**EXHIBIT 10.1**

** **

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**CITI TRENDS, INC.**

**ANNUAL INCENTIVE BONUS PLAN**

 

 

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**TABLE OF CONTENTS**

 
| **ARTICLE 1 ESTABLISHMENT OF PLAN**                    | 1                                                              |
|--------------------------------------------------------|----------------------------------------------------------------|
| 1.1                                                    | Background                                                     | 1 |
| 1.2                                                    | Purpose                                                        | 1 |
| 1.3                                                    | Effective Date                                                 | 1 |
|                                                   |                                                           |   |
| **ARTICLE 2 DEFINITIONS**                              | 1                                                              |
| 2.1                                                    | Definitions                                                    | 1 |
|                                                   |                                                           |   |
| **ARTICLE 3 ADMINISTRATION**                           | 3                                                              |
| 3.1                                                    | Committee                                                      | 3 |
| 3.2                                                    | Authority of Committee                                         | 3 |
| 3.3                                                    | Decisions Binding                                              | 4 |
|                                                   |                                                           |   |
| **ARTICLE 4 ELIGIBILITY**                              | 4                                                              |
| 4.1                                                    | Designation of  Participants                                   | 4 |
| 4.2                                                    | Partial Year Participation                                     | 4 |
| 4.3                                                    | Demotions                                                      | 4 |
|                                                   |                                                           |   |
| **ARTICLE 5 OPERATION OF THE PLAN**                    | 4                                                              |
| 5.1                                                    | Plan Structure                                                 | 4 |
| 5.2                                                    | Establishment of Target  Bonuses                               | 5 |
| 5.3                                                    | Company Financial  Objectives                                  | 5 |
| 5.4                                                    | Individual Performance  Objectives                             | 5 |
| 5.5                                                    | Minimum Required  Performance Goal and Individual Award Limits | 5 |
| 5.6                                                    | Payout Form and Timing                                         | 6 |
| 5.7                                                    | Terminations of Employment                                     | 6 |
| 5.8                                                    | Change in Control                                              | 6 |
|                                                   |                                                           |   |
| **ARTICLE 6 AMENDMENT,  MODIFICATION AND TERMINATION** | 6                                                              |
| 6.1                                                    | Amendment, Modification  and Termination                       | 6 |
| 6.2                                                    | Termination After or  During Plan Year                         | 6 |
|                                                   |                                                           |   |
| **ARTICLE 7 GENERAL PROVISIONS**                       | 7                                                              |
| 7.1                                                    | No Right to Participate                                        | 7 |
| 7.2                                                    | No Right to Employment                                         | 7 |
| 7.3                                                    | Withholding                                                    | 7 |
| 7.4                                                    | Funding                                                        | 7 |
| 7.5                                                    | Expenses                                                       | 7 |
| 7.6                                                    | Titles and Headings                                            | 7 |
| 7.7                                                    | Gender and Number                                              | 7 |
| 7.8                                                    | Governing Law                                                  | 7 |

 

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**CITI TRENDS, INC.**

**ANNUAL INCENTIVE BONUS PLAN**

 

**ARTICLE 1**

**ESTABLISHMENT OF PLAN**

 

1.1                                 BACKGROUND.  The CitiTrends, Inc. Annual Incentive Bonus Plan (the “Plan”) provides a programfor the grant of annual Performance Bonuses. This Plan has been established andapproved, and will be administered by, the Committee.  It is intended that the Performance Bonusesearned under this Plan shall be Qualified Performance-Based Cash Awards withrespect to Participants who are Covered Employees, with the intent that thePerformance Bonuses will be fully deductible by the Company without regard tothe limitations of Code Section 162(m). The aggregate dollar value of any Performance Bonus that may be paid toany one Participant during any one calendar year under the Plan is $2 million.

 

1.2.                              PURPOSE.  The purpose of this Plan is to provide forthe payment of a cash bonus to key employees of the Company, the payment ofwhich will be based on the achievement of Performance Objectives during a PlanYear.  Company Financial Objectives aredesigned to focus on overall corporate financial results that drive shareholdervalue.  Unless otherwise specified by theCommittee, the Performance Objectives include Minimum Required Performance,Company Financial Objectives and Individual Performance Objectives.

 

1.3.                              EFFECTIVE DATE*. *This Plan was approved by theCommittee on March 19, 2009, to be effective as of the beginning of theCompany’s 2009 fiscal year.  The Plan wasapproved by the shareholders of the Company on May 27, 2009.

 

**ARTICLE 2**

**DEFINITIONS**

 

2.1.                              DEFINITIONS.  The following terms shall have the followingmeanings for purposes of this Plan, unless the context in which they are usedclearly indicates that some other meaning is intended.

 

Beneficiary. A persondesignated, in the manner determined by the Committee, to exercise the rightsof the Participant and to receive any distribution with respect to anyPerformance Bonus upon the Participant’s death.

 

Change in Control. The occurrence of any oneof the following events:

 

(a)                                  The acquisitionby any individual, entity or group (within the meaning of Section 13(d)(3) or14(d)(2) of the Securities Exchange Act of 1934, as amended (the “1934 Act”))(a “Person”) of beneficial ownership (within the meaning of Rule 13d-3promulgated under the 1934 Act) of 50% or more of the combined voting power ofthe then outstanding voting securities of the Company entitled to votegenerally in the election of directors (the “Outstanding Company VotingSecurities”); provided, however, that for purposes of this subsection (a), thefollowing acquisitions shall not constitute a Change of Control: (i) anyacquisition by a Person who is on the Effective Date the beneficial owner of50% or more of the Outstanding Company Voting Securities, (ii) anyacquisition directly from the Company, (iii) any acquisition by theCompany, (iv) any acquisition by any employee benefit plan (or relatedtrust) sponsored or maintained by the Company or any corporation controlled bythe Company, or (v) any acquisition by any corporation pursuant to atransaction which complies with clauses (i), (ii) and (iii) ofsubsection (c) of this definition; or

 

(b)                                 Individuals who,as of the Effective Date, constitute the Board of Directors of the Company (the“Incumbent Board”) cease for any reason to constitute at least a majority ofthe Board of Directors of the Company; provided, however, that any individualbecoming a director subsequent to the Effective Date whose election, ornomination for election by the Company’s

 

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shareholders, was approved by a vote of at least amajority of the directors then comprising the Incumbent Board shall beconsidered as though such individual were a member of the Incumbent Board, butexcluding, for this purpose, any such individual whose initial assumption ofoffice occurs as a result of an actual or threatened election contest withrespect to the election or removal of directors or other actual or threatenedsolicitation of proxies or consents by or on behalf of a Person other than theBoard of Directors of the Company; or

 

(c)                                  Consummation ofa reorganization, merger, consolidation or share exchange or sale or otherdisposition of all or substantially all of the assets of the Company (a “BusinessCombination”), in each case, unless, following such Business Combination, (i) allor substantially all of the individuals and entities who were the beneficialowners of the Outstanding Company Voting Securities immediately prior to suchBusiness Combination beneficially own, directly or indirectly, more than 50% ofthe combined voting power of the then outstanding voting securities entitled tovote generally in the election of directors of the corporation resulting fromsuch Business Combination (including, without limitation, a corporation whichas a result of such transaction owns the Company or all or substantially all ofthe Company’s assets either directly or through one or more subsidiaries) insubstantially the same proportions as their ownership, immediately prior tosuch Business Combination of the Outstanding Company Voting Securities, and (ii) noPerson (excluding any corporation resulting from such Business Combination orany employee benefit plan (or related trust) of the Company or such corporationresulting from such Business Combination) beneficially owns, directly or indirectly,20% or more of the combined voting power of the then outstanding votingsecurities of such corporation except to the extent that such ownership existedprior to the Business Combination, and (iii) at least a majority of themembers of the board of directors of the corporation resulting from suchBusiness Combination were members of the Incumbent Board at the time of theexecution of the initial agreement, or of the action of the Board, providingfor such Business Combination; or

 

(d)                                 Approval by theshareholders of the Company of a complete liquidation or dissolution of theCompany.

 

CodeSection 162(m). Section 162(m) of the Internal RevenueCode of 1986, as amended from time to time, and includes a reference to theunderlying final regulations.

 

Committee.  The Compensation Committee of the Board ofDirectors of the Company.

 

CompanyFinancial Objectives.  The CompanyFinancial Objectives established by the Committee for a Plan Year, as providedin Article 5.

 

CoveredEmployee. A covered employee as defined in Code Section 162(m)(3).

 

Disability. Any illness orother physical or mental condition of a Participant that renders theParticipant incapable of performing his customary and usual duties for theCompany, or any medically determinable illness or other physical or mentalcondition resulting from a bodily injury, disease or mental disorder which, inthe judgment of the Committee, is permanent and continuous in nature. TheCommittee may require such medical or other evidence as it deems necessary tojudge the nature and permanency of the Participant’s condition.

 

EffectiveDate.  February 1, 2009.

 

GAAP.  Generally accepted accounting principles forU.S. companies.

 

IndividualAward Limit.  Has themeaning described in Section 5.5.

 

IndividualPerformance Objectives.  TheIndividual Performance Objectives established by the Committee for a Plan Year,as provided in Article 5.

 

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MinimumRequired Performance.  Has themeaning given such term in Section 5.5.

 

Participant. A person who,as an employee of the Company or a Subsidiary, has been granted a PerformanceBonus under the Plan; provided that in the case of the death of a Participant,the term “Participant” refers to a Beneficiary or the legal guardian or otherlegal representative acting in a fiduciary capacity on behalf of theParticipant under applicable state law and court supervision.

 

PerformanceBonus.  The bonus payable to aParticipant under this Plan calculated by reference to the achievement ofapplicable Performance Objectives, as determined in accordance with Article 5.

 

PerformanceObjectives.  Collectivelywith respect to a Participant, Minimum Required Performance and any otherCompany Financial Objectives and Individual Performance Objectives (applicableto the Participant), as provided in Article 5.

 

Plan.  The Citi Trends, Inc. Annual IncentiveBonus Plan, as set forth in this document together with any subsequentamendments hereto.

 

PlanYear.  The Company’s fiscal year.

 

QualifiedBusiness Criteria. One or more of the criteria listed in Section 5.5upon which the Minimum Required Performance goals for QualifiedPerformance-Based Cash Awards may be established by the Committee.

 

QualifiedPerformance-Based Cash Award. A Performance Bonus that isintended to qualify for the exemption from the limitation on deductibilityimposed by Code Section 162(m) that is set forth in Code Section 162(m)(4)(C) orany successor provision thereto and is made subject to performance goals basedon Qualified Business Criteria as set forth in Section 5.5.

 

Retirement. Termination ofemployment with the Company or a Subsidiary after attaining age 65.

 

Schedule.  Means a document setting forth CompanyFinancial Objectives for a Plan Year and the relative weightings of suchmeasures and such other information as the Committee determines is appropriate.

 

Subsidiary. Anycorporation, limited liability company, partnership or other entity of which amajority of the outstanding voting stock or voting power is beneficially owneddirectly or indirectly by the Company.

 

TargetBonus.  Has the meaning described in Section 5.2.

 

**ARTICLE 3**

**ADMINISTRATION**

 

3.1.                              COMMITTEE.  This Plan shall be administered by theCommittee.

 

3.2.                              AUTHORITY OFCOMMITTEE.  TheCommittee has the exclusive power, authority and discretion to:

 

(a)  Designate Participants for each Plan Year;

 

(b)  Establish and review Performance Objectives and weightings fordifferent Performance Objectives for each Plan Year;

 

(c)  Establish Target Bonuses for Participants for each Plan Year;

 

(d)  Determine whether and to what extent Performance Objectiveswere achieved for each Plan Year;

 

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(e)  Increase (subject to the Individual Award Limit) or decreasethe Performance Bonus otherwise payable to any Participant resulting from theachievement of financial Performance Objectives in any Plan Year, based on suchsubjective factors as the Committee shall deem relevant;

 

(f)  Establish, adopt or revise any rules and regulations asit may deem necessary or advisable to administer this Plan;

 

(g)  Make all other decisions and determinations that may berequired under this Plan or as the Committee deems necessary or advisable toadminister this Plan; and

 

(h)  Amend this Plan as provided herein.

 

3.3.                              DECISIONSBINDING.  The Committee’s interpretationof this Plan and all decisions and determinations by the Committee with respectto this Plan are final, binding, and conclusive on all parties.

 

**ARTICLE 4**

**ELIGIBILITY**

 

4.1.                              DESIGNATION OFPARTICIPANTS.  Officers ofthe Company or its Subsidiaries are eligible to participate in the Plan.  Exhibit A hereto lists the officers whoare designated as Participants in this Plan for the 2009 Plan Year.  The Chief Executive Officer may designateadditional Senior Vice Presidents or Executive Vice Presidents as Participantsand shall promptly report such additional names to the Committee; provided,however, that such delegated authority shall be limited to individuals who arenot anticipated to be Covered Employees for the Plan Year.  The Committee, in its discretion, maydetermine whether other positions may qualify for participation in all or anyportion of this Plan for any subsequent Plan Year or change Target Bonuses ofexisting Participants.  Within the first90 days of each Plan Year, the Committee shall approve and substitute a new Exhibit Aindicating the Participants and their Target Bonuses for that Plan Year.  The Company will notify Participants of theireligibility to participate, and the terms thereof, in writing.

 

4.2.                              PARTIAL YEARPARTICIPATION.  If aParticipant begins employment or is promoted to an eligible position after thebeginning of a Plan Year, the Committee, in its discretion, may determinewhether such person may participate in this Plan and if so, the terms of suchparticipation, which will be prorated based on the number of days such personparticipated in this Plan during the Plan Year, unless the Committee determinesotherwise.  If a Participant takes aleave of absence during the Plan Year for any reason the Participant willreceive a pro rata share of a Performance Bonus, if any, for such Plan Year,unless the Committee decides otherwise.

 

4.3.                              DEMOTIONS.  If a Participant is demoted during the PlanYear, the Committee will determine whether Plan participation ends at thattime, or is continued, perhaps at a reduced level.  If participation ends, any Performance Bonusearned during the time of participation will be prorated for the Plan Year.

 

**ARTICLE 5**

**OPERATION OF THE PLAN**

 

5.1.                              PLAN STRUCTURE.  Each Participant shall be eligible to receivea Performance Bonus for the Plan Year if the Company meets or exceeds certainPerformance Objectives set by the Committee. It is anticipated that the Committee shall establish or approvePerformance Objectives and their respective weightings, and Target Bonuses asprovided in Sections 5.2, 5.3 and 5.4. In establishing Performance Objectives, the Committee may take intoaccount such factors as it deems appropriate, including, without limitation,prior year results, planned business results, anticipated business trends,performance relative to peer companies and macroeconomic conditions.  Those Performance Objectives

 

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shallprovide the framework for the Committee in determining the appropriate amountof incentive awards to payout in each Plan Year.  However, this Plan is designed to provide theCommittee discretion to make pay-outs that differ from those that would resultfrom the application of Sections 5.2, 5.3 and 5.4, if circumstances warrant, solong as, at a minimum, the requirements of Section 5.5 are met.  Such circumstances could include, for exampleand without limitation, events that are not anticipated at the time thePerformance Objectives are established or extenuating circumstances orextraordinary performance that is not recognized through the PerformanceObjectives.

 

5.2.                              ESTABLISHMENT OFTARGET BONUSES.  TheCommittee plans to establish Performance Objectives (in addition to MinimumRequired Performance) and Target Bonuses (other than the Individual AwardLimit) for each Plan Year, by approving the percentage of each Participant’sbase salary that will be awarded to the Participant for that Plan Year ifMinimum Required Performance is achieved and if the other establishedPerformance Objectives are achieved at the target level (the “Target Bonus”).  Each Participant’s Target Bonus percentagewill be communicated in writing to the Participant.  The actual Performance Bonus to a Participantmay be greater or less than his or her Target Bonus, depending on the level ofachievement of Company Financial Objectives, as provided in the relevantSchedule, and Individual Performance Objectives, and depending on whether theCommittee exercises its discretion to increase or reduce a resultingPerformance Bonus as provided herein.

 

5.3.                              COMPANYFINANCIAL OBJECTIVES.  Within thefirst 90 days of each Plan Year, it is anticipated that the Committee willapprove Company Financial Objectives for that Plan Year in addition to MinimumRequired Performance, and shall set forth such Company Financial Objectives inone or more Schedules.  The Scheduleshall provide the formula that the Committee will use as a guide fordetermining a Participant’s Performance Bonus at a level below the IndividualAward Limit.

 

5.4.                              INDIVIDUALPERFORMANCE OBJECTIVES. Within the first 90 days of each Plan Year, it is anticipated that theCommittee will approve Individual Performance Objectives for Participants whoare executive officers and that the Chief Executive Officer or otherappropriate officers will approve Individual Performance Objectives for otherParticipants.  Any such IndividualPerformance Objectives will be communicated to Participants in writing.  The Committee shall consider the degree ofachievement of Individual Performance Objectives as a guide in exercising itsdiscretion in determining a Participant’s Performance Bonus at a level belowthe Individual Award Limit.

 

5.5                                 MINIMUM REQUIRED PERFORMANCE GOAL AND INDIVIDUAL AWARD LIMITS. ** **The Committee will establish for each Plan Year beginning with the 2009 Plan Year a minimum performance goal (“Minimum Required Performance”) under the Plan based on one or more of the following Qualified Business Criteria:

 

·                  EBITDA

·                  EBIT

·                  Earnings Per Share

·                  Net Income

·                  Pretax Income

·                  Sales

·                  Comparable Store Sales

 

In any Plan Year inwhich Minimum Required Performance is achieved, the Performance Bonus payableto each Participant under the Plan for such Plan Year shall be $2 million (the “IndividualAward Limit”) or any lesser amount determined by the Committee based on thelevel of actual performance compared to Company Financial Objectives and/orIndividual Performance Objectives and

 

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such other Performance Objectives or any othercriteria determined by the Committee.  Asdescribed herein, it is anticipated that the Committee will exercise discretionsuch that the Performance Bonus paid to a Participant for a Plan Year wouldrepresent the amount that would be payable pursuant to the applicable CompanyFinancial Objectives and/or Individual Performance Objectives, rather than thefull Individual Award Limit.  In any PlanYear in which the Committee fails to set a Target Bonus for a Participant, thePerformance Bonus for that Participant shall be zero for that year unless theCommittee determines otherwise (but in no event shall the bonus exceed theIndividual Award Limit).

 

The Minimum RequiredPerformance shall be communicated in writing to each Participant within thefirst 90 days of each Plan Year.

 

5.6.                              PAYOUT FORM ANDTIMING.  Performance Bonuses will bepaid within thirty (30) days after the Committee determines whether and to whatextent Performance Objectives were achieved, but no later than the 15th day of the third month following the end ofthe Plan Year for which the Performance Bonuses, if any, were earned.

 

5.7.                              TERMINATION OFEMPLOYMENT.  In the eventof the termination of a Participant’s employment prior to the end of the PlanYear, the Participant shall not be entitled to payment of any PerformanceBonus; provided, however, that (i) if such termination is by reason of theParticipant’s death, Disability or Retirement, or (ii) if such terminationoccurs for any reason other than death, Disability or Retirement and theCommittee, in its discretion, shall so determine, the Participant will be paida Performance Bonus equal to the pro rata portion (based on the number of daysworked during the Plan Year) of the Performance Bonus, if any, that wouldotherwise be payable if the Participant had continued employment through theend of the Plan Year, based on actual performance.  For example, no Performance Bonus shall bepaid if Minimum Required Performance is not achieved.  If Minimum Required Performance is achieved,then the Participant’s Performance Bonus shall be based on the applicableperformance matrix.  Any such PerformanceBonus shall be paid at the normal time for payment of Performance Bonuseshereunder.  Any amounts paid on behalf ofa deceased Participant will be paid to the Participant’s Beneficiary.  For terminations after the end of the PlanYear, but before payout from this Plan, payout will be made as though thetermination had not occurred.

 

5.8.                              CHANGE INCONTROL.  In the event a Change inControl occurs during the Plan Year, a pro rata portion of the Target Bonusamounts for that Plan Year (based on the number of days in the Plan Yearpreceding the Change in Control, divided by 365) shall be deemed earned,notwithstanding the level of achievement of Performance Objectives or MinimumRequired Performance. Such pro rata Target Bonuses shall be paid toParticipants no later than 30 days after the effective date of the Change inControl.

 

**ARTICLE 6**

**AMENDMENT, MODIFICATION AND TERMINATION**

 

6.1.                              AMENDMENT,MODIFICATION AND TERMINATION.  The Committee may, at any time and from timeto time, amend, modify or terminate this Plan. The Committee may condition any amendment or modification on theapproval of shareholders of the Company if such approval is necessary or deemedadvisable with respect to tax, securities or other applicable laws, policies orregulations, including without limitation Code Section 162(m).

 

6.2.                              TERMINATIONAFTER OR DURING PLAN YEAR.  Terminationof this Plan after a Plan Year but before Performance Bonuses are paid for thatPlan Year will not reduce Participants’ rights to receive Performance Bonusesfor the Plan Year.  Termination oramendment of this Plan during a Plan Year may be retroactive to the beginningof the Plan Year, at the discretion of the Committee.  If a Change in Control occurs, no amendmentor termination may adversely affect amounts payable to a Participant withoutthe consent of the Participant.

 

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**ARTICLE 7**

**GENERAL PROVISIONS**

 

7.1.                              NO RIGHT TOPARTICIPATE.  No employeehas any right to be selected to participate in this Plan.

 

7.2.                              NO RIGHT TOEMPLOYMENT.  Nothing inthis Plan shall interfere with or limit in any way the right of the Company orany Subsidiary to terminate any Participant’s employment at any time, norconfer upon any Participant any right to continue in the employ of the Companyor any Subsidiary.

 

7.3.                              WITHHOLDING.  The Company or any Subsidiary shall have theauthority and the right to deduct or withhold, or require a Participant toremit to the Company, an amount sufficient to satisfy federal, state, and localtaxes (including the Participant’s FICA obligation) required by law to bewithheld with respect to any taxable event arising as a result of this Plan.

 

7.4.                              FUNDING.  Benefits payable under this Plan to a Participant or to a Beneficiary will be paid by the Company from its general assets.  The Company is not required to segregate on its books or otherwise establish any funding procedure for any amount to be used for the payment of benefits under this Plan.  The Company may, however, in its sole discretion, set funds aside in investments to meet its anticipated obligations under this Plan.  Any such action or set-aside may not be deemed to create a trust of any kind between the Company and any Participant or beneficiary or to constitute the funding of any Plan benefits.  Consequently, any person entitled to a payment under this Plan will have no rights greater than the rights of any other unsecured creditor of the Company.

 

7.5.                              EXPENSES.  The expenses of administering this Plan shallbe borne by the Company and its Subsidiaries.

 

7.6.                              TITLES ANDHEADINGS.  The titlesand headings of the Sections in this Plan are for convenience of referenceonly, and in the event of any conflict, the text of this Plan, rather than suchtitles or headings, shall control.

 

7.7.                              GENDER ANDNUMBER.  Except where otherwiseindicated by the context, any masculine term used herein also shall include thefeminine; the plural shall include the singular and the singular shall includethe plural.

 

7.8.                              GOVERNING LAW.  To the extent not governed by federal law,this Plan shall be construed in accordance with and governed by the laws of theState of Delaware.

 

Theforegoing is hereby acknowledged as being the Citi Trends, Inc. AnnualIncentive Bonus Plan as adopted by the Committee on March 19, 2009 and bythe shareholders on May 27, 2009.

 
|   | CITI TRENDS, INC.  |
|--------|--------------------|
|   |               |
|   |               |
|   | /s/ Bruce D. Smith |

 

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**EXHIBIT A**

 

**PARTICIPANTS AND TARGET BONUS PERCENTAGES EFFECTIVE MARCH 19,2009**

**UNDER THE ANNUAL INCENTIVE BONUS PLAN**

 
| **Name**                     | ** ** | **% of Base Salary Payable at Target  Achievement of********Performance Objectives*** | ** ** |
|------------------------------|------------|---------------------------------------------------------------------------------------|------------|
|                         |       |                                                                                  |       |
| R. David Alexander, Jr. |       | 100                                                                                   | %          |
|                         |       |                                                                                  |       |
| Elizabeth R. Feher           |       | 65                                                                                    | %          |
|                         |       |                                                                                  |       |
| Bruce D. Smith               |       | 50                                                                                    | %          |
|                         |       |                                                                                  |       |
| James A. Dunn                |       | 50                                                                                    | %          |
|                         |       |                                                                                  |       |
| Ivy D. Council               |       | 50                                                                                    | %          |

 

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*Subjectto the achievement of Minimum Required Performance

 

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