ITEM 1.01.
|
ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
|
Asset
Purchase Agreement
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”), pursuant to which Buyer agreed to purchase from Seller certain
prescription files and related data and records, retail pharmaceutical inventory, and certain other assets from 185 of the Company’s
retail pharmacy stores (collectively, the “Assets”) for a cash purchase price of $165 million (the “Script Purchase
Price”) plus an amount equal to the value of the inventory included in the Assets up to a $36 million cap, in each case
subject to certain adjustments (the “Transaction”). The consummation of the Transaction shall occur in a series of
closings, as more fully described in the Asset Purchase Agreement. The proceeds to be received in the Transaction will be used
to pay down the Company’s existing indebtedness or for general corporate purposes.
The
closings of the Transaction are subject to conditions customary for transactions of this type, including (i) the expiration or
termination of the required waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “Antitrust
Condition”), (ii) the absence of certain legal impediments to the Transaction, (iii) the accuracy of the parties’
representations and warranties and (iv) the parties’ compliance with their respective obligations.
Seller
and Buyer have each made customary representations and warranties in the Asset Purchase Agreement. Additionally, Seller and Buyer
have each agreed to various covenants and agreements in the Asset Purchase Agreement, including, among other things, to use its
reasonable best efforts to (i) prepare and file promptly and fully all necessary documentation to consummate the Transaction (including
any required filings under applicable antitrust laws), (ii) obtain as promptly as practicable all approvals, consents, clearances,
expirations or terminations of waiting periods, registrations, permits, authorizations and other confirmations from any governmental
authority or third party necessary, proper or advisable to consummate the Transaction, (iii) defend any lawsuits or other legal
proceedings, whether judicial or administrative, challenging the Asset Purchase Agreement or the consummation of the Transaction
and (iv) obtain as promptly as practicable all necessary consents, approvals or waivers from third parties.
Seller
has also agreed to additional covenants and agreements, including, (i) to conduct its business in the ordinary and usual course
of business during the period between the execution of the Asset Purchase Agreement and the closings of the Transaction, including
using commercially reasonable efforts to maintain the inventory and staffing of employees consistent with its past practices,
(ii) to send all required notifications of the sale of the assets to all applicable customers, state boards of pharmacy and governmental
authorities, (iii) to provide Buyer access to electronic patient records prior to the closing of the Transaction in order to comply
with the Health Insurance Portability and Accountability Act of 1996 and the Health Information Technology for Economic and Clinical
Health Act of 2009, (iv) to use commercially reasonable efforts to provide Buyer with information reasonably requested by Buyer
to enable Buyer (in its sole discretion) to make offers of employment to employees of Seller employed at the applicable closing
pharmacies and (v) non-competition and non-solicitation provisions. The Asset Purchase Agreement includes indemnification by Seller
in favor of Buyer for breaches or inaccuracies of certain representations and warranties, breaches or nonperformance of covenants
and certain excluded liabilities. The Asset Purchase Agreement includes indemnification by Buyer in favor of Seller for breaches
or inaccuracies of Buyer’s representations and warranties, breaches or nonperformance of covenants, certain assumed liabilities
and liabilities arising from Buyer’s employment of any of Seller’s employees located at the applicable pharmacies.
Seller’s and Buyer’s indemnification obligations are limited to the portion of the $165 million Script Purchase Price
actually received by Seller (other than liability for fraud) and certain other customary limitations.
The
Asset Purchase Agreement also contains customary provisions governing circumstances under which Buyer or Seller may terminate
the Asset Purchase Agreement. Each of Seller and Buyer may terminate the Asset Purchase Agreement (i) by mutual written consent,
(ii) if the initial closing of the Transaction does not occur on or before December 21, 2018, (iii) due to a failure of the non-terminating
party to satisfy a condition, provided that the terminating party has satisfied all conditions required for closing or (iv) if
a governmental authority has issued a non-appealable final order, decree or ruling or taken any other action having the effect
of permanently restraining, enjoining or otherwise prohibiting the Transaction. Seller also has the right to terminate the Asset
Purchase Agreement within twenty-four hours of receipt of notice from Buyer that Buyer is electing to exclude the assets of certain
pharmacies for purposes of satisfying the Antitrust Condition, to the extent such exclusion would result in a purchase price of
less than $125 million for the non-inventory Assets. After the initial closing, the Seller and Buyer may also terminate the obligation
to close the Transaction with respect to certain pharmacies for failure to satisfy closing conditions related solely to such pharmacies.
The
foregoing description of the Asset Purchase Agreement does not purport to be complete and is subject to, and qualified in its
entirety by, the full text of the Asset Purchase Agreement, which is filed hereto as Exhibit 2.1 and incorporated herein by reference.
The filed copy of the Asset Purchase Agreement is intended to provide investors and security holders with information regarding
its terms. It is not intended to provide any other financial information about the Company or its subsidiaries or affiliates.
The representations, warranties, and covenants contained in the Asset Purchase Agreement were made only for purposes of such agreement
and, as of specific dates, are solely for the benefit of the parties to the Asset Purchase Agreement, may be subject to limitations
agreed upon by the parties, including being qualified by confidential disclosures made for the purposes of allocating contractual
risk among the parties thereto instead of establishing these matters as facts, and may be subject to standards of materiality
applicable to the parties that differ from those applicable to investors. Investors should not rely on the representations, warranties,
or covenants or any description thereof as characterizations of the actual state of facts or condition of the Company or any of
its subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations, warranties, and covenants
may change after the date of the Asset Purchase Agreement, which subsequent information may or may not be fully reflected in the
Company’s public disclosures.