FRED’S, INC. (NASDAQ:FRED) Files An 8-K Entry into a Material Definitive Agreement

ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.

Asset Purchase Agreement

On December 19, 2016, Freds, Inc. (the Company) and its
wholly-owned subsidiary, AFAE, LLC (Buyer), entered into an Asset
Purchase Agreement (the Asset Purchase Agreement) with Rite Aid
Corporation (Rite Aid) and Walgreens Boots Alliance, Inc.
(Walgreens), to which Buyer agreed to purchase 865 stores,
certain intellectual property and other tangible assets
(collectively, the Assets) and to assume certain liabilities for
a cash purchase price of $950 million (the Transaction).

The initial closing of the Transaction is subject to preliminary
approval of the Company or Buyer as a purchaser of the Assets by
the U.S. Federal Trade Commission (the FTC) and the closing of
the proposed acquisition of Rite Aid by Walgreens (the
Walgreens-Rite Aid Merger). The initial closing of the
Transaction is also subject to other closing conditions customary
for transactions of this type, including the accuracy of
representations and warranties and the performance of covenants,
filings with or the receipt of regulatory approvals from certain
state boards of pharmacy, and the absence of a material adverse
effect on the stores being acquired. Following satisfaction of
all closing conditions, the transfer of the Assets will occur in
multiple subsequent closings as approval from the state boards of
pharmacy is received with respect to stores in each subsequent
closing.

Buyer and Rite Aid have each made customary representations and
warranties in the Asset Purchase Agreement. Additionally, the
Company and Buyer have agreed to various covenants and agreements
in the Asset Purchase Agreement, including, among other things,
to (i) use their reasonable best efforts to obtain all
authorizations and approvals from governmental authorities, (ii)
prepare and furnish all necessary information and documents
reasonably requested by the FTC, (iii) use reasonable best
efforts to demonstrate to the FTC that the Company or Buyer is an
acceptable purchaser of, and will compete effectively using, the
assets purchased in the Transaction, and (iv) reasonably
cooperate with Walgreens and Rite Aid in obtaining all FTC
approvals. Rite Aid has also agreed to various covenants and
agreements, including, to conduct its business at the acquired
stores in the ordinary course during the period between the
execution of the Asset Purchase Agreement and the closing of the
Transaction, subject to certain exceptions. In the event that the
FTC requests revisions to the Asset Purchase Agreement, the
parties agreed to negotiate in good faith to make such revisions.
To the extent the FTC requests that additional stores be sold,
and Walgreens agrees to sell such stores, each of the Company and
Buyer has agreed to buy those stores.

The Asset Purchase Agreement also includes mutual indemnification
provisions subject to certain limitations, including time
limitations, a minimum claim requirement, a deductible in respect
of aggregated claims and a cap on recovery in respect of
aggregated claims. Walgreens has agreed to guaranty Rite Aids
obligations to the extent they arise after the completion of the
Walgreens-Rite Aid Merger, and the Company has agreed to guaranty
Buyers obligations to the extent they arise after the date of the
Purchase Agreement. Subject to and upon the occurrence of the
initial closing, the Company, Buyer, Rite Aid and Walgreens have
agreed to enter into a transition services agreement, to which
Rite Aid and its affiliates will provide transitional services to
Buyer for a period of twenty-four months following the initial
closing, which term may be extended for an additional six months
by Buyer.

The Asset Purchase Agreement also contains customary provisions
governing circumstances under which Buyer, Rite Aid or Walgreens
may terminate the Asset Purchase Agreement. Either Buyer, Rite
Aid or Walgreens may terminate the Asset Purchase Agreement if
the agreement governing the Walgreens-Rite Aid Merger is
terminated or the Transaction is prohibited by government order.
Walgreens may also terminate the Asset Purchase Agreement if
Buyer is not preliminarily approved by the FTC or any other
necessary governmental entity as the purchaser of the Assets or
if the Director of the Bureau of Competition of the FTC informs
Walgreens in writing that the Director will not recommend
approval of Buyer as purchaser of the Assets. Each of Buyer and
Walgreens may terminate the Asset Purchase Agreement by mutual
written consent, if the initial closing of the Transaction does
not occur on or before June 30, 2017 or if the other party
breaches or fail to perform any of its representations,
warranties, covenants, or other agreements which would, or would
reasonably be expected to, result in a failure of such other
partys conditions to consummation of the Transaction and such
other party does not cure such breach within a specified period.

Debt Commitment Letters

On December 19, 2016, the Company entered into a commitment
letter (the ABL Commitment Letter) under which Bank of America,
N.A. (Bank of America), Merrill Lynch, Pierce, Fenner Smith
Incorporated (MLPFS) and Regions Business Capital, a Division of
Regions Bank (Regions) have agreed to underwrite and arrange
committed financing in favor of the Company, as borrower, in the
form of senior secured asset-based loan facility in an aggregate
principal amount of up to $1.05 billion (the ABL Facility) for
the purposes of financing the Transaction and the fees and
expenses in connection therewith. The ABL Facility will consist
of a $850 million senior secured asset-based revolving loan and
letter of credit facility and a $200 million senior secured
asset-based term loan available in a single draw 90 days after
the initial closing. The ABL Facility will be secured by (i) a
first lien on substantially all of the Companys assets, including
prescription files, and (ii) a second lien on furniture, fixtures
and equipment (the ABL Loan Collateral). The funding of the ABL
Facility under the ABL Commitment Letter is subject to a number
of conditions, including the consummation of the Transaction in
accordance with the Asset Purchase Agreement, the absence of a
material adverse effect (as defined in the ABL Commitment
Letter), the accuracy of certain specified representations and
warranties, and other customary closing conditions.

On December 19, 2016, the Company entered into a commitment
letter (the Term Loan Commitment Letter and, together with the
ABL Commitment Letter, the Debt Commitment Letters) under which
MLPFS, TPG Specialty Lending Inc., Crystal Financial LLC, Gordon
Brothers Finance Company, LLC, Pathlight Capital LLC, Tennenbaum
Capital Partners, LLC, and Great American Capital Partners, LLC
have agreed to underwrite and arrange committed financing in
favor of the Company, as borrower, in the form of a term loan
facility in an aggregate principal amount of up to $600 million
(the Term Loan Facility), which will be secured by a first lien
on certain real estate and equipment, and a second lien on the
ABL Loan Collateral. The funding of the Term Loan Facility under
the Term Loan Commitment Letter is subject to a number of
conditions, including the consummation of the Transaction in
accordance with the Asset Purchase Agreement, the absence of a
material adverse effect (as defined in the Term Loan Commitment
Letter), the accuracy of certain specified representations and
warranties, and other customary closing conditions.

The foregoing descriptions of the Asset Purchase Agreement and
each of the Debt Commitment Letters do not purport to be complete
and are subject to, and qualified in their entirety by, the full
text of such agreements, which will be filed with the U.S.
Securities and Exchange Commission (the SEC) as exhibits to the
Companys next periodic report. When filed as exhibits, the copies
of such agreements are intended to provide investors and security
holders with information regarding their terms. They are not
intended to provide any other financial information about the
Company or its subsidiaries or affiliates. The representations,
warranties, and covenants contained in such agreements were made
only for purposes of such agreements and as of specific dates,
are solely for the benefit of the parties to such agreements, may
be subject to limitations agreed upon by the parties, including
being qualified by confidential disclosures made for the purposes
of allocating contractual risk among the parties thereto instead
of establishing these matters as facts, and may be subject to
standards of materiality applicable to the parties that differ
from those applicable to investors. Investors should not rely on
the representations, warranties, or covenants or any description
thereof as characterizations of the actual state of facts or
condition of the Company or any of its subsidiaries or
affiliates. Moreover, information concerning the subject matter
of the representations, warranties, and covenants may change
after the date of such agreements, which subsequent information
may or may not be fully reflected in the Companys public
disclosures.

ITEM 7.01. REGULATION FD DISCLOSURE.

On December 20, 2016, the Company issued a press release
announcing the Transaction. The full text of this press release
is attached to this report as Exhibit 99.1 and is incorporated
herein by reference.

to the rules and regulations of the SEC, the information
furnished to Item 7.01 of this report is deemed to have been
furnished and shall not be deemed to be filed for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or
otherwise subject to the liabilities of that section. Such
information shall not be incorporated by reference into any
filing of the Company, whether made before or after the date
hereof, regardless of any general incorporation language in such
filing.

Forward-Looking Statements

Statements about the expected timing, completion and effects
of the Transaction and the other transactions contemplated by the
Asset Purchase Agreement, the Debt Commitment Letters and all
other statements herein and therein, other than historical facts,
constitute forward-looking statements within the meaning of the
safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Readers are cautioned not to place undue
reliance on these forward-looking statements and any such
forward-looking statements are qualified in their entirety by
reference to the following cautionary statements.

All forward-looking statements speak only as of the date
hereof and are based on current expectations and involve a number
of assumptions, risks and uncertainties that could cause the
actual results to differ materially from such forward-looking
statements. The Company may not be able to complete the
Transaction on the terms described above or other acceptable
terms or at all because of a number of factors, including without
limitation, the following: (i) the occurrence of any event,
change or other circumstances that could give rise to the
termination of the Asset Purchase Agreement; (ii) the failure to
satisfy the closing conditions set forth in the Asset Purchase
Agreement, including receiving the FTCs approval; (iii) risks
related to disruption of managements attention from the Companys
ongoing business operations due to the Transaction; (iv) the
effect of the announcement of the Transaction on the ability of
the parties to retain and hire key personnel, maintain
relationships with their customers and suppliers, and maintain
their operating results and business generally; (v) the risk that
the businesses and acquired stores, as applicable, will not be
integrated successfully; and (vi) the risk of litigation and/or
regulatory actions related to the proposed transactions.

Actual results may differ materially from those indicated by
such forward-looking statements. In addition, the forward-looking
statements represent the Companys views as of the date on which
such statements were made. The Company anticipates that
subsequent events and developments may cause its views to change.
These forward-looking statements should not be relied upon as
representing the Companys views as of any date subsequent to the
date hereof. Additional factors that may affect the business or
financial results of the Company are described in the risk
factors included in the Companys public filings with the SEC,
including the Companys Annual Report on Form 10-K for the fiscal
year ended January 30, 2016 and the Companys subsequently filed
periodic reports, which factors are incorporated herein by
reference. The Company expressly disclaims a duty to provide
updates to forward-looking statements, whether as a result of new
information, future events or other occurrences, except as
required by law.

ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.

About FRED’S, INC. (NASDAQ:FRED)

Fred’s, Inc. (Fred’s) is engaged in the sale of general merchandise through its retail discount stores and full service pharmacies. The Company sells general merchandise to its over 20 franchisees. The Company has approximately 660 retail stores, over 370 pharmacies, and approximately three specialty pharmacy facilities located in over 15 states mainly in the Southeastern United States. The Company is licensed to dispense pharmaceuticals in approximately 50 states. The Company operates approximately 640 company-owned stores, including over 60 express stores (or Xpress stores). Fred’s is a combination of pharmacy, dollar store and mass merchant strategically located in smaller markets. It offers various product categories, including consumables, such as tobacco, food and beverage, prescription pharmaceuticals, paper and cleaning supplies, pet supplies, health and beauty aids, and discretionary products, such as home decor, seasonal merchandise, auto and hardware, and lawn and garden.

FRED’S, INC. (NASDAQ:FRED) Recent Trading Information

FRED’S, INC. (NASDAQ:FRED) closed its last trading session up +9.04 at 20.19 with 29,066,043 shares trading hands.