UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
(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
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Filed
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Preliminary
Proxy Statement
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Confidential,
for Use of the Commission Only (as permitted by Rule
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Definitive
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Definitive
Additional Materials
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Soliciting
Material Pursuant to §240.14a-12
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DUCKWALL-ALCO
STORES, INC.
(Name
of Registrant as Specified In Its Charter)
______________________________________________________________________________
(Name
of Person(s) Filing Proxy Statement, if other than the Registrant)
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of Filing Fee (Check the appropriate
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computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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of each class of securities to which transaction
applies:
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Aggregate
number of securities to which transaction
applies:
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Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was
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previously. Identify the previous filing by registration statement number,
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NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD ON JUNE 3, 2010
To our
Stockholders:
The
Annual Meeting of the Stockholders of Duckwall-ALCO Stores, Inc. will be held at
our principal executive offices, at 401 Cottage Street, Abilene, Kansas, on
Thursday, June 3, 2010, at 10:00 a.m. local time, for the following
purposes:
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1.
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To
elect four directors to serve on our Board of Directors for a one-year
term and until their respective successors are duly elected and qualified
or until their respective earlier resignation or
removal;
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To
ratify the appointment of KPMG LLP as our independent registered public
accounting firm for the fiscal year ending January 30, 2011;
and
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To
act upon any other business that may properly come before the annual
meeting or any adjournments of that
meeting.
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In
accordance with our Bylaws, the Board of Directors has fixed the close of
business on April 23, 2010 as the record date for the determination of
stockholders entitled to notice of, and to vote at, the annual meeting and any
adjournments of that meeting.
You are
cordially invited to attend the meeting. Whether or not you intend to
attend the meeting, please sign, date and return the enclosed proxy card
promptly. A prepaid return envelope is provided for this purpose. You
may revoke your proxy at any time before it is exercised and it will not be used
if you attend the meeting and prefer to vote in person. Your vote is
important and all stockholders are urged to be present in person or by
proxy.
In
accordance with regulations established by the Securities and Exchange
Commission, we have provided internet availability of our proxy materials in
addition to providing you a full set of printed proxy materials. Please find
enclosed in the proxy materials a notice of the internet availability of proxy
materials that will provide an explanation of how to access these proxy
materials on-line. A direct link to our proxy materials on-line is
the following web address:
http://www.alcostores.com/proxy
.
By Order of the Board
of Directors
Brett C.
Bogan
Corporate
Secretary
May 7,
2010
Abilene,
Kansas
DUCKWALL-ALCO
STORES, INC.
401
Cottage Street
Abilene,
Kansas 67410-2832
__________________
PROXY
STATEMENT
__________________
ANNUAL
MEETING OF STOCKHOLDERS
TO
BE HELD ON JUNE 3, 2010
__________________
INTRODUCTION
This
Proxy Statement is being furnished to the stockholders of Duckwall-ALCO Stores,
Inc., a Kansas corporation (“Duckwall” or the “Company”), in connection with the
solicitation of proxies by the Board of Directors of Duckwall for use at the
Annual Meeting of Stockholders to be held on Thursday, June 3, 2010, and at any
adjournment or adjournments thereof (the “Annual Meeting”). The
Annual Meeting will commence at 10:00 a.m., local time, and will be held at the
principal executive offices of the Company, located at 401 Cottage Street,
Abilene, Kansas 67410-2832.
This
Proxy Statement and the enclosed form of proxy were first mailed to the
Company’s stockholders on or about May 7, 2010.
Proxies
You are
requested to complete, date and sign the enclosed form of proxy and return it
promptly in the enclosed postage prepaid envelope. Shares represented
by properly executed proxies will, unless such proxies previously have been
revoked, be voted in accordance with the stockholders’ instructions indicated in
the proxies. If no instructions are indicated, such shares will be
voted IN FAVOR of the election of the nominees for director named in this Proxy
Statement, IN FAVOR of ratifying the selection of the accounting firm of KPMG
LLP as the Company’s independent accountants for the fiscal year ending January
30, 2011 (“Fiscal 2011”), and, as to any other matter that properly may be
brought before the Annual Meeting, in accordance with the discretion and
judgment of the appointed attorneys-in-fact.
A
stockholder who has given a proxy may revoke it at any time before it is
exercised at the Annual Meeting by filing written notice of revocation with the
Corporate Secretary of the Company, by executing and delivering to the Corporate
Secretary of the Company a proxy bearing a later date, or by appearing at the
Annual Meeting and voting in person.
Voting
at the Meeting
For
purposes of voting on the proposals described herein, the presence in person or
by proxy of stockholders holding a majority of the total outstanding shares of
the Company’s common stock, par value $0.0001 per share (“Common Stock”), shall
constitute a quorum at the Annual Meeting. Only holders of record of shares of
the Company’s Common Stock as of the close of business on April 23, 2010 (the
“Record Date”) are entitled to notice of, and to vote at, the Annual Meeting or
any adjournments thereof. As of the Record Date, 3,826,852 shares of
the Company’s Common Stock were outstanding and entitled to be voted at the
Annual Meeting. Each share of Common Stock is entitled to one vote on
each matter properly to come before the Annual Meeting.
Directors
are elected by a plurality (a number greater than those cast for any other
candidates) of the votes cast by the stockholders present in person or
represented by proxy and entitled to vote at the Annual Meeting for that
purpose.
The
affirmative vote of a majority of the shares of the Company’s Common Stock
present in person or represented by proxy and entitled to vote at the Annual
Meeting, provided a quorum is present, is necessary to ratify the selection of
KPMG LLP as the Company’s independent accountants and to approve such other
matters as properly may come before the Annual Meeting or any adjournment
thereof.
Abstentions
and broker non-votes are counted for purposes of determining the presence or
absence of a quorum for the transaction of business. Abstentions are
counted in tabulations of the votes cast on proposals presented to stockholders,
whereas broker non-votes are not counted for purposes of determining whether a
proposal has been approved.
Solicitation
of Proxies
This
solicitation of proxies for the Annual Meeting is being made by the Company’s
Board of Directors. The Company will bear all costs of such
solicitation, including the cost of preparing and mailing this Proxy Statement
and the enclosed form of proxy. After the initial mailing of this
Proxy Statement, proxies may be solicited by mail, telephone, telegram, the
internet, facsimile transmission or personally by directors, officers, employees
or agents of the Company. Brokerage houses and other custodians,
nominees and fiduciaries will be requested to forward soliciting materials to
beneficial owners of shares held of record by them, and their reasonable out of
pocket expenses, together with those of the Company’s transfer agent, will be
paid by the Company.
A list of
stockholders entitled to vote at the Annual Meeting will be available for
examination at least ten days prior to the date of the Annual Meeting during
normal business hours at the principal executive offices of the Company located
at 401 Cottage Street, Abilene, Kansas. The list also will be
available at the Annual Meeting.
PROPOSAL
ONE
ELECTION
OF DIRECTORS
The
Company’s bylaws did provide that our Board of Directors would consist of
between five and seven members. The Company’s Board of Directors
consisted of five members in the fiscal year ending January 31, 2010 (“Fiscal
2010”). On April 14, 2010, the Board of Directors amended the Bylaws
to provide that the Company’s Board of Directors would consist of between three
and seven members.
One of
the purposes of this Annual Meeting is to elect four directors to serve for a
one year term expiring at the Annual Meeting of Stockholders in 2011 and until
their respective successors are duly elected and qualified or until their
respective earlier resignation or removal. Based on the recommendation of all of
the independent directors, the Board of Directors has designated Royce Winsten,
Raymond A.D. French, Lolan C. Mackey, and Dennis E. Logue as the four nominees
proposed for election at the Annual Meeting.
Unless
authority to vote for the nominees or a particular nominee is withheld, it is
intended that the shares represented by properly executed proxies in the form
enclosed will be voted for the election as directors of all
nominees. In the event that one or more of the nominees should become
unavailable for election, it is intended that the shares represented by the
proxies will be voted for the election of such substitute nominee or nominees as
may be designated by the Board of Directors, unless the authority to vote for
such nominees or for the particular nominee who has ceased to be a candidate has
been withheld. Each of the nominees has indicated his willingness to
serve as a director if elected, and the Board of Directors has no reason to
believe that any nominee will be unavailable for election.
The
Board of Directors recommends that you vote for the election of Royce Winsten,
Raymond A.D. French, Lolan C. Mackey, and Dennis E. Logue as
directors.
INFORMATION
ABOUT DIRECTOR NOMINEES
The
following is certain information regarding each person nominated by the Board of
Directors for election as a director at the Annual Meeting. The Board
has concluded that each nominee possesses the minimum qualifications identified
in “Nomination Process; Stockholder Nominations” below, and each is in a
position to devote an adequate amount of time to the effective performance of
director duties. There are no family relationships between any officers or
directors of the Company and the nominees, or the nominees themselves. None of
the nominees are employed, or have been employed, by the Company or any of its
parents, subsidiaries or other affiliates. All of the nominees are independent
from the Company as defined in the applicable Listing Rules of the NASDAQ Stock
Market. Unless otherwise indicated, the nominees and directors have had the
indicated principal occupation for at least the past five years.
ROYCE
WINSTEN
Mr.
Winsten, age 52, has been a director since October, 2007, and currently serves
as Chairman of the Board. He is Chairman of the Strategy,
Budget & Planning Committee and a member of the Audit Committee and
Governance Committee. Since 2005, he has served as a Managing
Director of Shore Capital Management LLC, a New Jersey based firm providing
securities analysis, investment advisory and portfolio management
services. From 2002 to 2005, Mr. Winsten served as a Vice President
of UBS Financial Services, Inc. He is a Chartered Financial Analyst,
and holds a Masters of Business Administration degree from The Fuqua School of
Business, Duke University, in addition to studying international economic
integration and monetary union with the Institute for European Studies at the
London School of Economics and Political Science, London, UK. In nominating Mr.
Winsten, the Board noted Mr. Winsten’s diverse financial industry experience,
background and education.
RAYMOND
A.D. FRENCH
Mr.
French, age 41, has been a director since March, 2008. He is a member
of the Compensation Committee, the Strategy, Budget & Planning Committee and
the Governance Committee. Since 2003, Mr. French has been the
Chairman of Strongbow Capital, Ltd., which invests in equity securities and is
based in Grand Cayman, British West Indies. During the same period,
he has also been the Chairman of Strongbow Capital Management, Ltd., which acts
as investment manager to Strongbow Capital Ltd. Mr. French received
his Bachelors Degree from Trinity College in Dublin, Ireland, and a Masters
Degree in Real Estate Development from Columbia University. Mr.
French is a citizen of the Republic of Ireland. Mr. French currently
resides in Ramsey, Isle of Man. In nominating Mr. French, the Board noted Mr.
French’s extensive financial investment experience and background.
DENNIS
E. LOGUE
Mr.
Logue, age 66, has been a director since 2005. He is the Chairman of
the Governance Committee and the Chairman of the Audit Committee. Mr.
Logue has served as Chairman of the Board of Ledyard National Bank since
2005. From 2001 to 2005, he was Dean of the Michael F. Price College
of Business at the University of Oklahoma. Prior thereto, Mr. Logue
held numerous business-oriented professorships, most recently at the Amos Tuck
School, Dartmouth College from 1974 to 2001. He is the author or
co-author of more than eighty professional papers on a wide variety of financial
topics. He has authored or co-authored six books on pension
plans. He also serves as a director of Waddell & Reed Financial,
Inc., Abraxas Petroleum Corp., and Ledyard Financial Group, Inc., the holding
company for Ledyard National Bank. In nominating Mr. Logue, the Board noted Mr.
Logue’s long and diverse experience as a board member for other companies and
his education experience and background.
LOLAN
C. MACKEY
Mr.
Mackey, age 63, has been a director since 1998. He is a member of the
Audit Committee, Governance Committee, Strategy, Budget & Planning
Committee, and Compensation Committee. Mr. Mackey has been a member
of Diversified Retail Solutions LLC, a retail senior management advisory firm,
since 1997. For 25 years prior thereto, Mr. Mackey was employed
in various capacities by Wal-Mart Stores, Inc. From 1990 to 1994, he
was Vice President of Store Planning. From 1994 to 1997, he was Vice
President of International Operations. In
nominating
Mr. Mackey, the Board noted Mr. Mackey’s extensive business experience in the
retail industry and his continued quality service provided as a Board member of
the Company.
CERTAIN
INFORMATION CONCERNING THE BOARD AND ITS COMMITTEES
Standing
Committees; Meetings; Independence
Pursuant
to the Company’s Bylaws, the Board of Directors has established four standing
committees: Audit Committee, Compensation Committee, Strategy, Budget &
Planning Committee and Governance Committee. The Company does not
currently have a nominating committee. The current members of each
standing committee are as follows: Audit Committee - Messrs. Winsten, Logue
(Chairman) and Mackey; Compensation Committee - Messrs. Mackey (Chairman) and
French; Strategy, Budget & Planning Committee - Messrs. Winsten (Chairman),
French and Mackey; and Governance Committee - Messrs. Logue (Chairman), French,
Mackey and Winsten.
During
Fiscal 2010, the Board of Directors held thirty-three meetings and the Audit
Committee held five meetings. The Compensation Committee held five
meetings, the Strategy, Budget & Planning Committee held seven meetings and
the Governance Committee held one meeting. All of the directors
attended at least 75% of the meetings of the Board of Directors and the
committees of the Board of Directors on which they served during Fiscal
2010.
The
Company’s policy is to ask directors to attend the annual meeting of
stockholders. All directors who were directors as of the date of the
annual meeting attended the Company’s most recent annual meeting.
The Board
of Directors has determined that each of its members is independent as defined
in the applicable Listing Rules of the NASDAQ Stock Market.
Nomination
Process; Stockholder Nominations
Currently,
the Board does not have a Nominating Committee or other committee of the Board
performing similar functions. Because the Board has determined that
each member of the Board is independent, the Board believes a separate
nominating committee is unnecessary at this time. Instead, the Board
as a whole acts as nominating committee for the selection of all nominees for
election at stockholder meetings.
In
identifying nominees for the Board of Directors, the Board relies on personal
contacts of its members and management. The Board will also consider
candidates recommended by stockholders in accordance with the policies and
procedures set forth in this Proxy Statement. However, the Board may
choose not to consider an unsolicited candidate recommendation if no vacancy
exists on the Board. The Board may, in its discretion, use an
independent search firm to identify nominees.
The Board
members evaluate each potential nominee in the context of the Board as a whole,
with the objective of recommending a group of nominees that can best perpetuate
the success of the business and represent stockholder interests through the
exercise of sound judgment, using its diversity of experience in finance, retail
and general business, as well as strategic thinking, business management,
capital markets and corporate governance. The Board members evaluate each
nominee to insure that each nominee has the following minimum qualifications:
high integrity, business savvy, shareholder orientation and a general interest
in the Company. In determining whether to recommend a director for re-election,
the members also consider the director’s past attendance at meetings and
participation in and contributions to the activities of the
members. As a matter of practice, when evaluating recommended
nominees for directors, the Board members consider the nominee’s character,
judgment, independence, financial or business acumen, diversity of experience
and ability to represent and act on behalf of all stockholders, as well as the
needs of the Board.
The Board
does not have a formal policy regarding the diversity of the Board and director
nominees. However, the Board strives to have a Board that represents diverse
experience in business, management and leadership backgrounds, education, and
other areas that are relevant to the Company’s business. In assessing
diversity,
the Board evaluates each candidate’s individual qualities in the context of how
that candidate would relate to the Board as a whole.
Stockholders
who wish to recommend candidates for consideration by the Board in connection
with next year’s annual meeting should submit the candidate’s name and related
information in writing to the Chairman of the Board, in care of the Company’s
Corporate Secretary, at 401 Cottage Street, Abilene, Kansas 67410-2832, on or
before January 7, 2011. In addition to the name of the candidate, a
stockholder should submit:
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his
or her own name and address as they appear on the Company’s
records;
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if
not the record owner, a written statement from the record owner of the
shares that verifies the recommending stockholder’s beneficial ownership
and period of ownership and that provides the record owner’s name and
address as they appear on the Company’s
records;
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a
statement disclosing whether such recommending stockholder is acting with
or on behalf of any other person, entity or group and, if so, the identity
of such person, entity or group;
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the
written consent of the person being recommended to being named in the
proxy statement as a nominee if nominated and to serving as a director if
elected; and
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pertinent
information concerning the candidate’s background and experience,
including information regarding such person required to be disclosed in
solicitations of proxies for election of directors under Regulation 14A of
the Securities Exchange Act of 1934, as
amended.
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Board
Leadership
The
Company separates the roles of Chairman of the Board and Chief Executive
Officer/President of the Company. Our current Chairman of the Board is Royce
Winsten. Mr. Winsten is not an employee or executive officer of the
Company. During Fiscal 2010, Lawrence J. Zigerelli was Chief
Executive Officer/President of the Company. The Board does not have a leading or
presiding director, except for the Chairman of the Board noted above. The Board
has concluded that the current leadership structure, with the separation of the
Chairman of the Board and the Chief Executive Officer/President, is appropriate
and meets the best interests of the stockholders. The current leadership
structure allows the Chairman of the Board to concentrate on Board of Directors’
duties and obligations and the Chief Executive Officer/President to focus on the
Company’s business, administrative, and operational functions.
The
Board of Director’s Role in Risk Oversight
The Board
of Directors and its committees have an important role in the Company’s risk
oversight, management and assessment process. The Board regularly reviews with
management the Company’s financial and business strategies, and those reviews
include a discussion of relevant material risks as appropriate. The Board
discusses, as appropriate, its risk oversight and assessment, as well as any
material risks to the Company, with the Company’s general counsel. In addition,
the Board delegates risk management responsibilities to the Audit Committee,
Governance Committee, and Compensation Committee.
The Audit
Committee, as part of its charter, oversees the Company’s risk oversight,
management and assessment of the Company. The Governance Committee, as part of
its duties, oversees and assesses the risks associated with the corporate
governance and ethics of the Company. The Compensation Committee is responsible
for overseeing the management of risks relating to executive compensation. In
addition, as discussed under “Executive Compensation Risk Considerations” below,
the Compensation Committee also, as appropriate, assesses the risks relating to
the Company’s overall compensation programs.
While the
Audit Committee, Governance Committee, and Compensation Committee oversee the
management of the risk areas identified above, the entire Board is regularly
informed through committee reports
about
such risks. This enables the Board and its committees to coordinate the risk
management, assessment and oversight roles.
Audit
Committee
The Audit
Committee is a committee of the Board of Directors that consists solely of
independent directors. The Audit Committee assists the Board of Directors in
fulfilling its oversight of (a) the integrity of the Company’s financial
statements, financial reporting process and internal control system, (b) the
Company’s compliance with legal and regulation requirements, (c) the independent
auditor qualifications and independence, (d) the performance of the Company’s
independent accountants, and (e) the system of internal controls, disclosure
controls and procedures established by management. The Audit Committee is
expected to maintain and encourage free and open communication with the
independent accountants, management of the Company and the Board, and should
foster adherence to the Company’s policies, procedures and practices at all
levels. The Audit Committee is responsible for selecting, engaging
and evaluating the performance of the Company’s independent accountants and for
approving the scope of the engagement and the terms of their engagement
letter. The Audit Committee is responsible for and has adopted a
policy and procedure regarding the receipt, retention, and treatment of
complaints received by the Company regarding accounting, internal accounting
controls or auditing matters.
The Board
of Directors has determined that Dennis Logue is an “audit committee financial
expert,” as defined in Item 407(d)(5) of the Securities and Exchange Commission
(“SEC”) Regulation S-K. The Board determined that Mr. Dennis Logue is
independent, as independence for audit committees is defined in the applicable
Listing Rules of the NASDAQ National Stock Market. Under SEC regulations, a
person who is determined to be an audit committee financial expert will not be
deemed an “expert” for any purpose, including without limitation for purposes of
section 11 of the Securities Act of 1933, as a result of being identified as an
audit committee financial expert. Further, the designation or
identification of a person as an audit committee financial expert does not
impose any duties, obligations or liability on such person that are greater than
the duties, obligations and liability imposed on such person as a member of the
audit committee and board of directors in the absence of such designation or
identification and does not affect the duties, obligations or liability of any
other member of the audit committee or board of directors.
During
Fiscal 2010, the Audit Committee extensively analyzed the performance of KPMG
LLP and the fulfillment by KPMG LLP of the Company’s expectations as the
Company’s external auditor for the past two fiscal years. Also in Fiscal 2010,
KPMG LLP presented to the Audit Committee its performance related to fees and
audit scope in comparison to the three year plan that KPMG LLP presented two
years ago to the Company. After taking into consideration KPMG LLP’s performance
as discussed above, the Audit Committee determined that KPMG LLP should be
appointed as the Company’s independent registered public accounting firm for
external audits for Fiscal 2011.
The Audit
Committee is governed by the Amended and Restated Audit Committee Charter (the
“Charter”). A copy of the Charter is available on the Company’s website, which
is located at
www.alcostores.com
.
Once you are at the Company’s website, you must click
on “Investors.” Once you are on the Investors web page, you must
click on the “Corporate Governance” link. Once you are on
the Corporate Governance web page, you may click on a link to access
the Charter. You may access the Corporate Governance page directly by going to
the following link:
http://www.alcostores.com/company_information/investor_relation/ALCO_Corp_Goverance.html
.
The
information in or referenced to in the previous paragraph shall not be deemed
incorporated by reference by any general statement incorporating by reference
this proxy statement into any filing under the Securities Act of 1933 or under
the Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
Audit
Committee Report
The Audit
Committee has reviewed and discussed the Company’s audited consolidated
financial statements for the fiscal year ending January 31, 2010, with
management and the independent accountants. The Audit Committee has
also discussed and reviewed with the independent accountants the matters
required to be discussed by Statements on Auditing Standards No. 61, as amended,
“Communication with Audit Committees,” as adopted by the Public Company
Accounting Oversight Board in Rule 3200T, which relates to the accountants’
judgment about the quality of the Company’s accounting principles, judgments and
estimates, as applied in its financial reporting.
In
addition, the Audit Committee has received the written disclosures and the
letter from the independent public accountants required by the applicable
standards of the Public Company Accounting Oversight Board, relating to the
independent accountant’s communication with the audit committee concerning the
accountants’ independence from the Company and its subsidiaries and has
discussed with the independent public accountants their
independence. The Audit Committee has considered whether other non
audit services provided by the independent accountants to the Company are
compatible with maintaining the auditor’s independence and has discussed with
KPMG LLP the independence of that firm.
Based on
the reviews and discussions referred to above, the Audit Committee recommended
to the Board of Directors of the Company that the audited financial statements
be included in the Company’s Annual Report on Form 10-K for the year ended
January 31, 2010, for filing with the SEC.
This
report is made over the name of each continuing member of the Audit Committee at
the time of such recommendation, namely:
Dennis E.
Logue
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Lolan C.
Mackey
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Royce
Winsten
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The
Audit Committee Report shall not be deemed incorporated by reference by any
general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
Compensation
Committee
The
Compensation Committee has general responsibility for the establishment,
direction and administration of all aspects of the compensation policies and
programs for the Company’s executive officers, including the President and Chief
Executive Officer’s compensation. The President and Chief Executive Officer and
other executive officers may attend Compensation Committee meetings and make
recommendations, but they may not be present during discussions regarding their
own compensation. Although, the ultimate responsibility for approving the
compensation programs of our named executive officers rests with the
Board. The Compensation Committee also administers the Company’s
Incentive Stock Option Plan and the Non-Qualified Stock Option Plan for
Non-Management Directors. Although it may choose to do so in the future, in
recent years the Compensation Committee has not used a consultant in considering
compensation policies and programs for executive officers but relies on the
experience of its members, their familiarity with compensation programs of other
companies, recommendations of management and informal surveys of the practices
of companies whose business is deemed similar to the Company’s by the
Compensation Committee.
The
Compensation Committee adopted a Compensation Committee Charter on April 4,
2007, a copy of which is available on our website at
www.alcostores.com
.
Once you are at the Company’s website, you must click on “Investors,” and then
on the Investors page you must click on the “Corporate Governance” link. Once
you are on the Corporate Governance web page, you may click on a link to access
the Compensation Committee Charter. You may access the Compensation Committee
Charter directly, by going to the direct link of the Corporate Governance page,
which is:
http://www.alcostores.com/company_information/investor_relation/ALCO_Corp_Goverance.html
.
See
“EXECUTIVE COMPENSATION AND OTHER MATTERS – Compensation Discussion and
Analysis” for further information on the processes we follow in setting
compensation.
Compensation
Committee Interlocks and Insider Participation
No member
of the Compensation Committee is now or was at any time during the past year an
officer or employee of the Company or any of its subsidiaries, was formerly an
officer of the Company or any of its subsidiaries, or had any relationship with
the Company requiring disclosure.
Compensation
Committee Report
The
Compensation Committee has reviewed and discussed with management the
Compensation Discussion and Analysis set forth below in this Proxy Statement and
based on such review and discussion recommended to the Board of Directors that
the Compensation Discussion and Analysis be included in this proxy
statement.
Compensation
Committee Members:
Raymond A.D.
French
Lolan C.
Mackey
The
Compensation Committee Report shall not be deemed incorporated by reference by
any general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
EXECUTIVE
COMPENSATION AND OTHER INFORMATION
Compensation
Discussion and Analysis
Executive
Summary
The
Compensation Committee is tasked with discharging the Board of Directors’
responsibilities related to oversight of the compensation of our directors and
officers and ensuring that our executive compensation program meets our
corporate objectives. This Compensation Discussion and Analysis is a
discussion and analysis of the various executive compensation policies, programs
and practices developed by the Compensation Committee, and is intended to
provide insight into the Compensation Committee’s decision making process for
determining the compensation for our named executive officers,
including:
·
|
Lawrence J.
Zigerelli
, age 51, has served as President and Chief Executive
Officer of the Company since July 1, 2008. From January 2007 to January
2008, Mr. Zigerelli served as Chairman of the Board and Chief Executive
Officer of Levitz Furniture. Prior thereto, Mr. Zigerelli served as a
retail consultant to Prentice Capital Management, L.P. He began his career
with Procter & Gamble in 1980 and rose to the position of Vice
President and General Manager of Puerto Rico/Caribbean, food and beverage
for Latin America. In 1999, he joined drug store CVS Corp. as Executive
Vice President of Corporate Development and eventually added the role of
Executive Vice President of Marketing. In September 2002, he joined
supercenter retailer Meijer, Inc., as Senior Vice President of Marketing
and Merchandising. He became President and a member of the Board of
Directors of Meijer, Inc. in April 2005 and served in that capacity until
November 2006. Mr. Zigerelli has approximately 28 years experience in the
consumer products and retail industries. Mr. Zigerelli resigned from the
Company during Fiscal 2011, effective as of February 19,
2010.
|
·
|
Jane F.
Gilmartin
, age 54, has served as Executive Vice President and Chief
Operating Officer of the Company since July 24, 2008. From July 2006 to
February 2007, Ms. Gilmartin served as Senior Vice President and Chief
Merchandising Officer of Levitz Furniture, Inc. Prior thereto, Ms.
Gilmartin served as Executive Vice President and Chief Merchandising
Officer for Linens ‘N Things from August 2005 to March 2006, Senior Vice
President of Ross Store, Inc. from November 2003 to August
2005,
and Chief Executive Officer, Chairman and President of International Art,
Inc. from January 2002 to November 2003. Ms. Gilmartin has approximately
30 years experience in the retail
industry.
|
·
|
Donny R.
Johnson
, age 49, has served as Executive Vice President, Chief
Financial Officer of the Company since July 1, 2008. Mr. Johnson served as
the Company’s Interim Chief Executive Officer from February 22, 2008 to
June 30, 2008. Mr. Johnson served as Senior Vice President and Chief
Financial Officer from August 1, 2007 to February 21, 2008. For the five
years prior to that, he was Executive Vice President and Chief Financial
Officer for Brookshire Brothers. Mr. Johnson has approximately 20 years
experience in the retail industry.
|
·
|
Tom L. Canfield,
Jr.
, age 56, has served as our Senior Vice President –
Logistics/Administration since 2006. From 1973 to 2006, Mr. Canfield
served in various capacities with the Company. Mr. Canfield has
approximately 35 years of experience in the retail
industry.
|
·
|
James M.
Spencer
, age 43, has served as Senior Vice President of Operations
of the Company since December 15, 2008. For the five years prior to that,
Mr. Spencer served as the Senior Vice President of Development &
Business Transformation, The Seiyu, Ltd. (Wal-Mart International), Vice
President of International Operations, Senior Director of International
Operations, and District Manager of U.S. Operations for Wal-Mart, Inc. Mr.
Spencer has approximately 20 years of store operations and retail
management experience. Mr. Spencer resigned from the Company
during Fiscal 2011, effective as of February 26,
2010.
|
Our
mission as a company is to be the best broadline retailer in America, serving
smaller, hometown communities. We strive every day to achieve that
goal with our work ethic, quality selection of goods, competitive prices, and
friendly service of bygone days.
The
Compensation Committee has designed our executive compensation program to
reflect its philosophy that executive compensation should be directly linked to
our Company’s mission, corporate performance and increased stockholder
value. Relative to other companies, we believe that our program is
relatively simple and conservative. For our most senior executive
officers, the program consists primarily of three elements – base salary, an
opportunity for an annual cash incentive award and an opportunity for stock
option grants. Base salary increases, the size of the annual cash
incentive awards and the size of the stock option awards for our most senior
executive officers are determined in large part by reference to return on equity
and other goals established by the Compensation Committee at the beginning of
each year. These goals, even at the lowest level at which
compensation can be awarded, are intended to be difficult to achieve relative to
our prior year’s performance and relative to our competitors’ projected
performance for the year. Furthermore, stock options granted will
only have value if the price of our common stock increases after the date of
grant. See “Elements of Executive Compensation” below for a
discussion of base salary increases, annual cash incentive awards and stock
option awards granted to our named executive officers in Fiscal
2010.
We expect
that option awards to be made in Fiscal 2011 based on Fiscal 2010 performance
may be smaller than in previous years, as was also the case in Fiscal
2010. In granting option awards in Fiscal 2010, the Compensation
Committee took into consideration the fact that the option grants made in Fiscal
2007 and 2008 based on our strong performance in Fiscal 2007 were significantly
underwater, given their exercise price of between approximately $20 and $40 per
share and our closing price on the last day of Fiscal 2009 was
$8.61. To date, these options, as well as unexercised annual option
grants made since 2000, have provided little value to the recipients, even
though we are required to assign a significant value to the Fiscal 2008 option
grants and certain prior year grants in our Summary Compensation
Table. Consequently, the effectiveness of these options as a reward
for performance, as an incentive for future performance and as a retention
incentive has been significantly diminished. The Compensation
Committee also took into consideration the fact that our performance in Fiscal
2009 and 2010, based on a number of financial measures was comparable
relative to the performance of many other companies in the retail industry,
reflective of a difficult retail environment. The same factors
existed in Fiscal 2010, and the closing price of last day of Fiscal 2010 was
$12.19. Therefore, the Compensation Committee will take these same items into
consideration in granting option awards in Fiscal 2011.
Although,
the Compensation Committee is also aware that the lower exercise price of our
stock option awards granted in Fiscal 2009 and 2010 may be an incentive to
executive officers because if the price of stock rises, these options awarded in
Fiscal 2009 and 2010 will become more valuable because of their low exercise
price. The Compensation Committee may extend these considerations to other
elements of our executive compensation program in Fiscal 2011 and
beyond.
Compensation
Objectives and Philosophy
Generally,
our compensation and benefits program objectives are to align compensation
programs with our business objectives and stockholders’ interests, to reward our
performance, to be externally competitive and internally equitable and to retain
talent on a long-term basis.
The
Company’s executive compensation program is designed to accomplish the following
objectives:
·
|
To
attract and retain motivated executives who substantially contribute to
the Company’s long-term success and the creation of stockholder
value;
|
·
|
To
reward executives when the Company performs financially or operationally
well;
|
·
|
To
align the financial interests of our executives with the interests of our
stockholders; and
|
·
|
To
be competitive with the Company’s industry without targeting or setting
compensation at specific benchmark
percentiles.
|
Our
philosophy is to balance the named executive officers’ short-term compensation
with long-term compensation in order to align their interests with the interests
of our stockholders. Within this framework, the Compensation
Committee strives to maintain executive compensation that is fair, reasonable,
and competitive.
Our
philosophy and objectives are implemented through our executive compensation
program, which is comprised of the following primary elements:
·
|
Base
salary and benefits are designed to attract and retain employees over
time.
|
·
|
Annual
cash awards are designed to focus employees on the objectives set by the
Company for a particular year for overall Company performance
goals. These goals are set to a level consistent with the
Company’s business plan and philosophy, including enhancement of
stockholder value.
|
·
|
Long-Term
Incentives – stock options – focus executives’ efforts on the behaviors
within the recipients’ control that we believe are necessary to ensure the
long-term success of the Company, as reflected in increases in the
Company’s stock prices over a period of several years, growth in earnings
per share and other elements.
|
The
Compensation Committee is afforded sufficient flexibility to use these elements,
in addition to other benefits, in a way that it believes will accomplish its
objectives.
Compensation
Setting Process
Each
year, the Compensation Committee approves executive compensation based upon a
number of factors and reference points, and does not set executive compensation
at specific benchmark percentiles or based on a formula-driven
framework. This enables the Compensation Committee to be responsive
to the Company’s financial and operational performance, the competitive pay
information within the Company’s industry, and the current dynamics of the labor
market. In approving the named executive officers’ individual pay
components and total direct compensation, the Compensation Committee generally
considers one or more of the following factors and reference
points:
·
|
The
Company’s financial and operational
performance;
|
·
|
Historical
compensation levels;
|
·
|
The
role and responsibilities of the named executive
officers;
|
·
|
Evaluations
of the named executive officers’
performance;
|
·
|
Competitive
pay information within the Company’s industry;
and
|
·
|
Any
recommendations of the Company’s Chief Executive
Officer.
|
The
Company does not have a specific policy, practice, or formula regarding the
allocation of total direct compensation between (a) base salary and incentive
awards, (b) cash performance bonus and equity incentive awards, or (c) total
cash compensation and total equity incentive awards.
The
Compensation Committee has not engaged a compensation consultant in recent years
to assist it in designing and implementing the Company’s executive compensation
program, but instead has relied on the experience of its members. The
Compensation Committee approves individual pay components and total direct
compensation levels based upon its subjective judgment and discretion as to the
overall fairness and competitiveness of the named executive officers’
compensation.
How
We Determine Compensation
The
Compensation Committee has general responsibility for the establishment,
direction and administration of all aspects of the compensation policies and
programs for executive officers, although the ultimate responsibility for
approving the compensation programs of our named executive officers rests with
the Board.
The
Compensation Committee met numerous times during the course of a fiscal year to
review issues with respect to executive compensation matters. The
agenda for each meeting of the Compensation Committee is prepared and/or
approved by the chairman of the Compensation Committee in advance of the
meeting. The chairman of the Compensation Committee may, but is not
required to, invite members of management or other members of our Board of
Directors to attend portions of meetings as deemed appropriate. The
President and certain other executive officers may attend Compensation Committee
meetings, but are not present during discussions or deliberations regarding
their own compensation. In Fiscal 2010, the Company’s President and
Chief Executive Officer was the only executive officer that had a material role
in determining executive compensation. For Fiscal 2010, the President
and Chief Executive Officer set the goals and objectives for each other named
executive officer, provided input as to whether each other named executive
officer met such goals and objectives, and made recommendations to
the Compensation Committee regarding any adjustments to the other named
executive officers’ compensation. The President and Chief
Executive Officer did not make any recommendations to the Compensation Committee
regarding his compensation in Fiscal 2010, and the President and Chief Executive
Officer’s compensation in Fiscal 2010 was based solely on his employment
contract entered into on July 1, 2008. The Compensation Committee has
complete authority to accept, modify or reject the President and Chief Executive
Officer’s recommendations regarding executive compensation.
Although
it may do so in the future, in recent years the Compensation Committee has not
used a consultant in considering compensation policies and programs for
executive officers, but relies on the experience of its members, their
familiarity with compensation programs of other companies, recommendations of
management and informal surveys of the practices of companies whose business is
deemed similar to the Company’s by the Compensation Committee.
Role
of Peer Analysis in Compensation Determinations
As
indicated above, one of the factors that the Compensation Committee considers in
setting executive compensation is competitive pay information within the
Company’s industry. The Compensation Committee compares the
individual pay components (i.e., base salary, cash incentive awards, and
long-term incentive awards) and total direct compensation (i.e., base salary,
cash incentive awards, long-term incentive awards and all other compensation) of
each of the named executive officer against a peer group of publicly traded
retail companies (the “Peer Group”). The retail companies comprising
the Peer Group were:
Dollar General
Corporation
|
Family
Dollar Stores, Inc.
|
Target
Corporation
|
Fred’s
Inc.
|
The
Compensation Committee selected these companies because they are in the same
industry as the Company and the Company believes that it competes with these
companies for employee talent. The Compensation Committee elected not
to use the peer group utilized in the Company’s stock performance graph for
purposes of assessing executive compensation, as the Compensation Committee
believes the above companies better represent the Company’s direct competitors
for employee talent. All of the above peer companies are much larger
than the Company in terms of assets, revenues, and market
capitalization. The Compensation Committee realizes this size
disparity and takes the disparity into account when reviewing the Peer Group in
the context of evaluating and setting the individual pay components and total
direct compensation of the named executive officers. Furthermore, the
Compensation Committee believes that designing its executive compensation
program to be competitive with the Peer Group promotes the Company’s recruitment
and retention efforts.
Notwithstanding
the above, the Compensation Committee does not target or set executive
compensation to specific benchmark percentiles. The competitive pay
information derived from the Peer Group is one of a number of factors and
reference points used by the Compensation Committee, which other factors and
reference points include the Company’s financial and operational performance;
historical compensation levels; the role and responsibilities of the named
executive officers; evaluations of the named executive officers’ performance;
and any recommendations of the Company’s President and Chief Executive
Officer. The competitive pay information is not, by itself, material
to the Compensation Committee’s determination of the individual pay components
and total direct compensation of the named executive officers. The
same is true for the other factors and reference points listed
above. Consequently, depending upon one or more of these other
factors and reference points, a named executive officer’s individual pay
components and total direct compensation may be below, within, or above the
median of the competitive pay information.
The
Compensation Committee approves individual pay components and total direct
compensation levels based upon its subjective judgment and discretion as to the
overall fairness and competitiveness of the named executive officers’
compensation. The peer analyses helps to provide the Compensation
Committee the framework necessary to make these determinations, as well as to
assist it in determining whether the named executive officers’ compensation
levels will accomplish the objectives of the Company’s executive compensation
program.
Elements
of Executive Compensation
As noted
above, the principal ongoing components of our compensation program consist of
base salary, the opportunity to earn annual bonuses based on Company performance
and long-term equity based incentives.
Base
Salary.
In the course of negotiating base salaries with our
executive officers, we strive to take into account each individual’s levels of
experience and anticipated skills and contribution to us, our geographic
location and informal market surveys indicating what competitive salaries might
be. In setting base salaries of executive officers other than the
President and Chief Executive Officer, the Compensation Committee also takes
into account recommendations made by the President and Chief Executive
Officer.
When
considering annual adjustments to the base salary of the President and Chief
Executive Officer, the Compensation Committee typically takes into account the
Company’s performance and the Compensation Committee’s assessment of his
effectiveness in the performance of his duties.
The
Compensation Committee’s decision to adjust a named executive officers’ base
salary have been made in the Compensation Committee’s subjective discretion and
was not tied to a mathematical formula measuring achievement of quantitative
criteria. Financial results were not quantified in this analysis. In
reaching its decision to adjust a named executive officer’s base salary, the
Compensation Committee may consider such factors as, among others: (1) overall
Company performance; (2) the President and Chief Executive Officer’s
recommendations (except for the President and Chief Executive Officer’s own
compensation); (3) a subjective assessment of the named executive officer’s
performance; (4) an analysis of Peer Group data, as appropriate; (5) the named
executive officer’s existing base salary level and his or her length of service
with the Company; and (6) the named executive officer’s overall contribution to
the Company’s business. As discussed below, base salaries may also be adjusted
as a result of a named executive officer assuming additional responsibilities
within the Company.
The
salaries shown in the Summary Compensation Table reflect annual adjustments from
the beginning of Fiscal 2010 to the base salaries of the named executive
officers present to the end of Fiscal 2010 as follows:
Adjustments
are sometimes made as a result of a promotion or other change in
duties. Mr. Canfield was provided a raise because of additional
duties and responsibilities he has incurred as the Company’s Senior
Vice President-Logistics/Administration, his length of service to the Company,
and the length of time since his last increase in base salary.
Annual Cash
Incentive.
We believe that a portion of an executive officer’s
total annual compensation should be incentive-based and that by rewarding good
performance, such arrangements help align the interests of our named executive
officers with those of our stockholders. Consequently, in Fiscal
2006, we began entering into arrangements whereby a contractual bonus would be
paid based on Return on Equity (“ROE”). Return on Equity for this
purpose means earnings from continuing operations before discontinued
operations, excluding cumulative change in accounting and one-time termination
benefits recognized in accordance with FASB ASC Topic 718, divided by the
average of stockholders’ equity at the beginning and end of the fiscal
year. Accordingly, the Compensation Committee approved contractual
bonus opportunities in Fiscal 2008 as follows: if the Return on Equity was
between 10% and 12%, the executive officers would receive 80% of their
contractual bonus, if it was between 12% and 14%, they would receive 100% of
their contractual bonus and if it was over 14%, they would receive 140% of their
contractual bonus. For Fiscal 2009 and Fiscal 2010, the Compensation
Committee did not establish a return on equity target (or any other
annual cash incentive award target) because the Compensation Committee was
unable to determine an appropriate return on equity target or other incentive
award target for Fiscal 2009 and Fiscal 2010. Consequently, the
Company did not payout a return on equity based bonus to its executive officers
in Fiscal 2009 or Fiscal 2010.
Our
employment agreements provide that bonuses must be repaid to the extent they are
paid based on financial information that is later determined to be materially
overstated and results in a financial restatement that would have lessened the
amount of bonus paid the employee. Under the existing contracts with
the named executive officers, the Company may elect to pay other bonuses in its
sole discretion. If any such bonus were to be paid, it
generally would be based on recommendations of the President and would require
Compensation Committee approval.
These
bonus provisions and the application of such bonus provisions with regard to
2010 cash incentive compensation are described below.
Lawrence Zigerelli and Jane F.
Gilmartin.
The Company entered into employment agreements with
Mr. Zigerelli and Ms. Gilmartin on July 1, 2008, and July 24, 2008,
respectively. In order to entice Mr. Zigerelli and Ms. Gilmartin to
enter into such employment agreements, the Compensation Committee included in
their employment agreements defined bonus amounts based on specified ROE targets
for two performance periods. These defined bonus amounts were
determined through the course of arms-length negotiations of their employment
agreements. As part of these negotiations, the Compensation Committee
considered Mr. Zigerelli’s and Ms. Gilmartin’s role and responsibilities within
the Company and analyzed the terms of the same or similar arrangements for
comparable executives employed by one or more of the retail companies in our
Peer Group and other published compensation survey data, including the Report of
the NACD Blue Ribbon Commission on Executive Compensation and the Role of the
Compensation Committee, but the defined bonus amounts were ultimately set in the
Compensation Committee’s subjective judgment and discretion as to the overall
fairness and competitiveness of their compensation and was not based on a
formula-driven framework.
The first
performance period began on August 4, 2008, and ended on August 2,
2009. The second performance period began on August 3, 2009, and will
end on August 1, 2010. Mr. Zigerelli’ s and Ms. Gilmartin’s
employment agreements each provide that they will receive a bonus based on the
Company’s ROE (as defined below) for the applicable performance period as
follows:
ROE
|
Amount of Bonus
|
7.49% or
less
|
No
Bonus
|
7.5% to
9.99%
|
50%
of base salary
|
10% to
12.49%
|
75%
of base salary
|
12.5% to
14.99%
|
100%
of base salary
|
15% to
17.49%
|
125%
of base salary
|
17.5% or
more
|
150%
of base salary
|
As set
forth in the employment agreements, “ROE” means, for any 12-month period,
earnings from continuing operations before discontinued operations for such
period, excluding cumulative changes in accounting and one-time termination
benefits recognized in accordance with FASB ASC Topic 718, divided by the
stockholders’ equity at the end of the immediately preceding 12-month
period. The Compensation Committee selected the performance measure
of ROE to focus the named executive officers on creating long-term stockholder
value, aligning the named executive officers’ financial interests with the
interests of the Company’s stockholders.
For the
performance period ended on August 2, 2009, the Company’s ROE was
0.89%. Because this amount was below 7.49%, neither Mr. Zigerelli nor
Ms. Gilmartin received a ROE-based bonus, as described in their employment
agreements, for the performance period ended on August 2, 2009.
All Other Named Executive
Officers.
The Company has also entered into employment
agreements with each of the other named executive officers. These
employment agreements generally provide that the named executive officer will
receive an annual bonus based on the Company’s return on equity for the
applicable fiscal year, subject to certain conditions.
The terms
of the other named executive officers’ employment agreements established the
following bonus levels, expressed as a percentage of the respective officer’s
base salary:
Named Executive
Officer
|
Bonus Level
|
Donny R.
Johnson
|
35%
of base salary
|
Tom L.
Canfield, Jr.
|
30%
of base salary
|
James M.
Spencer
|
35%
of base salary
|
The above
bonus levels were determined through the course of arms-length negotiations of
the other named executive officers’ employment agreements. As part of
these negotiations, the Compensation Committee considered each respective
officer’s role and responsibilities within the Company and analyzed the terms of
the same or similar arrangements for comparable executives employed by one or
more of the retail companies in our Peer Group and other published compensation
survey data, but the bonus levels were ultimately set in the Compensation
Committee’s subjective judgment and discretion as to the overall fairness and
competitiveness of such officer’s compensation and was not based on a
formula-driven framework. The Compensation Committee also believes
that our named executive officers’ financial interests should be aligned with
our stockholders’ interests and that individuals with greater roles and the
ability to directly impact the Company’s financial and operating performance
should have a greater percentage of their compensation at risk, and therefore,
the Compensation Committee allocated larger percentages to Messrs. Johnson and
Spencer, than were allocated to the other named executive officer.
For
Fiscal 2010, the Compensation Committee did not establish a return on equity
target (or any other annual cash incentive award target) because the
Compensation Committee was unable to determine an appropriate return on equity
target or other incentive award target for Fiscal 2010. Consequently,
the Company did not payout a return on equity based bonus to Messrs. Johnson,
Canfield, or Spencer in Fiscal 2010.
Long Term
Incentives.
In May 1993, stockholders approved the
Duckwall-ALCO Stores, Inc. Incentive Stock Option Plan (the “1993 Plan”) whose
purpose was to encourage key employees to participate in the ownership of and to
promote the success of the business of the Company. The 1993 Plan was
amended in 1997 and 1998. There were 650,000 shares of Common Stock
authorized for issuance upon exercise of options under the 1993
Plan. The 1993 Plan expired on May 18, 2003 and the last of any
outstanding options under the 1993 Plan expired on March 21, 2007.
In May
2003, the stockholders approved the 2003 Duckwall-ALCO Stores, Inc. Incentive
Stock Option Plan (the “2003 Plan”). There are 500,000 shares of
Common stock authorized for issuance upon exercise of options under the 2003
Plan. As of April 23, 2010, options for 107,845 shares remained
available for issuance under the 2003 Plan. The 2003 Plan is
administered by the Compensation Committee of the Board of Directors, whose
members are appointed by the Board. The Chief Executive Officer
provides recommendations to the Compensation Committee as to who might receive
grants under the plans. The Compensation Committee, in its sole
discretion, selects the employees to receive options based on the employee’s
past material contributions to the performance of the Company or the expectation
that the employee will make material contributions in the
future. Only key employees are eligible to receive options, and we do
not necessarily make annual option awards.
Currently,
the key employees who are eligible to receive stock options include those
employees who hold the office of President and Chief Executive Officer, a Vice
President position, or director of a division of the Company. All of
the Company’s named executive officers hold one of these titles and are eligible
to receive stock options. Eligible key employees will only receive
stock options if, and to the extent, such stock options are approved by the
Compensation Committee.
Each
outstanding option permits the holder to purchase shares of the Common Stock at
a price equal to the fair market value of the stock at the time of the grant.
The fair market value is defined as the mean between the high and low sales
prices, if any, on the National Association of Securities Dealers Automated
Quotation System (“NASDAQ”) on the date of the grant of the
option. If no sales occurred on the grant date, the fair market value
is the weighted average of the means between the highest and lowest sales on the
nearest trading date before and after the date of grant. The number
of shares and option price covered by outstanding options may be adjusted in the
event of any stock dividend, stock split, reorganization, merger, consolidation,
liquidation or any combination or exchange of shares of Common
Stock.
The
Compensation Committee does not have any formalized policy or procedures for the
annual grant of stock options or other equity awards to the Company’s executive
officers and other key employees. Therefore, annual equity awards may or may not
be made to the Company’s named executive officers. The grant of equity awards is
determined by the Compensation Committee in its subjective discretion. In the
past, the Compensation Committee has approved from time to time the grant of
stock options upon the initial employment or promotion of a named executive
officer or other key employee of the Company. Additionally, the Company does not
have a formal policy on the timing of equity compensation grants in connection
with the release of material non-public information to affect the value of
compensation. In the event that material non-public information
becomes known to the Compensation Committee prior to granting equity awards, the
Compensation Committee will take the existence of such information under
advisement and make an assessment in its business judgment whether to delay the
grant of the equity award in order to avoid any impropriety.
In Fiscal
2010, the Compensation Committee granted stock options to the named executive
officers as follows:
Named Executive
Officer
|
Stock Options Awarded
|
Lawrence J.
Zigerelli
|
0
|
Jane F.
Gilmartin
|
0
|
Donny R.
Johnson
|
10,000
|
Tom L.
Canfield, Jr.
|
10,000
|
James M.
Spencer
|
0
|
The
number of stock options awarded to the named executive officers in Fiscal 2010,
whether set forth in an employment agreement or not, was determined by the
Compensation Committee in its subjective judgment and discretion as to the
overall fairness and competitiveness of such officer’s long-term incentive
compensation and was not based on a formula-driven framework. As part of its
deliberations in approving the stock option awards, the Compensation Committee
considered (1) the need to align the financial interests of the named executive
officers with the Company’s stockholders, (2) each respective officer’s role and
responsibilities within the Company, and (3) as applicable, the number of stock
options awarded to each named executive officer in prior years. The
Compensation Committee considered these factors, as well as the dedicated
service provided by each named executive officer, when determining to award
stock options to Mr. Johnson and Mr. Canfield in Fiscal 2010.
Severance Pay
Arrangements.
We compete in a marketplace where severance and
change in control protections are commonplace and consequently, we have
negotiated employment agreements containing termination and change in control
provisions with our named executive officers to facilitate our ability to
attract and retain them. The arrangements that we have agreed to are
described fully under the section captioned “Potential Payments Upon Termination
or Change in Control,” but generally provide for one year’s base salary and
benefits continuation for all named executive officers, in accordance with each
named executive officer’s employment agreement, following termination without
cause or a change in control of the Company.
Other Annual
Arrangements.
Other than below, we do not provide perquisites
of any significance and we do not have significant executive benefits, such as
supplemental executive retirement plans or deferred compensation
arrangements.
·
|
We
paid premiums on a $100,000 life insurance policy for Mr. Canfield,
although we generally try to avoid providing this benefit to new
executives.
|
·
|
We
also made matching contributions to our executive officers’ accounts in
our 401k plan. The contribution level is the same as for
all employees, which is 50% of the amount contributed by the employee
(which could not exceed $15,500 in Fiscal 2010) up to 4% of his base
pay. Employees become fully vested in the Company’s
contributions after seven years.
|
Tax,
Accounting and Other Considerations
Tax
Considerations.
Under IRC Section 162(m), publicly held
companies may not deduct compensation paid to named executive officers to the
extent that an executive’s compensation exceeds $1,000,000 in any one year,
unless such compensation is “performance based.” Because our
incentive programs have a retention purpose as well as an incentive purpose, our
Compensation Committee generally has not viewed it as practicable or in our best
interests to qualify compensation programs under 162(m). We do not
anticipate that non-qualifying compensation of any named executive officer will
approach the $1,000,000 limit in Fiscal 2011.
Accounting
Considerations.
With the adoption of FASB ASC Topic 718, we do
not expect accounting treatment of differing forms of equity awards to vary
significantly and, therefore, accounting treatment is not expected to have a
material effect on the selection of forms of compensation.
Employment
Agreements
Following
is a list of the Fiscal 2010 named executive officers employed with the company
as of April 23, 2010, with which we have entered into employment
agreements:
Name
|
Effective Date
|
James M.
Spencer
|
December
15, 2008 (1)
|
Jane F.
Gilmartin
|
July
24, 2008
|
Lawrence J.
Zigerelli
|
July
1, 2008 (2)
|
Donny R.
Johnson
|
August
1, 2007
|
Tom L.
Canfield, Jr.
|
January
5, 2006
|
(1)
|
Mr.
Spencer resigned from the Company on February 26, 2010.
|
|
(2)
|
Mr.
Zigerelli resigned from the Company on February 19, 2010. Richard E.
Wilson is the current President and Chief Executive Officer of the
Company, appointed during Fiscal 2011, after the resignation of Mr.
Zigerelli on February 19, 2010. The Company entered into an employment
agreement with Mr. Wilson on February 15,
2010.
|
The
Compensation Committee believes that employment agreements are important to both
our executives and to us in that the executive benefits from clarity of the
terms of his or her employment, as well as protection from wrongful termination,
while we benefit from nondisclosure and non-competition protection, enhancing
our ability to retain the services of our executives. The Compensation Committee
periodically reviews the terms of the employment agreements and amends them as
necessary to remain competitive and to carry out its objectives. Details of the
terms of the specific employment agreements are discussed elsewhere in this
proxy statement.
Information
Regarding Certain Named Executive Officers Who Are No Longer Employed With the
Company
Lawrence
J. Zigerelli served as the Company’s President and Chief Executive Officer from
July 1, 2008 to February 19, 2010. As part of Mr. Zigerelli’s separation from
the Company, the Company entered into a Separation and Release Agreement with
Mr. Zigerelli on March 9, 2010 (the “Separation Agreement”). Under the
Separation Agreement, Mr. Zigerelli will receive $125,000 over a twelve month
period pursuant to the Company’s regular payroll practices. In addition, Mr.
Zigerelli shall be reimbursed for his COBRA premiums for six months, which shall
total $6,022.
In
addition, in connection with Mr. Zigerelli’s resignation, Mr. Zigerelli
exercised his vested options for 27,500 shares on March 19, 2010. Of
which, 25,000 were vested under the Company’s Incentive Stock Option Plan and
2,500 were vested under his Non-Qualified Stock Option Agreement with the
Company.
James M.
Spencer resigned from his position of Senior Vice President-Operations on
February 26, 2010. In connection with Mr. Spencer’s resignation, the Company
entered into a revised Stock Option Agreement to allow Mr. Spencer to receive
net shares of his vested stock options in a cashless transaction in lieu of
exercising his vested stock options. Mr. Spencer elected net exercise for vested
options, receiving 1,405 shares on March 19, 2010 under his revised Stock Option
Agreement and the Company’s Incentive Stock Option Plan.
Bruce
Dale is a former named executive officer of the Company. Mr. Dale, who served as
President and Chief Executive Officer, was terminated on February 22,
2008. In connection with the termination of Mr. Dale’s employment,
the Company entered into a Separation and Release Agreement. Under such
agreement, the Company agreed to pay Mr. Dale’s base salary of
$365,000 per year until March 31, 2010, and to pay his monthly premiums of group
health benefits under COBRA for 18 months after the termination date, and
thereafter reimburse Mr. Dale on a monthly basis, an amount equal to the cost of
such insurance until March 31, 2010. Therefore, Mr. Dale was paid $365,000 in
Fiscal 2010 under such agreement. The Company, in the aggregate, estimates the
cost it incurred for Mr. Dale’s COBRA payments to be approximately
$20,088.
SUMMARY
COMPENSATION TABLE (1)
FISCAL
YEAR ENDED JANUARY 31, 2010
The
following table shows the compensation that we paid to our principal executive
officer (“PEO”), our principal financial officer (“PFO”), and to each of our
three other most highly compensated executive officers during the last fiscal
year for services to us in all capacities.
Name
and Principal Position
|
Fiscal
Year
|
Salary
($)
|
Option
Award(7)
($)
|
All
Other
Compensation(8)(9)
($)
|
Total
($)
|
|
|
|
|
|
|
Lawrence
J. Zigerelli (2)
President
- Chief Executive Officer
(PEO)
|
2010
2009
2008
|
400,000
233,333
N/A
|
72,541
54,406
N/A
|
7,151
46,906
N/A
|
479,692
334,645
N/A
|
|
|
|
|
|
|
Jane
F. Gilmartin (3)
Executive
Vice President – Chief
Operating
Officer
|
2010
2009
2008
|
325,000
169,722
N/A
|
45,532
34,149
N/A
|
6,607
19,868
N/A
|
377,139
223,739
N/A
|
|
|
|
|
|
|
Donny
R. Johnson (4)
Executive
Vice President-
Chief
Financial Officer (PFO)
|
2010
2009
2008
|
275,000
270,418
100,000
|
98,440
68,364
33,689
|
6,548
31,005
52,559
|
379,988
369,787
186,248
|
|
|
|
|
|
|
Tom
L. Canfield, Jr. (5)
Senior
Vice President-Logistics/
Administration
|
2010
2009
2008
|
186,250
180,000
180,000
|
68,774
39,319
39,770
|
7,228
13,021
14,011
|
262,252
232,340
233,781
|
|
|
|
|
|
|
James
M. Spencer (6)
Senior
Vice President-
Store
Operations
|
2010
2009
2008
|
215,000
28,043
N/A
|
24,209
6,052
N/A
|
6,548
2,283
N/A
|
245,757
36,378
N/A
|
|
|
|
|
|
|
(1)
|
The
Company does not provide executive officers with stock awards as
compensation and, therefore, there are no stock awards to disclose on the
Summary Compensation Table under SEC Regulation S-K
402(c).
|
(2)
|
Mr.
Zigerelli was appointed to the position of Chief Executive Officer and
President of the Company on July 1, 2008. His employment agreement
provides for an annual base salary of $400,000. Mr. Zigerelli resigned
from the Company on February 19, 2010. Richard E. Wilson is the current
President and Chief Executive Officer of the Company, appointed during
Fiscal 2011, after the resignation of Mr. Zigerelli on February 19, 2010.
The Company entered into an employment agreement with Mr. Wilson on
February 15, 2010.
|
(3)
|
Ms.
Gilmartin was appointed to the position of Executive Vice President and
Chief Operating Officer on July 24, 2008. Her employment agreement
provides for an annual base salary of
$325,000.
|
(4)
|
Mr.
Johnson, whose employment contract provided for an annual salary of
$200,000, served as Senior Vice President – Chief Financial Officer (PFO)
from August 1, 2007, through February 22, 2008, when he was appointed the
Interim President and Chief Executive Officer and his salary was increased
to $275,000. Mr. Johnson served as Interim President and Chief Executive
Officer until June 30, 2008. On July 1, 2008, Mr. Johnson was appointed
the Company’s Executive Vice President – Chief Financial Officer and his
salary remained the same.
|
(5)
|
Mr.
Canfield’s base salary was raised from $185,000 to $205,000 during Fiscal
2010, effective as of October 1,
2009.
|
(6)
|
Mr.
Spencer was appointed to the position of Senior Vice President-Store
Operations on December 15, 2008. His employment agreement provides for a
base salary of $215,000. Mr. Spencer resigned from the Company on February
26, 2010.
|
(7)
|
The
amount shown is the amount recognized for financial statement reporting
purposes with respect to Fiscal 2010 in accordance with FASB
ASC Topic 718 and, therefore, includes amounts from awards granted in and
prior to Fiscal 2010. For a discussion of the valuation
assumptions used, see Note 10 to the Company’s Fiscal 2010 audited
financial statements included in our Annual Report on Form
10-K.
|
(8)
|
Excludes
perquisites and other benefits, unless the aggregate amount of such
compensation equals or exceeds $10,000 for the named executive
officer.
|
·
|
premiums
paid by the Company with respect to whole life insurance for Fiscal 2010
in the amount of $1,607 for Mr.
Canfield;
|
·
|
contributions
made by the Company for Fiscal 2010 to the named individual’s account in
the Duckwall-ALCO Stores, Inc. 401K Plan in the amounts of: $2,894 to Mr.
Canfield, $1,059 to Mr. Johnson, and $4,300 to Mr.
Spencer.
|
·
|
discretionary
bonus payments; and
|
·
|
health
and dental benefits provided by the Company for Fiscal 2010 to the named
individuals: $7,151 for Mr. Zigerelli, $6,607 for Ms. Gilmartin, $7,228
for Mr. Canfield, $6,548 for Mr. Johnson, and $6,548 for Mr.
Spencer.
|
GRANTS
OF PLAN-BASED AWARDS (1)
FISCAL
YEAR ENDED JANUARY 31, 2010
The
following table shows information regarding plan-based awards during Fiscal 2010
to the named executive officers.
Estimated
future Payouts
Under
Non-Equity
Incentive
Plan Awards (2)
Name
|
Award
Type
|
Grant
Date
|
Threshold
($)
|
Target
($)
|
Maximum
($)
|
All
Other
Option
Awards:
Number
of
Securities
Underlying
Options
(#)(3)
|
Exercise
of
Base
Price
of
Option
Awards
($/Sh)
|
Grant
Date
Fair
Value
of
Stock
and
Option
Awards
($)(4)(5)
|
|
|
|
|
|
|
|
|
|
Lawrence
J. Zigerelli
|
ROE
Bonus
Stock
Options
|
|
200,000
|
400,000
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Jane
F. Gilmartin
|
ROE
Bonus
Stock
Option
|
|
162,500
|
243,750
|
487,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Donny
R. Johnson
|
ROE
Bonus
Stock
Options
|
3/13/09
|
0
|
0
|
0
|
10,000
|
9.25
|
38,800
|
|
|
|
|
|
|
|
|
|
Tom
L. Canfield, Jr.
|
ROE
Bonus
Stock
Options
|
9/16/09
|
0
|
0
|
0
|
10,000
|
17.89
|
78,600
|
|
|
|
|
|
|
|
|
|
James
M. Spencer
|
ROE
Bonus
Stock
Options
|
|
0
|
0
|
0
|
|
|
|
(1)
|
The
Company does not provide executive officers with stock awards or any
equity incentive plan awards as compensation and, therefore, there are no
stock awards or equity incentive plan awards to disclose on the Grants of
Plan-Based Awards Table under SEC Regulation S-K
402(d).
|
(2)
|
Shown
are the Threshold, Target and Maximum payouts for which each executive was
eligible under the Company’s contractual bonus opportunities based on the
Return on Equity thresholds for the bonus years under the terms of Mr.
Zigerelli and Ms. Gilmartin’s employment agreement. Further
detail regarding any bonus obligations can be found in the “Compensation
Discussion and Analysis” under “Elements of Executive Compensation –
Annual Cash Incentive.”
|
(3)
|
Awarded
under our 2003 Incentive Stock Option
Plan.
|
(4)
|
Amounts
shown represent the full grant value of the awards computed in accordance
with FASB ASC Topic 718. For a discussion of the valuation
assumptions used, see Note 10 to the Company’s Fiscal 2010 audited
financial statements included in our Annual Report on Form
10-K.
|
(5)
|
Equity
incentives to our executives have historically been limited to stock
options. We are currently authorized to issue stock option
awards under our 2003 Incentive Stock Option Plan, which is administered
by the Compensation Committee. Based on recommendations of the
President and Chief Executive Officer to the Compensation Committee, the
Committee may grant options at any time. The options permit the
holder to purchase shares of our stock at a price equal to the fair market
value of the stock at the time of the grant. Thus, the options
gain value only to the extent the stock price exceeds the option
price. All of the options shown in the table become exercisable
in equal amounts over a four-year period beginning one year subsequent to
the
grant
date. Further detail regarding the 2003 Incentive Stock
Option Plan can be found in the “Compensation Discussion and Analysis”
under “Elements of Executive Compensation – Long Term
Incentives.”
|
Employment
Agreements
With
regard to the named executive officers as of January 31, 2010, we have
employment agreements with Messrs. Zigerelli, Johnson, Canfield, and Spencer,
and Ms. Gilmartin. These agreements include the following
terms:
·
|
The
term of Messrs. Johnson and Canfield’s agreement is one year, which is
automatically renewed for additional one year terms unless either party
gives notice of its intention not to renew. The agreements for Messrs.
Zigerelli and Spencer and Ms. Gilmartin do not have a term and each is an
“at will” employee.
|
·
|
Each
executive receives an annual base salary and is eligible to receive a
bonus if the Company’s Return on Equity meets a specified amount as the
Board determines and provided the Board approves such bonus plan for the
fiscal year. No such bonus plan was approved for Fiscal 2010. Further
detail regarding any bonus obligations can be found in the “Compensation
Discussion and Analysis” under “Elements of Executive Compensation –
Annual Cash Incentive” for the thresholds for Fiscal 2010. The contractual
amounts are as follows:
|
Name
|
Base
Salary
|
Bonus
Opportunity
|
Lawrence J.
Zigerelli
|
$400,000
|
See
Note 1
|
Jane F.
Gilmartin
|
$325,000
|
See
Note 1
|
Donny R.
Johnson
|
$275,000
|
35%
|
James M.
Spencer
|
$215,000
|
35%
|
Tom L.
Canfield, Jr.
|
$205,000
|
30%
|
·
|
Non-interference
and non-competition provisions that extend until the expiration of two
years following termination of
employment.
|
·
|
The
executives may be entitled to certain payments and other benefits upon
termination of their employment or change of control of Duckwall, as
described in the section entitled “Potential Payments Upon Change of
Control.”
|
·
|
Certain
employment agreements provide for certain grants of stock options in the
Company. Each named executive officers stock option grants are provided in
the Outstanding Equity Awards at Fiscal Year End Table provided
below.
|
·
|
Certain
employment agreements provide each executive officer with certain
reimbursements for moving expenses. Mr. Zigerelli’s employment agreement
provided him with a $30,000 moving allowance, Ms. Gilmartin’s employment
agreement provided her with a $20,000 moving allowance, and Mr. Spencer’s
agreement provided him with a $10,000 moving allowance and a $30,000 real
estate commissions and fees
allowance.
|
The
salaries payable under the employment agreements are reviewed annually and
increased at the sole discretion of the Board of Directors based on the
recommendation of the Compensation Committee.
NOTES:
(1) In
Lawrence J. Zigerelli and Jane F. Gilmartin’s employment contracts, they are
each entitled a bonus based upon ROE of certain “bonus years.” The first bonus
year is August 4, 2008 to August 2, 2009, and the second bonus year is August 3,
2009 to August 1, 2010. Under Mr. Zigerelli and Ms. Gilmartin’s bonus plan, they
receive no bonus if ROE is under 7.49%, a bonus equal to 50% of their respective
salary if ROE is 7.5% to 9.99%, a bonus equal to 75% of their respective salary
if ROE is 10% to 12.49%, a bonus equal to 100% of their respective salary if ROE
is 12.5% to 14.99%, a bonus equal to 125% of their respective salary if ROE is
15% to 17.49%, and a bonus of 150% of their respective salary if ROE is 17.5% or
more.
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END (1)
FISCAL
YEAR ENDED JANUARY 31, 2010
The
following table shows information concerning stock options outstanding held by
the named executive officers at January 31, 2010. No stock options of
any of the named executive officers were repriced.
|
Option
Awards (2)
|
Name
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
|
|
|
|
|
Lawrence
J. Zigerelli
|
25,000
2,500
|
75,000
7,500
|
9.05
9.05
|
07/01/2013
07/01/2013
|
|
|
|
|
|
Jane
F. Gilmartin
|
15,000
|
45,000
|
10.25
|
07/24/2013
|
|
|
|
|
|
Donny
R. Johnson
|
12,500
5,000
|
12,500
15,000
10,000
|
39.67
15.61
9.25
|
08/01/2012
05/14/2013
03/13/2014
|
|
|
|
|
|
Tom
L. Canfield, Jr.
|
7,500
3.750
2,500
|
2,500
1,250
7,500
10,000
|
30.77
39.00
15.61
17.89
|
06/05/2011
12/04/2011
05/14/2013
09/16/2014
|
|
|
|
|
|
James
M. Spencer
|
7,500
|
22,500
|
10.00
|
12/15/2013
|
(1)
|
The
Company does not provide executive officers with stock awards or any
equity incentive plan awards as compensation and, therefore, there are no
stock awards or any compensation from an equity incentive plan to disclose
on the Outstanding Equity Awards Table under SEC Regulation S-K
402(f).
|
(2)
|
Unless
otherwise noted, all option awards with unexercisable shares listed in
this table vest at a rate of 25% per year over the first four years of the
option term. Options have a five year
term.
|
OPTION
EXERCISES AND STOCK VESTED (1)
FOR
FISCAL YEAR ENDED JANUARY 31, 2010
The
following table shows information concerning the exercise of stock options by
the named executive officers during the fiscal year ended January 31,
2010.
|
|
Option
Awards
|
Name
|
|
Number
of
Shares
Acquired
on
Exercise
(#)
|
Value
Realized
on
Exercise
($)
|
|
|
|
|
Lawrence J.
Zigerelli
|
|
0
|
-
|
|
|
|
|
Jane F.
Gilmartin
|
|
0
|
-
|
|
|
|
|
Donny R.
Johnson
|
|
0
|
-
|
|
|
|
|
Tom L.
Canfield, Jr.
|
|
0
|
-
|
|
|
|
|
James M.
Spencer
|
|
0
|
-
|
(1)
|
The
Company does not provide executive officers with stock awards as
compensation and, therefore, there are no stock awards to disclose on the
Option Exercises and Stock Vested Table under SEC Regulation S-K
402(g).
|
PENSION
BENEFITS; NONQUALIFIED DEFERRED COMPENSATION PLANS
The
Company does not provide its named executive officers with any pension benefits,
nor does it provide or have in place any nonqualified deferred compensation
plans for its named executive officers.
POTENTIAL
PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL
Regarding
the named executive officers as of January 31, 2010, we have employment
agreements with Messrs. Zigerelli, Johnson, Canfield, and Spencer and Ms.
Gilmartin (the “currently employed named executive officers”). Upon
termination of their employment or a change of control of Duckwall, under
certain circumstances, the currently employed named executive officers will be
entitled to various payments and other benefits pursuant to their respective
Employment Agreement. These payments and benefits are described
below.
If we
terminate a currently employed named executive officer for cause, of if a
currently employed named executive officer terminates his employment without
good reason or if the termination is due to the currently employed named
executive officer’s death or disability, we will pay the base salary through the
date of termination, earned vacation pay and any benefits earned under any
profit sharing or similar plan through the date of termination, to the extent
and in the manner and at such times as provided in such
plans. Following termination for disability, we also will maintain
health and dental benefits for the officer and his family in accordance with
each officer’s employment agreement.
If we
terminate a currently employed named executive officer without cause, the
officer terminates for “Good Reason” or a “Change of Control,” or we fail to
extend for a renewal term, we will pay salary through the date of termination,
earned vacation pay and any benefits earned under any profit sharing or similar
plan through the date of termination, to the extent and in the manner and at
such times as provided in such plans. In addition, we will pay an
additional year’s base salary in accordance with our regular payroll practices
and continue all benefits coverage during such period as applicable pursuant to
each employee’s employment contract. If the officer obtains employment with a
competitor while we are making payments to him, amounts payable are subject to
reduction by the amount received from the new employer.
For
purposes of this section:
·
|
By
“disability,” we mean the officer’s permanent disability or incapacity, as
determined in accordance with any disability policy that we might
maintain, or, if we do not have such a policy, as we determine in good
faith based upon the inability of the officer to perform the essential
functions of his position, with reasonable accommodation by us, for a
period in excess of 180 days during any period of 365 calendar
days.
|
·
|
“Good
Reason” means assignment of the currently employed named executive officer
to duties and responsibilities that are substantially inconsistent with
the scope and duties and responsibilities set forth in the respective
employment agreement and excludes a Change in
Control.
|
·
|
“Change
in Control” means an event required to be reported as a change in control
under Item 6(e) of Schedule 14A promulgated under the Securities Exchange
Act of 1934 and generally will be deemed to occur upon (a) a person
acquiring 40% or more of the shares or voting power of our stock, (b) the
hostile replacement of at least the majority of our Board of Directors, or
(c) a merger or sale of substantially all of our
assets.
|
In
December 2008, we had certain employees execute amendments to their employment
contracts in order to comply with Internal Revenue Service Section 409A and its
rules and regulations. Under this employment agreement amendment, the definition
of “Good Reason” was amended to read the following:
“Good
Reason” means any of the following: (1) a material diminution in the Employee’s
Base Salary; (ii) any material diminution in Employee’s authority, duties or
responsibilities; and (iii) any other action or inaction that constitutes a
material breach by the Company of the Employment Agreement.
“Good
Reason” no longer includes a Change of Control under the amended
definition. The term “Good Reason” is intended to be an exempt
“involuntary separation of service” under Treas. Reg. §
1.409A-1(n).
In
addition, a section was added to the employment agreement under the amendment,
which provided for certain severance payments for termination upon a Change of
Control. In order to comply with Internal Revenue Service Section 409A, such
section provides that if an employee is terminated by the Company or voluntarily
due to a Change of Control, then the employee’s severance does not begin being
paid until the 7th month after the date of termination.
The named
executive officers that signed such an amendment to their employment agreement
are the following: Lawrence J. Zigerelli, Jane F. Gilmartin, James M.
Spencer, Donny R. Johnson, and Tom L. Canfield, Jr.
Effective
as of May 31, 2009, the Company executed Addendums to Mr. Zigerelli’s and Ms.
Gilmartin’s Employment Agreements to provide each certain compensation upon a
Change of Control of the Company, as provided below.
The
Addendum to the Employment Agreement of Lawrence J. Zigerelli allows Mr.
Zigerelli certain benefits if Mr. Zigerelli is terminated due to a Change of
Control of the Company as defined in the Company’s Incentive Stock Option Plan
of 2003. In the event that Mr. Zigerelli is terminated due to a Change of
Control, he is to be paid one additional year of base salary, which base salary
is equal to $400,000, he shall be paid all earned benefits and earned
obligations and the Company shall continue his benefits coverage for 90 days
after the date of termination. The amounts paid to Mr. Zigerelli under this
Addendum shall be paid in accordance with Internal Revenue Code Section 409A. If
Mr. Zigerelli violates any non-compete provision then in effect under his
Employment Agreement, the compensation provided due to a Change of Control shall
be reduced by the amount of compensation that Mr. Zigerelli receives from other
employment. The compensation and benefits paid to Mr.
Zigerelli
under this Addendum to his Employment Agreement are similar to the Change of
Control provisions under the other executive officer’s employment
agreements.
The
Company entered into a similar Employment Agreement Addendum with Ms. Gilmartin.
The Addendum to Ms. Gilmartin’s Employment Agreement allows Ms. Gilmartin
certain benefits if Ms. Gilmartin is terminated due to a Change of Control of
the Company as defined in the Company’s Incentive Stock Option Plan of 2003. In
the event that Ms. Gilmartin is terminated due to a Change of Control, she is to
be paid one additional year of base salary, which base salary is equal to
$325,000, she shall be paid all earned benefits and earned obligations and the
Company shall continue her benefits coverage for 90 days after the date of
termination. The amounts paid to Ms. Gilmartin under this Addendum shall be paid
in accordance with Internal Revenue Code Section 409A. If Ms. Gilmartin violates
any non-compete provision then in effect under her Employment Agreement, the
compensation provided due to a Change of Control shall be reduced by the amount
of compensation that Ms. Gilmartin receives from other employment. The
compensation and benefits paid to Ms. Gilmartin under this Addendum to her
Employment Agreement are similar to the Change of Control provisions under the
other executive officer’s employment agreements.
The
following table shows the amounts we would have been required to pay each of the
currently employed named executive officers assuming that any of the following
occurred as of January 31, 2010: (i) a termination by reason of disability, (ii)
a termination by us without cause or by the officer with Good Reason, or (iii) a
termination because of a Change in Control. All payments are paid
over the remaining term of the officer’s employment agreement in accordance with
the Company’s current payroll procedures; none are lump sum. If an
officer obtains employment with a competitor while we are making payments to
him, amounts payable are subject to reduction by the amount received from the
new employer. See the section captioned “Compensation Discussion and
Analysis – Information Regarding Certain Named Executive Officers Who Are No
Longer Employed With the Company” for amounts being paid to Mr. Zigerelli in
connection with the termination of his employment with the Company.
Name
|
Termination
due to
Disability
(1)
($)
|
Without
Cause by the
Company
or Good Reason
by
the Executive (2)
($)
|
Change
in Control (3)(4)
($)
|
|
|
|
|
Lawrence J.
Zigerelli
|
7,151
|
407,151
|
401,778
|
Jane F.
Gilmartin
|
6,607
|
331,607
|
326,652
|
James M.
Spencer
|
6,548
|
221,548
|
216,637
|
Donny R.
Johnson
|
6,548
|
281,548
|
276,637
|
Tom L.
Canfield, Jr.
|
7,228
|
212,228
|
206,637
|
(1)
|
The
numbers in this column represent the amount of health and dental benefits
that each currently named employed executive officer shall be paid under
the terms of each executive’s employment agreement. Except for Mr.
Zigerelli and Ms. Gilmartin, who do not receive any continued benefits
upon disability, all executives receive such benefits for a period of
twelve months after disability. Also, under the Employment Agreements, an
employee has the right to “Earned Obligations” or “Accrued Compensation”
if employment is terminated due to disability. Under the employment
agreements, “Earned Obligations” and “Accrued Compensation” is defined as:
(1) the employee’s base salary through the date of termination that has
not yet been paid; and (2) all vacation pay, expense reimbursements and
other cause entitlements earned by the employee before the date of
termination that have not yet been paid. The employee is also entitled to
any benefits as of the date of termination under all qualified and non
qualified retirement, pension, profit sharing and similar plans, if any,
of the Company. Under Mr. Zigerelli and Ms. Gilmartin’s employment
agreements, each are also entitled to any earned but unpaid bonuses for
any bonus period that ended before the termination date, and if death or
disability occurs more than six months after the last bonus period, a
pro-rated bonus on the date that such bonus would have been
paid.
|
(2)
|
This
amount represents the one year base salary that will be paid to each
currently named employed executive officer in accordance with the
Company’s then current payroll procedures and the amount of health and
dental benefits that each will be provided with under each executive’s
employment agreement. Each named executive officer shall receive such
benefits for up to twelve months. Under the employment agreements, an
employee is
also
entitled to Earned Obligations and Accrued Compensation and benefits, as
discussed in Note 1, if employment is terminated without cause or for Good
Reason. In addition, Mr. Zigerelli and Ms. Gilmartin are
entitled to any earned but unpaid bonus for any bonus period that ended
before the termination date and if termination occurs more than six months
after the last bonus period, a pro-rated bonus on the date that such bonus
would have been paid.
|
(3)
|
Under
the 2003 Plan, Mr. Zigerelli’s Non Qualified Stock Option Plan and
Incentive Stock Option Plan, and Ms. Gilmartin’s Incentive Stock Option
Agreement, all stock options accelerate and vest in the event of a Change
in Control. As of the close of business on January 31, 2010,
the closing price of the Company’s common stock on NASDAQ was $12.19. Were
the Company to have accelerated the vesting of unvested options because of
a Change in Control event on such date, the excess of the fair market
value of the shares subject to unvested options held by the named
executive officers over the weighted average exercise price of such
options would have been $0 for all of the named executive officers.
Notwithstanding the weighted average exercise price, as of the close of
business on January 31, 2010, some of our named executive officers did
hold stock options that had an exercise price below the closing price of
$12.19 on January 31, 2010. Such named executive officers would receive a
benefit from exercising such options should there have been a Change of
Control on January 31, 2010.
|
(4)
|
This
amount represents the one year base salary that will be paid to each
currently named employed executive officer in accordance with the
Company’s then current payroll procedures. This amount also includes any
health or dental benefits that each executive will receive due to a Change
in Control. Each named executive officer shall receive such benefits for
three months. Under the employment agreements, and any addendums discussed
above, each named executive officer is also entitled to Earned Obligations
or Accrued Compensation and benefits, as discussed in Note 1, if
employment is terminated by the company or voluntarily due to a Change of
Control.
|
Executive
Compensation Risk Considerations
The
Company’s Compensation Committee, with the assistance of management, reviews, as
appropriate, the compensation policies and practices for all employees,
including executive officers, to assess the risks that may arise from the
Company’s compensation programs. The Compensation Committee and management have
concluded that risks arising from our compensation policies and practices are
not reasonably likely to have a material adverse effect on the
Company.
DIRECTOR
COMPENSATION
FISCAL
YEAR ENDED JANUARY 31, 2010
The
Compensation Committee has the responsibility for the determination and the
administration of all aspects of the compensation policies and programs for
directors.
As
discussed in the Compensation Discussion & Analysis for executive
compensation, the Compensation Committee met numerous times during the course of
Fiscal 2010 to review issues with respect to compensation matters, including
director compensation. The agenda for each meeting of the
Compensation Committee is prepared and/or approved by the chairman of the
Compensation Committee in advance of the meeting. The chairman of the
Compensation Committee may, but is not required to, invite members of management
or other members of our Board of Directors to attend portions of meetings as
deemed appropriate. The President and Chief Executive Officer and
certain other executive officers may attend Compensation Committee
meetings. Although it may do so in the future, in recent years the
Compensation Committee has not used a consultant in considering compensation
policies and programs for directors, but relies on the experience of its
members, their familiarity with compensation programs of other companies,
recommendations of management and informal surveys of the practices of companies
whose business is deemed similar to the Company’s by the Compensation
Committee. Such companies include Dollar General Corp., Target Corp.,
Family Dollar Stores, Inc. and Fred’s Inc. See “Role of Peer Analysis
in Compensation Determinations” above for a discussion of how the Company
utilizes compensation information from its peers in determining
compensation.
Directors
are paid a base compensation equal to $7,500 per quarter that the director
serves on the Board of Directors. Each director receives additional payments for
attending special meetings and for being on committees of the Board of
Directors. The additional compensation for attendance at any special meeting of
the Board of Directors is $500 per meeting attended and the additional
compensation for being on a committee is $500 per quarter. The Chairman of the
Board of Directors receives quarterly compensation of $13,500 for his duties,
which is an additional $6,000 to the Chairman’s base compensation, and each
Chairman of a committee of the Board of Directors receives additional quarterly
compensation equal to $875. On February 1, 2010, the Compensation Committee of
the Board of Directors approved a new international travel special meeting
policy, which provides that directors shall be compensated $1,000 per day, in
addition to the reimbursement of expenses, when a director travels
internationally for a meeting.
Each
director is eligible to participate in the Duckwall-ALCO Stores, Inc.
Non-Qualified Stock Option Plan for Non-Management Directors (the “Plan”), as
long as the directors are not otherwise officers or employees of the Company.
The Plan was approved on May 23, 2006, by the stockholders. The
purpose of the Plan is to aid the Company in competing with other companies for
director services, to provide incentives for directors to remain with the
Company and to reward those directors that do remain with the Company. The Plan
provides that a maximum of 120,000 shares could be issued under the Plan. A
proposal passed in the 2008 annual meeting of the stockholders that increased
the number of maximum shares that could be issued under the Plan to 200,000. The
options are granted at the fair market value as of the date it is granted, or if
the markets are not open on the granting date, the next day the markets are
open. All option awards vest at a rate of 25% per year over the first four years
of the option term. Options have a five year term. The Compensation Committee is
responsible for the administration of the Plan.
The
following table provides compensation paid to individuals that served as
directors during Fiscal 2010.
DIRECTOR
COMPENSATION TABLE (1)
Name
|
Fees
Earned or Paid
in
Cash
($)
|
Option
Awards (2)
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|
|
|
|
|
Lolan C.
Mackey
|
39,000
|
44,158
|
0
|
83,158
|
Raymond A.
French (3)
|
0
|
0
|
0
|
0
|
Dennis E.
Logue
|
37,125
|
44,158
|
0
|
81,283
|
Royce Winsten
(4)
|
108,625
|
43,537
|
0
|
152,162
|
James V. Worth
(5)
|
40,320
|
19,935
|
0
|
60,255
|
James G. Hyde
(6)
|
8,875
|
9,688
|
0
|
18,563
|
(1)
|
The
Company does not provide any stock awards, nonequity incentive plan
compensation, pension plan, or deferred compensation earnings to its
directors and, therefore, there is no such compensation to disclose under
SEC Regulation S-K 402(k).
|
(2)
|
The
options were awarded under the Duckwall-Alco Stores, Inc. Non-Qualified
Stock Option Plan for Non Management Directors. The amounts shown
represent the compensation cost recognized in Fiscal 2010 in accordance
with FASB ASC Topic 718, and therefore include amounts from awards granted
in and prior to Fiscal 2010. For a discussion of the valuation
assumptions used, see Note 10 to the Company’s Fiscal 2010 audited
financial statements included in our Annual Report on Form
10-K.
|
(3)
|
Mr.
French’s compensation is $0.00 because Mr. French chooses to waive all
compensation and payments for his service on the Board of
Directors.
|
(4)
|
Mr.
Winsten is the current Chairman of the Board of Directors. On December 31,
2009, the Compensation Committee of the Company determined to award Mr.
Winsten a “special bonus” of $50,000 in recognition of his work effort
above and beyond the expectations of the Board of Directors. This special
bonus is reflected in the total amount awarded to Mr. Winsten in fees
earned or paid in cash.
|
(5)
|
Mr.
Worth was voted in as director at the Stockholder’s 2009 Annual Meeting on
June 4, 2009. Mr. Worth resigned during Fiscal 2011, effective
March 2, 2010. At the time of Mr. Worth’s resignation, none of his 20,000
stock options granted to him on June 4, 2009 had vested and, therefore, he
cannot exercise any of his awarded
options.
|
(6)
|
Mr.
Hyde resigned from the Board of Directors during Fiscal 2010, effective
June 4, 2009.
|
SECURITY
OWNERSHIP OF CERTAIN
BENEFICIAL
OWNERS, DIRECTORS AND MANAGEMENT
The
following table sets forth certain information as of April 6, 2010, regarding
the beneficial ownership of Company stock by:
·
|
each
of our directors and nominees;
|
·
|
each
of our named executive officers;
|
·
|
all
of our executive officers, directors and nominees as a group;
and
|
·
|
each
person who is known by us to beneficially own more than 5% of our common
stock.
|
All
information with respect to beneficial ownership has been furnished by the
respective directors, nominees, officers or 5% or more stockholders, as the case
may be, or by documents filed with the Securities and Exchange
Commission. For the purposes of the table, a person is deemed to be a
beneficial owner of shares if the person has or shares the power to vote or to
dispose of them. Except as otherwise indicated in the table or the
footnotes
below, as of April 6, 2010 each person had sole voting and investment power over
the shares listed in the beneficial ownership table and all stockholders shown
in the table as having beneficial ownership of 5% or more of stock had as a
business address 401 Cottage Street, Abilene,
KS 67410-2832. Stockholders disclaim beneficial ownership
in the shares described in the footnotes as being “held by” or “held for the
benefit of” other persons. No executive officer or director has
pledged as security any beneficially owned stock.
Name
|
Amount
Beneficially Owned
|
Percent
of Class
|
|
|
|
Lawrence J.
Zigerelli (1)
|
37,500
|
|
Jane F.
Gilmartin (2)
|
15,000
|
|
James M.
Spencer (3)
|
1,405
|
|
Tom L.
Canfield, Jr. (4)
|
23,005
|
|
Donny R.
Johnson (5)
|
21,000
|
|
Lolan C. Mackey
(6)
|
20,000
|
|
Raymond A.D.
French (7)
|
543,517
|
14.2%
|
Dennis E. Logue
(8)
|
20,500
|
|
Royce Winsten
(9)
|
25,000
|
*
|
James V. Worth
(10)
|
0
|
*
|
James G. Hyde
(11)
|
14,125
|
*
|
Add directors
and executive officers as a group
(there are 10
total in group)
|
721,052
|
18.8%
|
William Blair
& Company, L.L.C. (12)
|
549,862
|
14.4%
|
Heartland
Advisors, Inc. (13)
|
414,800
|
10.8%
|
Dimensional
Fund Advisors, Inc. (14)
|
344,595
|
9.0%
|
Michael F.
Price (15)
|
264,919
|
6.9%
|
Scott L. Barbee
(16)
|
340,441
|
8.9%
|
Franklin
Resources, Inc. (17)
|
238,000
|
6.2%
|
|
|
|
* Less
than one percent.
|
(1)
|
Mr.
Zigerelli’s address is 2919 Marlatt, Manhattan, Kansas 66502. Includes
27,500 shares acquired by exercise of Mr. Zigerelli’s stock options on
March 19, 2010.
|
|
(2)
|
Ms.
Gilmartin’s address is 1555 Jefferson Ridge, Apt. 6, Manhattan, Kansas
66502. Includes 15,000 shares represented by stock options that are
currently exercisable or will become exercisable by June 5,
2010.
|
|
(3)
|
Mr.
Spencer’s address is 2311 NW Harvard Walk, Bentonville, Arkansas 72712. On
March 19, 2010, Mr. Spencer elected net exercise for vested options,
receiving 1,405 shares.
|
|
(4)
|
Includes
13,750 shares represented by stock options that are currently exercisable
or will become exercisable by June 5, 2010. Mr. Canfield’s address is 907
Maple, Abilene, Kansas 67410. 9,255 of the shares are jointly owned with
Mr. Canfield’s wife, Sandra
Canfield.
|
|
(5)
|
Includes
17,500 shares represented by stock options that are currently exercisable
or will become exercisable by June 5, 2010. Mr. Johnson’s address is 1810
Bluestem Lane, Salina, Kansas
67401.
|
|
(6)
|
Mr.
Mackey’s address is 27 Glenbrook, Bentonville, AR
72712. Includes 20,000 shares represented by stock options that
are currently exercisable or will become exercisable by June 5,
2010.
|
|
(7)
|
Includes
543,517 shares held by Strongbow Capital, Ltd., of which Strongbow Capital
Management is the controlling entity. Mr. French is the
Chairman of both Strongbow Capital, Ltd. and Strongbow Capital Management
and is the controlling person of Strongbow Capital Management,
Ltd. By virtue of their relationships to Strongbow Capital,
Ltd., Strongbow Capital Management, Ltd. and Mr. French beneficially own
and have shared power to vote and to dispose or direct the disposition of
the shares held by Strongbow Capital, Ltd. The address of Mr.
French is 19 The Elms, Lezayre Road, Ramsey, Isle of Man IM82TA. The
address for Strongbow Capital, Ltd. and Strongbow Capital Management, Ltd.
is 89 Nexus Way, Camana Bay, Grand Cayman KY1-9007, Cayman Islands.
Ownership information was obtained from Schedule 13D, filed as of March 7,
2008.
|
|
(8)
|
Mr.
Logue’s address is 116 Shaker Blvd, Enfield, NH 03748. Includes
20,000 shares represented by stock options that are currently exercisable
or will become exercisable by June 5,
2010.
|
|
(9)
|
Mr.
Winsten’s address is 1495 Jusmar Drive, Sea Girt, NJ 08750. All
of Mr. Winsten’s shares are represented by stock options that are
currently exercisable or will become exercisable by June 5,
2010.
|
|
(10)
|
Mr.
Worth’s address is 101 Madison Avenue, Spring Lake, NJ 07762. Mr. Worth
resigned from the Board of Directors during Fiscal 2011, effective as of
March 2, 2010. At the time of Mr. Worth’s resignation, none of his 20,000
stock options granted to him on June 4, 2009 had vested and, therefore,
are not exercisable.
|
|
(11)
|
Mr.
Hyde’s address is 102 Naples Road, #1, Brookline, MA 02446. Mr. Hyde
resigned from the Board of Directors during Fiscal 2010, effective as of
June 3, 2009. Mr. Hyde’s shares include 3,125 shares represented by stock
options that are currently exercisable. Mr. Hyde’s has until June 3, 2010
to exercise his vested options, or they will be
terminated.
|
|
(12)
|
William
Blair & Company, L.L.C.’s address is 222 W. Adams, Chicago, Illinois
60606. Ownership information was obtained from Schedule 13G/A,
filed as of December 31, 2009.
|
|
(13)
|
Heartland
Advisors, Inc.’s address is 789 N. Water St., Suite 500, Milwaukee,
WI 53202. Ownership information was obtained from
Schedule 13G/A filed as of December 31,
2009.
|
|
(14)
|
Dimensional
Fund Advisors, Inc.’s address is 1299 Ocean Avenue, 11th Floor, Santa
Monica, CA 90401. Ownership information was obtained from
Schedule 13G/A filed as of December 31,
2009.
|
|
(15)
|
Includes
265,944 owned by MFP Investors, LLC, a Delaware limited liability company
(“MFP LLC”). Of these 265,944 shares, MFP Partners, L.P., a Delaware
limited partnership (“MFP LP”) has the shared voting power for 265,944 of
these shares. Michael F. Price is the controlling person of MFP LLC. Mr.
Price, as the controlling person, has the power to vote, dispose of and
direct the shares owned by MFP LLC. The address of MFP LLC, MFP LP and Mr.
Price is: 667 Madison Avenue, 25th Floor, New York, NY 10065. Ownership
information was obtained from Schedule 13G/A, filed as of December 31,
2009.
|
|
(16)
|
Includes
263,453 shares that are shared in voting power with Aegis Financial
Corporation, a Delaware corporation (“Aegis”). Scott L. Barbee is the
controlling person of Aegis. Mr. Barbee, as the controlling person for
such entity, has the power to vote, dispose of, and direct these 263,453
shares. The address for Aegis and Mr. Barbee is: 1100 North Glebe Road,
Suite 1040, Arlington, Virginia, 22201. Ownership information was obtained
from Schedule 13G, filed as of December 31,
2008.
|
|
(17)
|
Franklin
Resources, Inc.’s address is One Franklin Parkway, San Mateo,
CA 94403. Ownership information was obtained from
Schedule 13G/A filed as of December 31,
2009.
|
PROPOSAL
TWO
RATIFICATION
OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board
of Directors, upon recommendation of the Board’s Audit Committee, has selected
the independent certified public accounting firm of KPMG LLP as the Company’s
independent accountants to audit the consolidated financial statements of the
Company for the fiscal year ending January 30, 2011. Stockholders
will have an opportunity to vote at the Annual Meeting on whether to ratify the
Board’s decision in this regard. KPMG LLP has served as the Company’s
independent accountants since 1969. A representative of KPMG LLP is
expected to be present at the Annual Meeting. If present, such
representative will have an opportunity to make a statement if he or she desires
to do so and is expected to be available to respond to appropriate
questions.
The
following table presents fees for professional audit services rendered by KPMG
LLP for the audit of the Company’s annual financial statements for the years
ended January 31, 2010 and February 1, 2009, and fees billed for other services
rendered by KPMG LLP.
|
2010
|
2009
|
Audit
fees
|
$674,975
|
$1,144,233
|
Audit related
fees (1)
|
17,279
|
-
|
Tax fees
(2)
|
-
|
-
|
All other fees
(3)
|
-
|
-
|
Total
fees
|
$692,254
|
$1,144,233
|
|
|
|
(1)
|
Audit-related
fees consist of fees for consultation with respect to Special Workpaper
Review, SEC Comment Letters and Special Accountant
Consents.
|
(2)
|
We
did not pay any fees to KPMG during the last two fiscal years for services
related to taxes.
|
(3)
|
We
did not pay any fees to KPMG during the last two fiscal years for any
other services not included in the categories listed
above.
|
The Audit
Committee selected KPMG LLP to serve as the Company’s independent accountants,
after considering KPMG LLP’s independence and effectiveness. The
Audit Committee pre-approves all audit and non-audit services to be performed by
KPMG LLP and the fees and other compensation to be paid to KPMG LLP by reviewing
and approving the overall nature and scope of the audit process, reviewing and
approving any requests for non-audit services and receiving and reviewing all
reports and recommendations of KPMG LLP. One hundred percent (100%) of the
non-audit services provided by KPMG LLP were pre-approved by the Audit
Committee.
Submission
of the selection of the independent accountants to the stockholders for
ratification will not limit the authority of the Board of Directors to appoint
another independent certified public accounting firm to serve as independent
accountants if the present accountants resign or their engagement otherwise is
terminated.
The
Board of Directors recommends that you vote for ratification and approval of the
selection of KPMG LLP.
RELATED
PERSON TRANSACTIONS POLICIES AND PROCEDURES
The Board
of Directors recently adopted a written Related Person Transaction Policy that
is consistent with the requirements of Item 404 of Regulation
S-K. Under the terms of this policy, the Audit Committee will review
and pre-approve any “Related Person Transaction” (as defined below), based on
whether the proposed transaction is in the best interests of the Company and its
stockholders. A “Related Person Transaction” is any transaction in
which (1) the Company was or is to be a participant; (2) the amount involved
exceeds $120,000; and (3) a “related person “ (as described below) has or will
have a direct or indirect material interest. For purposes of this
policy, in general, a “related person” includes the directors, director
nominees, and executive officers of the Company, beneficial owners of more than
5% of the Company’s common stock, and the respective immediate family members of
all such persons.
In making
the determination of whether a Related Person Transaction is in the best
interests of the Company and its stockholders, the Audit Committee takes into
account, among other factors it deems appropriate:
·
|
The
extent of the related person’s interest in the
transaction;
|
·
|
Whether
the transaction is on terms generally available to an unaffiliated
third-party under the same or similar
circumstances;
|
·
|
The
benefits to the Company;
|
·
|
Any
impact or potential impact on a director’s
independence;
|
·
|
The
availability of other sources for comparable products or services;
and
|
·
|
The
terms of the transaction.
|
Additionally,
any Related Person Transaction entered into by the Company will be periodically
reassessed by the Audit Committee to ensure its continued
appropriateness. The Audit Committee will oversee, as appropriate and
as required by federal securities laws, the Company’s disclosure concerning
Related Person Transactions.
Annually
we solicit information about transactions between the Company and its directors
and executive officers, their immediate family members and affiliated entities,
including information concerning the nature of each transaction and the amount
involved. Our internal counsel reviews this information to determine whether any
transaction is subject to disclosure under applicable rules, and the information
is presented to the Board in connection with its assessment of each director’s
independence.
There
were no related person transactions to report in Fiscal 2010.
EQUITY
COMPENSATION PLAN INFORMATION
The
following table provides information as of the last day of Fiscal 2010 regarding
shares outstanding and available for issuance under our existing equity
compensation plans that have been approved by shareholders. These
plans include the Company’s 2003 Incentive Stock Option Plan discussed in detail
in the “Compensation Discussion and Analysis” under the “Long Term Incentives”
heading, and the Company’s Non-Qualified Stock Option Plan for Non-Management
Directors discussed in detail in the “Director Compensation”
section.
Number
of securities to be
issued
upon exercise of
outstanding options
|
Weighted-average
exercise
price of outstanding
options
|
Number
of securities
remaining
available for
future issuance
|
|
|
|
514,875
|
$18.16
|
178,750
|
The
following table provides information as of the last day of Fiscal 2010 regarding
shares outstanding and available for issuance under a certain equity
compensation plan for Mr. Zigerelli that was not approved by the shareholders.
This plan is pursuant to a certain Non-Qualified Stock Option Agreement with Mr.
Zigerelli as part his starting employment at the Company. Under the terms of the
Agreement Mr. Zigerelli was granted the right to purchase 10,000 shares of the
Company’s common stock at a purchase price of $9.05, which was equal to the
closing price of the common stock on the NASDAQ Global Market Exchange on the
grant date. The options will vest in equal amounts over a four year
period unless certain Company events occur. The options will terminate if Mr.
Zigerelli ceases to be a full time employee of the Company. The options will
also terminate, if unexercised, five years from the date of grant. The Company
issued these shares from the unissued shares authorized.
Number
of securities to be
issued
upon exercise of
outstanding options
|
Weighted-average
exercise
price of outstanding
options
|
Number
of securities
remaining
available for
future issuance
|
|
|
|
10,000
|
$9.05
|
0
|
The
following table provides information as of the last day of Fiscal 2010 regarding
the total number of shares outstanding and available for issuance under all of
our existing equity compensation plans.
Number
of securities to be
issued
upon exercise of
outstanding options
|
Weighted-average
exercise
price of outstanding
options
|
Number
of securities
remaining
available for
future issuance
|
|
|
|
524,875
|
$17.99
|
178,750
|
16(A)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s
directors and executive officers, and persons who own more than 10% of the
Company’s outstanding Common Stock, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership in
the Company’s Common Stock and other equity securities. Securities
and Exchange Commission regulations require directors, executive officers and
greater than 10% stockholders to furnish the Company with copies of all Section
16(a) reports they file.
To the
Company’s knowledge, based solely upon review of the copies of such reports
furnished to the Company and written representations that no other reports were
required, during Fiscal 2010 there has been complete compliance with the filing
requirements applicable to its directors, executive officers, and greater than
10% stockholders under Section 16(a) filing requirements.
CODE
OF ETHICS
The Board
of Directors has adopted a Code of Business Conduct and Ethics for Directors and
Senior Officers (including the Company’s President, Chief Financial Officer and
Controller) and a Code of Business Conduct and Ethics for Associates that
applies to all employees. These codes are available on the Company’s
website at
http://www.alcostores.com/company_information/investor_relation/ALCO_Corp_Goverance.html
.
The Company intends to disclose any amendment to or waiver from the code
applicable to any principal executive officer, principal financial officer or
principal accounting officer on a Form 8-K or on its website.
OTHER
BUSINESS OF THE MEETING
A Proxy
confers discretionary authority with respect to the voting of shares represented
by the proxy regarding any other business that properly may come before the
meeting as to which the Company did not have notice prior to March 24,
2010. The Board of Directors is not aware of, and does not intend to
present, any matter for action at the Annual Meeting other than those referred
to in this Proxy Statement. If, however, any other matter properly
comes before the Annual Meeting or any adjournment, it is intended that the
holders of the proxies solicited by the Board of Directors will vote on such
matters in their discretion in accordance with their best judgment.
ANNUAL
REPORT
This
Proxy Statement is accompanied by the Company’s 2010 Annual Report including
financial statements for the year ended January 31, 2010. Upon
written request to the Corporate Secretary of the Company at 401 Cottage Street,
Abilene, Kansas 67410-2832, by any stockholder whose proxy is solicited hereby,
the Company will furnish a copy of its 2010 annual report on Form 10-K, together
with financial statements and schedules thereto, without charge to the
requesting stockholder. The Form 10-K may also be obtained through the Internet
at
http://www.duckwall.com/company_information/investor_relation/
ALCO_annual.html
.
HOUSEHOLDING
Only one
copy of the Company’s Annual Report and Proxy Statement has been sent to
multiple stockholders of the Company who share the same address and last name,
unless the Company has received contrary instructions from one or more of those
stockholders. This procedure is referred to as
“householding.” In addition,
the
Company has been notified that certain intermediaries, i.e., brokers or banks,
will household proxy materials. The Company will deliver promptly,
upon oral or written request, a separate copy of the Annual Report and Proxy
Statement to any stockholder at the same address. If you wish to
receive a separate copy of the Annual Report and Proxy Statement, you may write
to the Corporate Secretary of the Company at 401 Cottage Street, Abilene,
Kansas, 67410-2832 or call the Corporate Secretary’s assistant at (785) 263-3350
x290. You can contact your broker or bank to make a similar
request. Stockholders sharing an address who now receive multiple
copies of the Company’s Annual Report and Proxy Statement may request delivery
of a single copy by writing or calling the Company at the above address or by
contacting their broker or bank, provided they have determined to household
proxy materials.
COMMUNICATIONS
FROM STOCKHOLDERS
Although
the Company does not have a formal policy concerning stockholders communicating
with the Board or individual directors, stockholders may send communications to
the Board at the Company’s business address at Duckwall-Alco Stores, Inc., 401
Cottage Street, Abilene, Kansas, 67410-2832, attention Office of the Corporate
Secretary.
Upon
receipt of a communication for the Board or an individual director, the
Corporate Secretary will promptly forward any such communication to all the
members of the Board or the individual director, as appropriate. If a
communication to an individual director deals with a matter regarding the
Company, the Corporate Secretary or appropriate officer will forward the
communication to the entire Board, as well as the individual
director.
Although
neither the Board nor a specific director is required to respond to a
stockholder communication, responses will generally be provided, subject to the
following procedures and limitations. To avoid selective disclosure,
the Board or the individual directors may respond to a stockholder’s
communication only if the communication involves information which is not
material or which is already public, in which case the Board, as a whole, or the
individual director may respond, if at all:
·
|
directly,
following consultation with the office of the Corporate Secretary or other
advisors, as the Board determines
appropriate;
|
·
|
indirectly
through the office of the Corporate Secretary or other designated officer,
following consultation with the Corporate Secretary or other advisors, as
the Board determines appropriate;
|
·
|
directly,
without additional consultation; indirectly through the office of the
Corporate Secretary or other designated officer, without additional
consultation; or
|
·
|
pursuant
to such other means as the Board determines appropriate from time to
time.
|
If the
communication involves material non-public information, the Board or individual
director will not provide a response to the stockholder. The Company
may, however, publicly provide information responsive to such communication if
(following consultation with the office of the General Counsel or other
advisors, as the Board determines appropriate) the Board determines disclosure
is appropriate. In such case, the responsive information will be
provided in compliance with Regulation FD and other applicable laws and
regulations.
STOCKHOLDER
PROPOSALS FOR 2011 ANNUAL MEETING
If you
want to submit a proposal for inclusion in our proxy statement for the 2011
Annual Meeting of Stockholders (presently scheduled to be held on June 2, 2011),
you may do so by following the procedures in Rule 14a-8 under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). To be
eligible for inclusion, stockholder proposals must be received at the Company’s
principal executive office, at the following address: 401 Cottage Street,
Abilene, Kansas, 67410-2832, Attention: Corporate Secretary, no later than
January 7, 2011 (120 days before the date of mailing based on this year’s Proxy
Statement date).
Additionally,
in accordance with Rule 14a-4(c)(1) under the Exchange Act, if a stockholder
intends to present a proposal for business to be considered at the 2010 Annual
Meeting of Stockholders but does not seek inclusion of the proposal in the
Company’s Proxy Statement for that meeting, the Company must receive the
proposal by March 23, 2011 (45 days before the date of mailing based on this
year’s Proxy Statement date) for it to be considered timely
received. If notice of a stockholder proposal is not timely received,
the individuals appointed as proxy holders will be authorized to exercise
discretionary authority with respect to the proposal.
By Order of the Board
of Directors
Brett C.
Bogan
Corporate
Secretary
May 7,
2010
Abilene,
Kansas
DUCKWALL-ALCO STORES, INC.
E-PROXY MATERIALS
Important
Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting
to be Held on the 3rd day of June, 2010.
The
proxy statement, annual report to stockholders, and proxy
card
are available at
http://www.alcostores.com/proxy
.
MEETING
INFORMATION
The
annual meeting of the stockholders of Duckwall-ALCO Stores, Inc. (the “Company”)
will be on the 3rd day of June, 2010 at 10:00 a.m. at 401 Cottage Street,
Abilene, Kansas. If action is to be taken by the Company by written
consent, the earliest date on which the corporate action may be effected is June
3, 2010.
The
Company shall act on the following matters at the annual meeting:
·
|
To
elect four directors to serve on our Board of Directors for a one-year
term and until their respective successors are duly elected and qualified
or until their respective earlier resignation or
removal;
|
·
|
To
ratify the appointment of KPMG LLP as our independent registered public
accounting firm for the fiscal year ending January 30, 2011;
and
|
·
|
To
act upon any other business that may properly come before the annual
meeting or any adjournments of that
meeting.
|
The
Company’s recommendations on the above referenced matters are:
·
|
The
Board of Directors recommends that you vote for the election of Royce
Winsten, Raymond A.D. French, Lolan C. Mackey, and Dennis E. Logue as
directors; and
|
·
|
The
Board of Directors recommends that you vote in favor to ratify the
appointment of KPMG LLP as our independent registered public accounting
firm for the fiscal year ending January 30,
2011.
|
We are
providing a full set of the printed proxy materials to you, including a printed
proxy card that you may execute and return to us in a self addressed stamped
envelope that is provided to you, the proxy statement and the annual report
(collectively, “Proxy Materials”), but our Proxy Materials are also available on
the internet at
http://www.alcostores.com/proxy
.
The
following Proxy Materials are available on the above referenced website: the
Company’s annual report, the proxy statement and the proxy card.
The
following are instructions on how to access the Proxy Materials on the above
referenced website:
·
|
Go
to
http://www.alcostores.com/proxy
.
|
·
|
The
website provides a link to each the proxy statement, the annual report and
the proxy card in both HTML and PDF
format.
|
·
|
Click
on Proxy Materials that you would like to
view.
|
·
|
The
Proxy Materials will upload to your computer and you will be able to view
and print them from your computer.
|
Any
stockholder may attend the meeting and vote in person by appearing at our annual
meeting site located at 401 Cottage Street, Abilene, Kansas. You are cordially
invited to attend and your vote is important to us.
ANNUAL
MEETING PROXY CARD FOR STOCKHOLDERS
Duckwall-ALCO
Stores, Inc.
MR A
SAMPLE
DESIGNATION
(IF ANY)
ADD
1
ADD
2
ADD
3
ADD
4
ADD
5
ADD
6
Using
a
black ink
pen,
mark your votes with an
X
as shown in this
example. Please do not write outside the designated
areas.
|
x
|
ANNUAL
MEETING PROXY CARD
|
▼ PLEASE
FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED
ENVELOPE ▼
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|
|
|
|
A
|
Proposals — The Board of Directors recommends a vote FOR all the nominees
listed and FOR Proposal 2.
|
1. Election
of Directors
|
01 – Royce Winsten
03 – Dennis E. Logue
|
02
– Raymond A.D. French
04 – Lolan C. Mackey
|
|
+
|
|
|
|
|
|
|
o
Mark here to vote
FOR
all
nominees
|
|
|
o
Mark here to
WITHHOLD
vote from all
nominees
|
|
|
o
For All
EXCEPT
–
To withhold a vote for
one or more nominee, mark the box to the left and the corresponding
numbered box(es) to the right
|
01 02 03 04
o
o
o
o
|
|
|
|
|
|
2. Ratification
of KPMG LLP as independent accountants for the Company for the fiscal year
ending January 30, 2011.
|
For Against Abstain
|
|
|
|
|
|
B
|
Non-Voting Items
|
Change of Address —
Please print new address below
|
|
|
C
|
Authorized
Signatures
—
This
section must be completed for your vote to be counted. — Date
and Sign Below.
|
Please
sign your name exactly as it appears hereon. If signing as a
representative, please include capacity.
|
Date
(mm/dd/yyyy)
—
Please print date below.
|
|
Signature
1
—
Please keep
signature within the box.
|
|
Signature
2 - Please keep signature within the box.
|
/
|
/
|
|
|
|
|
|
|
|
|
|
|
■
|
|
|
|
+
|
▼ PLEASE
FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED
ENVELOPE ▼
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Proxy—
DUCKWALL-ALCO STORES, INC.
|
ANNUAL
MEETING JUNE 3, 2010
THIS
PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The
undersigned stockholder of Duckwall-ALCO Stores, Inc., a Kansas Corporation,
appoints Mr. Donny R. Johnson and Mr. Brett C. Bogan or either of them, with
full power to act alone, the true and lawful attorneys-in-fact of the
undersigned with full power of substitution to vote all of the shares which the
undersigned is entitled to vote at the annual meeting of the stockholders to be
held at the offices of the Company, 401 Cottage Avenue, Abilene, Kansas, on June
3, 2010 at 10:00 A.M. CDT and at any adjournment thereof, with all the power the
undersigned would possess if personally present, as stated on the reverse
side.
THIS
PROXY WILL BE VOTED “FOR” ALL ITEMS IF NO INSTRUCTION TO THE CONTRARY IS
INDICATED. IN THEIR DISCRETION, THE ATTORNEYS-IN-FACT ARE AUTHORIZED
TO VOTE UPON SUCH OTHER BUSINESS AS PROPERLY MAY COME BEFORE THE
MEETING.
ANNUAL
MEETING PROXY CARD FOR BROKERS
Duckwall-ALCO
Stores, Inc.
Using
a
black ink
pen,
mark your votes with an
X
as shown in this
example. Please do not write outside the designated
areas.
|
x
|
ANNUAL
MEETING PROXY CARD
|
▼ PLEASE
FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED
ENVELOPE ▼
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|
|
|
|
A
|
Proposals
— The Board of Directors recommends a vote FOR all the nominees listed and
FOR Proposal 2.
|
1. Election
of Directors
|
01 – Royce Winsten
03 – Dennis E. Logue
|
02 – Raymond A.D. French
04 – Lolan C. Mackey
|
|
+
|
|
|
|
|
|
|
o
Mark here to vote
FOR
all
nominees
|
|
|
o
Mark here to
WITHHOLD
vote from all
nominees
|
|
|
o
For All
EXCEPT
–
To withhold a vote for
one or more nominee, mark the box to the left and the corresponding
numbered box(es) to the right
|
01 02 03 04
o
o
o
o
|
|
|
|
|
|
2. Ratification
of KPMG LLP as Independent accountants for the Company for the fiscal year
ending January 30, 2011.
|
For Against Abstain
o
o
o
|
|
|
|
|
|
B
|
Authorized
Signatures
—
This
section must be completed for your vote to be counted. — Date
and Sign Below.
|
Please
sign your name exactly as it appears hereon. If signing as a
representative, please include capacity.
|
Date
(mm/dd/yyyy)
—
Please print date below.
|
|
Signature
1
—
Please keep
signature within the box.
|
|
Signature
2 - Please keep signature within the box.
|
/
|
/
|
|
|
|
|
|
|
|
|
|
|
■
|
|
|
|
+
|
▼ PLEASE
FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED
ENVELOPE ▼
--------------------------------------------------------------------------------------------------------------------------------------------
Proxy—
DUCKWALL-ALCO STORES, INC.
|
ANNUAL
MEETING JUNE 3, 2010
THIS
PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The
undersigned stockholder of Duckwall-ALCO Stores, Inc., a Kansas Corporation,
appoints Mr. Donny R. Johnson and Mr. Brett C. Bogan or either of them, with
full power to act alone, the true and lawful attorneys-in-fact of the
undersigned with full power of substitution to vote all of the shares which the
undersigned is entitled to vote at the annual meeting of the stockholders to be
held at the offices of the Company, 401 Cottage Avenue, Abilene, Kansas, on June
3, 2010 at 10:00 A.M. CDT and at any adjournment thereof, with all the power the
undersigned would possess if personally present, as stated on the reverse
side.
THIS
PROXY WILL BE VOTED “FOR” ALL ITEMS IF NO INSTRUCTION TO THE CONTRARY IS
INDICATED. IN THEIR DISCRETION, THE ATTORNEYS-IN-FACT ARE AUTHORIZED
TO VOTE UPON SUCH OTHER BUSINESS AS PROPERLY MAY COME BEFORE THE
MEETING.