SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to
Section 240.14a-11(c) or Section 240.14a-12
FAMILY DOLLAR STORES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No Fee Required
[ ] Fee computed on table below per Exchange Act
Rules 14a-6(i)(1) 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:
<PAGE>
FAMILY DOLLAR STORES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 21, 1999
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Family Dollar Stores, Inc. (the Company), will be held at 2:00 o'clock
p.m. on Thursday, January 21, 1999, at the office of the Company at
10401 Old Monroe Road, Matthews, North Carolina, for the following
purposes:
(1) To elect a Board of seven directors;
(2) To ratify the action of the Board of Directors
in selecting PricewaterhouseCoopers LLP as
independent accountants to audit the
consolidated financial statements of the Company
and its subsidiaries for the current fiscal
year; and
(3) To transact such other business as may properly
come before the meeting or any adjournments
thereof.
The Board of Directors has fixed the close of business on
November 23, 1998, as the record date for the determination of
Stockholders entitled to notice of and to vote at the meeting or
any adjournments thereof. The voting list of Stockholders will be
available for inspection in accordance with the By-Laws at the
Company's office at 10401 Old Monroe Road, Matthews, North Carolina,
at least ten days prior to the meeting.
Each Stockholder who does not plan to attend the meeting is
requested to date, sign and return the accompanying proxy in the
enclosed postage-paid return envelope.
By Order of the Board of Directors
GEORGE R. MAHONEY, JR.
Executive Vice President-
General Counsel and Secretary
Matthews, North Carolina
November 25, 1998
<PAGE>
FAMILY DOLLAR STORES, INC.
Post Office Box 1017
Charlotte, North Carolina 28201-1017
PROXY STATEMENT
This Proxy Statement is furnished to the holders of the Common
Stock of Family Dollar Stores, Inc. (the Company) in connection with
the solicitation on behalf of the Board of Directors of the Company of
proxies to be used in voting at the Annual Meeting of Stockholders to
be held on January 21, 1999, or any adjournments thereof. This Proxy
Statement and the enclosed proxy were first sent to Stockholders on or
about November 25, 1998.
The enclosed proxy is for use at the meeting if the Stockholder
will not be able to attend in person. Any Stockholder giving a proxy
may revoke it at any time before it is exercised by delivering written
notice of such revocation to the Secretary of the Company or by
attending the meeting and voting. All shares represented by valid
proxies received pursuant to this solicitation and not revoked before
they are exercised will be voted in the manner specified therein. If
no specification is made, the proxies will be voted in favor of:
1. The election to the Board of Directors of the seven
nominees named in the Proxy Statement; and
2. The ratification of the action of the Board of
Directors in selecting PricewaterhouseCoopers LLP as
independent accountants to audit the consolidated
financial statements of the Company and its
subsidiaries for the current fiscal year.
The presence, in person or by proxy, of the holders of a majority
of the shares entitled to vote is necessary for a quorum at the
meeting. Directors are elected by a plurality of the votes of shares
present in person or represented by proxy at the meeting. The
ratification of the selection of the accountants requires the
affirmative vote of a majority of shares present or represented by
proxy at the meeting and entitled to vote in respect thereto.
Abstentions will be counted for the purpose of determining the
existence of a quorum and will have the same effect as a negative vote
on matters other than the election of directors. If a nominee holding
shares for a beneficial owner indicates on the proxy that it does not
have discretionary authority as to certain shares to vote on a
particular matter or otherwise does not vote such shares, these shares
will not be considered as present and entitled to vote in respect to
that matter, but will be counted for the purpose of determining the
existence of a quorum.
<PAGE>
The cost of soliciting proxies for the meeting will be borne by
the Company. In addition to solicitation by mail, arrangements may be
made with brokerage firms, banks and other custodians, nominees and
fiduciaries to send proxy material to their principals. The Company
will reimburse these institutions for their reasonable costs in doing
so. No solicitation is to be made by specially engaged employees or
other paid solicitors.
Only the holders of Common Stock of record at the close of
business on November 23, 1998, will be entitled to vote at the
meeting. On such date, 172,256,848 shares of Common Stock were
outstanding and Stockholders will be entitled to one vote for each
share held.
<PAGE>
OWNERSHIP OF THE COMPANY'S SECURITIES
OWNERSHIP BY DIRECTORS AND OFFICERS
The following table sets forth, with respect to each
director of the Company, each of the executive officers named in
the Summary Compensation Table and all executive officers and
directors as a group, the number of shares beneficially owned and
the percent of Common Stock so owned, all as of November 1, 1998:
<TABLE>
<CAPTION>
Amount and
Nature of Beneficial Percent of
Name Ownership (1) Class
<S> <C> <C>
Leon Levine 16,737,622 (2) 9.7%
Howard R. Levine 10,260,462 (3) 6.0%
R. James Kelly 6,000 *
George R. Mahoney, Jr. 540,750 *
R. David Alexander, Jr. 37,500 *
Mark R. Bernstein 28,710 (4) *
James H. Hance, Jr. 12,000 *
James G. Martin 620 *
All Executive Officers and 28,338,235 16.5%
Directors of the Company
as a Group (25 persons)
* Less than one percent.
</TABLE>
(1) All shares are held with sole voting and investment power,
except that Mr. Howard R. Levine does not have voting or
investment power with respect to 7,718,966 shares held in
irrevocable trusts by NationsBank, N.A., as Trustee, for his
benefit, as set forth in note (3) below, and Mr. Bernstein
has shared voting power with respect to 21,210 shares held
in the Profit Sharing Plan as set forth in note (4) below.
Includes those shares listed in the table which the
following persons have the right to acquire beneficial
ownership of as of November 1, 1998, or within 60 days
thereafter, pursuant to the exercise of stock options:
<PAGE>
(i) Mr. Howard R. Levine-48,000 shares; (ii) Mr. Mahoney-
136,500 shares; (iii) Mr. Alexander-34,500 shares; and (iv)
all executive officers and directors as a group-577,200
shares.
(2) Does not include (i) the 15,389,094 shares listed in the
table under the caption "Ownership by Others" below as
being held in irrevocable trusts by NationsBank, N.A., as
Trustee, for the benefit of certain of Mr. Leon Levine's
children and grandchildren, including 7,718,966 shares held
in trusts for the benefit of Mr. Leon Levine's son,
Mr. Howard R. Levine; (ii) 212,700 shares owned by
Mr. Leon Levine's wife; (iii) 2,430,000 shares held in
trust by Mr. Leon Levine's wife and one of his children
for the benefit of another child of Mr. Leon Levine;
and (iv) 2,541,496 shares beneficially owned by
Mr. Howard R. Levine. Mr. Leon Levine disclaims beneficial
ownership of the shares referred to in this note (2).
(3) Includes 7,718,966 shares listed in the table under the
caption "Ownership by Others" below as being held in
irrevocable trusts by NationsBank, N.A., as Trustee, for
the benefit of Mr. Howard R. Levine. Does not include
187,284 shares listed in said table as being held in
irrevocable trusts by NationsBank, N.A., as Trustee, for
the benefit of a child of Mr. Howard R. Levine.
(4) Includes 21,210 shares held under the Parker, Poe, Adams &
Bernstein L.L.P. Profit Sharing Plan, but does not include
22,500 shares owned by Mr. Bernstein's wife. Mr. Bernstein
disclaims beneficial ownership of the shares owned by his
wife.
OWNERSHIP BY OTHERS
On the basis of filings with the Securities and Exchange Commission and
other information, the Company believes that as of November 1, 1998, the
following additional Stockholder beneficially owned more than 5% of the
Company's Common Stock:
Amount and
Nature of Beneficial Percent
Name and Address Ownership of Class
NationsBank, N.A., as Trustee 15,389,094 (1) 8.9%
One NationsBank Plaza
Charlotte, North Carolina 28255
(1) These shares are held with sole voting and investment power under
irrevocable trusts for the benefit of certain of Mr. Leon Levine's
children and grandchildren, including 7,718,966 shares held in trusts
for the benefit of Mr. Howard R. Levine.
<PAGE>
ELECTION OF DIRECTORS
At the meeting, seven directors are to be elected to serve for the
ensuing year and until their respective successors are elected and
qualified. Votes pursuant to the enclosed proxy will be cast for the
election as directors of the seven nominees named below unless authority is
withheld. All seven nominees are now members of the Board of Directors.
If for any reason any nominee shall not be a candidate for election as a
director at the meeting, an event not now anticipated, the enclosed proxy
will be voted for such substitute as shall be designated by the Board of
Directors.
The following information is furnished with respect to the nominees:
<TABLE>
<CAPTION>
Year First
Elected
Name of Nominee Principal Occupation Age Director
<S> <C> <C> <C>
Leon Levine (1)(2) Chairman of the Board 61 1969
of the Company
Howard R. Levine (2) President and 39 1997 (3)
Chief Executive Officer
of the Company
R. James Kelly (2) Vice Chairman, 51 1997 (4)
Chief Financial and
Administrative Officer
of the Company
George R. Mahoney, Jr. (2) Executive Vice President- 56 1987 (5)
General Counsel and
Secretary of the Company
Mark R. Bernstein (6) Partner in the law firm 68 1980 (7)
of Parker, Poe, Adams &
Bernstein L.L.P
James H. Hance, Jr. (8)(9) Vice Chairman- 54 1995 (10)
Chief Financial Officer
Bank of America Corporation
James G. Martin (6)(8)(9) Vice President of Research 62 1996 (11)
Carolinas Medical Center
</TABLE>
<PAGE>
(1) Mr. Leon Levine served as Chairman of the Board, Chief Executive
Officer and Treasurer of the Company until August 1998 when he
resigned from the positions of Chief Executive Officer and
Treasurer. He retains the position of Chairman of the Board.
Mr. Leon Levine is the father of Mr. Howard R. Levine, President
and Chief Executive Officer of the Company.
(2) Member of the Executive Committee of the Board of Directors.
(3) Mr. Howard R. Levine was employed by the Company in various
capacities in the Merchandising Department from 1981 to 1987,
including employment as Senior Vice President-Merchandising and
Advertising. From 1988 to 1992, Mr. Levine was President of Best
Price Clothing Stores, Inc., a chain of ladies' apparel stores.
From 1992 to April 1996, he was self-employed as an investment
manager. He rejoined the Company in April 1996, and was elected
Vice President-General Merchandise Manager: Softlines in April 1996,
Senior Vice President-Merchandising and Advertising in September
1996, President and Chief Operating Officer in April 1997, and Chief
Executive Officer in August 1998. He is the son of Mr. Leon Levine.
(4) Mr. Kelly was employed by the Company as Vice Chairman in January
1997. Prior to his employment with the Company, Mr. Kelly was a
partner with PricewaterhouseCoopers LLP for more than the last five
years.
(5) Mr. Mahoney was employed by the Company as General Counsel in 1976,
and also has served as Vice President and Secretary since 1977,
Senior Vice President since 1984, and Executive Vice President since
October 1991.
(6) Member of the Audit Committee of the Board of Directors.
(7) Mr. Bernstein has been a partner in the law firm named above for
more than the last five years.
(8) Member of the Stock Option Committee of the Board of Directors.
(9) Member of the Compensation Committee of the Board of Directors.
(10) Mr. Hance has been Vice Chairman and Chief Financial Officer of Bank
of America Corporation since October 1, 1998. He was Vice Chairman
and Chief Financial Officer of NationsBank Corporation from 1993
through September 30, 1998, when NationsBank Corporation and
BankAmerica Corporation merged. He also is a director of Caraustar
Industries, Inc., Lance, Inc. and Summit Properties, Inc.
(11) Mr. Martin has been associated with the Carolinas Medical Center
since January 1993, and currently is Vice President of Research. He
served as Governor of the State of North Carolina from 1985 through
1992 and was a member of the United States House of Representatives,
representing the Ninth District of North Carolina, from 1973
until 1984. He also is a director of Duke Energy Corporation and
Palomar Medical Technologies, Inc.
<PAGE>
(12) Directors who are not employees of the Company are paid $2,500 for
each Board meeting attended and $500 for each Audit Committee
and Compensation Committee meeting attended. Directors who are
employees of the Company receive no additional compensation for each
Board or Committee meeting attended.
COMMITTEES OF THE BOARD OF DIRECTORS
The Executive Committee, which met on two occasions during the fiscal
year ended August 29, 1998, is authorized under Delaware corporate laws and
the Company's By-Laws to exercise certain of the powers of the Board of
Directors.
The principal functions of the Audit Committee, which met with the
Company's independent accountants two times during fiscal 1998, are to (i)
recommend to the Board of Directors the firm to be engaged as the Company's
independent accountants, (ii) review with the independent accountants the
scope of the audit and the audit report, (iii) consult with the independent
accountants regarding internal accounting controls, and (iv) review
non-audit services to be performed by the independent accountants.
The principal function of the Stock Option Committee, which acted by
unanimous written consent in lieu of meetings on 41 occasions during fiscal
1998, is to administer the 1989 Non-Qualified Stock Option Plan, including
determination of the employees who are to be granted options under the Plan
and the number of shares subject to each option.
The principal functions of the Compensation Committee, which met two
times during fiscal 1998, are to review compensation policies for executive
officers of the Company, establish the compensation of the Chairman of the
Board and the Chief Executive Officer and review and approve the pre-tax
earnings goal and the payment of bonuses under the Incentive Profit Sharing
Plan.
There was no nominating committee of the Board of Directors nor any
other committee which performed a similar function during fiscal 1998.
The Board of Directors met four times, and acted by unanimous written
consent in lieu of meetings on three occasions, during fiscal 1998.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation
during fiscal years 1998, 1997 and 1996 of the Company's Chief Executive
Officer and the four other most highly compensated executive officers who
served in such capacities as of August 29, 1998.
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Awards Payouts
All
Other Long-Term Other
Annual Restricted Securities Incentive Compen-
Name and Principal Fiscal Bonus Compen- Stock Underlying Plan sation
Position Year Salary($) ($)(1) sation($) Award(s)($) Options(#)(2) Payouts($) ($)(3)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leon Levine 1998(4) 950,000 542,450 - - 0 - 17,377
Chairman of the Board, 1997 875,000 456,313 - - 0 - 8,942
Treasurer and Chief 1996 850,000 341,375 - - 0 - 13,280
Executive Officer
Howard R. Levine 1998(5) 324,904 188,374 - - 70,000 - 19,216
President and Chief 1997 208,654 83,212 - - 180,000 - 5,755
Operating Officer 1996 38,462 5,308 - - 90,000 - 0
R. James Kelly 1998(6) 450,000 256,950 - - 300,000 - 7,586
Vice Chairman, Chief 1997 268,269 139,902 - - 450,000 - 1,827
Financial and 1996 - - - - - - -
Administrative Officer
George R. Mahoney, Jr. 1998 248,461 97,148 - - 60,000 - 7,070
Executive Vice President- 1997 228,824 81,690 - - 90,000 - 3,527
General Counsel and 1996 214,700 60,957 - - 0 - 13,988
Secretary
R. David Alexander, Jr. 1998 219,231 71,250 - - 40,000 - 6,070
Senior Vice President- 1997 209,231 62,142 - - 30,000 - 7,391
Distribution and 1996 200,000 50,769 - - 0 - 2,269
Logistics
</TABLE>
<PAGE>
(1) Amounts paid under the Company's Incentive Profit Sharing Plan.
(2) Stock options were granted pursuant to the Company's 1989
Non-Qualified Stock Option Plan, and the number of shares has
been adjusted to reflect a two-for-one stock split distributed
April 30, 1998.
(3) Includes (a) Company contributions to the Employee Savings and
Retirement Plan and Trust for fiscal years 1998, 1997 and 1996,
respectively, as follows: Mr. Leon Levine-$2,400, $2,400 and $2,250,
Mr. Howard R. Levine-$4,627, $173 and $0, Mr. Kelly-$2,337, $0 and $0,
Mr. Mahoney-$2,412, $2,400 and $2,263, Mr. Alexander-$2,498, $2,059
and $0; and (b) reimbursement of expenses under the Company's Medical
Expense Reimbursement Plan of certain medical care costs for fiscal
years 1998, 1997 and 1996, respectively, as follows: Mr. Leon
Levine-$14,977, $6,542 and $11,030, Mr. Howard R. Levine-$14,589,
$5,582 and $0, Mr. Kelly $5,249, $1,827 and $0, Mr. Mahoney-$4,658,
$1,118 and $11,725, Mr. Alexander-$3,572, $5,332 and $2,269.
(4) Mr. Leon Levine served as Chairman of the Board, Chief Executive
Officer and Treasurer of the Company until August 1998 when he
resigned as Chief Executive Officer and Treasurer and was succeeded
as Chief Executive Officer by Mr. Howard R. Levine. Mr. Leon Levine
continues to serve as Chairman of the Board.
(5) Mr. Howard R. Levine was employed by the Company in April 1996. He
was elected President in April 1997 and Chief Executive Officer in
August 1998.
(6) Mr. Kelly was employed by the Company in January 1997.
<PAGE>
OPTION GRANTS DURING THE FISCAL YEAR ENDED AUGUST 29, 1998
The following table sets forth all options to acquire shares of the
Company's Common Stock granted during the fiscal year ended August 29, 1998,
to the executive officers named in the Summary Compensation Table. No options
have been granted to Leon Levine. The potential realizable value amounts
shown in the table are the values that might be realized upon exercise of
options immediately prior to the expiration of their term based on arbitrarily
assumed annualized rates of appreciation in the price of the Company's Common
Stock of five percent and ten percent over the term of the options, as set
forth in the rules of the Securities and Exchange Commission. Actual gains,
if any, on stock option exercises are dependent on the future performance of
the Common Stock. There can be no assurance that the potential realizable
values shown in the table will be achieved.
<TABLE>
<CAPTION>
Individual Grants(1) Potential Realizable
Percent of Value at Assumed
Number of Total Annual Rates of Stock
Securities Options Price Appreciation
Underlying Granted to Exercise or for Option Term
Options Employees in Base Price Expiration
Name Granted(#) Fiscal Year ($/Sh) Date 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Howard R. Levine 70,000 5.7% 11.38 9/29/02 220,086 486,332
R. James Kelly 300,000 24.5% 16.13 2/1/03 1,336,926 2,954,258
George R. Mahoney, Jr. 60,000 4.9% 11.38 9/29/02 188,645 416,856
R. David Alexander, Jr. 40,000 3.3% 11.38 9/29/02 125,763 277,904
</TABLE>
<PAGE>
(1) Stock options were granted pursuant to the Company's 1989
Non-Qualified Stock Option Plan. The exercise price for each
option is the fair market value per share of Common Stock on the
date of the grant. The number of shares and exercise price have
been adjusted to reflect a two-for-one stock split distributed
April 30, 1998. See "Report of the Compensation Committee and
Stock Option Committee of the Board of Directors on Executive
Compensation" for a description of other material terms of the
Plan.
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth all options exercised during the fiscal
year ended August 29, 1998, by the executive officers named in the
Summary Compensation Table, and the number and value of unexercised
options held by such executive officers at fiscal year-end. No options
have been granted to, or exercised by, Leon Levine.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Value Underlying Unexercised In-the-Money
Acquired on Realized Options at FY-End($)(1) Options at FY-End($)(3)
Name Exercise(#)(1) ($)(2) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Howard R. Levine 0 0 36,000 304,000 316,620 1,639,480
R. James Kelly 0 0 0 750,000 0 3,017,250
George R. Mahoney, Jr. 40,500 302,899 103,500 177,000 921,908 1,043,715
R. David Alexander, Jr. 30,000 325,005 22,500 92,500 167,738 496,588
</TABLE>
<PAGE>
(1) The number of shares has been adjusted to reflect a two-for-one
split of the Common Stock distributed on April 30, 1998.
(2) The value realized is calculated based on the difference
between the option exercise price and the closing market price
of the Company's Common Stock on the date prior to the date of
the exercise multiplied by the number of shares to which the
exercise relates.
(3) The closing price of the Company's Common Stock as reported on
the New York Stock Exchange Composite tape on August 28, 1998,
was $13.63 and is used in calculating the value of unexercised
options.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS
Howard R. Levine's compensation arrangement with the Company
provides that for the period from September 1, 1997, through
August 19, 1998, he was to be paid a base salary of $6,250 per week
($325,000 per annum) and for the period from August 20, 1998, when he
was elected Chief Executive Officer, through the fiscal year ending
August 28, 1999, he is to be paid a base salary of $7,212 per week
($375,000 per annum). In addition, under the Company's Incentive
Profit Sharing Plan, he may receive bonuses for the fiscal years
ended August 29, 1998, and ending August 28, 1999, based on
approximately 50% of the base salary he receives for the fiscal year
ended August 29, 1998, and approximately 75% of the base salary he
receives for the fiscal year ending August 28, 1999, subject to the
achievement of pre-tax earnings goals established by the Company and
other terms of the Plan. In the event Mr. Levine's employment is
terminated by the Company prior to August 28, 1999, for reasons other
than for cause or medical disability, the Company will pay Mr. Levine
180 days of his base salary then in effect in six equal monthly
installments. If Mr. Levine accepts new employment, the unpaid
balance of the payments is reduced by the compensation Mr. Levine
receives for the same period from the new employment.
R. James Kelly's compensation arrangement with the Company
provides that for the fiscal years ended August 29, 1998, and ending
August 28, 1999, he is to be paid a base salary of $8,654 per week
($450,000 per annum), and for the period from August 29, 1999,
through January 31, 2000, the Compensation Committee of the Board of
Directors shall establish the weekly base salary, subject to
ratification by the Board of Directors, provided that such weekly
base salary shall not be reduced below $8,654. In addition, under
the Company's Incentive Profit Sharing Plan, he may receive a bonus
for the fiscal years ended August 29, 1998, and ending August 28,
1999, and for each full or partial fiscal year thereafter through
January 31, 2000, based on approximately 50% of the base salary he
receives for such fiscal years, subject to the achievement of pre-tax
earnings goals established by the Company and other terms of the
<PAGE>
Plan. Pursuant to his employment agreement, Mr. Kelly also was
granted an option to purchase 300,000 shares (adjusted to reflect a
two-for-one stock split distributed April 30, 1998) of Common Stock
on February 1, 1998, under the Company's 1989 Non-Qualified Stock
Option Plan. See "Option Grants During the Fiscal Year Ended
August 29, 1998" herein. The Stock Option Committee of the Board of
Directors will consider the grant of additional options to Mr. Kelly
in February 1999. In the event Mr. Kelly's employment agreement is
terminated by the Company prior to January 31, 2000, for reasons
other than for cause or medical disability, the Company will pay
Mr. Kelly the balance of his base salary then in effect in equal
monthly installments from the termination date through January 31,
2000. However, in the event the employment agreement is not
terminated for any reason prior to August 31, 1999, and there is no
agreement before that date to extend Mr. Kelly's employment beyond
January 31, 2000, the employment agreement terminates automatically
on August 31, 1999, and the Company will pay Mr. Kelly six months of
his base salary then in effect in six equal monthly installments. In
addition, in the event Mr. Kelly's employment agreement is terminated
by the Company prior to January 31, 2000, for reasons other than for
cause or medical disability, Mr. Kelly will receive as a severance
payment an amount equal to the pro rata share of the bonus, if any,
under and subject to the terms and conditions of the Incentive Profit
Sharing Plan. The payment will be equal to 50% of the base salary he
receives for the period from the beginning of the fiscal year in
which the Company terminates the employment agreement through the
termination date. If Mr. Kelly accepts new employment, the unpaid
balance of the payments is reduced by the compensation Mr. Kelly
receives for the same period from the new employment.
COMPENSATION COMMITTEE AND STOCK OPTION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors during the
fiscal year ended August 29, 1998, was composed of Mark R. Bernstein
and James G. Martin. No member of the Compensation Committee was an
officer or employee of the Company. Mr. Bernstein is a partner in
the law firm of Parker, Poe, Adams & Bernstein L.L.P., which rendered
legal services to the Company during the last fiscal year and which
is performing legal services for the Company during the current
fiscal year.
The Stock Option Committee of the Board of Directors during the
fiscal year ended August 29, 1998, was composed of Mark R. Bernstein
and James G. Martin. Mr. Bernstein and Mr. Martin were not eligible
to receive options under the Company's 1989 Non-Qualified Stock
Option Plan.
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE AND STOCK OPTION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The objectives of the Company's executive compensation program
are to provide a competitive total compensation package that enables
the Company to attract and retain key executives, and to offer
compensation opportunities that are directly related to the annual
and long-term performance of the Company. The Company seeks to link
a significant portion of compensation to the Company's performance
such that executive officers will have a strong incentive to meet the
Company's goals and their compensation will then be aligned with the
interests of the Company's shareholders. With these objectives, the
compensation of executive officers consists primarily of (i) a base
salary; (ii) annual incentive compensation in the form of a bonus
based on the achievement of pre-tax earnings goals and the
executive's contributions to meeting the goals; and (iii) long-term
incentive compensation in the form of stock options.
BASE SALARY. The base salary of executive officers is reviewed
annually by the Compensation Committee. In determining the salary
level, the Compensation Committee takes into consideration the
responsibilities, experience and performance of the executives, their
contributions to the Company's operating performance, including the
achievement of pre-tax earnings goals, and competitive salary
practices of other companies in the retail industry, including
companies in the S&P Retail Composite Index and other companies in
the retail industry with sales comparable to the sales of the
Company.
INCENTIVE PROFIT SHARING PLAN. The Compensation Committee also
reviews and approves a pre-tax earnings goal established by the
Company each fiscal year under the Company's Incentive Profit Sharing
Plan. This Plan provides for payments, not exceeding 5% of the
Company's consolidated earnings before income taxes and before
deducting payments under the Plan or any other incentive compensation
arrangement, to executive officers and other supervisory personnel if
such goal is achieved. The amount of the bonus is based on a
percentage of the employee's base salary, and for executive officers
the percentage ranges from 20% to 75%. The percentage is higher for
the more senior executive officers as a greater portion of the senior
executives' compensation is tied to the achievement of pre-tax
earnings goals. In the event the pre-tax earnings goal is exceeded,
the amount of the bonus increases by 2% for each 1% by which the goal
is exceeded, to a maximum of 50% additional bonus for exceeding the
goal by 25%. If the pre-tax earnings goal is not achieved, the
amount of the bonus decreases by 5% for each 1% by which the goal is
not achieved, with no bonus being paid if pre-tax earnings are below
90% of the goal. As approximately 107% of the pre-tax earnings goal
for the fiscal year ended August 29, 1998, was achieved, the bonus
paid was approximately 114% of the bonus that would have been paid if
100% of the goal had been achieved. Except for the Chairman of the
Board, the President and Chief Executive Officer, and the Vice
Chairman and Chief Financial and Administrative Officer, the annual
individual performance rating of each executive officer by that
<PAGE>
officer's supervisor may increase or decrease the amount of bonus
paid. The performance rating is based on a variety of criteria,
including the effectiveness of the officers in executing their
managerial responsibilities and their impact on the financial results
of the Company (such as sales, pre-tax earnings and shareholders'
return on average equity). The Compensation Committee reviews and
approves the payment of bonuses under the Incentive Profit Sharing
Plan.
STOCK OPTIONS. To establish another link between compensation
and management's performance in creating value for shareholders,
evidenced by increases in the Company's stock price, executive
officers may receive grants of stock options typically on an annual
basis. The Company encourages stock ownership by executives, but has
not established target levels for equity holdings by executives.
Grants are made by the Stock Option Committee of the Board of
Directors. The Compensation Committee considers the grant of stock
options by the Stock Option Committee in reviewing the compensation
of executive officers. Under the Company's 1989 Non-Qualified Stock
Option Plan, the exercise price for each option is the fair market
value per share of Common Stock on the date of the grant. Fair
market value per share is the average of the highest price and lowest
price at which the Common Stock is sold regular way on the New York
Stock Exchange on the date of the grant. Options have a term of five
years, and may not be exercised prior to the expiration of two years
from the date of the grant. Thereafter, each option becomes
exercisable in cumulative installments of not more than 40% of the
number of shares subject to the option after two years, 70% after
three years and 100% after four years. Such vesting schedule
encourages executives to remain in the employ of the Company. With
limited exceptions, no option is exercisable unless the optionee has
been continuously employed by the Company from the date of grant to
the date of exercise. In determining the number of options to be
granted, the Stock Option Committee takes into account the
executive's base salary and level of responsibilities and the annual
individual performance rating of the executive, as well as the number
of options granted in prior years.
COMPENSATION OF CHIEF EXECUTIVE OFFICER. In determining the
compensation of Leon Levine, who served as the Chairman of the Board
and Chief Executive Officer during the fiscal year ended August 29,
1998, until he resigned as Chief Executive Officer on August 19,
1998, the Compensation Committee took into account the fact that
long-term compensation in the form of stock options, retirement plans
and similar benefits is an important element of the compensation of
most Chief Executive Officers. Mr. Leon Levine has never been
granted stock options. In addition, the Company does not have any
retirement plan or similar benefits for the Chief Executive Officer
or any executive officers, other than the Employee Savings and
Retirement Plan, a 401(k) Plan under which contributions by the
Company are limited. In the fiscal year ended August 29, 1998, the
amount of the Company's contribution for Mr. Levine was $2,400.
Accordingly, the substantial portion of Mr. Levine's compensation has
been his base salary and bonus under the Incentive Profit Sharing
Plan.
<PAGE>
The base salary of the Chief Executive Officer is established by
the Compensation Committee annually based on consideration of the
same general factors as are described above with respect to the
determination of the base salary of other executive officers. For
the fiscal year ended August 29, 1998, Mr. Leon Levine received a
base salary of $950,000.
The incentive compensation element of the compensation of the
Chief Executive Officer is based on the Company's achievement of its
pre-tax earnings goal. Under the Company's Incentive Profit Sharing
Plan, Mr. Leon Levine's bonus is based on 50% of his base salary.
The amount of the bonus is subject to increase or decrease based on
the level of pre-tax earnings in the manner described above with
respect to the bonus for other executive officers. For the fiscal
year ended August 29, 1998, Mr. Leon Levine was paid a bonus of
$542,450 under the Incentive Profit Sharing Plan as the Company
achieved approximately 107% of the pre-tax earnings goal.
Mr. Howard R. Levine, the President of the Company during the
fiscal year ended August 29, 1998, was elected Chief Executive
Officer on August 19, 1998. In determining Howard R. Levine's annual
base salary of $325,000 as President for the fiscal year ended
August 29, 1998, and $375,000 as President and Chief Executive
Officer for the fiscal year ending August 28, 1999, the Compensation
Committee considered the same general factors as are described above
with respect to the determination of the base salary of other
executive officers. Under the Company's Incentive Profit Sharing
Plan, Mr. Howard R. Levine's bonus as President for the fiscal year
ended August 29, 1998, was based on 50% of his base salary, and he
was paid a bonus of $188,374. As Chief Executive Officer for the
fiscal year ending August 28, 1999, Mr. Howard R. Levine's bonus is
based on 75% of his base salary. The amount of the bonus is subject
to adjustment based on the level of pre-tax earnings in the manner
described above.
In determining Mr. Howard R. Levine's base salary and bonus
percentage, the Compensation Committee also took into account the
fact that he receives options under the Company's 1989 Non-Qualified
Stock Option Plan. As described under the heading "Option Grants
During the Fiscal Year Ended August 29, 1998," Howard R. Levine
received options to purchase 70,000 shares (adjusted to reflect a
two-for-one stock split distributed April 30, 1998). As noted above,
the Compensation Committee also considered that the Company's only
retirement plan or similar benefit is a 401(k) Plan and the Company's
contribution for Mr. Levine was $4,627.
DEDUCTIBILITY OF COMPENSATION. Internal Revenue Code Section
162(m) provides that publicly held companies may not deduct in any
taxable year compensation in excess of $1 million paid to the Chief
Executive Officer or any of the four other highest paid executive
officers which is not "performance-based" as defined in Section
162(m). At the Annual Meeting of Stockholders on January 16, 1997,
<PAGE>
Stockholders approved an amendment to the 1989 Non-Qualified Stock
Option Plan and approved the Incentive Profit Sharing Plan for the
purpose of preserving the future deductibility of all compensation
paid under said Plans. The Company believes that all executive
officer compensation paid in the fiscal year ended August 29, 1998,
met the deductibility requirements of Section 162(m). The
Compensation Committee will continue to monitor this issue and will
determine what additional steps, if any, it may take in response to
such provision.
This report is submitted by Mark R. Bernstein and
James G. Martin as the members of the Compensation Committee and
Stock Option Committee during the fiscal year ended August 29, 1998.
STOCK PERFORMANCE GRAPH
The following graph sets forth the yearly percentage change in
the cumulative total shareholder return on the Company's Common Stock
during the five fiscal years ended August 29, 1998, compared with the
cumulative total returns of the S&P Midcap 400 Index and the S&P
Retail Composite Index. The comparison assumes $100 was invested on
August 31, 1993, in the Company's Common Stock and in each of the
foregoing indices, and that dividends were reinvested.
<TABLE>
<CAPTION>
COMPARISON OF FIVE YEAR
CUMULATIVE TOTAL RETURN
AMONG FAMILY DOLLAR STORES, INC.,
THE S & P MIDCAP 400 INDEX
AND THE S & P RETAIL
COMPOSITE INDEX
8/93 8/94 8/95 8/96 8/97 8/98
<S> <C> <C> <C> <C> <C> <C>
Family Dollar Stores, Inc. 100 66 99 96 181 235
S & P Midcap 400 100 l05 126 141 194 169
S & P Retail Composite 100 101 103 124 159 209
</TABLE>
<PAGE>
RELATED TRANSACTIONS
Legal services were rendered to the Company during the fiscal
year ended August 29, 1998, and are being rendered to the Company
during the fiscal year ending August 28, 1999, by Parker, Poe, Adams
& Bernstein L.L.P., of which Mark R. Bernstein, a director of the
Company, is a partner.
The Company has commercial banking relationships with
subsidiaries of Bank of America Corporation, of which
James H. Hance, Jr., a director of the Company, is Vice Chairman
and Chief Financial Officer.
Since December 1994, a subsidiary of the Company has leased
space in a building in Charlotte, North Carolina, from 9517 Monroe,
LLC, for processing merchandise returned from stores and for storing
merchandise. 9517 Monroe, LLC is a limited liability company in
which Leon Levine, the Chairman of the Board of the Company, and his
brother, Alvin E. Levine, both own a 50% interest. A total of
$246,502 in rents was paid to 9517 Monroe, LLC, for the fiscal year
ended August 29, 1998. The current rent payable for the leasing of
approximately 78,100 square feet is $20,805 per month ($249,660
annually). The present term of the lease for 57,000 square feet of
the space is for one year expiring March 31, 1999. The lease for the
other 21,100 square feet of space is on a month-to-month term. The
Company believes that the rents for this leased space are competitive
with amounts that would be paid to an unaffiliated entity to lease
similar space.
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected the firm of
PricewaterhouseCoopers LLP as independent accountants to audit
and report on the consolidated financial statements of the Company
and its subsidiaries for the year ending August 28, 1999, and to
perform such other appropriate accounting and related services as may
be required by the Board of Directors. The affirmative vote of the
holders of a majority of the shares of Common Stock present or
represented by proxy at the meeting and entitled to vote in respect
thereto is required to ratify the selection of PricewaterhouseCoopers
LLP for the purposes set forth above. The Board of Directors
recommends that the Stockholders vote for ratification of the
selection of PricewaterhouseCoopers LLP. If the Stockholders do not
ratify the selection of PricewaterhouseCoopers LLP, the selection of
independent accountants will be reconsidered by the Board of
Directors.
PricewaterhouseCoopers LLP served as the Company's independent
accountants for the fiscal year ended August 31, 1991, and for each
subsequent fiscal year.
<PAGE>
Representatives of PricewaterhouseCoopers LLP are expected to be
present at the Annual Meeting of Stockholders and will have an
opportunity to make a statement if they desire to do so and to
respond to appropriate questions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's directors and executive officers and persons who own
more than ten percent of the Company's Common Stock (collectively,
"Reporting Persons") to file with the Securities and Exchange
Commission and New York Stock Exchange initial reports of ownership
and reports of changes in ownership of the Common Stock, and to
furnish the Company with copies of such reports. To the Company's
knowledge, based solely on a review of the copies of such reports
furnished to the Company and written representations from Reporting
Persons that no other reports were required, during the fiscal year
ended August 29, 1998, all Reporting Persons complied with all
applicable filing requirements.
STOCKHOLDER PROPOSALS
Proposals of Stockholders intended to be presented at the next
Annual Meeting of Stockholders in January 2000, and to be included in
the Proxy Statement and form of proxy pursuant to Rule 14a-8 under
the Securities Exchange Act of 1934 (the "Act"), must be received by
the Company on or before July 28, 1999. Any such proposals should be
in writing and be sent by certified mail, return receipt requested,
to the Secretary, Family Dollar Stores, Inc., P. O. Box 1017,
Charlotte, North Carolina 28201-1017. Additionally, if the Company
receives notice of any shareholder proposal after October 11, 1999,
such proposal will be considered untimely pursuant to Rules 14a-4 and
14a-5(e) under the Act, and the persons named in the proxies
solicited by the Board of Directors of the Company for the Annual
Meeting of Stockholders to be held in January 2000 may exercise
discretionary voting power with respect to such proposal.
OTHER MATTERS
Management knows of no other matters to be brought before the
meeting. However, if any other matters do properly come before the
meeting, it is intended that the shares represented by the proxies in
the accompanying form will be voted in accordance with the best
judgment of the person voting the proxies. Whether Stockholders plan
to attend the meeting or not, they are respectfully urged to sign,
date and return the enclosed proxy which will, of course, be
returned to them at the meeting if they are present and so request.
<PAGE>
PROXY
FAMILY DOLLAR STORES, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS ON JANUARY 21, 1999
The undersigned hereby appoints Leon Levine, Howard R. Levine
and George R. Mahoney, Jr., or any one of them, with full power of
substitution, proxies of the undersigned to the Annual Meeting of
Stockholders of Family Dollar Stores, Inc. to be held at 2:00 p.m. on
Thursday, January 21, 1999, at the office of the Company at 10401 Old
Monroe Road, Matthews, North Carolina, or at any adjournments thereof, with
all the powers which the undersigned would possess if personally present,
and instructs them to vote upon any matter which may properly be acted upon
at this meeting, and specifically as indicated below:
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<CAPTION>
<S> <C> <C>
[ ] [ ]
1. ELECTION OF DIRECTORS FOR ALL NOMINEES WITHHOLD AUTHORITY
(Mark only one) Listed below (except as to vote for all
shown to the contrary nominees listed below
below)
</TABLE>
Nominees: Leon Levine, Howard R. Levine, R. James Kelly,
George R. Mahoney, Jr., Mark R. Bernstein, James H. Hance, Jr.,
James G. Martin
(INSTRUCTION: To withhold authority to vote for any individual nominee,
print that nominee's name below)
2. Ratification of the selection of PricewaterhouseCoopers LLP as
Independent Accountants:
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<CAPTION>
<S> <C> <C>
FOR [ ] AGAINST [ ] ABSTAIN [ ]
</TABLE>
3. In their discretion, upon such other business as may properly come
before the meeting or any adjournments thereof.
(Please Sign on Reverse Side)
<PAGE>
(Continued from other side)
This Proxy, if received and correctly signed, will be voted in accordance with
the choices specified. If a choice is not specified, this Proxy will be voted
in favor of the election of the Directors named and for the ratification of the
election of the independent accountants.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
This Proxy is revocable, and the undersigned retains the right to attend this
meeting and to vote his or her stock in person.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement.
Dated this day of , 19
(Please sign exactly as your name appears at
left. If there is more than one owner, each
should sign. When signing as a fiduciary or
representative, please give full title as
such. If the signer is a corporation,
please sign full corporate name by duly
authorized officer. If a partnership,
please sign in partnership name by
authorized person.)
PLEASE SIGN AND RETURN PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE.
NO POSTAGE IS REQUIRED.
