Exhibit 99.1
EMPLOYMENT AGREEMENT
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OF
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BRUCE A. EFIRD
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AGREEMENT (this "Agreement"), dated as of September 22, 2007, by and
between FRED'S, INC., a Tennessee corporation, with offices at 4300 New Getwell
Road, Memphis, Tennessee 38118 ("Company") and Bruce A. Efird, whose address is
("Executive").
In consideration of the mutual covenants and conditions herein set
forth, the parties hereto agree and each of them agrees as follows:
1. Company hereby agrees to employ Executive to serve as its
"President", for a term of two (2) years commencing from and after September 22,
2007 (the "Initial Term"). At the end of the Initial Term and at the end of each
successive Additional Term (defined below), the term of this Agreement shall be
automatically extended annually for an additional one (1) year term (each an
"Additional Term"), unless either party shall have given to the other written
notice of termination at least six (6) months prior to the end of the then
current term (which termination shall become effective at the end of the then
current term).
2. Executive agrees to serve as Company's "President" during the term
of this Agreement. As such, Executive shall have and agrees to assume primary
responsibility (subject at all time to the control of the Chairman of the Board
of Company) for matters assigned to him by the Chairman of the board. In the
performance of such duties, Executive agrees to make available to Company all of
his professional and managerial knowledge and skill and such portion of his time
as may be required for the proper fulfillment of his duties. In addition, during
the term of this Agreement, Executive shall continue to serve in the aforesaid
capacity and in such other offices and capacities to which he may be appointed
or elected by the Board of Directors of Company.
3. (a) As compensation for all of the services to be performed
hereunder, Company agrees to pay and Executive agrees to accept an annual base
salary of $595,000 commencing the date of this Agreement. Provided, however,
that Executive's annual base salary shall be increased to $650,000 when and if
he is elected to the office of Chief Executive Officer of the Company. The
annual base salary of Executive during the term of this Agreement shall be
reviewed annually and shall be subject to upward adjustment from the aforesaid
level at the discretion of the Board of Directors of Company. Executive's
compensation will be paid in conformity with Company's practice for payment of
its executives' compensation, as such practice may be established or modified
from time to time. Company will make available to Executive such benefits on the
same terms as are or shall be granted or made available by Company to its other
executive employees, to the extent that Executive shall become qualified or
eligible for such employee benefits or any of them; provided, however, that
Executive shall be eligible to take four (4) weeks of vacation as of September
22, 2007, and Executive shall accrue vacation at the rate of four (4) weeks per
annum in accordance with Company's vacation plan; provided further, that
Executive shall not accrue more than four (4) weeks of vacation. In addition,
Executive shall be considered for any bonus awards for his position on the same
basis as are other executives of Company in the Corporate Cash Incentive Plan.
(b) Executive shall be eligible to receive an incentive bonus of
40% - 100% of Executive's annual base salary. The actual amount of the bonus
will be based upon the achievement of specified core goals in conjunction with
Company reaching a set earnings per share level. Eligibility to receive a bonus
under this paragraph shall be contingent upon Executive remaining in continuous
service and in good standing throughout the performance year period and up to
the payment date. It is anticipated that bonuses under this section, if any,
will be paid on or before April 15 following the applicable performance year.
Company may modify or terminate its bonus programs at its discretion; provided,
however, that such termination or modification shall not impact any bonus earned
in the performance year in which the termination or modification occurs.
(c) Other benefits:
(i) Company shall grant to Executive options to purchase the
number of shares of Company's common stock equal to
$2,600,000 divided by the fair market value (calculated as
the average of day's market price as of the grant date). The
options shall be exercisable at their fair market value as
of the grant date and shall vest as to 20% of the options on
September 22, 2008 and as to 20% of the options each
successive anniversary date (becoming fully vested on
September 22, 2012).
(ii) Company shall issue 25,000 shares of Company's restricted
common stock, which represents a sign on bonus. The shares
shall be issued as of September 22, 2007. The restrictions
of the restricted stock shall lapse on September 22, 2012.
(iii) Subject to Board approval, Company shall issue 10,000 shares
of Company's "Super Bowl" restricted common stock. The
restrictions to the restricted stock shall lapse according
to the "Super Bowl" plan, provided, however, that if any
restrictions have not lapsed theretofore under the terms of
the "Super Bowl" plan, on the date seven (7) years from the
date of the grant the restrictions shall lapse if Executive
continues to be employed by Company on that date.
(iv) Upon being named Fred's CEO, Company shall grant to
Executive options to purchase the number of shares of
Company's common stock equal to $1,400,000 divided by the
fair market value (calculated as the average of day's market
price as of the grant date). The options shall be
exercisable at their fair market value as of the grant date
and shall vest as to 20% of the options on the first
anniversary of the grant date and as to 20% of the options
each successive anniversary date (becoming fully vested on
the fifth anniversary date of the grant date).
(v) Company shall assign a relocation specialist to work with
Executive and his family on relocating from Ada, MI to the
greater Memphis, TN Area. Fred's will provide reimbursement
for the reasonable packaging and transportation expenses of
Executive's basic household items. If Executive voluntarily
terminates his employment prior to completing two (2) years
of employment, Executive shall reimburse Company for the
relocation reimbursements provided pursuant to this
paragraph.
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(vi) Company shall purchase Executive's home in Ada, MI if
necessary after satisfaction of the terms and conditions of
this paragraph. Executive shall select two real estate
agents and cause two inspections and relocation appraisals
of Executive's home. Executive shall provide the names of
the selected real estate agents. The fair market value of
the home for the purposes of this Agreement shall be deemed
to be the mean of the two appraisals. Executive shall select
a real estate agent to list the home and inform Company of
the real estate agent selected.
Executive shall market his home for 120 days from the list
date. If the home is not under contract for sale within 120
days from the list date, then Company shall purchase, and
Executive shall accept, the purchase price in the amount
equal to the fair market value of the home.
As incentive for Executive to sell his home without resort
to this paragraph, if Executive sells his home within 120
days from the listing date, Company shall pay Executive a
selling bonus equal to 5% of the net selling price (less any
cash concessions). The selling bonus shall be capped at
$50,000 and shall be payable to Executive upon closing of
the sale of the home. Payment of the selling bonus shall be
subject to all applicable Federal, State, and local tax
withholding.
If within 100 days of the listing date, and prior to making
any counteroffer, Executive shall notify and provide details
to Jamie Naughton, an employee of Company, of declining any
offer. If any offer by a prospective buyer equals or exceeds
the fair market value under this paragraph, then Company
shall not be obligated to purchase Executive's home.
If Company purchases Executive's home after the initial 120
after the listing date, Executive shall execute the sales
contract and warranty deed and shall vacate the premises
within thirty (30) days from the date such documents are
signed.
(vii) Executive shall be eligible for Company's health and dental
coverage, life insurance, flexible spending accounts, and
other company benefits commencing on September 22, 2007.
Company shall provide to Executive with up to $4,000 in
healthcare reimbursement to offset incurred approved
healthcare expenses. These funds will be prorated for the
remaining portion of 2007 year. This plan is subject to IRS
flexible spending account guidelines; therefore, currently,
the unused funds will not roll over to the next calendar
year.
(viii)As soon as practicable after September 22, 2007, Company
shall purchase a term life insurance policy in Executive's
name for twice Executive's annual salary. This policy shall
be capped at one million ($1,000,000) dollars. Executive
shall name the policy's beneficiary/beneficiaries.
(ix) Executive shall be eligible to participate in Company's
401(K) plan and the Employee Stock Purchase Plan after
meeting the eligibility requirements of each.
(x) Company shall provide two (2) paid trips to Memphis, TN for
Executive and his spouse to work with a corporate realtor.
Such expenses that shall be paid by Company included, but
are not limited to, airfare, accommodations, and normal
house-hunting expenses.
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(xi) Company shall provide to Executive temporary housing in the
Memphis, TN area for no less than 180 days, but no more than
one (1) year.
4. Company shall reimburse Executive, upon the submission of receipts
or vouchers therefore, for all necessary expenses and disbursements reasonably
incurred by him for the proper performance of his duties as President of
Company. Executive, as a condition to such reimbursement, shall submit reports
of such expenses and disbursements to the chief financial officer of Company (i)
not later than one month from the date such expenses and disbursements are
incurred and determinable and (ii) in a form and with such detail as will
constitute a proper record of tax deductible expenses, (iii) together with
proper vouchers and receipts therefore.
5. (a) This Agreement shall continue unless and until terminated by
either party, (i) with or without cause, upon written notice of termination and
effective as provided in Section 1 above, or (ii) for cause, effective upon not
less than thirty (30) days prior written notice to the other (except that such
notice of termination may be effective immediately in the case of termination by
Company for cause, for acts of Executive involving moral turpitude, or for
Executive's breach of duty of loyalty).
(b) If, during any term of this Agreement, Executive shall become
unable to perform his duties by reason of illness or incapacity, then Company,
may, at its option, terminate this Agreement. In such event, the notice period
shall be not less than the applicable elimination period in any employee
disability plan of Company in which Executive participates.
(c) Unless otherwise provided, if, during any term of this
Agreement, Company terminates this Agreement for any reason, or Executive dies,
whether at or prior to the end of the Initial Term or any Additional Term, then
and in that event, the sole payments to which Executive, his heirs, legatees and
legal representatives shall be entitled shall be payment to Executive of the
compensation herein provided (i.e., base salary) paid in accordance with salary
payment policy for the balance of that Initial Term or Additional Term;
provided, however, that all of Executive's stock options and the 25,000 shares
of restricted stock granted to Executive upon signing on shall accelerate and
immediately vest and be payable to Executive or his heirs, legatees and legal
representatives. If Executive terminates this Agreement for Cause, Executive
shall be entitled to payment of the compensation herein provided for the balance
of the Initial Term or Additional Term; provided, however, such compensation
shall not be less than six (6) months salary, nor more than twelve (12) months
salary; and, provided, further, that all of Executive's stock options and the
25,000 shares of restricted stock granted to Executive upon signing on shall
accelerate and immediately vest and be payable to Executive. Upon payment under
this paragraph, Company shall have no further obligations or liabilities under
this Agreement, except as provided in subsection (d) immediately below.
(d) Such extended pay benefits provided pursuant to subsection (c)
immediately above shall (i) not be paid or provided in the event Executive is
terminated for cause or violates Section 6 of this Agreement, and (ii) be
reduced (except upon termination of this Agreement by Executive for cause) to
the extent that Executive receives compensation from alternate employment.
Executive covenants to use reasonable efforts to find and to accept such
alternate employment, subject to the limitation of Section 6 below, with
compensation and benefits comparable to that provided under this Agreement.
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(e) "Cause", for purposes of this Agreement and as invoked by
Company, shall be deemed to be (i) conviction for a felony, (ii) refusal to
perform the duties of his employment, (iii) misconduct or negligence in the
performance of the duties of his employment, (iv) violation of his duty of
loyalty to Company, (v) violation of Section 6 of this Agreement or (vi) failure
to provide the release referred to in Section 11 in form and substance
satisfactory to Company. "Cause", for purposes of this Agreement and as invoked
by Executive, shall be deemed to be (x) failure of Company to pay the
compensation required to be paid or to provide the benefits required to be
provided by Company hereunder, (y) upon a Change in Control, the relocation of
Company's primary place of business or the relocation of Executive by Company
more than 50 miles from Company's present office; or (z) beginning six (6)
months after a Change in Control of Company, Company's material reduction in
Executive's authority, perquisites, position, title or responsibilities (other
than such a reduction by Company for cause, because of a temporary illness or
disability or such a reduction which affects all of Company's senior executives
on a substantially equal or proportionate basis as a result of financial
results, conditions, prospects, reorganization, workout or distressed condition
of Company); provided, however in each and every case as to (x), (y), or (z),
Executive shall provide 30 days' prior written notice to Company of his intent
to terminate this agreement and the Board of Directors and Company shall have 30
days after such notice to cure such reduction or violation.
(f) "Change in Control", for purposes of this Agreement, shall
mean (a) the transfer of ownership (whether directly, indirectly, beneficially
or of record) of shares in excess of twenty percent (20%) of the outstanding
shares of Common Stock of Company by a person or group of persons (including
without limitation, a company, trust, partnership, joint venture, individual or
other entity) for the purpose of affecting control of Company or other than in
the ordinary course of trading, (b) the merger or consolidation into, or sale of
assets of Company to, another company (i.e., where Company is not the surviving
and operating company, or where the stockholders of Company prior to such
transaction(s) do not own at least fifty-one percent (51%) of the outstanding
common stock of the surviving company after such transaction(s) or (c) the
persons who are directors of Company as of the date hereof cease to constitute a
majority of the Board of Directors of Company during any 12-month period after a
transaction described in (a) or (b). Upon any Change in Control of Company, all
of Executive's stock options and the 25,000 shares of restricted stock granted
to Executive upon signing on shall accelerate and immediately vest and be
payable to Executive.
(g) In the event that this Agreement is terminated and any amounts
that are due to Executive under this Agreement (i) constitute "parachute
payments" within the meaning of Section 280G of the Internal Revenue Code, as
amended (the "Code"), and (ii) but for this paragraph, would be subject to the
excise tax imposed by Section 4999 of the Code, then the amounts due under this
Agreement to Executive shall be either: (i) delivered in full, or (ii) delivered
as to such lesser extent as would result in no portion of such amounts being
subject to excise tax under Section 4999 of the Code, whichever of the foregoing
amounts, taking into account the applicable federal, state, and any local income
taxes and the excise tax imposed by Section 4999 of the Code, results in the
receipt by the Executive on an after-tax basis, of the greatest amount of
severance benefits, notwithstanding that all or some portion of such amounts due
may be taxable under Section 4999 of the Code. Unless Company and the Executive
otherwise agree in writing, any determination required under this paragraph
shall be made in writing by Company immediately prior to a Change in Control.
Executive shall furnish to Company such information and documents as may
reasonably necessary in order to make a determination under this paragraph.
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(h) In the event that this Agreement is terminated and any amounts
are due to Executive under this paragraph 5, the amount of such payments shall
not exceed the amount provided in Section 1.409A-1(b)(9)(iii) of the Treasury
Regulations, an amount which is two times the lesser of (a) the Executive's
annualized compensation based on the Executive's annual compensation from the
Company for the tax year preceding the termination (with certain adjustments),
and (b) the maximum amount under Section 401(a)(17) of the Internal Revenue
Code. Any payments due to Executive under this paragraph 5 shall be paid in
accordance with paragraph 5(c) above except that in no event shall any payment
be made later than the last day of the second taxable year following year in
which termination occurs.
6. For a period of twelve (12) months from and after any termination of
this Agreement (other than by Company pursuant to Section 1, and other than by
Executive for Cause) (the "Non-compete Period"), Executive shall not, directly
or indirectly, in any capacity, (i) engage in any activity in competition with
Company, whether Executive is self-employed or employed by any person or entity
(whether on a full-time or part-time basis or as a consultant or other
independent contractor) which is engaged in or plans to engage in any phase of
the discount retail sales or pharmacy businesses, through any retail outlet(s)
located or to be located within 25 miles of any retail outlet(s) operated or
franchised by Company (a "Prohibited Activity"), or (ii) own any interest in any
entity which engages in any Prohibited Activity (unless such entity is an entity
whose equity is publicly traded and such ownership is less than 5%).
7. Except as instructed by Chairman of Board or as necessary in the
course of his employment hereunder, Executive covenants and agrees that he shall
not at any time during the term of this Agreement or during the year following
the termination of his employment hereunder, directly or indirectly, use,
disseminate, disclose, publish or transfer any Confidential Information to any
persons other than then current employees of Company. As used herein, the term
"Confidential Information" shall mean all customer and correspondence lists,
reports, vendor lists, purchase or pricing information, sales or indexing
information, employee names, marketing strategies and plans, store location and
layout plans, planograms, trade secrets, know how, marketing or merchandising
information, and statistical data, arising from or relating to the business of
Company and received or developed by Executive during the term of his employment
hereunder, whether in the form of oral communications, writings, discs,
diskettes, charts, computer cards, memory or tapes, or embodied in any other
form whatsoever. Further, Executive covenants and agrees that he shall not at
any time during the term of this Agreement or during the year following the
termination of his employment hereunder, directly or indirectly, solicit, hire,
or cause to be solicited or hired by any other person or entity or employee or
agent of Company without the prior written consent of Company.
8. This Agreement is personal in nature and is not assignable by
Executive or by Company except that Company, its successors and assigns,
including any other entity which succeeds to its business, whether by
acquisition, reorganization, merger, consolidation or other similar event, shall
be bound by the terms hereof and shall enjoy the benefits hereof.
9. This Agreement contains the entire understanding of the parties and
all prior or contemporaneous oral or written understandings of the parties with
relation thereto are void and of no effect whatsoever. Except as herein
provided, no amendment, change or modification of any of the terms hereinabove
contained shall be binding unless set forth in writing signed by the party to be
charged. Executive acknowledges and agrees that the breach of any covenant
contained herein would cause Company irreparable damage, and that the remedy at
law for such a breach would be inadequate, and that this Agreement may be
specifically enforced. Remedies available hereunder or otherwise shall not be
exclusive, but shall be cumulative. If any one or more of the provisions
contained in this Agreement shall for any reason be held invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, but it shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein. This Agreement has been executed and shall be performed in the
State of Tennessee, and shall be construed and interpreted in accordance with
the laws thereof. In the event it should become necessary for either party to
initiate any suit or proceeding to enforce the terms of this Agreement, the
party adjudged to be in breach shall pay all costs and expenses thereof,
including reasonable attorneys' fees.
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10. All notices required hereunder shall be deemed to have been duly
given only if contained in writing and mailed Certified Mail, Return Receipt
Requested, to the parties at the respective addresses hereinabove set forth or
to such other address as they may have designated.
11. Executive hereby represents and warrants to Company that Executive
is under no legal impediment or restraint, whether under contract or
non-competition or otherwise, which would cause him or Company to be or become
liable to any other party for costs or damages or subject to injunction or other
equitable relief, if Executive and Company were to perform their respective
duties and exercise their respective rights under this Agreement.
[signature page follows]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
WITNESS: FRED'S, INC.
s/s Connie Braun By: s/s Michael J. Hayes
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MICHAEL J. HAYES, Chief Executive Officer
WITNESS:
s/s Jamie Naughton s/s Bruce A. Efird
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BRUCE A. EFIRD, Executive
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