Company by reason of a stock dividend or distribution, recapitalization, merger,
consolidation, reorganization, split-up, combination, exchange of shares or the
like, the Board of Directors, in its discretion, may adjust proportionately the
number of shares which may be issued under the 2002 Plan, the number of shares
subject to outstanding awards, and the option exercise price of each outstanding
option. The Board of Directors may also make such other changes in outstanding
options, SARs, performance units and restricted stock awards as it deems
equitable in its absolute discretion to prevent dilution or enlargement of the
rights of grantees, provided that any fractional shares resulting from such
adjustments will be eliminated.
The Board of Directors may terminate, amend, modify or suspend the
2002 Plan at any time, except that the Board of Directors may not, without the
authorization of the holders of a majority of the Company's outstanding shares,
increase the maximum number of shares which may be issued under the 2002 Plan
(other than adjustments pursuant to the 2002 Plan), extend the last date on
which awards may be granted under the 2002 Plan, extend the date on which the
2002 Plan expires, change the class of persons eligible to receive awards, or
change the minimum option price.
The 2002 Plan is not qualified under Section 401(a) of the Internal
Revenue Code.
Certain Plan Information
The following table reflects certain information about the Prior Plan
(the only equity compensation plan currently approved by the Company's
shareholders) as of February 2, 2002, the end of the Company's last fiscal year,
and the proposed 2002 Plan.
EQUITY COMPENSATION PLAN INFORMATION
Number of securities
remaining available for
Number of securities to be Weighted-average exercise future issuance under
issued upon exercise of price of outstanding equity compensation plans
outstanding options, options, (excluding securities
Plan category warrants and rights (1) warrants and rights (2) reflected in column (a))
------------- ------------------- ------------------- ------------------------
(a) (b) (c)
Equity compensation plans
approved by security
holders. . . . . 957,116 $9.31 332,504 (3)(4)
Equity compensation plans
not approved by security
holders (5). . . -0- -0- -0- (5)
Total. . . . . 957,116 $9.31 332,504
--------------------
(1) Reflects Prior Plan stock options only. The Company has not
issued any SARs or performance units under the Prior Plan.
(2) The closing price of the Company's Common Stock on May 3,
2002 was $40.10.
(3) Upon adoption of the 2002 Plan by the shareholders, no
further grants will be made under the Prior Plan.
(4) Does not include 15,339 shares of restricted stock issued
and outstanding which were granted under the Prior Plan. If
the restrictive terms are not met by any Participant, the
Participant's restricted shares would revert to the status
of unissued shares, but would be available for future grant
under the Prior Plan (if the 2002 Plan is not approved by
the shareholders) or under the 2002 Plan (if the 2002 Plan
is approved by the Shareholders).
(5) No such plan at February 2, 2002. The 2002 Plan, if adopted
by the shareholders, would cause there to be a total of
2,400,000 shares available for future issuance, plus any
shares reverting from restricted issuance. See footnotes (3)
and (4) above.
Information regarding grants made under the Prior Plan during the
fiscal year ended February 2, 2002 is presented above on page 7 in the table
"Options/SAR Grants in the Last Fiscal Year." It is not possible to determine
the amounts or benefits that might be allocated or received in the future by any
person covered by the 2002 Plan, nor is it possible to determine the amounts or
benefits that would have been allocated or received during the last completed
fiscal year if the 2002 Plan had been in effect
Federal Income Tax Consequences
(1) Options: No income will be realized by an optionee upon the
optionee's purchase of shares pursuant to the exercise of an Incentive Stock
Option. In order to avail himself of this tax benefit, the optionee must not
dispose of the shares before he has held such shares for at least one year after
the date of exercise and at least two years after the date of grant. Assuming
compliance with this and other applicable tax provisions, an optionee will
recognize long-term capital gain or loss when the optionee disposes of the
shares, measured by the difference between the option price and the amount
realized for the shares at the time of disposition. If the optionee disposes of
shares purchased upon the exercise of the option before the expiration of the
above-noted periods, any amount realized from such disqualifying disposition
will be taxable as ordinary income in the year of disposition to the extent of
the lesser of the spread between the option price and the fair market value of
the shares at the time the option is exercised, or to the extent the optionee
would recognize a loss on the disposition, the excess of the amount realized
over the option price. Any amount realized in excess of the fair market value of
the shares on the date of exercise will be treated as long- or short-term
capital gain, depending upon the holding period of the shares. No deduction will
be allowed to the Company for federal income tax purposes at the time of the
grant or exercise of an Incentive Stock Option. At the time of a disqualifying
disposition by an optionee, the Company will be entitled to a deduction for the
amount taxable to the optionee as ordinary income. Although the exercise of an
Incentive Stock Option does not result in current taxable income, the difference
between the fair market value of the shares at the time the option is exercised
and the option price will be considered as Alternative Minimum Tax income.
The exercise of a Nonqualified Stock Option will result in the
recognition of ordinary income by the optionee for federal income tax purposes
in an amount equal to the difference between the option price and the fair
market value of the shares acquired upon the exercise of the option. The Company
will be entitled to a deduction equal to the amount of income recognized by the
optionee. Upon the later sale of any shares acquired upon the exercise of a
Nonqualified Stock Option, any amount realized by the optionee in excess of (a)
the amount recognized by the optionee as ordinary income plus (b) the option
price, will be treated as long- or short-term capital gain to the optionee,
depending upon the holding period of the shares.
(2) SARs: A grantee of a SAR will realize ordinary income upon the
exercise of a SAR equaling the amount of cash received or the current fair
market value of stock acquired less any exercise price paid, and the Company
will receive a corresponding deduction. Upon subsequent disposition of any
shares received, any gain or loss will be a long- or short-term capital gain or
loss depending upon the applicable holding period.
(3) Restricted Stock: The federal income tax consequences of
restricted stock awards will depend on the facts and circumstances of each
restricted stock award, and in particular, the nature of the restrictions
imposed with respect to the stock which is the subject of the award. In general,
if the stock is non-transferable and subject to a "substantial risk of
forfeiture", i.e., if rights to full enjoyment of the benefit of ownership of
the stock are conditioned upon the future performance of substantial services by
the grantee, a taxable event occurs only when the risk of forfeiture ceases or
the stock becomes transferable. At such time, the grantee will realize ordinary
income to the extent of the excess of the fair market value of the stock on that
date over the grantee's cost for such stock, and the Company will be entitled to
a deduction in the same amount. Under certain circumstances, the grantee can
accelerate the taxable event with respect to the stock, in which event the
ordinary income amount and the Company's deduction will be measured as of the
date stock is deemed to have been transferred to the grantee. If the
restrictions with respect to stock which is the subject of a restricted stock
award do not subject the grantee both to a "substantial risk of forfeiture" of
the stock and restrictions on transferability, then the grantee will realize
ordinary income with respect to the stock to the extent of the difference at the
time of the transfer of the stock to the grantee between the fair market value
of the stock and the grantee's cost therefor, and the Company will be entitled
to a deduction in the same amount. Subsequent to the determination and
satisfaction of the ordinary income tax consequences, any further gain or loss
realized on the subsequent disposition of such stock will be a long- or
short-term capital gain or loss depending upon the applicable holding period.
(4) Performance Unit Awards: A grantee of a performance unit award
will realize ordinary income upon receipt equaling the amount of cash or the
current market value of the stock received, and the Company will receive a
corresponding deduction. Upon subsequent disposition of any shares received, any
gain or loss will be a long- or short-term gain or loss depending upon the
applicable holding period.
The foregoing description of tax consequences is based upon present
federal income tax laws and is subject to change as the laws change. The summary
does not cover any foreign, state or local tax consequences of participation in
the 2002 Plan.
THE BOARD OF DIRECTORS RECOMMENDS SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE
2002 LONG TERM INCENTIVE PLAN.
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 will act in
respect thereof in accordance with their best judgment.
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be included in the proxy statement
and presented at the 2003 Annual Meeting must be received by the Company no
later than January 14, 2003, and the proposals must meet certain eligibility
requirements of the Securities and Exchange Commission. Proposals may be mailed
to Fred's, Inc., to the attention of the Secretary, 4300 New Getwell Road,
Memphis, Tennessee 38118. With regard to shareholder proposals not included in
the Company's proxy statement which a shareholder wishes to be brought before
the annual meeting of shareholders, notice of such a proposal must be received
by the Secretary of the Company by March 30, 2003.
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 the mails, 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 COMPANY'S ANNUAL REPORT ON FORM
10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WITHOUT CHARGE (EXCEPT
FOR EXHIBITS), BY WRITING TO: FRED'S INC., ATTN: SECRETARY, 4300 NEW GETWELL
ROAD, MEMPHIS, TENNESSEE 38118.
By order of the Board of Directors,
Charles S. Vail
Secretary
May 24, 2002
FRED'S, INC.
Memphis Marriott Hotel
2625 Thousand Oaks Boulevard
Memphis, Tennessee
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS - JUNE 26, 2002
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
Fred's, Inc., to be held June 26, 2002, at 10:00 a.m., local 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.
[ ] FOR all nominees listed below [ ] WITHHOLD ALL AUTHORITY *
(except as marked to the contrary below) to vote for all nominees listed below
*INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
THROUGH THE NOMINEE'S NAME BELOW.
Michael J. Hayes John R. Eisenman Roger T. Knox
John D. Reier Thomas H. Tashjian
2. Ratification of Ernst and Young, LLP as independent auditors of the
Company.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approve the amendment of the Company's Charter to increase authorized
shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Adoption of the 2002 Long Term Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. 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" EACH OF THE LISTED PROPOSITIONS.
WHEN PROPERLY EXECUTED, THIS PROXY SHALL BE VOTED AS DIRECTED. IN THE ABSENCE OF
A CONTRARY DIRECTION, IT SHALL BE VOTED FOR THE PROPOSALS AND THE PROXIES MAY
VOTE IN THEIR DISCRETION UPON SUCH OTHER MATTERS AS PROPERLY MAY 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.
Dated: , 2002
--------------------------
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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.