Ownership of Common Stock by Directors,

Officers and Certain Beneficial Owners

The following table sets forth the beneficial ownership of Common Stock known to the Company as of April 29, 2017,May 1, 2018, by beneficial owners of more than five percent (5%) of the outstanding Common Stock, each Director, each of the Named Executive Officers (as defined below), and all Directors and executive officers of Fred’s as a group. Except as noted below, the address for each beneficial owner is 4300 New Getwell Rd., Memphis, Tennessee 38118.

Beneficial Owner		Shares of Common Stock Beneficially Owned(1)
		Number of Shares								Percent(4)
		Options(2)				Total(3)
Alden Global Capital LLC(5)							9,275,000				24.2	%
BlackRock, Inc.(6)							4,811,177				12.6	%
Wellington Management Group LLP(7)							4,501,032				11.8	%
Dimensional Fund Advisors LP(8)							3,089,374				8.1	%
The Vanguard Group, Inc.(9)							3,083,513				8.1	%
NWQ Investment Company, LLC(10)							2,370,441				6.2	%
National Rural Electric Cooperative Association(11)							2,231,569				5.8	%
T. Rowe Price Associates, Inc.(12)							2,157,274				5.6	%
Adage Capital Partners GP, LLC(13)							2,108,283				5.5	%
Michael J. Hayes(14)			3,500				1,528,409				4.0	%
Thomas H. Tashjian			—				332,611					*
Jerry A. Shore			115,000				233,542					*
Michael K. Bloom			—				105,714					*
Craig L. Barnes			13,950				37,662					*
Steven R. Fitzpatrick			6,000				34,549					*
B. Mary McNabb			—				30,400					*
Michael T. McMillan			—				30,000					*
Michael James			12,500				25,158					*
Timothy A. Liebmann			5,600				22,962					*
John R. Eisenman			3,500				25,000					*
Rick J. Hans			—				16,897					*
Lilia R. Lauren			7,100				15,062					*
Mary Lou Gardner			—				13,453					*
Linda Longo-Kazanova			—				9,542					*
Steven B. Rossi			—				9,039					*
Timothy A. Barton			—				9,039					*
Peter J. Bocian			—				8,091					*
Christopher W. Bodine			—				8,091					*
All Directors and Executive Officers			198,111				2,653,677				6.9	%
As a Group (33 persons)

(13)	Amount includes 9,275,000 shares of Common Stock owned directly by Opportunities, an affiliate of Alden, of which Mr. Freeman may be deemed to beneficially own.

PROPOSAL 1 —- ELECTION OF DIRECTORS

The Board of Directors currently consists of thirteenseven Directors. As previously announced, each of John R. Eisenman, Steven R. Fitzpatrick, Michael J. Hayes and Jerry A. Shore will retire as Directors at the 2017 Annual Meeting. Therefore, nine Directors are to be electedFive individuals have been nominated for election at the Annual Meeting to serve for a term of one year or until their successors are electedqualified and qualified.elected. Upon the recommendation of the Nominating and Governance Committee, the Board of Directors has nominated each of the following nominees to be elected as Directors at the Annual Meeting:Heath B. Freeman, Timothy A. Barton, Michael K. Bloom, Peter J. Bocian, Christopher W. Bodine, Linda Longo-Kazanova, Michael T. McMillan, B. Mary McNabb, Steven B. Rossi, Dana Goldsmith Needleman and Thomas H. Tashjian.E. Zacharias, each current directors, to serve as directors on the Board. Additional information about each of these nominees can be found below. The nominees have indicated a willingness to serve as directors if elected. There are no family relationships among any director, executive officer or person nominated or chosen to be a director or executive officer known to us.

Directors		Age		Independent		Current Position		Director Since
Timothy A. Barton		51		ü		Director		2017
Michael K. Bloom		56		×		Director, Chief Executive Officer		2017
Peter J. Bocian		62		ü		Director		2017
Christopher W. Bodine		61		ü		Director		2017
John R. Eisenman		75		ü		Director(1)		1992
Steven R. Fitzpatrick		57		ü		Director(1)		2012
Michael J. Hayes		75		ü		Director(1)		1987
Linda Longo-Kazanova		64		ü		Director		2017
Michael T. McMillan		57		ü		Director		2007
B. Mary McNabb		68		ü		Director		2005
Steven B. Rossi		68		ü		Director		2017
Jerry A. Shore		64		×		Director(1)		2014
Thomas H. Tashjian		62		ü		Director and Chairman of the Board		2001

Director Nominees, Director Qualifications and Biographical Information

Cooperation Agreement with Alden Global Capital LLC and Appointment of Messrs. Barton and Rossi to the Board

On April 21, 2017, we entered into a cooperation agreement (the “Cooperation Agreement”) with Alden Global Capital LLC and certain of its affiliates (collectively, “Alden”). Pursuant to the Cooperation Agreement, our Board of Directors appointed Messrs. Barton and Rossi (the “Alden Designees”) to the Board effective April 21, 2017. Among other things, the Cooperation Agreement provides that:

For additional details regarding the terms of the Cooperation Agreement, including a copy of the Cooperation Agreement, see our Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (“SEC”) on April 24, 2017.

Board Nominees for Election as Directors at the 20172018 Annual Meeting

Set forth below is a brief biographical description of each of our Director nominees. In selecting potential candidates for election to the Board of Directors the Nominating and Governance Committee considers the potential nominee’s judgment, integrity, experience, independence, understanding of the Company’s business and industry and other factors as more fully described below. The Board of Directors believes that the combinations of the various qualifications, skills and experiences would contribute to an effective, balanced and well-functioning Board of Directors.

Heath B. Freeman joined the Board on August 29, 2017. Mr. Freeman is the President and a Founding Member, of Alden Global Capital LLC, a New York-based investment firm focused on deep value, catalyst driven investing. He has been with the firm since its founding in 2007, and has been its President since 2014. Mr. Freeman currently serves as Vice Chairman of MNG Enterprises, Inc. (‘MNG”), a Company that owns media properties such as The Denver Post, San Jose Mercury News, Orange County Register and the Boston Herald. Prior to Alden Global Capital LLC, Mr. Freeman worked as an Investment Analyst at Smith Management, a private investment firm. Mr. Freeman began his career as an analyst at Peter J. Solomon Company, a boutique investment bank with a focus on Retail and Consumer, where he worked on mergers and acquisitions, restructurings and refinancing assignments. Currently, Mr. Freeman serves as Chairman of the Advisory Board for Jewish Life at Duke University’s Freeman Center. He is a graduate of Duke University. Mr. Freeman was selected as a Director nominee by Alden pursuant to the Amended and Restated Cooperation Agreement (described below) due to his deep retail, turnaround, and financial expertise.

Timothy A. Barton was appointed to the Board on April 21, 2017. Mr. Barton founded Freightquote in 1998, and served as Chairman and CEO until the company’s sale to C.H. Robinson Worldwide in 2015. Prior to founding Freightquote, Mr. Barton was the Co-Founder and President of UWI Association Programs, which grew into Network Long Distance before being acquired by IXC Communications/Broadwing in 1998. Mr. Barton earned his B.A. in Business from the University of Kansas and an M.A. in Finance from Louisiana State University. Mr. Barton was selected as a Director nominee by Alden pursuant to the Cooperation Agreement (described below) due to his extensive management, extensive financial and operations experience.

Michael K. Bloom joined the Company in January 2015 as President and Chief Operating Officer. In August 2016, Mr. Bloom

Dana Goldsmith Needleman was appointed asto the Company’s Chief Executive Officer andBoard of Directors on March 7, 2017, Mr. Bloom was appointed as a Director. Prior to joining the Company, Mr. Bloom served as the President and Chief Operating Officer for Family Dollar Stores, Inc. from September 2011 to January 2014. He also spent more thanMay 20, years with CVS Caremark Corporation, holding a variety of positions with increasing responsibilities in merchandising, marketing and operations and rising finally to Executive Vice President of Merchandising, Visual Merchandising, Marketing, Store Brand, Advertising and Supply Chain. Before joining CVS, Mr. Bloom spent 10 years in merchandising and operations management with Virginia-based Peoples Drug Stores and the Florida division of Toronto-based Shoppers Drug Mart Corporation.

Peter J. Bocian was appointed as a Director on March 7, 2017. Mr. Bocian retired as the Executive Vice President and Chief Financial Officer of Safeway, Inc., a supermarket chain, in March 2015. Prior to that, Mr. Bocian served as the Executive Vice President and Head, Corporate Services and Finance of JPMorgan Chase & Company from July 2011 to January 2013, as Executive Vice President and Chief Administrative Officer of Hewlett-Packard Company from December 2008 to June 2011, and as Executive Vice President, Chief Financial Officer and Chief Administrative Officer of Starbucks Corporation from May 2007 to November 2008. Prior to serving at Starbucks, Mr. Bocian held a variety of corporate positions, including Senior Vice President and Chief Financial Officer, over a 24-year period at NCR Corporation, an electronics company focusing on point-of-sale systems for the retail, banking, airline and hospitality industries.

Christopher W. Bodine was appointed as a Director on March 7, 2017. Mr. Bodine2018. Since October 2009, Ms. Goldsmith Needleman has served as a partnerPrincipal of New Spring Capital,The Cogent Group, a private equity fund, since 2009. Prior to his retirement from CVS Caremark Corporation in January 2009 after 24 years of service, Mr. Bodine served as President, Healthcare Services,real estate investment firm, where he wasshe is responsible for strategy, business development, trade relations, salesthe origination, underwriting, financing, structuring, and account management, pharmacy merchandising, marketing, information technologyclosing of net lease transactions. From 1999 to 2009, Ms. Goldsmith Needleman was employed by Cardinal Capital Partners, a sale-leaseback frim, serving as Managing Director from 2003 to 2009 and Minute Clinic. Prior to the merger of CVS Corporation and Caremark Rx, Inc. in March 2007, Mr. Bodine served for several years as Executive Vice President — Merchandisingfrom 1999 to 2002. From 1997 to 1999, Ms. Goldsmith Needleman was an associate at Corporate Realty Investment Company, a private real estate company. Ms. Goldsmith Needleman earned her B.A. from Duke University and Marketingher J.D. from Boston University School of CVS Corporation. Mr. Bodine is active in the pharmaceutical industry, having served on a number of boards and committees, including Allergan plc, a global pharmaceutical company, and the Healthcare Leadership Council, RI Quality Institute, National Retail Federation, National Association of Chain Drug Stores (NACDS), and the NACDS Pharmacy Affairs and Leadership Committees.

Linda Longo-KazanovaLaw. Ms. Goldsmith Needleman was appointedselected as a Director on April 5, 2017. Ms. Longo-Kazanova most recently served as Chief Human Resources Officer at Keurig Green Mountain, Inc. (“Keurig”). Priordue to working at Keurig, she served as Vice President, Human Resourcesher substantial retail real estate and Medical at Burlington Northern Santa Fe Corporation from 2007 to 2010, and as Senior Vice President, Human Resources and Business Optimization, at Bell and Howell Company (later known as ProQuest Company) from 2000 to 2007. She held progressive assignments at Kraft Foods, Inc. from 1985 to 1995, including Global Director, Management and Organization Development. Semi-retired, she also consults through her firm LK Consulting, LLC. Ms. Longo-Kazanova previously served as a board member for Susan G. Komen for the Cure, Fort Worth and as a Trustee for Trinity Valley School in Fort Worth, Texas. Ms. Longo-Kazanova holds a Ph.D. in psychology from Northwestern University, a Masters in counseling psychology and a Bachelors in anthropology from University of Delaware.corporate management background.

Michael T. McMillan was elected a Director of the Company in 2007. In 2016, Mr. McMillan retired after 31 of years of senior executive roles with PepsiCo, including Operations, Marketing, Division General Management and Franchise Development. Currently, Mr. McMillan serves on the non-profit Board of Concord Academy and works with the Memphis Grizzlies Foundation. Mr. McMillan was chosen to serve on our Board because of his extensive experience in sales and marketing.

B. Mary McNabb was elected a Director of the Company in April 2005. Ms. McNabb was the owner and operator of Tai Shan Farms, Inc. until November 2016. Previously, she served as Chief Executive Officer for Kid’s Outlet, California. Kid’s Outlet, California filed for bankruptcy in 2009. Prior to that, she served as Executive Vice President and a Director of The Mowbray Group from 2004 – 2005, a California-based retail consulting firm that specializes in problem-solving, cost reductions, importing, and retail management. She has served as a member of the Board of Directors of C-ME (Cyber Merchants Exchange). Ms. McNabb was formerly Executive Vice President of Merchandising and Marketing for Factory 2-U, Vice President of sourcing for S-Q of California, and West Coast Manager/Buyer for One Price Clothing, Inc. Ms. McNabb brings a wealth of retail experience to our Board, with specific experience in the soft lines areas of our business. Ms. McNabb also brings executive leadership experience to the Board.

Steven B. Rossi was appointed to the Board of Directors on April 21, 2017. In February 2018, Mr. Rossi isretired as the Chief Executive Officer of Digital First Media. He previously served as Digital First Media’s Chief Operating Officer. Prior to joining Digital First Media, Mr. Rossi held several successive management positions over 19 years with Knight Ridder Inc., including Chief Financial Officer, Senior Vice President of Operations and President of the Newspaper Division. Mr. Rossi holds an MBA from The Wharton School of the University of Pennsylvania and a B.A. in Economics from Ursinus College. Mr. Rossi was selected as a Director nominee by

Alden pursuant to the Cooperation Agreement (described below) due to his substantial business and technology background and as well as his experience in growing successful companies.

Thomas H. TashjianE. Zacharias was elected a Director of the Company in 2001 and was elected as Chairman ofappointed to the Board of Directors on May 20, 2018. Since 2017, Mr. Zacharias has served as the President of Zacharias & Co. LLC, a real estate investment and advisory firm. From 2002 to 2017, Mr. Zacharias was employed by W.P. Carey Inc., a global real estate investment trust, where he served in March 2016.multiple capacities including Chief Operating Officer, Managing Director and Head of Asset Management. From 2000 to 2002, Mr. Tashjian isZacharias served as Senior Vice President of MetroNexus North America, a private investor. PriorMorgan Stanley real estate fund. From 1998 to 2001, he2000, Mr. Zacharias served as Principle to Lend Lease Development U.S., a real estate development company. From 1981 to 1998, Mr. Zacharias served as a Managing DirectorVice President of Corporate Property Investors, a real estate development company. Mr. Zacharias presently serves as a director of Nexeo Solutions, Inc., a global chemical and Consumer Group Leader at Banc of America Montgomery Securities in San Francisco. Prior to that,plastics distributor, and Payless Holdings, LLC, a footwear retailer. Mr. Tashjian held similar positions at First Manhattan Company, Seidler Companies,Zacharias received his B.A. from Princeton University and Prudential Securities. In those roles, Mr. Tashjian dealt with corporate governance and financial matters onholds a regular basis. Mr. Tashjian’s earlier retail operating experience was in discount retailing atMBA from the Ayrway Stores, which were acquired by Target Corporation, and in the restaurant business at Noble Roman’s. He is a graduate of the Director’s Consortium of the Stanford GraduateYale School of Business and is a member of the Society of Corporate Secretaries and Governance Professionals.Management. Mr. Tashjian is qualified to serve as Chairman of Fred’s Board of Directors because of his two decades of financial research experienceZacharias was selected as a noted institutional investment analyst for several major investment banking companies, as well asDirector due to his standing as aextensive experience with general management, financial expertanalysis, strategic planning, value creation, operations, acquisitions, restructurings and corporate governance expert.retail real estate.

If, for any reason, any of the nominees shall become unavailable for election, the individuals named in the enclosed proxy may exercise their discretion to vote for any substitutes chosen by the Board of Directors, unless the Board of Directors should decide to reduce the number of Directors to be elected at the Annual Meeting. Fred’s has no reason to believe that any nominee will be unable to serve as a Director.

The Company expects its Directors to attend the Annual Meeting, however there is not a formal policy requiring attendance. All of our Director nominees who were Directors at the time of our 20162017 Annual Meeting were present at such meeting.

For information concerning the number of shares of Common Stock owned by each Director, and all Directors and executive officers as a group as of April 29, 2017,May 1, 2018, see “Ownership of Common Stock by Directors, Officers and Certain Beneficial Owners.” There are no family relationships among any Directors or executive officers of Fred’s.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE
ELECTION OF THE NOMINEES TO FRED’S BOARD OF DIRECTORS.

Cooperation Agreement with Alden Global Capital LLC and Appointment of Messrs. Freeman, Barton and Rossi to the Board

5 

On April 21, 2017, we entered into a cooperation agreement (the “Cooperation Agreement”) with Alden and certain of its affiliates. Pursuant to the Cooperation Agreement, our Board of Directors appointed Messrs. Barton and Rossi (the “Alden Designees”) to the Board effective April 21, 2017. Among other things, the Cooperation Agreement provides that: 

●

the Board of Directors has the right to increase the size of the Board to 11 members to accommodate one additional Director approved by the Board and one additional Director designated by Alden;

●

Alden has the right to designate replacement candidates for the Alden Designees subject to certain terms and conditions;

●

during the term of the Cooperation Agreement, one Alden Designee will resign from the Board of Directors if Alden’s ownership falls below 10% of the Company’s issued and outstanding shares of Common Stock, and the other Alden Designee will resign from the Board of Directors if Alden’s ownership falls below 5% of the Company’s issued and outstanding shares of Common Stock;

●

the Board of Directors agreed to combine the Nominating Committee and Governance Committees into a new Nominating and Governance Committee, and each of the Company’s Nominating and Governance Committee and Compensation Committee will have four members, including both Alden Designees, with an Alden Designee determined by the Board of Directors chairing the Compensation Committee;

●

during the term of the Cooperation Agreement, Alden will vote all shares of Common Stock owned by Alden in accordance with the Board of Director’s recommendations with respect to each election of Directors, the ratification of the appointment of the Company’s independent registered public accounting firm, the Company’s “say-on-pay” proposal, and any other proposal to be submitted to the shareholders of the Company, with certain exceptions relating to business combination transactions and certain equity issuances by the Company;

●

during the term of the Cooperation Agreement, Alden agrees to customary standstill provisions with regards to share purchases, proxy contests and other related matters during the term of the Cooperation Agreement, with certain exceptions permitting Alden to buy back shares to restore its ownership percentage if and to the extent the Company issues equity of more than 4.5% of the Company’s issued and outstanding shares;

●

during the term of the Cooperation Agreement, Alden is permitted to participate pro rata in any equity issuances by the Company, subject to certain exceptions for equity issuance relating to compensation of up to 4.5% of the issued and outstanding shares of the Company, certain business combination transactions, and stock splits, stock dividends, reclassifications or recapitalizations of the Company, and the Company agrees that it will not issue equity with special voting or super majority voting power;

●

the Company agrees to grant Alden customary and reasonable registration rights pursuant to a registration rights agreement to be entered into promptly following the date of the Cooperation Agreement; and

●

Alden grants the Company a right of first refusal for block sales of shares of Common Stock of 5% or more.

On August 11, 2017, we entered into an Amended and Restated Cooperation Agreement (the “Amended and Restated Cooperation Agreement”) with Alden and certain of its affiliates. Among other things, the Amended and Restated Cooperation Agreement provides for the following: 

●

the appointment of Mr. Freeman to the Board;

●

the Board will have the right to increase the size of the Board to 11 members to accommodate additional directors approved by the Board, and the Company will not be required to offer Alden any additional directorships if the size of the Board is expanded; and

●

either the Company or Alden may terminate the Amended and Restated Cooperation Agreement after the earlier of March 1, 2019 and the date that is 15 business days’ prior to the deadline for the submission of shareholder nominations for the Company’s 2019 annual meeting of shareholders.

For additional details regarding the terms of the Cooperation Agreement and the Amended and Restated Cooperation Agreement, including copies of such agreements, see our Current Reports on Form 8-K filed with the U.S. Securities and Exchange Commission (“SEC”) on April 24, 2017 and August 14, 2017.

6 

Section 16(a) Beneficial Ownership Reporting Compliance

Based solely upon a review of reports of beneficial ownership of the Common Stock and written representations furnished to Fred’s by its officers, Directors and principal shareholders, Fred’s is not aware of the failure of any such reporting person to file with the SEC on a timely basis any required reports of changes in beneficial ownership during the last fiscal year except for the following instances of untimely reporting:

The Company is developingcontinuing to develop and implement processes, procedures and procedurestraining to ensure improved compliance on an on-going basis, including compliance with the requirements of Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Board of Directors

During fiscal 2016,2017, Fred’s Board of Directors held tenthirteen meetings, and each incumbent Director attended at least 75 percent of the aggregate of the total number of meetings of the Board, and of the committees on which he or she served, which were held during the portion of the year for which he or she was a Director. Additionally, each incumbent Director attended at least 75 percent of the total number of committee meetings of the committees on which he or committee member.she served, except that, due to scheduling conflicts, Mr. Barton only attended two-thirds of the meetings of the Compensation Committee during fiscal 2017. As a regular part of the Board meetings, the independent Directors meet separately without management. Mr. TashjianFreeman is Chairman of the Board of Directors. Non-employee Directors of Fred’s are paid for their services plus reasonable expenses for meeting attendance, and are granted stock options and/or restricted stock from time to time. For additional information on Director Compensation see “Director Compensation.”

The Board of Directors has determined that, except as otherwise set forth below, each of the Company’s current directors, including Timothy A. Barton, Michael T. McMillan, Dana Goldsmith Needleman, Steven B. Rossi, Heath B. Freeman and Thomas E. Zacharias, and each of the Company’s other directors who served during a portion of fiscal 2017 or 2018, including Dr. Neeli Bendapudi, Peter J. Bocian, Christopher W. Bodine, John R. Eisenman, Steven R. Fitzpatrick, Michael J. Hayes, Linda Longo-Kazanova, Michael T. McMillan, B. Mary McNabb Steven B. Rossi and Thomas H. Tashjian, is or was (in the case of any former director) independent under applicable NASDAQ listing standards for membership on the Board. The Board of Directors has also determined, as further described below, that each of these Directors is independent under applicable SEC rules and NASDAQ listing standards for service on the various committees of the Board on which they currently or previously served. Mr. Bloom, who served as a director during fiscal 2017 and until April 24, 2018, and Mr. Jerry Shore, iswho served as a director during fiscal 2017, were not independent during their respective tenures as directors of the Company as a result of his employment by the Company (as Chief Executive Officer until August 29, 2016 and thereafter until his retirement on February 4, 2017). Mr. Bloom is not independent as a result of histheir separate employment by the Company as Chief Operating Officer (from January 12, 2015 to August 29, 2016) and Chief Executive Officer (beginning in August 29, 2016).Officer.

The following table sets forth the current members and chairman of each Committee of the Board after the 2017 Annual Meeting:Board.

Directors

Audit Committee

Compensation Committee

Nominating and Governance Committee

Directors

Audit Committee(1)

Compensation Committee

Nominating and Governance Committee

Timothy A. Barton

✓

ü

ü✓

Michael K. Bloom

Neeli Bendapudi, Ph.D.(1)

Peter J. Bocian

þ

Heath B. Freeman ♦

Christopher W. Bodine

Dana Goldsmith Needleman

✓

ü✓

þ✓

Linda Longo-Kazanova

ü

ü

Michael T. McMillan(1)

Michael T. McMillan

ü

ü

B. Mary McNabb

ü

Steven B. Rossi

✓

☑

þ

ü✓

Thomas H. TashjianE. Zacharias

☑

✓

ü

☑

7 

Communication with the Board of Directors

The Board of Directors has established a process for shareholders to communicate with Directors. Communications can be addressed to: Board of Directors, Fred’s Inc., c/o Corporate Secretary, 4300 New Getwell Rd., Memphis, Tennessee 38118. All communication will be reviewed by our Legal

Department and appropriate communications will be forwarded to the Board of Directors on a quarterly basis, unless requested by the Board on a more frequent basis. Shareholder communications will be treated confidentially, subject to applicable laws, regulations or legal proceedings, if so marked on the envelope or in the communication.

Leadership Structure

We have separate individuals serving as Chairman of the Board and as Chief Executive Officer. We believe that the separation of these positions represents the appropriate structure for us at this time. The Board does not have a policy regarding the separation of the roles of Chief Executive Officer and Chairman of the Board. The Board believes it is in the best interests of the Company and its shareholders to be free to make that determination based on the position and direction of the Company and the membership of the Board. Under our current structure, both the Chairman and the Chief Executive Officer have responsibility for our business strategy and financial performance. Our Chief Executive Officer is responsible for the strategic direction for the Company and the day to day leadership and performance of the Company, while our Chairman provides guidance to the Chief Executive Officer and presides over meetings of the full Board.

Lead Director

In the event that the Chairman of the Board is also a member of management of the Company, then (pursuant to the Company’s Corporate Governance Guidelines) the Board will elect an independent Director to serve as Lead Director. The role of the Lead Director is:

Because the Company’s Chairman is not a member of management of the Company, the Company does not have a Lead Director.

Board’s Role in Risk Management

The Board is elected by the shareholders to oversee the long-term health and overall success of the Company. In order to fulfill the Board’s responsibilities, it oversees proper operation of the business, safeguarding of assets, maintenance of appropriate financial and internal controls, and compliance with applicable laws and regulations. Inherent in carrying out these responsibilities is the Board’s oversight of the various risks that may impact the Company. The Board understands that it is impossible to eliminate all risks. Nonetheless, the Board, through its oversight of the Company, undertakes to manage and mitigate risks as appropriate. Primary responsibility for the identification, assessment and management of the various risks that we face belongs with our management team. The entire Board regularly reviews information with management on our business strategy, financial position and operations and considers associated key risks (that can include business, legal, regulatory, compliance, public policy, reputational and other risks).

In addition, the Board executes its oversight role through its Audit Committee and other committees which report regularly to the whole Board on their activities. For our Audit Committee, some areas of specific committee level focus include risk associated with financial reporting and legal matters, internal control, related party transactions and data security. The Compensation Committee reviews risks associated with our executive incentive compensation policies. Our Nominating and Governance Committee reviews risks associated with our corporate governance structure, business conduct and ethics.

8 

Code of Conduct

The Company has adopted a code of ethics that applies to all of its Directors, officers (including its Named Executive Officers) and employees. Also, the Company has a vendor code of conduct that applies to its

vendors. The Company’s code of business conduct and ethics and vendor code of conduct areis available on the Company’s website atwww.fredsinc.com and can be found under the Investor Relations and Corporate Governance links.link. The information contained on the website is not incorporated by reference in, or considered part of, this Proxy Statement.

Nominating and Governance Committee

Pursuant to the terms of the Cooperation Agreement, the Board of Directors agreed to combine the Nominating Committee of the Board and the Governance Committee of the Board. Prior to consolidation, the Nominating Committee consisted of Michael T. McMillan, John R. Eisenman and Thomas H. Tashjian, and the Governance Committee consisted of Michael T. McMillan, B. Mary McNabb and Thomas H. Tashjian.Board during fiscal 2017. Currently, the Nominating and Governance Committee consists of Timothy A. Barton, Christopher W. Bodine,Dana Goldsmith Needleman, Thomas E. Zacharias, Chairman, Michael T. McMillan and Steven B. Rossi, all of whom meet the independence requirements of NASDAQ listing standards and the independence criteria set forth in the SEC’s rules.

The Nominating and Governance Committee identifies individuals qualified to become Board members, consistent with criteria approved by the Board, recommends nominees for election to the Board by the shareholders at the annual meeting, develops and recommends to the Board the Corporate Governance Guidelines, leads the Board in its annual review of Board performance, and periodically reviews the corporate governance structures and practices of the Company.

Nominating and Governance Committee members are paid for their services $15,000 per year for the Chair and $10,000 per year for the other members, plus reasonable expenses for meeting attendance.

In fiscal 2016,2017, prior to its consolidation, the Nominating Committee met four timesonce and the Governance Committee met two times.once and, after its consolidation, the Nominating and Governance Committee met once. The Board of Directors has adopted a written charter for the Nominating and Governance Committee, which is available on the Company’s website.

The Nominating and Governance Committee identifies candidates for nomination based upon its criteria for evaluation as described below. Additionally, the Nominating and Governance Committee may use the services of a search company in identifying nominees. Recently,nominees or evaluating nominees identified by members of the Nominating and Governance Committee and the Board. During fiscal 2017, the Company engaged Spencer Stuart, a leading executive search firm, to assist the Company identify potential nominees. Spencer Stuart identified and recommended eachcandidates during the refreshment of Messrs. Bocian and Bodine and Ms. Longo-Kazanova as candidates for Director.the Board. Although the Nominating and Governance Committee has not determined specific minimum qualifications for its nominees, it evaluates candidates that it has identified based upon:

The Company strives to nominate diverse candidates for service on the Board who have a variety of skills and experience. While the Company does not have a policy about diversity as it pertains solely to nominees, the Board will not discriminate on the basis of race, color, national origin, sexual orientation, religion, or disability in selecting nominees.

The Nominating and Governance Committee meets at least annually and more often as necessary to make nominations to the Board. The Nominating and Governance Committee will consider shareholder nominations to the Board sent to the Nominating and Governance Committee, c/o Corporate Secretary, Fred’s Inc., 4300 New Getwell Road, Memphis, Tennessee 38118. To be considered for nomination, a shareholder must provide the Nominating and Governance Committee the following:

Recommendations by shareholders that are made in accordance with these procedures will be evaluated using the same standards the Nominating and Governance Committee uses for candidates it identifies.TheNominating and Governance Committeehas full discretion not to include a shareholder’s candidate in its recommendation to the Board, and the committee may require additional information as it deems reasonably necessary to determine the eligibility of the Director candidate to serve as a member of the Board. If theNominating and Governance Committeedoes not recommend a shareholder’s candidate to the Board, it will not make public the reason or reasons for its decisions. In addition to considering candidates suggested by shareholders, theNominating and Governance Committeeconsiders potential candidates recommended by current Directors, Company officers, employees and others and may engage consultants or third-party search firms in identifying and evaluating potential nominees. Before recommending any candidate, the Nominating and Governance Committee may also:

●

consider whether a candidate will significantly add to the diverse range of talents, skills and expertise of the Board;

●

conduct appropriate verifications of the background of the candidate; and

●

interview the candidate or ask the candidate for additional information.

Audit Committee

Prior to March 7, 2017, the Audit Committee of the Board of Directors consisted of John R. Eisenman, Steven R. Fitzpatrick, Chairman, Michael T. McMillan, B. Mary McNabb and Thomas H. Tashjian. On March 7, 2017, Peter J. Bocian was appointed to the Audit Committee and became the Chairman. Effective as of April 21, 2017,

Currently, the Audit Committee consists of Peter J. Bocian,Thomas E. Zacharias, Chairman, Christopher W. Bodine, John R. Eisenman,Dana Goldsmith Needleman, and Steven R. Fitzpatrick, Linda Longo-Kazanova, Michael T. McMillan, B. Mary McNabb and Thomas H. Tashjian.Rossi. Each of the members of the Audit Committee is an independent Director as defined in the NASDAQ listing standards and meets the independence criteria set forth in the SEC’s rules. Audit Committee members are paid for their services $25,000 per year for the Chair and $10,000 per year for the other members plus reasonable expenses for meeting attendance. The Audit Committee met eightfour times during the last fiscal year.

The Audit Committee is responsible for the engagement of the independent registered public accounting firm, considering the range of audit and non-audit fees, assisting the Board in fulfilling its oversight responsibilities by reviewing the financial reports and other financial information provided by the Company to any governmental body or the public, reviewing the Company’s system of internal controls regarding finance, accounting, legal compliance, risk, data security and ethics that management and the Board have established, and reviewing the Company’s auditing, accounting, and financial reporting processes, generally.

Audit Committee members have the requisite financial experience to serve on the Audit Committee. The management of the Company has the primary responsibility for the financial statements and reporting process. The independent registered public accounting firm is responsible for conducting and reporting on the audit of the Company’s financial statements and internal controls over financial reporting in accordance with generally accepted auditing standards. The Company’s independent registered public accounting firm is ultimately accountable to the Audit Committee. The Board of Directors has adopted a written charter for the Audit Committee, which is available on the Company’s website. The Board of Directors has determined that each of Mr. Bocian and Mr. TashjianZacharias meets the SEC’s definition of audit committee financial expert.

Audit Committee Report

In the context of the role of the Audit Committee as outlined above, the Audit Committee has reviewed and discussed the Company’s audited financial statements for fiscal 20162017 with management of the Company. BDO USA, LLP, the Company’s independent registered public auditing firm, is responsible for performing independent audits of the consolidated financial statements in accordance with generally accepted auditing standards and the effectiveness of the Company’s internal control over financial reporting in accordance with standards of the Public Company Accounting Oversight Board (“PCAOB”). The Audit Committee also discussed with BDO USA, LLP the matters required to be discussed by Statement on Auditing Standards No. 1301, “Communications Audit Committees,” as adopted by the PCAOB, and other matters required by the Audit Committee’s charter. The Audit Committee has received the written disclosures and the letter from BDO USA, LLP as required by PCAOB Rule 3526 and has discussed with BDO USA, LLP their independence, including consideration of whether the payment to BDO USA, LLP of audit related, tax, and permissible non-audit fees is compatible with maintaining their independence. Based upon its review and discussions with Company management and BDO USA, LLP, the Audit Committee has recommended to the Board of Directors that the Company’s audited financial statements for fiscal 20162017 be included in the 20162017 Annual Report on Form 10-K for filing with the SEC, and that BDO USA, LLP be considered for selection as the Company’s independent registered public accounting firm for 2017.

The members of the Audit Committee are not professionally engaged in the practice of accounting or auditing and, as such, rely without independent verification on the information provided to them and on the representations made by management and BDO USA, LLP. Accordingly, the Audit Committee’s oversight does not provide an independent basis to determine that management has maintained appropriate accounting and financial reporting processes or appropriate internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, the Audit Committee’s reviews and discussions referred to above do not assure that the audit of the Company’s financial statements has been carried out in accordance with generally accepted auditing standards, that the Company’s audited consolidated financial statements are presented in accordance with generally accepted accounting principles, or that BDO USA, LLP is in fact independent.

Members of the Audit Committee:
Peter J. Bocian, Chairman
Christopher W. Bodine
John R. Eisenman
Steven R. Fitzpatrick
Linda Longo-Kazanova
Michael T. McMillan
B. Mary McNabb
Thomas H. Tashjian

	Members of the Audit Committee:
	Thomas E. Zacharias, Chairman
	Dana Goldsmith Needleman
	Steven B. Rossi

Compensation Committee

The Compensation Committee reviews and recommends to the full Board the salaries and cash incentive compensation of executive officers and the grants of stock-based incentive compensation under Fred’s long-term incentive plan. For fiscal 2016 and through April 5, 2017, the Compensation Committee consisted of B. Mary McNabb, Chairperson, John R. Eisenman and Michael T. McMillan. Linda Longo-Kazanova joined the Board of Directors and the Compensation Committee on April 5, 2017. On April 21, 2017 pursuant to the terms of the Cooperation Agreement, Timothy A. Barton and Steven Rossi joined the Board of Directors and

the Compensation Committee, and Messrs. Eisenman and McMillan stepped down from the Compensation Committee. The Compensation Committee members currently consist of Timothy A. Barton, B. Mary McNabb, Linda Longo-Kazanova, andDana Goldsmith Needleman, Steven B. Rossi, Chairman, and Thomas E. Zacharias, all of whom meet the independence requirements of NASDAQ listing standards and the independence criteria set forth in the SEC’s rules.

The Compensation Committee met foursix times during the last fiscal year. Compensation Committee members are paid for their services, $20,000 per year for the Chair and $10,000 per year for the other members, plus reasonable expenses for meeting attendance. The Board of Directors receives the compensation and grant recommendations of the Compensation Committee and may approve, amend or reject the recommendations. The Board of Directors has adopted a written charter for the Compensation Committee, which is available at the Company’s website.

Transactions with Related Persons and the Company’s Approval Policy

As of January 28, 2017,February 3, 2018, Fred’s leases three properties from Atlantic Retail Investors, LLC, which is wholly owned by Michael J. Hayes, a former Director of the Company, and members of his family. These leases were reviewed and approved by the independent Directors of the Company in May 2011 after considering an evaluation from an independent real estate broker. Mr. Hayes did not take part in that decision. The terms of the leases are consistent with the terms of the leases for Fred’s other leased properties. The total rental payments for related party leases were $378,375 for the fiscal year ended January 28, 2017.February 3, 2018.

Any future transactions which are required to be described by Item 404(a) of Regulation S-K under the Exchange Act will be reviewed and either rejected or approved by the Audit Committee and/or Board of Directors. The Company has a policy that governs transactions with related persons that require prior disclosure and approval of such transactions.

11 

COMPENSATION DISCUSSION AND ANALYSIS

Introduction

This section of the Proxy Statement details the compensation plans for our executive team. In it we describe our compensation philosophy, policies and practices as they relate to our management team and, especially to our Chief Executive Officer (our Principal Executive Officer), Chief Financial Officer (our Principal Financial and Accounting Officer) and the four most highly compensated executive officers (collectively, the “Named Executive Officers” or “NEOs”). Our Named Executive OfficersNEOs for fiscal 2016 include:2017 were:

	Name	Position
Name		Position
Michael K. Bloom		Chief Executive Officer
Jerry A. Shore	(1)	Former Chief Executive Officer(1)
	Rick J. Hans(2)		Former EVP, Chief Financial Officer
Michael James	Jason Jenne(3)	Former EVP, Chief Financial Officer
Senior Vice President — Specialty Pharmacy	Joseph Anto	Interim Chief Executive Officer, EVP, Chief Financial Officer
	Craig L. Barnes(4)	Former Chief Operating Officer – Front Store
	Timothy A. Liebmann	(5)	Chief Operating Officer —– Pharmacy
Mary Lou Gardner	Greg Froton	SVP, Merchandising, General Merchandise		Chief Merchandising and Marketing Officer
Craig L. Barnes		Chief Operating Officer — Front Store
Lilia R. Lauren		Former Principal Financial Officer(2)

Changes to executive compensation as well as general guidelines for other employees are considered and recommended to the full Board by the Compensation Committee.

Summary of Fiscal 2016

The following information contains references to fiscal years 2017, 2016 2015 and 2014,2015, which represent fiscal years ended February 3, 2018, January 28, 2017 and January 31, 2016, and February 1, 2015, respectively.

The transformation of Fred’sA comprehensive plan has been underway for the past eighteen months, and the Company’s comprehensive strategy and planput in place to improve performance sequentiallyand the Fred’s team has worked diligently to implement a number of initiatives aligned with our focus on improving profitability, increasing cash flow and reducing debt. Specifically, the Company’s focus in the near term is on target. Indriving traffic into our stores, growing basket size, improving gross margin, reducing operating costs, increasing free cash flow and reducing debt.

As part of its turnaround, the Company is rolling out a series of initiatives to improve profitability and cash flow. During fiscal 20162017 and during the first quarter of 2017,fiscal 2018, the Company among other initiatives:has undertaken multiple initiatives to:

Our compensation program is designed to motivate and reward outstanding performance and to drive long-term value creation. We believe that when the Company performs well and achieves its operating goals, our executive officers should receive rewards that are commensurate with those of our shareholders. Our

For fiscal 2017, our operating and financial results for 2016 did not meet our goals, and we did not achieve targeted performance under our incentive programs. OnlyAs a select numberresult, none of individualsour NEOs received bonus payments for 2016, limited to those who met their the predetermined operating goals, provided an extraordinary contribution to the Company or those new to the Company who were promised minimum bonus amounts for 2016 when hired.any compensation under our Management Incentive Program, which is described below.

12 

Compensation Objectives

It is the philosophy of Fred’s that executive compensation be linked to corporate performance and increases in shareholder value. We have designed our compensation program to align our executives’ compensation with the long-term interests of our shareholders and to attract and retain talent. The following objectives have been adopted by the Compensation Committee as guidelines for compensation decisions:

●

Provide a competitive total compensation package that enables Fred’s to attract, motivate and retain a strong leadership team.

●

Reinforce a high performance culture with integrated programs tied to our short and long-term objectives.

●

Create alignment of interest between executives and shareholders focused on long-term value creation.

Role of Compensation Committee

The Compensation Committee is responsible for setting the compensation philosophy of the Company and then evaluating and monitoring adherence to its objectives. In doing so, the Compensation Committee must balance the financial requirements of the Company with the need to attract and retain high caliber individuals for key roles within the Company.

Risk Considerations

The Compensation Committee also reviews the risks and rewards of the Company’s compensation programs, which are designed to reward prudent risk-taking over both the short and long-term. The Company has adopted clawback features for its senior executives in its compensation programs and has also established share ownership guidelines for members of the Board of Directors, the Chief Executive Officer and the Chief

Financial Officer. These features, along with the general design of the compensation program, are meant to ensure appropriate level of risk taking by the Company’s executives over the long-term.

The Compensation Committee believes that our incentive compensation plans are appropriately relatedtie executive compensation opportunity to corporate and individual performance, yielding awards that are tied to the annual financial and operational results of Fred’s and consistent with the returns that are generated on behalf of Fred’s shareholders. After review by the Compensation Committee and management regarding the policies and practices with respect to risk-taking incentives and risk management, the Company does not believe that potential risks arising from its compensation policies or practices are reasonably likely to have a material adverse effect on the Company.

How We Determine Executive Compensation

In setting executive compensation philosophy and practice, the Compensation Committee has from time to time engaged compensation consultants and reviewed benchmarking data of similar companies in the retail and pharmacy industries. While the Compensation Committee studies other similar companies in its industry to determine the competitiveness and appropriateness of its compensation programs, it has not identified a set peer group. The Compensation Committee recognizes the difficulty in identifying enough companies comparable to Fred’s mix of general merchandise and pharmacy sales, overall sales volume and the quantity, size and geographical location of our stores. The Compensation Committee reviews survey compensation data and consults with compensation and industry advisors, when assessing the competitiveness of the total compensation program provided to Fred’s executives compared to compensation programs provided by other companies with which Fred’s competes.competes for talent.

In collaboration with management, the Compensation Committee has set a standardized structure for performance reviews, tailored reviews to be pertinent to the job function and defined and added structure to the review process. The Compensation Committee determines what elements and amounts are included as part of the executive compensation opportunity for our executives to balance between short- and long-term compensation. The Company’s executive compensation program is reviewed annually by the Compensation Committee and adjusted as needed.

13 

Role of Management

Our Chief Executive Officer meets with the Compensation Committee to review our compensation philosophy, present analyses based on the Compensation Committee’s requests and discuss the compensation recommendations the Compensation Committee makes to the Board. Our Chief Executive Officer presents management’s perspective on business objectives, discusses the effect of business results on compensation recommendations, reviews executive compensation data, discusses the other Named Executive Officers’ performance and makes recommendations as to the compensation of our Named Executive Officers. Our Chief Executive Officer attends Compensation Committee meetings from time to time, and meetings of the Board, but he does not attend those portions of Board and Compensation Committee meetings intended to be held without members of management present, including those relating to the Chief Executive Officer’s compensation.

Use of Independent Consultants

The Compensation Committee makes use of analyses provided, at its request, by external consultants in determining executive compensation. Starting in the first quarter ofFor fiscal year 2017, the Compensation Committee has utilized Pay Governance LLC for these services. The Compensation Committee has reviewed the independence of Pay Governance LLC’s advisory role relative to the six consultant independence factors adopted by the SEC to guide listed companies in determining the independence of their compensation consultants, legal counsel and other advisors. Following its review, the Compensation Committee concluded that Pay Governance LLC has no conflicts of interest, and provides the Compensation Committee with objective and independent executive compensation advisory services. Pay Governance LLC provides data relevant to reviewing executive compensation, discussions of compensation practices and observations to the Committee regarding compensation programs and pay levels. Pay Governance LLC did not perform any work for the Company during fiscal 2016. As appropriate, the Compensation Committee meets with its independent consultant in executive session without management present.

Consideration of Shareholder Votes on Executive Compensation

The elements of our executive compensation program have remained substantially the same for several years. We believe our programs are effectively designed to align with the interests of our shareholders and are instrumental to achieving our business strategy.

In determining executive compensation for 2016,fiscal 2017, the Compensation Committee considered the overwhelming shareholder support that the “say-on-pay” proposal received at our 20162017 Annual Meeting. As a result, the Compensation Committee continued to utilize the same elements it has used in previous years, with certain changes to encourage a mix of more long-term incentive compensation and to recruit, retain and incentivize key employees.

In accordance with the view expressed by our shareholders in an advisory vote at the 20112017 Annual Meeting, our Board of Directors intend to provide for a “say on pay” vote on an annual basis and will continue to consider shareholder concerns and feedback in the future. We are holding an advisory vote on the frequency of such advisory votes on executive compensation during the 20172018 Annual Meeting, and expect we will hold our next vote on the frequency of such advisory votes during the 2023 Annual Meeting.

Components of Executive Compensation

The Company and the Compensation Committee have implemented compensation programs designed to align our executives’ pay with the achievement of short- and long-term performance goals that reinforce our business strategy. The Company uses three main components in compensating its executives: base salary, annual cash and stock based incentive compensation payable under the Company’s management incentive programManagement Incentive Program (the “MIP”). Base salary and cash incentives are designed to reward near-term performance, whereas stock awards blend near-term performance with longer-term earnings that result in share price growth. The Company also provides to certain of its executives benefits and perquisites and, from time to time, special awards in the form of cash or stock.

Base Salary

We pay base salaries to provide a stable fixed amount of cash compensation and be competitive with standard market practice. Base salaries are determined through analysis of industry data and comparisons with similar retail and pharmacy companies. Salaries are set to recognize individual skills, competencies, experience and organizational impact within a defined job description. Base pay levels for the executive officers are competitive within a range that the Committee considers to be reasonable and necessary.

The table below reflects the annualized base salaries of the Named Executive Officers, who are currently employed or were employed by the Company during fiscal 2016.2017.

Name		Base Salary
Michael K. Bloom		$	700,000
Jerry A. Shore		$	575,000	(1)
Rick J. Hans		$	400,000
Michael James		$	325,000
Timothy A. Liebmann		$	400,000
Mary Lou Gardner		$	325,000
Craig L. Barnes		$	400,000
Lilia R. Lauren		$	325,000	(2)

All of our employees’ base salaries are reviewed annually. Any adjustments take into account the individual’s performance, responsibilities and experience, as well as external market practices. Salary increases for our Named Executive Officers, other than the Chief Executive Officer, are determined by the Compensation

Committee in consultation with the Chief Executive Officer. The Compensation Committee, in consultation with the Chairman of the Board, reviews and discusses the Board’s evaluation of the Chief Executive Officer and then makes recommendations to the Non-employee Directors regarding increases for the Chief Executive Officer’s salary.

Management Incentive Program Compensation

We

Through our annual MIP, we may pay annual cash and stock incentive compensation to senior executives as part of our annual MIP to reward executive performance for the year based on theupon achievement of pre-determined Company performance of the Company.goals.. The participants only earn payment under the MIP if these specific pre-established goals are achieved. Consistent with our pay for performance philosophy, the pharmacy, merchandising and store operations departments must achieve their department goal before they are eligible to receive any bonus on the individual goal component of the MIP. For all other MIP participants, including the Chief Executive Officer, in order to be eligible for any payment under the MIP, the Company must meet its threshold pre-tax income goal. The MIP is typically paid in part stock and part cash compensation, although for 2017,with the Compensation Committee may elect to paymix of cash and stock based on level in the organization, as shown below. Although no stock awards were earned under the 2017 MIP, fully in cash, in its sole discretion. The stock portion of the 2016 MIP issuch awards would have been granted pursuant to the Company’s 20122017 Long-Term Incentive Plan (the “2012“2017 LTIP”). If approved by our shareholders, equity awarded under the 2017 MIP will be granted pursuant to the 2017 LTIP. if earned.

20162017 Management Incentive Program

We did not achieve our goals under the 20162017 MIP, and MIP awards were not paid to our Named Executive Officers.NEOs. For 2016,2017, fifty percent of the bonus opportunity payable under the MIP was contingent upon the Company meeting its pre-tax income corporate goal for the year, as approved by the Compensation Committee early in the year. Of the remaining fifty percent, thirty percent of the bonus opportunity was contingent on achievement of department goals consisting of meeting either department gross profit, department corporate contribution, department operating profit, or department budget, depending on the department. The remaining twenty percent was contingent upon meeting pre-determined, objective and measured individual goals. The following table illustrates the cash and stock incentive bonus potential under the 2016 MIP expressed as a percentage of salary:

Title		Total %				Cash %				Stock %
CEO			155	%			75	%			80	%
COO/President			155	%			75	%			80	%
CFO			70	%			42	%			28	%
EVP			70	%			42	%			28	%
SVP			55	%			33	%			22	%
VP			45	%			27	%			18	%

In order to achieve the payouts for the MIP, the Company must achieve established pre-tax income targets. The 2016 MIP allowed for a graduated stock incentive payout based on a tiered pre-tax income structure. If the Company achieved one of the escalating stock incentive tiers, one-third of the grant vests each year beginning on the first anniversary of the grant date. The following table represents the cash and stock potential under the 2016 MIP expressed as a percentage of MIP potential based on pre-tax income levels.

Pre-Tax Income		Cash %				Stock %
$4,500,000			—				25	%
8,900,000			—				50	%
13,400,000			—				75	%
17,800,000			100	%			100	%
18,200,000*

Mr. Bloom received a cash incentive equal to 50% of his base salary, as provided under his employment agreement for fiscal 2016.

2017 Management Incentive Program

For 2017 (as in 2016), fifty percent of the bonus opportunity payable under the MIP is contingent upon the Company meeting its pre-tax income corporate goal for the year. Of the remaining fifty percent, thirty percent of the bonus opportunity is contingent on achievement of department goals consisting of meeting either department gross profit, department corporate contribution, department operating profit, or department budget, depending on the department. The remaining twenty percent was contingent upon meeting pre-determined, objective and measured individual goals.

MIP bonuses for 2017 will be funded out of the amount by which the Company exceeds its pre-tax income target. The following table illustrates the maximum value that can be earned under the 2017 MIP, expressed as a percentage of salary, and to the extent the Compensation Committee approves delivery of part of the award in equity, the maximum percentage which may be granted as equity:

Title		Total %				Cash %				Stock %
CEO			155	%			75	%			80	%
COO			100	%			60	%			40	%
CFO			70	%			42	%			28	%
EVP			70	%			42	%			28	%
SVP			55	%			33	%			22	%
VP			45	%			27	%			18	%

The 2017 MIP providesprovided that Compensation Committee retainsretained the discretion to pay bonuses earned under the 2017 MIP in any mix of cash, stock or options as the Committee determines, in its sole discretion. If granted as equity, one-third of the grant vestswould vest each year beginning on the first anniversary of the grant date. The following table illustrates the target MIP awards for which our team was eligible under the 2017 MIP, including the portion to be paid in cash and stock, expressed as a percentage of salary:

	Title	Total %	Cash %	Stock %
	CEO	155%	75%	80%
	COO	100%	60%	40%
	CFO	70%	42%	28%
	EVP	70%	42%	28%
	SVP	55%	33%	22%
	VP	45%	27%	18%

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Long-Term Incentive Plan Awards

In addition to equity granted through the MIP, we provide long-term incentive compensation to certain employees, including our Named Executive Officers, to directly align the interests of these individuals with the long-term interests of our shareholders. We believe that long-term equity compensation is an important retention tool. Our long-term incentive compensation awards typically consist of leadership grants, grants to individuals demonstrating “above and beyond” performance and grants to new hires and recently promoted employees.employees and other special bonuses, which may consist of equity awards.

Leadership Grants

In 2012, the Compensation Committee first recommended that the Board of Directors provide additional restricted stock and option awards (the “Leadership Grants”) to certain executive officers in recognition of such executive’s unique contributions to the Company’s strategic initiatives to align the interests of our executives with those of our shareholders by incentivizingand incentivize value creation. The Company issued 667,500 shares of restricted stock to employees in the form ofdid not issue any Leadership Grants in fiscal 2016. The following table sets forth Leadership Grants awarded to our Named Executive Officers in fiscal 2016:2017.

Name		Shares
Craig L. Barnes			50,000
Lilia R. Lauren			35,000

Grants to New Hires and Promoted Employees

In order to attract high caliber talent and offer competitive compensation packages, the Company may provide stock options and/or restricted stock to new hires. In addition, individuals who are promoted into an executive or senior executive role may be eligible to receive restricted stock and/or options as part of their compensation for their new role. New hire and promotion grants are made on a case-by-case basis and are generally effective as of the employment/promotion date. Certain positions, particularly newly hired, may be provided with a sign-on bonus or guaranteed bonus upon completion of their first year. CertainIn Fiscal 2017, only one NEO new hire, Greg Froton, received a grant. The Compensation Committee approved the award to Mr. Froton of our Named Executive Officers received these awards in fiscal 2016 in connection with their hiring, including the following:

Special Bonuses Delivered as Cash or Equity

Above and Beyond Bonuses

In 2012, the Compensation Committee first recommended that the Board of Directors provide additional cash and/or option awards (“Above and Beyond Bonuses”) to employees who individually provide exemplary service to the Company in a manner that develops or improves a Company-wide process or system or otherwise improves the Company’s overall financial performance. The Compensation Committee believes the Above and Beyond Bonuses provided a retentive benefit to the Company and encourage innovation, forward thinking and an entrepreneurial spirit, which the Compensation Committee believes will benefit the Company and its shareholders. Employees are typically given the option to elect between cash or options, and Above and Beyond Bonuses are paid, in the Compensation Committee’s discretion, at 5%, 10% and 15% of the recipient’s base salary. Only one of our Named Executive Officers received anNo Above and Beyond Bonus were awarded in fiscal 2016, which was paid in cash and is set forth below:2017.

Name		Percentage of Base Salary Awarded				Cash ($)
Michael James			15	%			48,750

Rite Aid Transaction-Related Bonuses

We recognize that there is significant value to be realized from the successful completion of our proposed acquisition of

On December 19, 2016, Fred’s 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”), pursuant to which Buyer agreed to purchase 865 stores, certain intellectual property and such acquisition requires dedicated effortother tangible assets (collectively, the “Assets”) and to assume certain liabilities for a cash purchase price of $950 million (the “Rite Aid Transaction”). Pursuant to Section 8.01(g) of the Asset Purchase Agreement, each of Buyer, Walgreens or Rite Aid was permitted to terminate the Asset Purchase Agreement upon the termination of that certain Agreement and Plan of Merger, dated as of October 27, 2015, among Walgreens, Rite Aid and the other parties thereto (as amended, the “Merger Agreement”). On June 29, 2017, the Merger Agreement was terminated and, accordingly, the Asset Purchase Agreement was also terminated, effective immediately. In connection with the termination of the Asset Purchase Agreement, the Company received a termination fee payment of $25 million on June 30, 2017 from membersWalgreens.

As previously disclosed, on April 5, 2017 and prior to the termination of our management team. Thethe Asset Purchase Agreement, the Compensation Committee developed a special bonus program tied to this transaction. On April 5, 2017, the Company awarded a special bonusand granted awards to certain senior executives, including certain of our Named Executive Officers, in recognition of such executives’ efforts to date in connection with respectthe Rite Aid Transaction and to incentivize performance that would lead to the Company’s planned acquisitionsuccessful completion of Rite Aid stores.such transaction. This special bonus consisted of cash, shares of restricted stock and options. The shares of restricted stock and options vest twenty-five percent per year beginning on the first anniversary of the grant. Fifty percent of the shares of restricted stock and options were granted on April 5, 2017 at which time the cash award was paid. The executives were not eligible to earn the remaining fifty percent of the restricted stock and options included in the special bonus will be issued only upon the completionbecause of the Company’s planned acquisitiontermination of the Rite Aid stores.Transaction. These cash and equity-based special bonuses granted to certain our Named Executive Officers and other executive officers are further described in the table below:

Name		Cash Award(2) ($)				Shares and Options Granted on April 5, 2017(1)								Value of Shares and Options to be Granted Upon Closing of Transaction ($)				Aggregate Value of Shares and Options ($)
						Shares				Options
Michael K. Bloom			525,000				11,155				38,781				280,000				560,000
Rick J. Hans			168,000				2,231				7,756				56,000				112,000
Timothy A. Liebmann			240,000				3,187				11,080				80,000				160,000
Mary Lou Gardner			136,500				1,813				6,302				45,500				91,000
Craig L. Barnes			240,000				3,187				11,080				80,000				160,000

(3)

Mr. Bloom resigned from the Company effective on April 24, 2018.

(4)

Mr. Hans’ employment with the Company ended on July 19, 2017.

(5)

Mr. Jenne’s employment with the Company ended on February 1, 2018.

(6)

Mr. Barnes’ employment with the Company ended on March 1, 2018.

(7)

Mr. Liebmann’s resigned from the Company effective on April 27, 2018.

Benefits and Perquisites

The Company provides its full-time employees, including the Named Executive Officers with health insurance coverage, life insurance and an opportunity to participate in the Fred’s 401(k) plan and Employee Stock Purchase Plan.plan. The Fred’s 401(k) plan may includehistorically included matching contributions by the Company. TheCompany but presently, the Company does not make matching contributions. Additionally, the Company maintains an Employee Stock Purchase Plan, which provides participating employees a discount when purchasing shares of the Company’s stock. Currently, the Employee Stock Purchase Plan has been suspended. In addition, perquisites or other personal benefits are provided to some executive officers. These are more fully described as part of the Summary of Executive Compensation Table. Mr. Shore andDuring fiscal 2017, Mr. Bloom, during their respective tenures as Chief Executive Officer, werewas permitted to use the plane owned by the Company planeat such time for personal use. During fiscal 2016, Mr. Bloom useduse, but did not use the Company plane only once for personal use.in such capacity. The Company’s plane was sold during the third quarter of 2017.

Executive Employment Agreements

Management Compensation Agreement with Michael K. Bloom

The Company and Michael K. Bloom arewere parties to a management compensation agreement, dated as of January 12, 2015, as amended on August 30, 2016 and April 10, 2017 (as amended, the “Management Compensation Agreement”). Effective on April 24, 2018, the Management Compensation Agreement was terminated.

Base Salary, Term and Renewal. The Management Compensation Agreement continuesprovided for a base salary of $700,000, a term of three years which began on August 30, 2016 and renewsrenewed automatically for additional 30-month terms, unless either party providesprovided notice of non-renewal to the other party at least 180 days prior to the end of the then-current term.

The Management Compensation Agreement provides for a current base salary of $700,000, which will be increased to $900,000 upon the completion of the Company’s acquisition of at least 865 Rite Aid stores.

Under the terms of the Management Compensation Agreement,Bonus. Mr. Bloom iswas eligible to participate in the Company’s annual cash incentive bonus at 75% –- 150% of his annual base salary. Eligibility to receive the cash incentive iswas based upon the achievement of pre-established performance goals determined by the Board of Directors. The Management Compensation Agreement also providesprovided for a minimum cash incentive bonus for fiscal 2015 –- 2017 of 50% of Mr. Bloom’s annual base salary, provided the Company achieves certain minimum performance goals.

Additionally, the Management Compensation Agreement provides that

Equity Incentives. Mr. Bloom iswas eligible to receive an annual stock incentive under Company’s stock incentive program in the following amounts: fiscal 2015, $400,000; fiscal 2016, $450,000; and fiscal 2017, $600,000. Thereafter, the incentive amount iswas equal to 80% of Mr. Bloom’s annual base salary. The amount iswas payable half in restricted stock of the Company and half in stock options. Eligibility to receive the stock incentive iswas based upon the achievement of pre-established performance goals determined by the Board of Directors. Mr. Bloom iswas eligible to receive an additional amount equal to $400,000 in fiscal 2017 and 50% of the annual base salary thereafter, payable in stock options upon the Company achieving 125% of the mutually agreed upon pre-determined performance goals.

Termination. The Management Compensation Agreement permitspermitted Mr. Bloom to terminate the agreement for good reason or disability with at least 30 days prior notice, and permitsit permitted the Company to terminate the agreement without cause upon at least 30 days prior notice or at any time with cause. The Management Compensation Agreement willwould also terminate upon Mr. Bloom’s death.

In the event Mr. Bloom iswas terminated without cause or Mr. Bloom terminatesterminated for good reason, Mr. Bloom willwould receive his base pay as of the date of termination for a period of 36 months as well as 36 months of benefits coverage and car allowance, and Mr. Bloom’s unvested shares of restricted stock and options willwould vest immediately. In addition, if Company’s current healthcare provider will not permit Mr. Bloom to continue coverage under the Company’s healthcare plan, the Company willwould purchase equivalent coverage from another provider.

In the event Mr. Bloom iswas terminated without cause within 18 months after a change in control, Mr. Bloom will bewould have been entitled to receive the same severance and benefits as if Mr. Bloom had been terminated without cause or if Mr. Bloom had terminated for good reason.

As used in the Management Compensation Agreement, the term “change in control” means (i) any person or entity becoming the beneficial owner of shares of the Company’s stock representing 35% or more of the combined voting power of the then outstanding shares that may be voted for the election of Directors; (ii) as a result of any cash tender or exchange offer, merger or other business combination, sale of assets, or any combination of the foregoing transactions, less than a majority of the combined voting power of the then outstanding shares of the Company entitled to vote in the election of Directors, is held in the aggregate by holders of the Company’s shares entitled to vote generally in the election of Directors immediately prior to such transactions; and (iii) during any period of two consecutive years, a majority of the Board of Directors cease to serve on the board of Directors for any reason, unless the election of such new Directors was approved by a vote of at least two-thirds of the Directors in office at the beginning of such two year period.

Restrictive Covenants. The Management Compensation Agreement does not include an express mitigation requirement; however, in the event Mr. Bloom is terminated within 18 months after a change in control and during the 36 month period following such termination Mr. Bloom becomes employed by another employer, the Company will only be obligated to pay Mr. Bloom the difference between the amount provided by the Management Compensation Agreement and any lesser amount received by Mr. Bloom from his new employer. If Mr. Bloom receives a greater salary than the payment provided by the Management Compensation Agreement, the Company will no longer be required to make such payments.

The Management Compensation Agreement provides that Mr. Bloom iswas subject to non-competition and non-solicitation provisions during the term of his employment, and for one year after termination, as well as to a perpetual covenant not to use or disclose confidential information or make disparaging statements about the Company.

Employment Agreements with Rick J. Hans, Jason Jenne, Craig L. Barnes, Timothy A. Liebmann and Mary Lou Gardner

On April 3, 2017, the Company entered into an employment agreement with Greg Froton and on April 10, 2017, the Company entered into substantially similar employment agreements (collectively,(together with Mr. Froton’s employment agreement, the “NEO Employment Agreements”) with each of Rick J. Hans, Jason Jenne, Craig L. Barnes, Mary Lou Gardner and Timothy A. Liebmann.

Term and Renewal. The NEO Employment Agreements became effective on April 10, 2017 and continue for a term of two years. The NEO Employment Agreements renew automatically for additional two-year terms unless either the Company or the executive provides notice of non-renewal at least 180 days prior to the end of the then-current term.

Base Salary, Equity Incentives. Pursuant to the terms of the NEO Employment Agreements, each executive will receive his or her current base salary and will be eligible to participate in the Company’s management incentive program and in all employee benefit plans and programs made available to the Company’s employees. The currentNEO Employment Agreements provided for the following base salary and management incentive compensation amounts are set forth below:amounts:

		Name	Base Salary  ($)
Name		Base Salary ($)				MIP Opportunity As a Percentage of Base Salary
	Rick J. Hans		(1)	400,000				70% to 140%
Timothy A. Liebmann		Jason Jenne(2)	400,000	70% to 140%
	Craig L. Barnes(3)	400,000	100% to 200%
Mary Lou Gardner			325,000				70% to 140%
Craig L. Barnes		Timothy A. Liebmann(4)	400,000				100% to 200%
	Greg Froton	270,000	55% to 110%

Each executive will also be entitled to receive vacation, expense reimbursements an annual $12,000 car allowance and relocation expenses, to the extent required.

Termination. The NEO Employment Agreements permit each executive to terminate the NEO Employment Agreement for any reason or no reason upon at least 180 days prior notice, and permit the Company to terminate the Employment Agreement without cause upon at least 30 days prior notice or at any time with cause. Each NEO Employment Agreement will also terminate upon the executive’s death or disability.

In the event an executive is terminated without cause within 180 days after a change in control, the executive will be entitled to receive a severance payment equal to his or her base pay for 24 months, medical and dental insurance coverage for 24 months, and such executive’s unvested shares of restricted stock and options will vest immediately. In the event an executive is terminated within 180 days after a change in control and during the 24 month period following such termination the executive becomes employed by another employer, the Company will only be obligated to pay the executive the difference between the amount provided by the NEO Employment Agreement and any lesser amount received by the executive from his or her new employer. If the executive receives a greater salary than the payment provided by the NEO Employment Agreement, the Company will no longer be required to make such payments.

As used in the NEO Employment Agreements, the term “change in control” means (i) any person or entity becoming the beneficial owner of shares of the Company’s stock representing 35% or more of the combined voting power of the then outstanding shares that may be voted for the election of Directors; (ii) as a result of any cash tender or exchange offer, merger or other business combination, sale of assets, or any combination of the foregoing transactions, less than a majority of the combined voting power of the then outstanding shares of the Company entitled to vote in the election of Directors, is held in the aggregate by holders of the Company’s shares entitled to vote generally in the election of Directors immediately prior to such transactions; and (iii) during any period of two consecutive years, a majority of the Board of Directors cease to serve on the board of Directors for any reason, unless the election of such new Directors was approved by a vote of at least two-thirds of the Directors in office at the beginning of such two year period.

In the event an executive is terminated by the Company without cause, the executive will be entitled to receive a severance payment equal to his or her base pay for 24 months, 24 months of COBRA coverage, and vesting of such executive’s unvested stock and options.

In the event the executive is terminated due to the executive’s death or disability, the executive (or the executive’s estate) will be entitled to receive an amount equal to 24 months of the executive’s base pay.

In the event the executive is terminated by the Company for cause, or the executive terminates his or her NEO Employment Agreement for any reason, the executive will be entitled to receive his or her base pay for the period ending on the effective date of termination, any unreimbursed expenses and payment of any employee benefit due but unpaid as of the date of termination, including all unused paid-time off.

The NEO Employment Agreements do not include an express mitigation requirement; however, in the event an executive is terminated within 180 days after a change in control and during the 24 month period following such termination the executive becomes employed by another employer, the Company will only be obligated to pay the executive the difference between the amount provided by the NEO Employment Agreement and any lesser amount received by the executive from his or her new employer. If the executive receives a greater salary than the payment provided by the NEO Employment Agreement, the Company will no longer be required to make such payments.

Restrictive Covenants. Each of the NEO Employment Agreements provides that the executive is subject to non-competition and non-solicitation provisions during the term of his or her employment, and for one year after termination, as well as to a perpetual covenant not to use or disclose confidential information or make disparaging statements about the Company. Each NEO Employment Agreement includes a customary acknowledgement that any intellectual property developed by the executive in connection with his or her employment is the property of the Company.

Employment Agreement with Jerry A. Shore

Under the terms of Mr. Shore’s employment agreement, Mr. Shore received an annual base salary of $575,000. Mr. Shore’s base salary was reviewed annually and could be adjusted upward at the discretion of the Board of Directors. Mr. Shore was eligible to participate in the Company’s annual cash incentive plan of at 75% – 150% of his annual base salary. Eligibility to receive the cash incentive was based upon the achievement of pre-established performance goals agreed upon by the Board of Directors. Mr. Shore’s agreement also provided that he was eligible for an annual stock incentive under the Company’s stock incentive program of up to 80% of his annual base salary payable half in restricted stock and half in options to purchase stock of the Company. Mr. Shore, during his tenure as Chief Executive Officer, had an opportunity to earn an additional 50% of annual base salary payable in options to purchase stock of the Company for achieving 125% of the mutually agreed upon pre-determined performance goals to qualify for the annual stock incentive.

Mr. Shore’s employment agreement provided for compensation in the event of termination for any reason other than cause upon a change in control of the Company within the eighteen-month period following a change in control. This double-trigger change in control provision states that the Company would pay either an aggregate amount equal to the annual base salary multiplied by the number of years remaining in the term of the agreement if termination were to occur in the first two years of the agreement, or an aggregate amount equal to the annual base salary if termination were to occur after the first two years of the agreement. In addition, Mr. Shore was entitled to receive any accrued salary or incentive compensation. Finally, all options provided under the agreement would vest and any restrictions on stock provided pursuant to the agreement would lapse.

The Compensation Committee agreed to these change in control benefits in order to ensure that in the event of a transaction that the interests of the Chief Executive Officer would be adequately aligned with the interests of shareholders in evaluating any such situation. These benefits would only be paid out in the event that Mr. Shore was terminated in connection with a change in control event as defined in Mr. Shore’s employment agreement.

Mr. Shore stepped down as Chief Executive Officer on August 29, 2016 and retired from the Company on February 4, 2017. Pursuant to Mr. Shore’s employment agreement, the Company was obligated to pay to Mr. Shore retirement cash compensation and restricted stock on or before May 1, 2017. For a period of eighteen (18) months following his last day of employment, the Company is obligated to pay Mr. Shore’s and his eligible dependent’s costs related to group medical, vision and dental insurance plans pursuant according to COBRA.

Director Compensation

Non-employee Directors of Fred’s are paid an annual cash retainer for their services plus reasonable expenses for meeting attendance. This cash retainer for 2016, for all Directors except the Chairman was $40,000. The Chairman’s retainer for fiscal 2016 was $162,000. Also, the Non-employee Directors are paid additional fees for their service on the Audit, Compensation, Nominating Pharmacy and Governance committees, which are reflected below in the Director Compensation table. In addition, Non-employee Directors are provided a $1,500 per day fee for attending special trips/meetings at the request of management. This fee does not apply to any Board or Committee Meetings.

In addition, the Company provides additional compensation in the form of restricted stock and options to align Non-employee Director compensation directly to the long-term interests of shareholders. The restrictions on awards granted to Non-employee Directors do not lapse and the awards do not vest until after the Non-employee Director leaves the Board of Directors. Non-employee Directors of Fred’s, with the exception of

the Chairman of the Board of Directors, receive an annual grant of 3,500 shares of restricted stock and 3,500 options, which awards vest only after the Director ceases being a member of the Board. The Chairman of the Board of Directors receives an annual restricted stock grant of 11,500 shares that vests the day after he ceases to be a Board member. The grant is made each year in the month following the Annual Meeting and the election of Directors.

Effective as of March 7, 2017, the Non-employee Director compensation program was modified. All Non-employee Directors except for the Chairman will receive an annual cash retainer of $75,000 per year and $125,000 of restricted stock, and the Chairman will receive an annual cash retainer of $140,000 and $200,000$340,000 of restricted stock. Additionally, the Chairman of the Audit Committee will receive $25,000, the Chairman of the Compensation Committee will receive $20,000, the Chairman of the Nominating and Governance Committee will receive $15,000 and, to the extent a lead director is named, such individual would receive an additional $25,000 retainer. In addition, Non-employee Directors will be provided a $10,000 retainer for each committee on which such Non-employee Director serves and a $2,000 per day fee for attending special trips/meetings at the request of management.

Other Important Compensation Information

Clawback Policy

Beginning with the 2013 MIP, the Board of Directors adopted a clawback policy for any incentive compensation under the MIP. It provides that in the event of an accounting restatement due to material noncompliance of the Company with financial reporting requirements under the U.S. federal securities laws as a result of intentional misconduct, the Board of Directors has the right to recover, from any of its current or former named executive officers who received a cash bonus during the twelve-month period preceding the date on which the Company is required to prepare an accounting restatement, the difference between the amount of any cash bonus paid to the executive officer with respect to the period(s) that such restatement was required, and the amount of the bonus such executive officer would have received had the amount of the bonus been calculated based on the restated financial statements.

Insider Trading Policy

All executive officers are subject to Fred’s insider trading policy, which prohibits the use or sharing of confidential information for trading in the stock of the Company. In addition, all persons subject to Section 16(a) of the Exchange Act, which includes all Named Executive Officers, may not engage in any transaction involving Fred’s stock (including a purchase or sale, gift, contribution to a trust, stock option grant or exercise, restricted stock grant, stock grant under a deferred compensation plan, intra-plan transfer involving a Fred’s stock fund, Rule 10(b)5-1 plan transaction, pledge or hedge, or any other transfer) without first obtaining pre-clearance of the transaction from the Chief Financial Officer.

Share Ownership Guidelines

The Board of Directors encourages Board members and senior executives to have ownership in the Company. Stock ownership aligns the interests of senior executives with the interests of shareholders and promotes a long-term focus toward management of the Company. In 2013, the Board of Directors adopted the following share ownership guidelines to encourage ownership. For purposes of these guidelines, shares of unrestricted stock, restricted stock and vested incentive or non-qualified stock options with a fair market value above the grant exercise price shall qualify as Common Stock.

Chief Executive Officer and Chief Financial Officer

The Chief Executive Officer is expected to acquire and hold during his or her tenure shares of the Company’s Common Stock equal in value to at least three times his or her base salary, and the Chief Financial Officer is expected to acquire and hold during his or her tenure shares of the Company’s Common Stock equal to at least two times his or her base salary. The Chief Executive Officer and Chief Financial Officer shall have five years from the effective date of implementation of the policy or their initial appointment to the position to meet the target stock ownership guideline, and they are expected to continuously own (i.e., retain) sufficient shares to meet the guideline once attained.