freds8k122308ex101.htm


    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.

       

       

       

      
        
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      (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.

       

       

       

      
        
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      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.

       

      


       

       

       

       

      
        
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      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 


      

       

       

       

      
 

       

       

       

       

       

       

       

       

       

       

       

       

       

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