Item
2.01. Completion of Acquisition or Disposition of Assets.
As
previously disclosed, on September 7, 2018, Fred’s Stores of Tennessee, Inc., a Delaware corporation
(“Seller”) and wholly owned subsidiary of Fred’s, Inc. (the “Company”), entered into an Asset
Purchase Agreement (the “Asset Purchase Agreement”) with Walgreen Co., an Illinois corporation
(“Buyer”). On October 23, 2018, Seller and Buyer entered into an amendment to the Asset Purchase Agreement (the
“Amendment”). Under the Asset Purchase Agreement, as amended by the Amendment (the “Amended Asset Purchase
Agreement”), Buyer agreed to purchase from Seller certain prescription files and related data and records, retail
pharmaceutical inventory, and certain other assets from 179 of the Company’s retail pharmacy stores (collectively, the
“Assets”) for a cash purchase price of approximately $157 million plus an amount equal to the value of the
inventory included in the Assets up to an approximately $35 million cap, in each case subject to certain adjustments (the
“Transaction”). As of December 5, 2018, the Company had completed the disposition of another “significant
amount” of the Company’s assets within the meaning of, and in accordance with, the standards set forth in Item
2.01 of Form 8-K. This is in addition to the “significant amount” of the Company’s assets disposed of as of
November 20, 2018, at which time Seller had transferred to Buyer Assets from 53 stores and had received cash proceeds of
approximately $68.3 million for such Assets, subject to adjustment for the final inventory valuation, all as set forth in
Item 2.01 of the Company’s Current Report on Form 8-K, filed with U.S. Securities and Exchange Commission
(“SEC”) on November 27, 2018, and which is incorporated herein by reference.
As
previously disclosed, Seller has been transferring ownership of the Assets to Buyer in a series of ongoing closings, with the
initial closing occurring on November 13, 2018 and the final closing expected to occur in the first quarter of calendar year 2019.
As of December 5, 2018, Seller had transferred to Buyer Assets from 112 stores and had received cash proceeds of approximately
$127.0 million for such Assets, subject to adjustment for the final inventory valuation as described in the Amended Asset Purchase
Agreement. The proceeds received in the Transaction will continue to be used to pay down the Company’s existing indebtedness
or for general corporate purposes. The remaining closings of the Transaction are subject to certain customary closing conditions
as specified in the Amended Asset Purchase Agreement. Neither the Company nor Seller has any material relationship with Buyer
or its subsidiaries out of the ordinary course of business other than in respect of the transactions contemplated by the Amended
Asset Purchase Agreement, including the continued disposition of Assets.
The
unaudited pro forma financial information for the Company giving effect to the sale of all Assets contemplated to be sold to Buyer
pursuant to the Amended Asset Purchase Agreement, which was filed as Exhibit 99.1 to the Company’s Current Report on Form
8-K with the SEC on November 27, 2018, is incorporated herein by reference. Specifically, this pro forma financial information
gives effect to the completion of the sale of the Assets pursuant to the terms of the Amended Asset Purchase Agreement, including
the sale of the remaining Assets that had not occurred as of December 5, 2018 given that such sales are probable, in accordance
with Article 11 of Regulation S-X. Although the Company expects that the sale of the remaining Assets to Buyer will be consummated
during the first quarter of calendar year 2019, there can be no assurance that all of the remaining closings will occur, and there
can be no assurance that the Company’s actual results would have been as set forth in the pro forma financial statements,
and such differences could be material. As previously disclosed, the Company does not intend to update the pro forma financial
statements contained herein unless the Company is required to update such pro forma financial statements by applicable legal requirements.
The
foregoing description of the Amended Asset Purchase Agreement and the transactions contemplated thereby is not complete and is
subject to, and qualified in its entirety by, the full text of the Asset Purchase Agreement, a copy of which was filed as Exhibit
2.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 10, 2018, which is incorporated herein by
reference, and by the Amendment, a copy of which was filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed
with the SEC on November 14, 2018, and which is incorporated herein by reference.