Exhibit 10.1

AMENDMENT TO
 
EMPLOYMENT AGREEMENT
 
OF
 
MICHAEL J. HAYES
 

 

 
THIS AMENDMENT, dated as of December 16, 2008 by and between FRED’S, INC., a
Tennessee corporation, with offices at 4300 New Getwell Road, Memphis, Tennessee
38118 (“Company”) and MICHAEL J. HAYES, currently residing at Riverbluff
Condominiums, 355-I Riverbluff Place, Memphis, Tennessee 38103 (“Executive”).
 
WHEREAS, the parties hereto entered into an Employment Agreement dated as of
April 30, 2003 (the “Agreement”); and
 
WHEREAS, the Executive and Company desire to amend the Agreement in order to
comply with the provisions of Section 409A of the Internal Revenue Code
(“Section 409A”).
 
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and
conditions herein set forth, the parties hereto and each of them agree as
follows:
 
1.           The last sentence of Section 3 of the Agreement is hereby deleted
and the following substituted in lieu thereof:
 
In addition, Executive shall (i) be considered for any bonus awards on the same
basis as are other executives of Company, and (ii) be considered for and granted
qualified options and other consideration based upon shares of Company’s Common
Stock on the same basis as are other executives of Company; provided, however,
that Company shall establish the terms of such bonus awards, qualified options
or other consideration so as not to subject Executive to additional taxes under
Section 409A.
 
2.           All references in the Agreement to a termination of employment or a
termination of the Agreement shall hereafter instead refer to a “Separation from
Service” (as defined in new Section 8(a) added by this Amendment).
 
3.           The following new sentence is added at the end of Section 5(c) of
the Agreement:
 
Any compensation payable under Section 5(c)(i) which does not constitute a
deferral of compensation under Treas. Reg. §1.409A-1(b) shall be paid at the
same time and in the same installments as would apply if no Separation from
Service had occurred.  Any compensation payable under Section 5(c)(i) and which
is a deferral of compensation under Treas. Reg. §1.409A-1(b) shall be paid in
accordance with any applicable plan subject to Section 5(f).  Compensation paid
pursuant to Section 5(c)(ii) or (iii) shall be subject to Section 5(g).
 
 
 

--------------------------------------------------------------------------------

 
 
4.           The following new sentence is hereby added at the end of Section
5(d) of the Agreement:
 
Subject to Section 5(f), compensation payable under this Section 5(d) shall be
paid at the same time and in the same installments as would apply if no
Separation from Service had occurred, and the foregoing monthly allowance of
$6,000 shall be paid on the first of each month.
 
5.           The following new subsections are added at the end of Section 5 of
the Agreement:
 
(f)           Notwithstanding any provision of this Agreement to the contrary,
if Executive is a “Specified Employee” (as hereinafter defined) as of the date
Executive incurs a Separation from Service, payment of any amount shall, to the
extent subject to Treas. Reg. §1.409A-3(i)(2), be made no earlier than the first
day of the seventh month following the month in which such Separation from
Service occurs.  On such date, Executive shall receive all payments that would
have been made on or before such date but for the provisions of this Section
5(f), and the terms of this Section 5(f) shall not affect the timing or amount
of any payments to be made after such date under the other provisions of this
Agreement.
 
(g)           Compensation subject to this Section 5(g) is intended to meet the
requirements for a fixed schedule of payment under Treas. Reg.
§1.409A-3(i)(1)(iv) and shall be construed in accordance with such
regulation.  Accordingly, neither party shall have any discretion to change the
definition of expenses eligible for reimbursement or being provided in kind or
to change the period specifically described herein for the reimbursement of
expenses or the provision of in-kind benefits; the amount of expenses eligible
for reimbursement or in-kind benefits provided during any calendar year may not
affect the expenses eligible for reimbursement or in-kind benefits to be
provided in any other calendar year; the reimbursement of any eligible expense
shall be made on or before the last day of the calendar year following the
calendar year in which any expense was incurred; and the right to reimbursement
or in-kind benefits shall not be subject to liquidation or exchange for any
other benefit.  In addition, such compensation shall be subject to Section 5(f)
to the extent applicable.
 
6.           The following new sections 8, 9 and 10 are hereby added to the
Agreement, and the original Section 8 and all subsequent sections of the
Agreement are renumbered accordingly:
 
8.           The following definitions shall apply for purposes of this
Agreement:
 
(a)           “Separation from Service” shall be determined in accordance with
Section 409A, and the following rules shall apply:
 
(i)           Except if Executive is on a bona fide leave of absence as provided
below, Executive shall be deemed to have incurred a Separation from Service if
Company and Executive reasonably anticipate that the level of services to be
performed by Executive after a date certain would be reduced to twenty percent
(20%) or less of the average services rendered by Executive during the
immediately preceding thirty-six (36) month period disregarding periods during
which Executive was on a bona fide leave of absence.
 
 
 
2

--------------------------------------------------------------------------------

 
(ii)           If Executive is absent from work due to military leave, sick
leave or other bona fide leave of absence, Executive shall incur a Separation
from Service on the first day immediately following the later of (A) the six
month anniversary of the commencement of the leave or (B) the expiration of
Executive’s right, if any, to re-employment or to return to work under statute
or contract.
 
(iii)           For purposes of determining whether a Separation from Service
has occurred, Company and its affiliates shall be treated as a single
employer.  For this purpose, an affiliate means a corporation, trade or business
that, together with Company, is treated as a single employer under Section
414(b) or (c) of the Code, except for the foregoing purposes, common ownership
of at least fifty percent (50%) shall be determinative.
 
(iv)           The Board of Directors of Company specifically reserves the right
to determine whether a sale or a disposition of substantial assets to an
unrelated party constitutes a Separation from Service with respect to Executive
if Executive provides service to the seller immediately prior to the transaction
and provides services to the buyer after the transaction.  Such determination
shall be made in accordance with the requirements of Section 409A.
 
(b)           “Specified Employee” means a person who, as of the date of his
Separation from Service, is a “key employee” of Company or any affiliate, any
stock of which is actively traded on an established securities market or
otherwise.  A person is a key employee if he meets the requirements of Section
416(i)(1)(A)(i), (ii) or (iii) of the Code, (applied in accordance with
applicable regulations thereunder and without regard to Section 416(i)(5)) at
any time during the 12-month period ending on the Specified Employee
Identification Date. Such person shall be treated as a key employee for the
entire 12-month period beginning on the Specified Employee Effective Date.
 
For purposes of determining whether a person is a Specified Employee, the
compensation of such person shall be determined in accordance with the
definition of compensation provided under Treas. Reg. §1.415(c)-2(d)(3) (wages
within the meaning of Section 3401(a) of the Code for purposes of income tax
withholding at the source, plus amounts excludible from gross income under
Section 125(a), 132(f)(4), 402(e)(3), 402(h)(1)(B), 402(k) or 457(b), without
regard to rules that limit the remuneration included in wages based on the
nature or location of the employment or the services performed).
 
Notwithstanding anything in this paragraph to the contrary, (i) if a different
definition of compensation has been designated by Company with respect to
another nonqualified deferred compensation plan in which a key employee
participates, the definition of compensation shall be the definition provided in
Treas. Reg. §1.409A-1(i)(2), and (ii) Company may through action that is legally
binding with respect to all nonqualified deferred compensation plans maintained
by Company, elect to use a different definition of compensation.
 
 
 
3

--------------------------------------------------------------------------------

 
In the event of corporate transactions described in Treas. Reg. §1.409A-1(i)(6),
the identification of Specified Employees shall be determined in accordance with
the default rules described therein, unless Company elects to utilize the
available alternative methodology through designations made within the
timeframes specified therein.
 
(c)           “Specified Employee Identification Date” means September 30,
unless Company has elected a different date through action that is legally
binding with respect to all nonqualified deferred compensation plans maintained
by Company.
 
(d)           “Specified Employee Effective Date” means the first day of the
fourth month following the Specified Employee Identification Date, or such
earlier date as is selected by the Board of Directors.
 
9.           Notwithstanding any provision of this Agreement to the contrary,
neither Company nor its Board of Directors may accelerate the time or form of
payment of any benefit due to Executive hereunder unless such acceleration is
permitted under Treas. Reg. §1.409A-3(j)(4) or other applicable authority under
Section 409A.  Neither Company nor its Board of Directors may delay the time for
payment of any benefit due to Executive hereunder except to the extent permitted
under Treas. Reg. §1.409A-2(b)(7) or other applicable authority under Section
409A.
 
10.           The foregoing provisions of this Agreement are intended to conform
with the requirements of Section 409A of the Code, including the regulations
thereunder, and the provisions of this Agreement shall be construed in
accordance with that intention.  If any provision of this Agreement shall be
inconsistent or in conflict with the applicable requirements of Section 409A,
then such requirements shall be deemed to override and supersede the
inconsistent or conflicting provision.  Any provision required for compliance
with Section 409A that is omitted from this Agreement shall be incorporated
herein by reference and shall apply retroactively, if necessary, and be deemed
part of this Agreement to the same extent as though expressly set forth
herein.  Company will bear no responsibility for any determination by any other
person or persons that the terms, arrangements or administration of this
Agreement has given rise to any tax liability under Section 409A of the Code.
 

 
 
 
 
4

--------------------------------------------------------------------------------

 
7.           The following new sentence is hereby added at the end of Schedule A
of the Agreement:
 
Paragraphs 2-4 of this Schedule A shall be subject to Section 5(g).
 
8.           Except as expressly amended hereby, the Agreement shall remain in
full force and effect.
 

 
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
 
 

 

WITNESS:  FRED'S, INC.          /s/ Anita L. Parvin  By: /s/ Charles S. Vail   
Title: Secretary          WITNESS:            /s/ Anita L. Parvin  /s/ Michael
J. Hayes    MICHAEL J. HAYES, Executive 

 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
5