Document:

Exhibit 10.12

 

CONFIDENTIAL

 

MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED

One Bryant Park

New York, New York 10036

 

December 19, 2016

 

Fred’s, Inc.

4300 New Getwell Road

Memphis, Tennessee 38118

	Attention:	Mr. Rick Hans
	 	Executive Vice President and Chief Financial Officer 

 

$600,000,000 Senior Secured Term Loan Facility

Commitment Letter

 

Ladies and Gentlemen:

 

Fred’s, Inc. (the “Company”)
has advised Merrill Lynch, Pierce, Fenner & Smith Incorporated (together, with its designated affiliates, “MLPFS”),
TPG Specialty Lending Inc. (“TPG”), Crystal Financial LLC (“Crystal”), Gordon Brothers Finance
Company, LLC (“GBFC”), Pathlight Capital LLC (“Pathlight”), Tennenbaum Capital Partners,
LLC (“Tennenbaum”), Great American Capital Partners, LLC (“GACP” and together with TPG, Crystal,
GBFC, Pathlight and Tennenbaum, collectively, the “Initial Lenders”; the Initial Lenders together with MLPFS,
each individually a “Commitment Party” and collectively, the “Commitment Parties”) that it
is seeking a new senior secured term loan facility in an aggregate principal amount of $600,000,000 (the “Term Loan Facility”)
in connection with its acquisition (the “Acquisition”) of the business and operations consisting of not less
than 750, but up to 1,000, retail stores of Rite Aid Corporation (the “Acquired Business”) and to consummate
the other transactions described in the Transaction Description attached hereto as Exhibit A (the “Transaction Description”).
Capitalized terms used herein but not otherwise defined shall have the meanings assigned to them in the annexes to this letter,
the Transaction Description and in the Summary of Principal Terms and Conditions attached hereto as Exhibit B (the “Term
Sheet” and together with this commitment letter, the Transaction Description, and the annexes, exhibits and schedules
to this commitment letter, collectively, the “Commitment Letter”).

 

1.          Commitment.
Each of the Initial Lenders is pleased to advise the Company of its several and not joint commitment to provide the principal amounts
of the Term Loan Facility as set forth on Schedule 1 attached hereto, in each case subject to the terms set forth in this Commitment
Letter. The commitments of the Initial Lenders are several and not joint. The Initial Lenders shall be severally liable in respect
of their respective commitments and all other obligations in this Commitment Letter, the fee letter of even date herewith between
MLPFS and the Company (the “Lead Arranger Fee Letter”), the fee letter of even date herewith between Administrative
Agent (as defined below) and the Company (the “Administrative Agent Fee Letter”) and the fee letter of even
date herewith among the Initial Lenders and the Company (the “Initial Lender Fee Letter” and, together with
the Lead Arranger Fee Letter and the Administrative Agent Fee Letter, collectively, the “Fee Letters”), and
no Commitment Party shall be responsible for the commitment or any other obligation of any other Commitment Party.

 

    	 	 	 

     

    

 

2.          Titles
and Roles; Sell-Side Advisor. The Company hereby appoints each of MLPFS, and TPG (each an “Arranger” and
collectively, the “Arrangers”), in each case, acting alone or through or with branches or affiliates selected
by it, to act as the joint lead arrangers. MLPFS in its capacity as Arranger is referred to herein as “Lead Arranger.”
Crystal, Gordon Brothers Finance Company and Pathlight will act as co-documentation agents under the Term Loan Facility in such
capacity “Co-Documentation Agent”. TPG or another Initial Lender will act as sole and exclusive administrative agent
under the Term Loan Facility (in such capacity, the “Administrative Agent”) for the Initial Lenders and any
other parties to the Term Loan Facility as lenders (individually a “Term Loan Lender” and collectively “Term
Loan Lenders”). Each of the Arrangers, Administrative Agent, and Co-Documentation Agents will perform the duties and
exercise the authority customarily performed and exercised by it in such role, subject to the terms below and MLPFS will be the
sole physical bookrunning manager. MLPFS will have “left” and highest placement in the information memorandum and all
marketing materials and other documentation used in connection with the Term Loan Facility and TPG will have second placement and
appear immediately to the right of MLPFS in the information memorandum and all marketing materials and other documentation used
in connection with the Term Loan Facility. The Company agrees that no other agents, co-agents, arrangers or bookrunners will be
appointed, no other titles will be awarded and no compensation (other than compensation expressly contemplated by this Commitment
Letter and the Fee Letters) will be paid to any Term Loan Lender in connection with the Term Loan Facility unless the Commitment
Parties and the Company shall so agree.

 

The parties acknowledge that MLPFS and/or its
affiliates have been retained as the sell-side financial advisor to the Seller and/or the Acquired Business (in such capacity,
the “Financial Advisor”) in connection with the Transactions. The Company agrees to any such retention, and
further agrees not to assert any claim the Company or any of its affiliates might allege based on any actual or potential conflicts
of interest that might be asserted to arise or result from, on the one hand, the engagement of the Financial Advisor or from MLPFS’
and/or its affiliates’ arranging or providing or contemplating arranging or providing financing for a competing bidder and,
on the other hand, the relationship of MLPFS and/or its affiliates with the Company and its affiliates as described and referred
to herein.

 

3.          [Reserved.]

 

4.          Expenses
and Indemnification. The Company agrees (a) to pay or reimburse all reasonable and documented out-of-pocket fees, costs and
expenses incurred by the Commitment Parties or their affiliates in connection with their due diligence, approval, documentation,
syndication and closing of the Term Loan Facility, whether incurred before or after the date hereof (collectively, the “Expenses”),
including the preparation and negotiation of this Commitment Letter (including any amendment or modification hereto), and including
reasonable attorneys’ fees and legal expenses (provided, that, legal fees shall be limited to the reasonable fees and disbursements
of Morgan Lewis & Bockius LLP as counsel to the Lead Arranger and Choate Hall & Stewart, LLP as counsel to the Initial
Lenders and, in addition, one local counsel for the Initial Lenders in each appropriate jurisdiction), appraisal fees, real property
evaluation fees, expenses related to the USA Patriot Act compliance and background checks, electronic reporting system set-up fees
(if any), filing and search charges, recording taxes and field examination expenses and the enforcement of any of the rights and
remedies of the Commitment Parties under this Commitment Letter, in each case regardless of whether the Term Loan Facility is closed,
and (b) to indemnify, defend, and hold harmless the Commitment Parties, each of their affiliates, and each of their officers, directors,
employees, agents, advisors, and other representatives (each, an “Indemnified Person”) as set forth on Annex
A hereto. All Expenses are to be paid to, as applicable, the Lead Arranger or the Administrative Agent upon demand by any Commitment
Party, together with such advance funds on account of such charges and expenses as, as applicable, Lead Arranger or Administrative
Agent may from time to time request. The Company agrees that, once paid, none of the Expenses shall be refundable under any circumstances,
regardless of whether the Term Loan Facility closes, and shall not be credited against any other amount payable by the Company
to any Commitment Party in connection with the Term Loan Facility or otherwise.

 

    	 	2	 

     

    

 

Crystal has previously received from the Company
an expense deposit and work fee of $150,000 (together with any additional amounts, the “Deposit”) to fund the
reimbursement of the Expenses. The Administrative Agent may from time to time request additions to the Deposit if it appears that
such Expenses are likely to exceed the unused portion of such Deposit and the Company agrees to provide such additions to the Deposit.
The Deposit will not be segregated, may be commingled with other funds of Crystal and the Company will not be entitled to receive
interest on the Deposit.

 

5.          Fees.
As consideration for the commitments and agreements of the Commitment Parties hereunder, the Company agrees to pay the fees described
in the Term Sheet and in the Fee Letters on the date hereof, on the Closing Date and on the dates set forth in the Fee Letters,
as applicable, on the terms and subject to the conditions set forth therein. The terms of the Term Sheet are an integral part of
each Commitment Party’s commitment and other obligations hereunder. Each of the fees described herein and in the Fee Letters
shall be nonrefundable when paid except as expressly set forth therein. All fees payable hereunder and under the Fee Letters will
be paid in immediately available funds. Notwithstanding the foregoing, at the option of any Initial Lender or any Term Loan Lender,
all or any portion of the fees payable to such Initial Lender or Term Loan Lender hereunder may be taken in the form of original
issue discount. The obligation to pay any fee provided for herein or therein or to cause any such fee to be paid will be joint
and several with any other party having such an obligations, shall be absolute and unconditional and shall not be subject to reduction
by way of setoff or counterclaim.

 

6.          Conditions.
The commitments of each of the Commitment Parties under this Commitment Letter and its obligations to close the Term Loan Facility
on the Closing Date are subject solely to: (a) since the date of this Commitment Letter, there shall not have been any event or
circumstances that, individually or in the aggregate, has had, or would reasonably be expected to have, a Target Material Adverse
Effect (as such term is defined below) that is continuing, and (b) the satisfaction of (or procurement of a waiver of) the conditions
set forth in Exhibit C to this Commitment Letter. For the avoidance of doubt, the compliance by the Company with its obligations
under this Commitment Letter and the Fee Letters, other than satisfaction by the Company of (or procurement of a waiver of) the
conditions described (x) in Section 6(a) and (y) on Exhibit C, is not a condition to the closing of the Term Loan Facility on the
Closing Date.

 

The term “Target Material Adverse Effect”
means a material adverse effect on the financial condition or results of operations of the Acquired Stores, taken as a whole, but
shall not be deemed to include any adverse effect arising out of, resulting from or attributable to: (a) an event or circumstance
or series of events or circumstances affecting (i) the United States (or any other country or jurisdiction) or the global economy
generally or capital, financial, banking, credit or securities markets generally, including changes in interest or exchange rates,
(ii) political conditions generally of the United States or any other country or jurisdiction in which Seller or its Affiliates
operates or (iii) any of the industries generally in which Seller or any customers thereof operates (including demand for, and
the availability and pricing of, pharmaceutical drugs) or in which products or services of the Acquired Stores are used or distributed,
(b) the negotiation, execution or the announcement of, the consummation of the transactions contemplated by, or the performance
of obligations under, the Acquisition Agreement or the other Transaction Agreements, including effects related to compliance with
the covenants or agreements contained herein or the failure to take any action as a result of any restrictions or prohibitions
set forth herein, and any adverse effect proximately caused by (A) shortfalls or declines in revenue, margins or profitability,
(B) loss of, or disruption in, any customer, supplier, and/or vendor relationships, or (C) loss of any personnel, (c) any changes
in applicable Law or U.S. GAAP, or accounting principles, practices or policies that Seller is required to adopt, or the enforcement
or interpretation thereof, (d) actions specifically permitted to be taken or omitted pursuant to the Acquisition Agreement or taken
with Buyer’s consent, (e) the effect of any action taken by Buyer or its Affiliates with respect to the transactions contemplated
hereby or with respect to Seller or its Affiliates, (f) any acts of God, including any earthquakes, hurricanes, tornadoes, floods,
tsunami, or other natural disasters, or any other damage to or destruction of Assets caused by casualty, (g) any hostilities, acts
of war (whether or not declared), sabotage, terrorism or military actions, or any escalation or worsening of any such hostilities,
act of war, sabotage, terrorism or military actions, (h) any failure to meet internal or published projections, estimates or forecasts
of revenues, earnings, or other measures of financial or operating performance for any period (provided that the underlying causes
of such failures (subject to the other provisions of this definition) shall not be excluded) or (i) any adverse change or effect
that is cured prior to Closing (or each Subsequent Closing, as applicable); provided, however, that if the event or circumstance
described in any of the foregoing clauses (a) or (c), individually or in the aggregate, has a disproportionate effect on the Acquired
Stores relative to other industry participants, the exception described in any of the foregoing clauses (a) or (c) shall not apply
with respect to the portion of such event or circumstance that had such a disproportionate effect on the Acquired Stores. Capitalized
terms used in this paragraph have the meanings given to such terms in the Acquisition Agreement as in effect on the date hereof.

 

    	 	3	 

     

    

 

Notwithstanding anything to the contrary in
this Commitment Letter, the Fee Letters, the Loan Documents (as defined in the Term Sheet) or any other agreement entered into
by a Commitment Party concerning the financing of the Acquisition contemplated hereby to the contrary, (a) the only representations
and warranties, the accuracy of which shall be a condition to the closing of the Term Loan Facility shall be (i) such of the representations
and warranties made by the Seller or any of its affiliates in the Acquisition Agreement as are material to the interests of the
Administrative Agent, Arrangers and Term Loan Lenders, but only to the extent that the Company or any of its affiliates has the
right to terminate the Company’s (or such of its affiliates’) obligations under the Acquisition Agreement (or to not
consummate the Acquisition) as a result of a breach of such representations and warranties in the Acquisition Agreement (the “Acquisition
Agreement Representations”) and (ii) the Specified Representations (as defined below) and (b) the terms of the Loan Documents
shall be in a form such that they do not provide for additional conditions to the closing of the Term Loan Facility if the conditions
set forth in this Section 6 are satisfied (it being understood that, (i) to the extent any collateral (including the perfection
of any security interest therein) is not or cannot be provided on the Closing Date (other than (A) the pledge and perfection of
collateral with respect to which a lien may be perfected upon closing solely by the filing of financing statements under the Uniform
Commercial Code in the jurisdiction of organization of each Loan Party, and (B) the pledge and perfection of security interests
in the equity interests of subsidiaries owned by the Loan Parties (after giving effect to the Acquisition); the assets described
in clauses (A) and (B) being referred to as the “Specified Collateral”) after the use of commercially reasonable
efforts by the Company (and the Seller to the extent provided for in the Acquisition Agreement) to do so, then the provision of
such collateral or perfection of any such lien or security interest in such collateral shall not constitute a condition precedent
to the closing of the Term Loan Facility, but shall be required to be provided within 60 days after the Closing Date, subject to
such extensions as are agreed to by the Initial Lenders). For purposes hereof, “Specified Representations” means
representations and warranties of the Loan Parties in the Loan Documents relating to organization, existence, organizational power
and authority to enter into the Loan Documents; due authorization, execution, delivery, enforceability of such Loan Documents;
solvency as of the Closing Date (after giving effect to the Transactions) of the Company and its subsidiaries (in form and scope
consistent with the solvency certificate to be delivered pursuant to Exhibit C hereto); no conflicts of the Loan Documents with
organizational documents or material laws; Federal Reserve margin regulations; the Investment Company Act; USA Patriot Act; use
of proceeds not violating (i) laws applicable to sanctioned persons, (ii) laws and regulations promulgated by OFAC, and (iii) anti-money
laundering laws or the Foreign Corrupt Practices Act; and the creation, perfection and priority of the security interests (subject
to customary permitted liens) granted in the collateral (subject in all respects to the foregoing provisions of this paragraph).
This paragraph and the provisions herein are referred to herein as the “Certain Funds Provision”.

 

    	 	4	 

     

    

 

7.          Confidentiality.
The Company agrees that this Commitment Letter (including the Term Sheet) and the Fee Letters are for its confidential use only
and that neither its existence, nor the terms hereof or thereof, will be disclosed by the Company to any person other than (a)
its officers, directors (or equivalent managers), employees, accountants, affiliates, independent auditors, attorneys, leverage
lenders and other advisors, and then only on a “need-to-know” basis in connection with the Transactions and on a confidential
basis, (b) the Seller and Walgreens Boots Alliance, Inc. and their respective officers, directors (or equivalent managers), employees,
accountants, independent auditors, attorneys, and other advisors of each of the Seller and Walgreens Boots Alliance, Inc., and
then only on a “need-to-know” basis, in connection with their consideration of the Transactions and on a confidential
basis (provided that, with respect to the Fee Letters, to the extent portions thereof have been redacted in respect of the amounts,
percentages and basis points of compensation set forth therein and the pricing in a manner satisfactory to (x) in the case of the
Initial Lender Fee Letter, the respective Initial Lenders party thereto, (y) in the case of the Lead Arranger Fee Letter, the Lead
Arranger, and (z) in the case of the Administrative Agent Fee Letter, the Administrative Agent and the respective Initial Lenders
party thereto). The foregoing notwithstanding, the Company (and, in the case of clause (ii) below, each of the Seller and Walgreens
Boots Alliance, Inc.) may (i) provide a copy of the Commitment Letter (and the Fee Letters, to the extent portions thereof have
been redacted in respect of the amounts, percentages and basis points of compensation set forth therein and the pricing in a manner
satisfactory to (x) in the case of the Initial Lender Fee Letter, the respective Initial Lenders party thereto, (y) in the case
of the Lead Arranger Fee Letter, the Lead Arranger, and (z) in the case of the Administrative Agent Fee Letter, the Administrative
Agent and the respective Initial Lenders party thereto) to potential lenders under the ABL Loan Facility and their officers, directors
(or equivalent managers), employees, accountants, affiliates, attorneys, and other advisors involved in the related commitments
subject to confidentiality provisions similar to those provided herein, (ii) following the acceptance of the Company of this Commitment
Letter and the Fee Letters, file or make such other public disclosures of the terms and conditions hereof (including the Term Sheet,
but not including the Fee Letters) as it is required by law including any regulatory authority, in the opinion of its counsel,
to make and (iii) disclose this Commitment Letter and Fee Letters in connection with any exercise of its remedies in respect hereof
and thereof.

 

Each Commitment Party agrees that material,
non-public information regarding the Company and its subsidiaries and the Acquired Business, their operations, assets, and existing
and contemplated business plans shall be treated by it in a confidential manner, and shall not be disclosed by it to persons who
are not parties to this Commitment Letter, except: (i) to its officers, directors, employees, attorneys, advisors, accountants,
auditors, and consultants to such Commitment Party on a “need to know” basis in connection with Transactions and on
a confidential basis, (ii) to subsidiaries and affiliates of such Commitment Party, provided that any such subsidiary or affiliate
shall have agreed to receive such information hereunder subject to the terms of this paragraph, (iii) to regulatory authorities
with jurisdiction over such Commitment Party or its affiliates, (iv) as may be required by statute, decision, or judicial or administrative
order, rule, or regulation, provided that prior to any disclosure under this clause (iv), the disclosing party agrees to provide
the Company with prior notice thereof, to the extent that it is practicable to do so and to the extent that the disclosing party
is permitted to provide such prior notice to the Company pursuant to the terms of the applicable statute, decision, or judicial
or administrative order, rule, or regulation, (v) as may be agreed to by the Company (not to be unreasonably withheld or delayed),
(vi) as requested or required by any governmental authority pursuant to any subpoena or other legal process, provided that prior
to any disclosure under this clause (vi), the disclosing party agrees to provide the Company with prior notice thereof, to the
extent that it is practicable to do so and to the extent that the disclosing party is permitted to provide such prior notice to
the Company pursuant to the terms of the subpoena or other legal process, (vii) as to any such information that is or becomes generally
available to the public (other than as a result of disclosure by such Commitment Party in violation of the terms hereof), (viii)
in connection with any proposed assignment or participation of such Commitment Party’s interest in the Term Loan Facility,
provided that any such proposed assignee or participant shall have agreed to receive such information subject to the terms of this
paragraph or as provided below, (ix) to the extent that such information was already in the possession of such Commitment Party
or its affiliates or is independently developed by it or them, (x) to the extent that such information was received by such Commitment
Party from a third party, that is not, to its knowledge, subject to confidentiality obligations owing to the Company, and (xi)
for purposes of establishing a “due diligence” defense and in connection with any litigation or other adverse proceeding
involving any parties to this Commitment Letter or the Fee Letters. This paragraph shall terminate on the second anniversary of
the date hereof.

 

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Notwithstanding anything to the contrary in
this Commitment Letter, the Company agrees that (i) each Commitment Party shall have the right to provide information concerning
the Term Loan Facility to loan syndication and reporting services, and (ii) that the Projections, any marketing materials and all
other information provided by or on behalf of the Company and its affiliates to a Commitment Party regarding the Company and its
affiliates and the Transactions in connection with the Term Loan Facility may be disseminated by or on behalf of such Commitment
Party to prospective lenders and other persons, who have agreed to be bound by customary confidentiality undertakings (including,
“click-through” agreements), all in accordance with the standard loan syndication practices of such Commitment Party
(whether transmitted electronically by means of a website, e-mail or otherwise, or made available orally or in writing, including
at potential lender or other meetings). Notwithstanding anything to the contrary in this Commitment Letter, the Company agrees
that a Commitment Party may share with its affiliates any information relating to the Term Loan Facility, the Company or its subsidiaries
or the Acquired Business for purposes of the evaluation, negotiation, documentation and syndication of the Term Loan Facility and
on and after the Closing Date, may disclose information relating to the Term Loan Facility to Gold Sheets and other publications
or for its marketing materials, with such information to consist of deal terms and other information customarily found in such
publications or marketing materials and that a Commitment Party may otherwise use the corporate name and logo of the Company or
its subsidiaries or the Acquired Business in “tombstones” or other advertisements, marketing materials or public statements.

 

8.          Information.
The Company hereby represents and warrants (but limited, solely in the case of the Acquired Business, to the best of its knowledge)
that (i) all written information, other than Projections (as defined below) and other than forward-looking information and information
of a general economic nature or industry specific information, which has been or is hereafter made available to the Commitment
Parties by or on behalf of the Company or its subsidiaries or any of their representatives in connection with the Company and its
subsidiaries and the Acquired Business (“Information”), as and when furnished, is or will be, when furnished
and taken as a whole, correct in all material respects and does not or will not, when furnished and taken as a whole, contain any
untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein not materially
misleading in light of the circumstances under which such statements are made and (ii) all financial projections concerning the
Company and its subsidiaries and the Acquired Business that have been or are hereafter made available to Commitment Parties or
prospective Term Loan Lenders by the Company or its subsidiaries (the “Projections”), have been or will be prepared
in good faith based upon assumptions that are believed by the Company to be reasonable at the time made and made available to the
Commitment Parties (it being understood that projections by their nature are inherently uncertain and that, even though the Projections
are prepared in good faith on the basis of assumptions believed to be reasonable at the time such Projections were prepared, the
results reflected in the Projections may not be achieved and actual results may differ and such differences may be material). If
at any time the Company becomes aware that any of the representations in the preceding sentence would be incorrect in any material
respect if the Information and Projections were being furnished, and such representations were being made at such time, then the
Company will promptly supplement the Information and Projections so that such representations will be correct in all material respects
under those circumstances. The Company agrees to furnish, or cause to be furnished (using commercially reasonable efforts with
respect to the Acquired Business), to each Commitment Party such Information and Projections as
it may reasonably request and to supplement the Information and the Projections from time to time until the Closing Date. In arranging
and syndicating the Term Loan Facility, the Lead Arranger, and in entering into the Term Loan Facility, the Administrative
Agent and Term Loan Lenders will be using and
relying on the Information and the Projections without independent verification thereof. Notwithstanding anything to the
contrary contained in this Commitment Letter or the Fee Letters, none of the accuracy of any representation under this Section
8, the provision of any supplement to any Information or the Projections, nor the accuracy of any such supplement shall constitute
a condition precedent to the closing and/or initial funding of any of the Term Loan Facility on the Closing Date.

 

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9.          Sharing
Information; Absence of Fiduciary Relationship; Affiliate Activities. The Company acknowledges that each Commitment Party or
one or more of its affiliates may be providing debt financing, equity capital or other services (including financial advisory services)
to other companies in respect of which the Company may have conflicting interests regarding the transactions described herein or
otherwise. The Company also acknowledges that the Commitment Parties do not have any obligation to use in connection with the transactions
contemplated by this Commitment Letter, or to furnish to the Company, confidential information obtained by a Commitment Party from
other companies (including the Seller).

 

The Company further acknowledges and agrees
that (a) no fiduciary, advisory or agency relationship between the Company, on the one hand, and a Commitment Party, on the other
hand, is intended to be or has been created in respect of any of the transactions contemplated by this Commitment Letter, irrespective
of whether such Commitment Party or one or more of its affiliates has advised or is advising the Company on other matters, (b)
each Commitment Party, on the one hand, and the Company, on the other hand, has an arms-length business relationship that does
not directly or indirectly give rise to, nor do you rely on, any fiduciary duty on the part of such Commitment Party, (c) the Company
is capable of evaluating and understanding, and it understands and accepts, the terms, risks and conditions of the transactions
contemplated by this Commitment Letter, (d) the Company has been advised that each Commitment Party or one or more of its affiliates
is engaged in a broad range of transactions that may involve interests that differ from its interests and that such Commitment
Party does not have any obligation to disclose such interests and transactions to it by virtue of any fiduciary, advisory or agency
relationship, and (e) the Company waives, to the fullest extent permitted by law, any claims it may have against a Commitment Party
for breach of fiduciary duty or alleged breach of fiduciary duty and agrees that the Commitment Parties shall not have any liability
(whether direct or indirect) to it in respect of such a fiduciary duty claim or to any person asserting a fiduciary duty claim
on behalf of or in right of the Company, including its stockholders, employees or creditors. For the avoidance of doubt, the provisions
of this paragraph apply only to the transactions contemplated by this Commitment Letter and the relationships and duties created
in connection with the transactions contemplated by this Commitment Letter.

 

The Company further acknowledges that one or
more of the affiliates of any Commitment Party are full service securities firm engaged in securities trading and brokerage activities
as well as providing investment banking and other financial services. In the ordinary course of business, each Commitment Party
or one or more of its affiliates may provide investment banking and other financial services to, and/or acquire, hold or sell,
for their respective own accounts and the accounts of customers, equity, debt and other securities and financial instruments (including
bank loans and other obligations) of, the Company, and other companies with which the Company may have commercial or other relationships.
With respect to any debt or other securities and/or financial instruments so held by a Commitment Party or one or more of its affiliates
or any of their respective customers, all rights in respect of such securities and financial instruments, including any voting
rights, will be exercised by the holder of the rights, in its sole discretion.

 

    	 	7	 

     

    

 

In particular, the Company acknowledges that
the Company has been advised of the role of MLPFS and/or its affiliates as Financial Advisor and that, in such capacity, (i) the
Financial Advisor may recommend to the Seller that the Seller not pursue or accept the offer or proposal of the Company for the
acquisition of the Acquired Business, (ii) the Financial Advisor may advise the Seller and/or the Acquired Business in other manners
adverse to the interests of the Company, including, without limitation, by providing advice on pricing, leverage levels, and timing
and conditions of closing with respect to the bid by the Company, taking other actions with respect to the bid of the Company and
taking action under any definitive agreement between the Company, Seller and/or the Acquired Business, and (iii) the Financial
Advisor may possess information about the Seller and/or the Acquired Business, the acquisition of the Acquired Business, and other
potential purchasers and their respective strategies and proposals, but the Financial Advisor shall have no obligation to disclose
to the Company the substance of such information or the fact that it is in possession thereof. In addition, the Company acknowledges
that any of the Arrangers or Commitment Parties or their respective affiliates may be arranging or providing (or contemplating
arranging or providing) a committed form of acquisition financing to other potential purchasers of the Acquired Business and that,
in such capacity, such Arranger, Commitment Party or affiliate may acquire information about the Acquired Business, the sale thereof,
and such other potential purchasers and their strategies and proposals, but such party shall have no obligation to disclose to
the Company the substance of such information or the fact that such party is in possession thereof.

 

10.         USA
Patriot Act. Each Commitment Party hereby notifies the Company that pursuant to the requirements of the USA PATRIOT Act, Title
III of Pub. L. 107-56 (signed into law October 26, 2001) (the “USA Patriot Act”), the Commitment Parties and
other Term Loan Lenders may be required to obtain, verify and record information that identifies the Loan Parties (as defined in
the Term Sheet), which information includes the name, address, tax identification number and other information regarding the Loan
Parties that will allow the Commitment Parties and other Term Loan Lenders to identify the Loan Parties in accordance with the
USA Patriot Act. This notice is given in accordance with the requirements of the USA Patriot Act and is effective as to each Term
Loan Lender.

 

11.         Entire
Agreement. This Commitment Letter contains the entire commitment of the Commitment Parties for this transaction and, upon acceptance
by the Company, supersedes all prior proposals, commitment letter, negotiations, discussions and correspondence. This Commitment
Letter may not be contradicted by evidence of any alleged oral agreement. No party has been authorized by a Commitment Party to
make any oral or written statements inconsistent with this Commitment Letter. This Commitment Letter is addressed solely to the
Company and is not intended to confer any obligations to or on, or benefits to or on, any third party (other than the Indemnified
Persons). Each of the parties hereto agrees that, if executed and accepted by the parties in the manner required herein, each of
this Commitment Letter and the Fee Letters is a binding and enforceable agreement with respect to the subject matter contained
herein or therein (including the obligation of the parties to negotiate the Loan Documents in good faith); it being acknowledged
and agreed that the closing of the Term Loan Facility is subject solely to the satisfaction of the conditions specified in Section
6 hereof, including the execution and delivery of the relevant Loan Documents by the parties hereto in a manner consistent with
this Commitment Letter (including the applicable Documentation Principles and the obligation to negotiate in good faith); provided
that nothing contained in this Commitment Letter obligates the Company or any of its affiliates to consummate the Acquisition or
to draw down any portion of the Term Loan Facility.

 

12.         Surviving
Provisions. The expense and indemnification, sharing information; absence of fiduciary relationship; affiliate transactions,
confidentiality, jurisdiction, governing law and waiver of jury trial provisions contained herein shall remain in full force and
effect regardless of whether definitive financing documentation shall be executed and delivered and notwithstanding the termination
or expiration of this Commitment Letter or termination of the commitments of the Commitment Parties described herein; provided,
that, upon the execution and effectiveness of such definitive financing documentation, to the extent subject to, and covered by
the provisions of such financing documentation, the provisions hereof with respect to expense, indemnification and confidentiality
shall be superseded thereby.

 

    	 	8	 

     

    

 

13.         Counterparts.
This Commitment Letter may be executed in any number of counterparts, each of which shall be an original, and all of which, when
taken together, shall constitute one agreement. Delivery of an executed signature page of this Commitment Letter by facsimile transmission
or other electronic means (including an email with a “pdf”) shall be effective as delivery of a manually executed counterpart
hereof.

 

14.         Assignment;
Governing Law. This Commitment Letter may not be assigned by the Company without the prior written consent of each Commitment
Party and may not be amended, waived or modified, except in writing signed by each Commitment Party and the Company. This Commitment
Letter and the Fee Letters, the rights of the parties hereto or thereto with respect to all matters arising hereunder or related
hereto, and any and all claims, controversies or disputes arising hereunder or related hereto shall be governed by, and construed
in accordance with, the law of the State of New York, but excluding any principles of conflicts of law or other rule of law that
would cause the application of the law of any jurisdiction other than the State of New York, provided, that, notwithstanding the
preceding sentence and the governing law provisions of this Commitment Letter and the Fee Letters, it is understood and agreed
that (a) the interpretation of the definition of “Target Material Adverse Effect” (and whether or not a Target Material
Adverse Effect has occurred), (b) the determination of the accuracy of any Acquisition Agreement Representation and whether as
a result of any inaccuracy thereof the Company or any of its affiliates has the right to terminate its or their obligations under
the Acquisition Agreement or to decline to consummate the Acquisition and (c) the determination of whether the Acquisition has
been consummated in accordance with the terms of the Acquisition Agreement and, in any case, claims or disputes arising out of
any such interpretation or determination or any aspect thereof, in each case, shall be governed by, and construed and interpreted
in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof. Each of the parties hereto agrees that all claims, controversies, or disputes arising hereunder or
hereto shall be tried and litigated only in the state courts, and to the extent permitted by applicable law, federal courts, in
each case located in New York County, New York and each of the parties hereto submits to the exclusive jurisdiction and venue of
such courts relative to any such claim, controversy or dispute. It is understood that with respect to any suit, action or proceeding
arising out of or relating to the Acquisition Agreement or the transactions contemplated thereby and which does not involve this
Commitment Letter, the Term Loan Facility or claims by or against the Company, any Commitment Party or any Indemnified Person,
the immediately preceding sentence shall not override any jurisdiction provision set forth in the Acquisition Agreement.

 

Notwithstanding anything to the contrary contained
herein, the parties hereby agree that MLPFS may, without notice to the Company or any other Commitment Party, assign its rights
and obligations under this Commitment Letter and the Fee Letters to any other registered broker-dealer wholly-owned by Bank of
America Corporation to which all or substantially all of Bank of America Corporation’s or any of its subsidiaries’
investment banking, commercial lending services or related businesses may be transferred following the date of this Commitment
Letter.

 

15.         JURY
TRIAL WAIVER. EACH Commitment Party AND THE COMPANY EACH WAIVES ITS RIGHT TO
A JURY TRIAL IN RESPECT OF ANY CLAIM, CONTROVERSY, OR DISPUTE (WHETHER BASED IN CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS COMMITMENT LETTER OR THE TRANSACTIONS OR THE ACTIONS OF A COMMITMENT PARTY OR ANY OF ITS AFFILIATES IN THE NEGOTIATION,
PERFORMANCE, OR ENFORCEMENT OF THIS COMMITMENT LETTER OR THE TRANSACTIONS OR THE ACTIONS OF A COMMITMENT PARTY OR ANY OF ITS AFFILIATES
IN THE NEGOTIATION, PERFORMANCE, OR ENFORCEMENT OF THIS COMMITMENT LETTER.

 

    	 	9	 

     

    

 

16.         Acceptance
and Termination. This Commitment Letter will be of no force and effect unless executed by each Commitment Party and a counterpart
hereof is accepted and agreed to by the Company and, as so accepted and agreed to, received by each Commitment Party by 11:59 p.m.
(Central time) on December 19, 2016, together with the Fee Letters as duly authorized, executed and delivered by the Company, provided
that the Lead Arranger Fee Letter shall only be delivered to the Lead Arranger and the Administrative Agent Fee Letter shall only
be delivered to the Administrative Agent. The commitment of each Commitment Party under this Commitment Letter, if accepted and
agreed to by the Company as provided in the immediately preceding sentence, will terminate upon the earliest of (i) 5:00 p.m. on
June 30, 2017 unless the Closing Date occurs on or prior thereto, (ii) the closing of the Acquisition without the closing of the
Term Loan Facility, or (iii) the valid termination of the Acquisition Agreement; provided that the termination of any commitment
or this Commitment Letter pursuant to this sentence does not prejudice your rights and remedies in respect of any breach of this
Commitment Letter that occurred prior to any such termination.

 

17.         Assignment
Provisions. Notwithstanding any other provision of the Commitment Letter to the contrary and notwithstanding any assignment
or other transfer by any Initial Lender (a) no Initial Lender shall be relieved, released or novated from its obligations hereunder
(including its obligation to fund its applicable percentage of the Term Loan Facility on the date of the Initial Draw upon the
satisfaction (or waiver by the Commitment Parties) of the conditions specified in the Term Sheet) in connection with any assignment
or other transfer until after the initial funding of such Initial Lender’s commitment under the Term Loan Facility on the
date of the Initial Draw or the Company otherwise consents in writing, which consent shall not be unreasonably withheld and (b)
no such assignment or other transfer shall, with respect to any portion of any Initial Lender’s commitments to fund its applicable
percentage of the Term Loan Facility on the date of the Initial Draw, relieve such Initial Lender from its obligations hereunder
to fund its applicable percentage of the Term Loan Facility on the date of the Initial Draw upon the satisfaction (or waiver by
the Commitment Parties) of the conditions specified in the Term Sheet, except to the extent such portion is otherwise funded upon
the initial funding on the date of the Initial Draw). Notwithstanding the foregoing, the Initial Lenders may assign any of their
commitments to their affiliates and approved funds. Notwithstanding the foregoing restrictions set forth herein, the Company and
the Administrative Agent hereby acknowledge and agree that the Commitment Parties shall be permitted to assign any portion of their
respective unfunded commitments under the Term Loan Facility to the financial institutions listed on Schedule 2 attached hereto
and their respective affiliates and/or approved funds (collectively, the “Approved Assignees”) pursuant to customary
joinder agreements to the Commitment Letter (the “Approved Joinders” and each, individually, an “Approved
Joinder”). Upon the execution and delivery of an Approved Joinder, the applicable Approved Assignee shall join the Commitment
Letter as a Commitment Party and Initial Lender and each other Commitment Party and Initial Lender shall be relieved of its obligations
with respect to the undrawn commitments so assigned to such Approved Assignee. The parties acknowledged that any further assignment
or other transfer shall be subject to the provisions set forth in this paragraph above.

 

Signature Pages to Follow

 

    	 	10	 

     

    

 

If the Company accepts and agrees to the foregoing,
please so indicate by executing and returning the enclosed copy of this letter to MLPFS, together with the Fee Letters. We look
forward to continuing to work with you to complete this transaction.

 

	Very truly yours,	 
	 	 
	MERRILL LYNCH, PIERCE, 	 
	FENNER & SMITH INCORPORATED	 
	 	 	 
	By: 	/s/ Darryl Kuriger	 
	 	Name: Darryl Kuriger	 
	 	Title: Managing Director	 

 

Signatures Continue on Next Page

 

[Signature Page to Commitment Letter]

 

    	 	 	 

     

    

 

	TPG Specialty Lending Inc. 	 
	 	 	 
	By:	/s/ Michael Fishman	 
	 	Name: Michael Fishman	 
	 	Title: Co-Chief Executive Officer	 

 

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[Signature Page to Commitment Letter]

 

    	 	 	 

     

    

 

	Crystal Financial LLC	 
	 	 	 
	By:	/s/ Evren Ozargun	 
	 	Name: Evren Ozargun	 
	 	Title: Managing Director	 

 

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on Next Page

 

[Signature Page to Commitment Letter]

 

    	 	 	 

     

    

 

	Gordon Brothers Finance Company, LLC 	 
	 	 	 
	By:	/s/ Felicia Galeota	 
	 	Name: Felicia Galeota	 
	 	Title: Vice President	 

 

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on Next Page

 

[Signature Page to Commitment Letter]

 

    	 	 	 

     

    

 

	Pathlight Capital LLC	 
	 	 	 
	By:	/s/ David C. Storer	 
	 	Name: David C. Storer	 
	 	Title: Senior Managing Director	 

 

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[Signature Page to Commitment Letter]

 

    	 	 	 

     

    

 

	Great American Capital Partners, LLC	 
	 	 	 
	By:	/s/ John Ahn	 
	 	Name: John Ahn	 
	 	Title: President	 

 

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[Signature Page to Commitment Letter]

 

    	 	 	 

     

    

 

Special Value Continuation Partners, LP

TCP Waterman CLO, LLC

Tennenbaum Senior Loan Fund II, LP

Tennenbaum Senior Loan Operating III, LLC

Tennenbaum Senior Loan Fund IV-B, LP

Tennenbaum Senior Loan Fund V, LLC

Tennenbaum Enhanced Yield Operating I, LLC

Tennenbaum Heartland Co-Invest, LP

Tennenbaum Energy Opportunities Co, LLC

TCP Direct Lending Fund VIII

TCP Direct Lending Fund VIII-A

TCP Direct Lending Fund VIII-L

Reliance Standard Life Insurance Company

 

On behalf of each of the above entities:

 

By: TENNENBAUM CAPITAL PARTNERS, LLC 

Its:  Investment Manager

 

TCP CLO III, LLC

 

By: SERIES I of SVOF/MM, LLC

Its:  Collateral Manager

 

On behalf of the above entity:

 

	By:	/s/ Howard Levkowitz	 
	 	Name: Howard Levkowitz	 
	 	Title: Managing Partner	 

 

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[Signature Page to Commitment Letter]

 

    	 	 	 

     

    

 

	Accepted on this 19th day	 
	of December, 2016:	 
	 	 
	FRED’S, INC.	 
	 	 	 
	By:	/s/ Michael K. Bloom	 
	 	Name: Michael K. Bloom	 
	 	Title: President and Chief Executive Officer	 

 

[Signature Page to Commitment Letter]

 

    	 	 	 

     

    

 

SCHEDULE 1

 

Commitments

 

	Commitment Parties	 	Commitment	 
	 	 	 	 
	TPG Specialty Lending Inc.	 	$	200,000,000	 
	 	 	 	 	 
	Crystal Financial LLC	 	$	100,000,000	 
	 	 	 	 	 
	Gordon Brothers Finance Company, LLC	 	$	50,000,000	 
	 	 	 	 	 
	Pathlight Capital LLC	 	$	85,000,000	 
	 	 	 	 	 
	Tennenbaum Capital Partners,  LLC on behalf of:	 	$	82,500,000	 
	 	 	 	 	 
	Special Value Continuation Partners, LP	 	 	 	 
	TCP Waterman CLO, LLC	 	 	 	 
	Tennenbaum Senior Loan Fund II, LP	 	 	 	 
	Tennenbaum Senior Loan Operating III, LLC	 	 	 	 
	Tennenbaum Senior Loan Fund IV-B, LP	 	 	 	 
	Tennenbaum Senior Loan Fund V, LLC	 	 	 	 
	Tennenbaum Enhanced Yield Operating I, LLC	 	 	 	 
	Tennenbaum Heartland Co-Invest, LP	 	 	 	 
	Tennenbaum Energy Opportunities Co, LLC	 	 	 	 
	TCP Direct Lending Fund VIII	 	 	 	 
	TCP Direct Lending Fund VIII-A	 	 	 	 
	TCP Direct Lending Fund VIII-L	 	 	 	 
	Reliance Standard Life Insurance Company	 	 	 	 
	 	 	 	 	 
	Great American Capital Partners, LLC	 	$	82,500,000	 
	 	 	 	 	 
	Total	 	$	600,000,000	 

 

    	 	19	 

     

    

 

SCHEDULE 2

 

Approved Assignees

 

Pathlight BGC Ltd.

 

    	 	20	 

     

    

 

ANNEX A

 

Indemnification Provisions

 

To the fullest extent permitted by applicable
law, the Company (the “Indemnifying Person”) agrees that it will indemnify, defend, and hold harmless each of
the Indemnified Persons from and against (i) any and all losses, claims, damages, obligations, penalties, judgments, awards, liabilities,
costs, expenses and disbursements and (ii) any and all actions, suits, proceedings and investigations in respect thereof, and (iii)
any and all legal costs (provided, that, the obligations to reimburse any Indemnified Person for legal fees and expenses shall
be limited to reasonable legal fees and expenses of one firm of counsel for all such Indemnified Persons and if necessary, of one
local counsel in each appropriate jurisdiction (and, to the extent required by the subject matter, one specialist counsel for each
such specialized area of law in each appropriate jurisdiction) and in the case of an actual or perceived conflict of interest,
one counsel for such affected Indemnified Person) or other costs, expenses or disbursements in giving testimony or furnishing documents
in response to a subpoena or otherwise (including, without limitation, the costs, expenses and disbursements, as and when incurred,
of investigating, preparing or defending any such action, proceeding or investigation (whether or not in connection with litigation
in which any of the Indemnified Persons is a party) and including, without limitation, any and all losses, claims, damages, obligations,
penalties, judgments, awards, liabilities, costs, expenses and disbursements, resulting from any act or omission of any of the
Indemnified Persons), directly or indirectly, caused by, relating to, based upon, arising out of or in connection with (a) the
Transactions or (b) the Commitment Letter or the Fee Letters; provided, that, such indemnity agreement shall not
apply to any portion of any such loss, claim, damage, obligation, penalty, judgment, award, liability, cost, expense or disbursement
of an Indemnified Person to the extent it is found in a final judgment by a court of competent jurisdiction (not subject to further
appeal) to have resulted from the gross negligence or willful misconduct of such Indemnified Person. These Indemnification Provisions
shall be in addition to any liability which the Indemnifying Person may have to the Indemnified Persons.

 

If any action, suit, proceeding or investigation
is commenced, as to which any of the Indemnified Persons proposes to demand indemnification, it shall notify the Indemnifying Person
with reasonable promptness; provided, that, any failure by any of the Indemnified Persons to so notify the Indemnifying
Person shall not relieve the Indemnifying Person from its obligations hereunder. The Indemnified Persons shall have the right to
retain counsel of their choice to represent them, and the Indemnifying Person shall pay the reasonable fees, expenses, and disbursement
of such counsel, and such counsel shall, to the extent consistent with its professional responsibilities, cooperate with the Indemnifying
Person and any counsel designated by the Indemnifying Person. The Indemnifying Person shall be liable for any settlement of any
claim against any of the Indemnified Persons made with its written consent, which consent shall not be unreasonably withheld. Without
the prior written consent of the applicable Indemnified Person, the Indemnifying Person shall not settle or compromise any claim,
unless (i) such Indemnified Person and each other Indemnified Person from which such Indemnified Person could have sought indemnification
or contribution has given his, her or its prior written consent or (ii) the settlement, compromise, consent or termination (A)
includes an express unconditional release of all Indemnified Persons and their respective affiliates from all losses, claims, damages,
expenses and liabilities, directly or indirectly, arising out of, relating to, resulting from or otherwise in connection with such
claim, (B) does not include any statements as to or any findings (or admissions) of fault, culpability or failure to act by or
on behalf of any Indemnified Person and (C) is paid by the Indemnifying Person in cash.

 

    	 	21	 

     

    

 

In order to provide for just and equitable contribution,
if a claim for indemnification pursuant to these Indemnification Provisions is made but is found by a judgment of a court of competent
jurisdiction (not subject to further appeal) that such indemnification may not be enforced in such case, even though the express
provisions hereof provide for indemnification in such case, then the Indemnifying Person, on the one hand, and the applicable Indemnified
Persons, on the other hand, shall contribute to the losses, claims, damages, obligations, penalties, judgments, awards, liabilities,
costs, expenses and disbursements to which the applicable Indemnified Persons may be subject in accordance with the relative benefits
received by the Indemnifying Person, on the one hand, and the applicable Indemnified Persons, on the other hand, and also the relative
fault of the Indemnifying Person, on the one hand, and the applicable Indemnified Persons collectively and in the aggregate, on
the other hand, in connection with the statements, acts or omissions which resulted in such losses, claims, damages, obligations,
penalties, judgments, awards, liabilities, costs, expenses and disbursements and the relevant equitable considerations shall also
be considered, provided, that, no Indemnified Person shall be liable for any fault, fraud, tort, or breach of any other Indemnified
Person or for a claim or cause of action against such other Indemnified Person. No person found liable for a fraudulent misrepresentation
shall be entitled to contribution from any other person who is not also found liable for such fraudulent misrepresentation.

 

Neither expiration nor termination of the commitment
of a Commitment Party under the Commitment Letter or funding or repayment of the loans under the Term Loan Facility shall affect
these Indemnification Provisions which shall remain operative and continue in full force and effect.

 

No Indemnified Person shall be liable for any
damages arising from the use by others of Information or other materials obtained through internet, Intralinks, SyndTrak or other
similar transmission systems in connection with the Term Loan Facility, unless to the extent it is found in a final non-appeable
judgment by a court of competent jurisdiction (not subject to further appeal) to have resulted from the gross negligence or willful
misconduct of such Indemnified Person. In addition, no Indemnified Person shall be responsible or liable for special, indirect,
consequential, exemplary, incidental or punitive damages which may be alleged as a result of this Commitment Letter or the Fee
Letters and the Company, on behalf of itself and each of its affiliates, irrevocably and unconditionally waives any right to seek
such damages for any claim that may be alleged as a result of any breach, or as a result, of this Commitment Letter or any element
of the transactions contemplated hereby.

 

    	 	22	 

     

    

 

CONFIDENTIAL

 

EXHIBIT A

 

FRED’S, INC.

 

Transaction Description

December 19, 2016

 

Capitalized terms used but not defined in this
Exhibit A shall have the meanings set forth in the Commitment Letter or the other Exhibits and Annexes thereto.

 

The Company (through one or more of its wholly-owned
domestic subsidiaries) intends to acquire (the “Acquisition”) all of the Purchased Assets and assume the Assumed
Liabilities (as each of such terms is defined in the Acquisition Agreement as in effect on the date hereof) related to not less
than 750, but up to 1,000, retail stores of Rite Aid Corporation (the “Acquired Business”) from Rite Aid Corporation
(“Seller”), all as set forth in the Acquisition Agreement as defined below. In connection therewith:

 

(a) The Acquisition will be effected pursuant
to the Asset Purchase Agreement by and among the Company and Seller, and for the limited purposes set forth therein, Walgreen Boots
Alliance, Inc. (and together with the schedules and exhibits thereto and the Ancillary Agreements referred to therein, the “Acquisition
Agreement”). Such Acquisition shall be consummated pursuant to an initial Closing and one or more Subsequent Closings
(each, as defined in the Acquisition Agreement) (such retail store locations and the related assets acquired pursuant to a Subsequent
Closing, being hereinafter a “Series”, provided that, all retail store locations and the related assets acquired
pursuant to a Series of Subsequent Closings (each, an “Acquired Store Series”) occurring on consecutive business
days (with an average of not less than 50 retail stores per day acquired pursuant thereto (or, if less, (x) the entire remaining
balance of stores and related assets to be acquired by the Company pursuant to the Acquisition Agreement, (y) at any time after
the date that the Borrowers shall have acquired 67% of all retail store locations and related assets required to be acquired pursuant
to the Acquisition Agreement, up to 25 separate transfers of one or more retail store locations and related assets to be acquired
by the Company pursuant to the Acquisition Agreement or (z) as agreed to by the Required Lenders (as such term is defined in Exhibit
B)) shall be deemed to form a part of the same Acquired Store Series)). Following the Acquisition, the Acquired Business will be
owned by the Company, except for any assets to be acquired in connection with any Subsequent Closing or the Distribution Center
Closing (as each of such terms are defined in the Acquisition Agreement as in effect on the date hereof).

 

(b) The Acquired Business will be released from
all obligations in connection with any debt for borrowed money, including the credit facility provided to Seller and its subsidiaries
for which Citibank, N.A. is the agent (the “Existing Credit Facility”) and any security interests in, encumbrances
or liens on any of the assets of the Acquired Business (other than Permitted Liens (as defined in the Acquisition Agreement)) will
be released and terminated (such release of obligations and the termination and discharge of such liens and encumbrances, the “Release”).

 

(d) Borrowers and the other Loan Parties (as
defined in Exhibit B) will enter into the Term Loan Facility and the applicable Loan Documents.

 

    	 	A-1	 

     

    

 

(e) Borrowers will enter into a senior secured
loan facility in an aggregate principal amount of $1,050,000,000 (as may be increased to $1,200,000,000 on the Closing Date) consisting
of (a) senior secured asset-based term loans advanced on a “first-in, last-out” basis in an aggregate principal amount
of $200,000,000 (as may be increased to $350,000,000 on the Closing Date) (the “ABL FILO Term Facility”) and
(b) a senior secured asset-based revolving loan and letter of credit facility in an aggregate principal amount of $850,000,000
(the “ABL Revolving Facility”), in each case subject to the applicable borrowing base and on the terms and conditions
set forth in that certain Senior Secured Loan Facility Commitment Letter, dated on or about the date hereof (the “ABL
Commitment Letter”), by and among the Company, MLPFS, as arranger, Bank of America, N.A., as agent and the other parties
thereto, with such changes thereto which are reasonably satisfactory to the Initial Lenders (the “ABL Loan Facility”;
such loans made under the ABL FILO Term Facility the “ABL FILO Loans” and such loans made under the ABL Revolving
Facility the “ABL Revolving Loans” collectively, the “ABL Loans”; and the commitments to
make such ABL FILO Loans the “ABL FILO Commitments” and the commitments to make such ABL Revolving Loans the
“ABL Revolving Commitments”, collectively the “ABL Commitments”), which shall be secured
by liens that are subordinated to the liens securing the Term Loan Facility, except for the liens on the ABL Priority Collateral
(as defined in Exhibit B) which will be senior to the liens securing the Term Loan Facility.

 

(f) The fees, premiums, expenses and other transaction
costs incurred in connection with the Transactions that are due and payable on or prior to the Closing Date (the “Transaction
Costs”) will be paid.

 

(g) The proceeds of the Term Loan Facility and
ABL Loan Facility will be used to pay the consideration and other amounts owing in connection with the Acquisition under the Acquisition
Agreement, to pay all or a portion of the Transaction Costs and for general corporate purposes.

 

The Acquisition, the Release, the Term Loan Facility, the ABL Loan
Facility and the other transactions described above or related thereto are collectively referred to as the “Transactions”.

 

    	 	A-2	 

     

    

 

EXHIBIT B

TO

COMMITMENT LETTER

 

FRED’S, INC.

 

$600,000,000 Senior Secured Term Loan Facility

(“Term Loan Facility”)

 

Summary of Principal Terms and Conditions

December 19, 2016

 

This Summary of Principal Terms and Conditions
(the “Term Sheet”) is part of the commitment letter, dated December 19, 2016 (the “Commitment Letter”),
addressed to Fred’s, Inc. (the “Company”) by Merrill Lynch, Pierce, Fenner & Smith Incorporated (together,
with its designated affiliates, “MLPFS”), TPG Specialty Lending Inc. (“TPG”), Crystal Financial
LLC (“Crystal”), Gordon Brothers Finance Company, LLC (“GBFC”), Pathlight Capital LLC (“Pathlight”),
Tennenbaum Capital Partners, LLC (“Tennenbaum”), Great American Capital Partners, LLC (“GACP”
and together with TPG, Crystal, GBFC, Pathlight and Tennenbaum, collectively, the “Initial Lenders”;; the Initial
Lenders together with MLPFS, each individually a “Commitment Party” and collectively, the “Commitment
Parties”), and is subject to the terms and conditions of the Commitment Letter. Capitalized terms used herein and the
accompanying annexes shall have the meanings set forth in the Commitment Letter unless otherwise defined herein.

 

	Borrowers:	The Company, AFAE, LLC and any other wholly-owned subsidiary of the Company organized under the laws of the United States or a State or instrumentality thereof with assets to be included in the Borrowing Base (individually, a “Borrower” and collectively, “Borrowers”).  All references to Borrowers shall mean such subsidiaries of the Company after giving effect to the Acquisition.
	 	 
	Guarantors:	Each of the Company’s existing and subsequently acquired or organized direct or indirect subsidiaries that are not Borrowers (collectively, the “Guarantors”, and together with Borrowers, individually a “Loan Party” and collectively, “Loan Parties”); provided, that, Guarantors shall not include (a) any non-US subsidiary of the Company organized or acquired after the Closing Date that is a “controlled foreign corporation” (within the meaning of Section 957 of the Internal Revenue Code) (“CFC”) and any U.S. subsidiary of the Company that is treated as a “disregarded entity” for federal income tax purposes the sole assets of which are equity interests in CFCs and that has no material assets or material operations other than the equity interests of CFC’s (such entity, a “CFC Holdco”), (b) immaterial subsidiaries (to be defined in a mutually acceptable manner as to individual and aggregate revenues and assets), and (c) special purpose entities whose only assets consist of real estate, improvements and fixtures thereon that are subject to existing mortgages to secure debt for borrowed money.  Notwithstanding the foregoing, in the event any holder of any debt for borrowed money of any Loan Party obtains any guaranty from any such CFC or such CFC Holdco, then, in such event, such CFC and/or CFC Holdco shall be required to provide a guaranty of the obligations under the Term Loan Facility.  Administrative Agent and Initial Lenders may agree that the special purpose entity that owns certain intellectual property used by the Company, which is expected to be dissolved and its assets transferred to the Company, will not be a Guarantor, provided, that, (i) if such company is not dissolved and all of its assets are not transferred to the Company within 6 months after the Closing Date, such entity will become a Guarantor and all of its assets subject to the perfected security interest of Administrative Agent and (ii) prior to such dissolution and transfer, such company will not engage in any business activities, own any material assets or have any material obligations or liabilities, other than the intellectual property that it currently owns, the licensing thereof, and transactions directly related thereto.

 

    	 	B-1	 

     

    

 

	Administrative Agent:	TPG or another Initial Lender (in such capacity, “Administrative Agent”).
	 	 
	Lenders:	
        Crystal, GBFC, Pathlight, TPG, GACP, Tennenbaum
        and such other institutions as may become parties to the Term Loan Facility as lenders (collectively “Term Loan Lenders”)
        but not including any Disqualified Lenders.

         

        The term “Disqualified Lender”
        means (i) any natural person, (ii) those banks, financial institutions and other institutional lenders and investors that have
        been separately identified in writing by the Company to Administrative Agent and Initial Lenders prior to the date of the Commitment
        Letter, (iii) those persons that are competitors of the Company that are separately identified by the Company to the Administrative
        Agent and Initial Lenders in writing (it being understood and agreed that any bona fide debt funds or any financial investors in
        such persons shall not constitute a competitor thereof) prior to the date of the Commitment Letter or from time to time thereafter
        (and if after the date of the Commitment Letter subject to the approval of Administrative Agent and provided that such notice shall
        not apply to retroactively disqualify any parties that have previously acquired an assignment of or participation interest in the
        Term Loans), and (iv) in the case of each of clauses (i), (ii) and (iii), any of their affiliates that are clearly identifiable
        as such by their names or identified in writing by the Company to the Administrative Agent.

	 	 
	Joint Lead Arrangers and Bookrunners:	MLPFS (in such capacity, “Lead Arranger”) and TPG (collectively with the Lead Arranger, the “Arrangers”).
	 	 
	Co-Documentation Agents:	Gordon Brothers Finance Company, Crystal and Pathlight (collectively, “Co-Documentation Agents”).
	 	 
	Term Loan Facility:	The Term Loan Facility will consist of a senior secured term loan facility in an aggregate principal amount of $600,000,000 provided to Borrowers, subject to the terms and conditions contained herein.   Amounts under the Term Loan Facility will be available in U.S. dollars.

 

    	 	B-2	 

     

    

 

	 	
        Term Loans under the Term Loan Facility (the
        “Term Loans”) shall be made in two drawings. The first drawing (the “Initial Draw”) shall
        be in an aggregate principal amount of at least $300,000,000 and shall be made by the Borrowers on or before the tenth (10th)
        business day after the Closing Date. The second drawing (the “Delayed Draw”) shall be made by the Borrowers
        on or before the earlier of (i) September 30, 2017 and (ii) the acquisition by the Company (through one or more of its wholly-owned
        domestic subsidiaries) of 425 Acquired Stores (as defined in the Acquisition Agreement) in the aggregate (the “Outside
        Draw Date”). Repayments and prepayments of the Term Loans may not be reborrowed. Borrowers shall have the option to permanently
        reduce the amount of the commitments under the Term Loan Facility, on a pro rata basis, in the aggregate amount of up to $150,000,000
        on or before the thirtieth (30th) day after the execution of the Commitment Letter, provided that (i) Borrowers shall
        have delivered written notice to the Initial Lenders stating the amount of such reduction, (ii) Borrowers shall have paid the Commitment
        Reduction Fee (as defined in the Fee Letters) and (iii) the commitments under the ABL Revolving Facility shall be increased in
        the amount equal to the amount of the reduction.

         

        Upon the funding of any Term Loan, the commitments
        in the amount of such Term Loan shall automatically terminate. On the Outside Draw Date, any unused commitments under the Term
        Loan Facility shall automatically terminate and the ability to request the Delayed Draw shall automatically terminate.

         

        The Company will be appointed to act as the
        agent for Loan Parties for all purposes of dealing with Administrative Agent and the Term Loan Lenders, including requesting Term
        Loans.

	 	 
	Amortization:	The Term Loans will be repaid in consecutive equal quarterly installments of principal in the amount of $7,500,000, commencing on the first day after the first full calendar quarter after the Closing Date, with the final installment to be in the then remaining balance of the Term Loan (and including principal, accrued and unpaid interest and other amounts) due on the Maturity Date.
	 	 
	Term Loan Borrowing Base:	
        To the extent that, at any time, and for so
        long as, the outstanding amount of the Term Loans exceeds the Term Loan Borrowing Base then in effect, the ABL Loan Agent shall
        establish and maintain a reserve (the “Term Loan Push Down Reserve”) against the “Borrowing Base”
        under the ABL Loan Facility equal to the amount of such excess.

         

        “Term Loan Borrowing Base”
        means the amount calculated as follows:

         

        (a)   10%
        of the face amount of eligible credit card receivables of Borrowers; plus

         

        (b)   10%
        of the net amount of eligible pharmacy    receivables of Borrowers; plus

         

        (c)   10%
        of the Net Recovery Percentage of eligible merchandise inventory (other than pharmacy inventory) of Borrowers multiplied by the
        value of such eligible inventory; plus

         

        (d)   10%
        of the Net Recovery Percentage of eligible pharmacy inventory of Borrowers multiplied by the value of such eligible inventory;
        plus

 

    	 	B-3	 

     

    

 

	 	
        (e)   Term
        Loan Pharmacy Scripts Availability (defined below).

         

        The “value” of each category of
        eligible inventory will be determined in accordance with generally accepted accounting principles as consistently applied by the
        Company pursuant to its then current practices (or in the case of certain categories of inventory to be specified by ABL Loan Agent,
        the retail value thereof), but in any event at all times consistent with the practices used in the most recent field examination
        and appraisals that have been received by ABL Loan Agent in accordance with the Loan Documents.

         

        The following defined terms used herein shall
        have the meaning set forth below:

         

        “Net Recovery Percentage”
        means the fraction, expressed as a percentage (a) the numerator of which is the amount equal to the recovery on the aggregate amount
        of the applicable category of eligible inventory at such time on a “going out of business” basis (or, in the case of
        any Acquired Store (through the period during which the Transition Services Agreement is in effect), on a “store closing
        sale” basis) as set forth in the most recent acceptable inventory appraisal received by ABL Loan Agent in accordance with
        the requirements of the Loan Documents, net of operating expenses, liquidation expenses and commissions reasonably anticipated
        in the disposition of such assets and (b) the denominator of which is the original cost (or as to certain categories of inventory
        as specified by ABL Loan Agent, the retail value) of the aggregate amount of the eligible inventory subject to such appraisal.

         

        “Pharmacy Scripts Advance Rate”
        means 75% on the Closing Date, which percentage shall be reduced on the first day of each fiscal quarter after the Closing Date
        by the greater of (i) 0.75% and (ii) the sum of 7,500,000 divided the then applicable Aggregate Pharmacy Scripts Value (as defined
        below).

         

        “Term Loan Pharmacy Scripts Availability”
        means the lowest of:

         

        (a)   The
        sum of (i) the Pharmacy Scripts Advance Rate multiplied by the product of (x) the average per script “net orderly liquidation
        value” of eligible prescription files (“pharmacy scripts”) based on the most recent acceptable appraisal
        received by ABL Loan Agent in accordance with the requirements of the Loan Documents, net of operating expenses, liquidation expenses
        and commissions reasonably anticipated in the disposition of such assets (“Pharmacy Scripts NOLV”), multiplied
        by (y) the number of eligible pharmacy scripts (the product of (x) and (y) being the “Aggregate Pharmacy Script Value”),
        minus (ii) the sum of (x) the “Pharmacy Scripts Availability”, if any and (y) the “FILO Pharmacy Scripts Availability”
        whether or not the ABL FILO Term Loan has been drawn (as such terms are defined in the “Borrowing Base” under the ABL
        Loan Facility), or

         

        (b)   the
        amount equal to 85% of the Term Loan Cap (determined without regard to this limitation in this clause (b)).

 

    	 	B-4	 

     

    

 

	 	“Term Loan Cap” means, at any time of determination, the lesser of (a) the then outstanding amount of the Term Loans plus the unused Term Loan commitments or (b) the Term Loan Borrowing Base.  
	 	 
	Eligibility:	Criteria for determining eligible credit card receivables, eligible pharmacy receivables, eligible merchandise inventory, eligible pharmacy inventory, and eligible pharmacy scripts will be in the permitted discretion of ABL Loan Agent in accordance with ABL Loan Agent’s customary practices and as appropriate under the circumstances as determined by ABL Loan Agent pursuant to field examinations and other due diligence (it being understood that eligibility criteria with respect to the foregoing as of the Closing Date shall be mutually acceptable to the “Collateral Agents” under the ABL Loan Facility and the Initial Lenders).
	 	 
	Optional Prepayments:	Subject to the Early Termination Fee provided in the Initial Lender Fee Letter, Term Loans may be prepaid in whole or in part from time to time at the option of Borrowers, upon notice and in minimum principal amounts and multiples to be agreed and will be applied to installments of principal in the inverse order of maturity (and including all breakage or similar costs, if any).
	 	 
	Mandatory Prepayments:	
        Borrowers will be required to make prepayments:

         

        (a)   in
        an amount equal to 100% of the net cash proceeds of asset dispositions (except for dispositions resulting from casualty losses
        or condemnations and subject to exceptions to the extent mutually agreed upon and including sales in the ordinary course of business,
        but not any bulk sales);

         

        (b)   in
        an amount equal to 100% of the net cash proceeds of any debt issued by any Loan Party or its subsidiaries (other than certain categories
        of permitted debt to be specified);

         

        (c)   in
        an amount equal to 100% of the net cash proceeds of any equity issuance by any Loan Party or its subsidiaries (other than equity
        issuances by a Loan Party or its subsidiary to its or their members or management and other employees, in each case as to such
        members, management or other employees pursuant to employee stock or option plans approved by the board of directors and other
        exceptions to be agreed);

         

        (d)   in
        an amount equal to 100% of the net cash proceeds of casualty insurance and condemnation receipts received by any Loan Party or
        its subsidiaries, subject to reinvestment rights to be agreed;

         

        (e)   in
        an amount equal to 100% of the net proceeds of extraordinary receipts (the definition of which is to be agreed), except for proceeds
        less than an amount to be agreed.

 

    	 	B-5	 

     

    

 

	 	
        Mandatory prepayments specified
        in clauses (a) through (e) will be applied first to the ABL Revolving Loans (without permanent reduction in commitments), to cash
        collateralize Letters of Credit and then to the outstanding ABL FILO Term Loans in the event that the asset sold or that is the
        basis for the receipts is ABL Priority Collateral or first to the Term Loans in the event that the asset sold is the basis for
        the receipts is Term Loan Priority Collateral; provided that, if the Prepayment Exception Conditions are satisfied at the time
        of a prepayment under clauses (b) or (c) above, such amounts may (at the sole discretion of the Borrowers) be applied first to
        the Term Loans and thereafter to the ABL Loans (and in the case of the ABL Revolving Loans, without permanent reduction in commitments),
        to cash collateralize Letters of Credit and then to the outstanding ABL FILO Term Loans.

         

        The “Prepayment Exception Conditions”
        means: (A) no Default or Event of Default has occurred and is continuing, (B) Excess Availability for the immediately preceding
        30 consecutive day period shall have been (i) for the period from the Closing Date through the second anniversary of the Closing
        Date, not less than the greater of (1) 35% of the Combined Loan Cap or (2) $450,000,000 and (ii) thereafter, not less than the
        greater of (1) 30% of the Combined Loan Cap or (2) $400,000,000, (C) after giving effect to any such payment, the Excess Availability
        shall be not less than the greater of such amounts in the foregoing clause (B), (D) Excess Availability as projected as of the
        end of each month for each of the twelve (12) months following such payment shall be not less than the greater of such amounts
        in the foregoing clause (B), and (E) the Fixed Charge Coverage Ratio, on a pro forma basis, after giving effect to the incurrence
        of such debt (x) based on the most recent financial statement received by Agent prior to the date thereof for the 12 month period
        prior thereto and (y) as projected as of the end of each month for each of the twelve (12) months following the incurrence of such
        debt, in each case of clause (x) and (y), shall be not less than 1.00 to 1.00.

	 	 
	Interest and Fees:	See Schedules 1 and 2 attached hereto.
	 	 
	Use of Proceeds:	The proceeds of the Term Loans will be used by Borrowers (a) to pay costs, expenses and fees in connection with the Term Loan Facility, the Acquisition and the other Transactions, (b) for payment of consideration for the acquisition of additional retail stores and related assets and/or the Distribution Center pursuant to, and in accordance with the terms of the Acquisition Agreement, and (c) to pay down the ABL Loan Facility without permanent reduction in commitments thereunder.
	 	 
	Closing Date:	The date on or before June 30, 2017 on which the conditions set forth in Section 6 of the Commitment Letter are satisfied or waived (the “Closing Date”).
	 	 
	Term:	5 years from the Closing Date (the “Maturity Date”).
	 	 
	Collateral:	
        Subject to the Certain Funds Provisions
and the limitations set forth below, to secure all obligations of each Loan Party, (a) first priority (subject to certain specified
permitted liens), perfected security interests in and liens on all Term Loan Priority Collateral and (b) second priority (subject
to certain specified permitted liens), perfected security interests in and liens on all ABL Priority Collateral subordinate only
to the liens securing the ABL Loan Facility pursuant to the terms of the Intercreditor Agreement (as defined below). 

 

    	 	B-6	 

     

    

 

	 	“ABL Priority Collateral” means all present and future assets and properties of the Loan Parties, including (a) accounts (other than accounts arising under contracts for sale of Term Loan Priority Collateral as such term is defined below) and payment intangibles, including credit card receivables, (b) general intangibles (including all intellectual property and loans or advances payable by a Loan Party to any other Loan Party) and prescription files, (c) chattel paper (other than chattel paper relating to Term Loan Priority Collateral), (d) documents, (e) instruments (including any promissory notes), (f) supporting obligations, (g) letters of credit and letter-of-credit rights, (g) deposit and securities accounts, investment property (including any stock or other equity or ownership interests in the subsidiaries and affiliates of each Loan Party), (h) commercial tort claims, (i) inventory, (j) all books, records and documents related to the foregoing (including databases, customer lists and other records, whether tangible or electronic, which contain any information relating to any of the foregoing) and (k) all proceeds and products of any or all of the foregoing in whatever form received, including proceeds of business interruption and other insurance and claims against third parties), other than (x) Excluded Assets or (y) to the extent constituting Term Loan Priority Collateral.
	 	 
	 	“Term Loan Priority Collateral” means all present and future assets and properties of the Loan Parties consisting of (a) equipment, (b) fixtures, (c) motor vehicles, (d) fee and leasehold real property (including improvements and rights related thereto), (e) any deposit account used exclusively for the deposit of proceeds of Term Loan Priority Collateral, (f) to the extent evidencing, governing, securing or otherwise related to any of the foregoing and the other Term Loan Priority Collateral, documents, general intangibles (excluding all intellectual property, any loans or advances payable by a Loan Party to any other Loan Party and all prescription files), chattel paper, instruments, investment property (excluding any stock or other equity or ownership interests in the subsidiaries and affiliates of each Loan Party), commercial tort claims, letters of credit, supporting obligations and letter of credit rights, (g) accounts arising from contracts of sale of Term Loan Priority Collateral and (h) all proceeds and products of any or all of the foregoing in whatever form received (but not including proceeds of business interruption insurance or any identifiable proceeds of ABL Priority Collateral), other than Excluded Assets.
	 	 
	 	“Collateral” means the ABL Priority Collateral and the Term Loan Priority Collateral.

 

    	 	B-7	 

     

    

 

	 	Notwithstanding anything to the contrary contained herein, the Collateral shall not include the following (the “Excluded Assets”): (a) shares of any subsidiary that is a CFC or a CFC Holdco, in each case in excess of sixty-five percent of all of the issued and outstanding shares of capital stock of such subsidiary entitled to vote to secure the obligations of Borrowers, if a pledge of a greater percentage would result in material adverse tax consequences to the Company, (b) leasehold interests in real property, but only to the extent granting such lien is expressly prohibited by such lease, (c) deposit accounts exclusively used for trust, payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of any Loan Party’s employees, (d) any rights or interests in any contract, agreement, lease, permit, license, charter or license agreement, as such, if under the terms of such contract, agreement, lease, permit, license, charter or license agreement covering real or personal property, or applicable law with respect thereto, the valid grant of a security interest or lien therein to Administrative Agent would constitute or result in a breach, termination or default under such contract, agreement, lease, permit, license, charter or license agreement and such breach, termination or default has not been or is not waived or the consent of the other party to such contract, agreement, lease, permit, license, charter or license agreement has not been or is not otherwise obtained or under applicable law such prohibition cannot be waived; provided, that, the foregoing exclusion shall in no way be construed (i) to apply if any such prohibition is unenforceable under Sections 9-406, 9-407 or 9-408 of the Uniform Commercial Code or other applicable law or (ii) so as to limit, impair or otherwise affect Administrative Agent’s unconditional continuing security interests in and liens upon any rights or interests of a Loan Party in or to monies due or to become due under any such contract, lease, permit, license, charter or license agreement, (e) any United States intent-to-use trademark applications to the extent that, and solely during the period in which, the grant of a security interest therein would impair the validity or enforceability of such intent-to-use trademark applications under applicable federal law; provided, that, upon submission and acceptance by the U.S. Patent and Trademark Office of an amendment to allege use pursuant to 15 U.S.C. Section 1060(a), such intent-to-use trademark application shall be considered Collateral, (f) any governmental licenses or state or local franchises, charters and authorizations, to the extent security interests in such licenses, franchises, charters or authorizations are prohibited thereby, provided, that, the foregoing exclusion shall in no way be construed (i) to apply if any such prohibition is unenforceable under the Uniform Commercial Code or other applicable law or (ii) so as to limit, impair or otherwise affect Administrative Agent’s unconditional continuing security interests in and liens upon any proceeds thereof, (g) equipment owned by any Loan Party on the date hereof or hereafter acquired that is subject to a lien securing a purchase money obligation or capitalized lease permitted to be incurred pursuant to the Loan Document if the contract or other agreement in which such lien is granted validly prohibits the creation of any other lien on such equipment, and (h) pledges and security interests prohibited by applicable law, rule or regulation (including any legally effective requirement to obtain the consent of any governmental authority). Proceeds of Excluded Assets shall be deemed Collateral.  
	 	 
	 	In addition, no actions will be required by Loan Parties to perfect security interests in (i) commercial tort claims with a value of less than an amount to be agreed, (ii) promissory notes in an principal amount of less than an amount to be agreed, (iii) share certificates of subsidiaries organized under the laws of a jurisdiction outside of the United States or Canada and (iv) store deposit accounts which are not maintained at a depository bank where other deposit accounts are and so long as funds in such accounts are remitted to a concentration account on a daily basis or other regular periodic basis in a manner consistent with the requirements contained under the heading “Cash Management”.  

 

    	 	B-8	 

     

    

 

	 	As to specific items of Collateral, Administrative Agent may determine not to perfect its security interest therein based on the de minimus value thereof relative to the costs of such perfection.  The obligations secured shall include hedging and bank product obligations of any Loan Party where a Term Loan Lender or an affiliate of a Term Loan Lender is a counterparty.
	 	 
	 	Intercreditor arrangements between Administrative Agent and the agent or other representative for the ABL Loan Facility (the “ABL Loan Agent”) will be set forth in an intercreditor agreement (the “Intercreditor Agreement”), which will be in form and substance reasonably satisfactory to Administrative Agent, the Term Loan Lenders, the ABL Loan Agent and the Company.
	 	 
	Documentation:	Definitive loan documentation (collectively, the “Loan Documents”), including, without limitation, a term loan agreement, security agreements, pledge agreements, guarantees, control agreements, mortgages, evidence of insurance coverage, lender’s loss payable endorsements as to casualty and business interruption insurance, mortgagee’s title insurance (with satisfactory endorsements and coverage for matters disclosed by surveys), flood certificates and evidence of flood insurance for all fee and leasehold real property subject to a mortgage, the Intercreditor Agreement, lien search results, customary opinion letters of counsel to the Loan Parties, collateral access agreements, collateral assignment of rights under acquisition documents (including any transition services agreement), payoff letters, borrowing base certificate and documents and agreements related to all of the foregoing, each in form and substance reasonably satisfactory to the Company, Administrative Agent and Initial Lenders.
	 	 
	 	The terms and provisions of the Loan Documents will be mutually agreed upon, the terms of which (including materiality thresholds, baskets, exceptions, qualifications and grace periods) will be negotiated in good faith (giving due regard to the operational requirements, size, industry, businesses, financial condition, leverage, capital structure, projected performance, reporting and accounting systems, Excess Availability, collateral and practices of the Company and its subsidiaries, the Transactions, and the practices and procedures of the Administrative Agent and the asset-based lending market), and will be consistent with this Term Sheet (the “Documentation Principles”).
	 	 
	 	With respect to lien waivers and access agreements from lessors of leased real property or operators of premises where inventory of Borrowers is located, Borrowers shall use commercially reasonable efforts to obtain such agreements prior to closing for the corporate headquarters, distribution centers and warehouses (but not for retail store locations) and to the extent not delivered prior to closing, shall use commercially reasonable efforts to obtain such agreements thereafter.  To the extent that Administrative Agent has not received a reasonably acceptable lien waiver and access agreement for a leased or third party location of any Loan Party consisting of a warehouse, distribution center or store location in a state where a landlord has a lien under applicable law, ABL Loan Agent shall establish a one-month reserve in respect of amounts payable under the applicable lease or other agreement with such lessor or operator subject to certain limitations to be agreed.

 

    	 	B-9	 

     

    

 

	 	The real estate mortgages in favor of the Administrative Agent for the benefit of the Term Loan Lenders shall be filed no later than sixty (60) days after the date of the Closing Date (or such later period as the Administrative Agent may agree), provided that mortgages shall not be required with respect to real estate that has a value below $100,000.
	 	 
	 	Borrowers shall use their best efforts to deliver certificates of title with respect to motor vehicles to the Administrative Agent upon the Administrative Agent’s request if (i) an Event of Default has occurred or (ii) Excess Availability is less than or equal to 25% of the Combined Loan Cap.
	 	 
	Representations and Warranties:	Subject to the Certain Funds Provisions and the Documentation Principles, limited to the following, and subject to materiality and other negotiated limitations and exceptions, in each case as agreed by the parties, the term loan agreement governing the Term Loan Facility will contain the following representations and warranties: due organization and qualification; accuracy of financial information; subsidiaries; due authorization; no conflict; governmental consents; binding obligations; perfected liens; title to assets; no encumbrances; jurisdiction of organization; location of chief executive office; organizational identification number; commercial tort claims; litigation; compliance with law (including regulatory and licensing requirements), regulation, etc. (including without limitation Regulations T, U and X, Investment Company Act, the USA Patriot Act, environmental laws, FCPA, OFAC and other anti-terrorism laws); no material adverse change; fraudulent transfer; solvency; ERISA compliance; employee and labor matters; environmental matters; intellectual property; leases; deposit accounts and securities accounts; complete disclosure; material contracts; indebtedness; payment of taxes; margin stock; the Acquisition and acquisition documents (including the Acquisition Agreement and the Transition Services Agreement); eligible credit card receivables, eligible pharmacy receivables, eligible inventory and other eligible assets; location of inventory and equipment; inventory records; insurance; no default; no brokers; equity interests; customer and trade relations; no casualty.
	 	 
	Affirmative Covenants:	Subject to the Certain Funds Provisions and the Documentation Principles, limited to the following, and subject to materiality and other negotiated limitations and exceptions, in each case as agreed by the parties, the term loan agreement governing the Term Loan Facility will contain the following affirmative covenants: financial statements, financial projections, management letters and other information; notices of defaults, litigation and other material events; collateral matters (including without limitation, reporting, notices and appraisal requirements); payment of obligations; cash management; reports and certificates; existence; maintenance of properties, including implementation and maintenance of appropriate systems; taxes; insurance; inspection; compliance with laws (including without limitation the USA Patriot Act, FCPA, OFAC and other anti-terrorism laws and Medicaid/Medicare or other regulatory laws); environmental; disclosure updates; formation of subsidiaries; senior debt status; bank products; accounting changes; further assurances; additional loan parties; lender meetings; material contracts (including the Acquisition Agreement and the Transition Services Agreement); employee and labor matters; new locations of Collateral; use of proceeds; compliance with terms of leaseholds; books and records; accountants; physical inventories; ERISA matters.

 

    	 	B-10	 

     

    

 

	Collateral and Financial Reporting:	Collateral and financial reporting shall be usual and customary for facilities of this nature and as may be deemed appropriate by Administrative Agent, including:
	 	 
	 	(a)   At any time prior to the date that the Borrowers shall have acquired 90% of all retail store locations (and related assets) required to be acquired pursuant to the Acquisition Agreement, weekly borrowing base certificates (except that, in connection with a Subsequent Closing, such borrowing base certificate may be delivered upon the consummation of a Subsequent Closing) and, thereafter, monthly borrowing base certificates so long as Excess Availability is not less than the greater of (i) 20.0% of the Combined Loan Cap or (ii) $250,000,000 and no default or event of default exists, otherwise weekly; provided, that, at any time borrowing base certificates are delivered on a weekly basis, it shall continue for not less than four consecutive weeks;
	 	 
	 	(b)    ABL Loan Agent shall cause (i) two (2) field examinations and two (2) appraisals of each of inventory and pharmacy scripts in each 12 month period to be conducted at the expense of Borrowers, provided that (ii) at any time Excess Availability is less than the greater of (A) 20.0% of the Combined Loan Cap or (B) $250,000,000, ABL Loan Agent shall cause a third field examination and a third appraisal of each of inventory and pharmacy scripts to be conducted in such 12 month period at the expense of Borrowers.
	 	 
	 	Subject to customary terms and conditions set forth in the Intercreditor Agreement (including customary prior notice periods and opportunity for ABL Loan Agent to conduct any such appraisal or field exam), in the event that the ABL Loan Agent has not conducted such appraisals, and field examinations in accordance with the cadence set forth in clause (i) above or, as mutually agreed by the Administrative Agent and Term Loan Lenders, clause (ii) above (to the extent applicable), and provided the results of such appraisals and field exams to the Administrative Agent,  Administrative Agent may cause such appraisals and/or field examinations to be conducted at the expense of Borrowers, which appraisal or field exam shall be utilized by the ABL Loan Agent in connection with determining “eligibility”, the applicable Net Recovery Percentage and the Pharmacy Script NOLV, provided that the amount available to be borrowed under the Borrowing Base or  the FILO Loan Borrowing Base does not increase.  All appraisals and field exams shall be (x) conducted by appraisers and firms that are reasonably acceptable to the Administrative Agent (it being agreed that Tiger Capital Group, LLC and Hilco Merchant Resources are deemed to be reasonably acceptable appraisers with respect to inventory and pharmacy scripts and Nardella & Taylor, LLP and Richter Consulting are deemed to be reasonably acceptable field examiners) and (y) satisfactory in scope to the Administrative Agent (it being agreed that the scope of the most recent appraisals and field examinations are satisfactory to the Administrative Agent, and upon any changes in circumstance or financial condition of Borrowers, the Administrative Agent shall have the reasonable opportunity to consult with the ABL Loan Agent regarding any required changes to such scope); 

 

    	 	B-11	 

     

    

 

	 	(c)   Monthly financial statements, annual unqualified audited financial statements and projections; 
	 	 
	 	(d)   Other financial and collateral reports (including rolling 13-week cash flow projections and reporting); and 
	 	 
	 	(e)   Prior to the Closing Date the Company shall provide monthly financial statements for Fred’s Inc. and shall use reasonable best efforts to cause the Seller to deliver monthly financial statements for the 865 retail stores of the Acquired Business including the 4-Wall EBITDA.
	 	 
	 	The term “Excess Availability” as used herein means, at any time, (i) the ABL Loan Cap at such time (plus, at any time prior to September 30, 2017 and, solely to the extent the ABL FILO Term Facility is not funded, the lesser of the FILO Borrowing Base under the ABL Loan Facility and the ABL FILO Commitments), minus (ii) the ABL Revolving Loans and Letters of Credit then outstanding. At all times Excess Availability is tested the Borrower shall certify to the Administrative Agent and Term Loan Lenders that all expenses, including rent, trade payables and amounts due under the Transition Services Agreement have been paid in the ordinary course of business in all material respects.
	 	 
	 	“Combined Loan Cap” shall have the meaning set forth in the ABL Commitment Letter.
	 	 
	 	The term “ABL Loan Cap” as used herein means, at any time, the lesser of (i) the “Borrowing Base” under the ABL Loan Facility at such time and (ii) the aggregate amount of the ABL Revolving Commitments.
	 	 
	 	Through the later of the date that is (x) the six (6) month anniversary of the Closing Date and (y) sixty (60) days following the date that the Borrowers shall have acquired 80% of all retail store locations (and related assets) required to be acquired pursuant to the Acquisition Agreement, the ABL Loan Agent will, at the expense of the Borrowers, retain Berkeley Research Group, LLC as a consultant and financial advisor (“Advisor”) to provide: (i) financial reporting and borrowing base validation services (including, without limitation, rolling 13-week cash flow projections and reporting); (ii) pre-close evaluation of the cash management and collateral reporting available off the clone system following a month-end close during the ten (10) store pre-close testing project; (iii) progress reporting on the Company’s progress relating to integration and Transition Services Agreement processes; (iv) evaluation of the satisfactory integration (during such period of engagement) and plan of integration of the ERP system; and (v) financial advisory services as requested by the ABL Loan Agent and Administrative Agent. Any and all reports prepared by the Advisor shall be provided to the Administrative Agent and Initial Lenders. ABL Loan Agent shall cause the Advisor, from time to time upon reasonable advance request by the Administrative Agent and the Initial Lenders (but, in any event, not more frequently than one time per week), to participate in status calls with the Administrative Agent and the Initial Lenders with respect to the services performed and reports prepared by the Advisor.

 

    	 	B-12	 

     

    

 

	Cash Management:	
        As of the Closing Date, Loan Parties shall
        have a cash management system in form and substance reasonably satisfactory to ABL Loan Agent and Administrative Agent (it being
        understood that a cash management system similar in function to that of Rite Aid Corporation shall be satisfactory to ABL Loan
        Agent and Administrative Agent). Loan Parties will direct all credit card issuers and processors, and those customers making payments
        on receivables, to remit payments to deposit accounts that, subject to the Certain Funds Provision, are the subject of control
        agreements among the applicable Loan Party, Administrative Agent, ABL Loan Agent and the depository bank in form and substance
        reasonably satisfactory to ABL Loan Agent and Administrative Agent and Loan Parties will be required to promptly remit any payments
        received by them to these accounts. Funds deposited into the deposit accounts of Loan Parties shall be remitted to ABL Loan Agent
        for application to the obligations upon a Cash Dominion Event.

         

        “Cash Dominion Event” means
        (a) Excess Availability is less than the greater of (i) 15.0% of the Combined Loan Cap at any time or (ii) $200,000,000, or (b)
        an event of default exists or has occurred and is continuing; provided, that,

         

        (i)      to
        the extent that the Cash Dominion Event has occurred due to clause (a) of this definition, if Excess Availability shall be equal
        to or greater than the applicable amount for at least 30 consecutive days, the Cash Dominion Event shall no longer be deemed to
        exist or be continuing until such time as Excess Availability may again be less than the amount in clause (a) of this definition,
        and

         

        (ii)     to
        the extent that the Cash Dominion Event has occurred due to clause (b) of this definition, if such event of default is cured or
        waived or otherwise no longer exists, the Cash Dominion Event shall no longer be deemed to exist or be continuing.

	 	 
	Financial Covenant:	Borrowers shall maintain minimum Excess Availability at all times equal to the greater of (a) 10% of the Combined Loan Cap or (b) (x) from the Closing Date through the 60 day anniversary of the Closing Date, $100,000,000 and (y) thereafter, $150,000,000.

 

    	 	B-13	 

     

    

 

	Negative Covenants:	Subject to the Certain Funds Provisions and the Documentation Principles, limited to the following, and subject to materiality and other negotiated limitations and exceptions (including baskets in amounts to be agreed for certain covenants), in each case as agreed by the parties, the term loan agreement governing the Term Loan Facility will contain the following negative covenants: dividends, distributions, redemptions and repurchases of capital stock; incurrence of debt (including capital leases) and guarantees; repurchases, repayments or prepayment of subordinated debt or optional repurchases, prepayments or other optional payments in respect of other debt; creation or suffering of liens; loans, investments and acquisitions (including the acquisition of additional store locations under the Acquisition Agreement after the Closing Date); affiliate transactions; changes in the conduct of business, fiscal year or accounting practices; asset sales, store closings, mergers, consolidations and other fundamental changes; restrictions affecting subsidiaries; limitation on amendment of organizational documents and certain material agreements (including the Acquisition Agreement and Transition Services Agreement); use of proceeds; inventory and equipment with bailees; bank accounts and credit card arrangements; and burdensome agreements.
	 	 
	 	The negative covenant on dividends, redemptions and repurchases of capital stock and on optional prepayments of indebtedness will expressly allow such dividends, redemptions and repurchases, or such optional prepayments, provided, that, (i) no such dividends, redemptions and repurchases or optional prepayments may be made on or before the second anniversary of the Closing Date (other than dividends in an aggregate amount not to exceed $10,000,000 in any fiscal year, so long as no default or event of default shall have occurred and be continuing or would result therefrom (including under the Financial Covenant))and (ii) Loan Parties may make dividends, redemptions and repurchases of capital stock and on optional prepayments of indebtedness after the second anniversary of the Closing Date, provided, that, (A) as of the date of any such payment in respect thereof, and after giving effect thereto, each of the Payment Conditions (as defined below) is satisfied and (B) Administrative Agent shall have received prior notice and other information related to such transactions in a manner and on terms to be agreed.
	 	 
	 	The negative covenant governing acquisitions after the Closing Date (other than pursuant to the Acquisition Agreement) will expressly allow an acquisition, provided, that, except as otherwise provided below, (i) no acquisition or series of related acquisitions involving consideration in excess of $40,000,000 per year (of which, not more than $20,000,000 shall be paid in consideration of any acquisition of assets not constituting script files through the first anniversary of the Closing Date), in any one case or in the aggregate, shall occur prior to the second anniversary of the Closing Date; provided that the limitations set forth in this clause (i) shall no longer apply in the event that Excess Availability as of the fiscal year ended January 2018 is greater than $500,000,000, (ii) as of the date of any such acquisition and after giving effect thereto, each of the Payment Conditions is satisfied, (iii) the acquisition shall be with respect to an operating company or division or line of business that engages in a line of business substantially similar, reasonably related or incidental to the business that Borrowers are engaged in, (iv) the board of directors (or other comparable governing body) of the person to be acquired shall have duly approved such acquisition and such person shall not have announced that it will oppose such acquisition or shall not have commenced any action which alleges that such acquisition will violate applicable law, and (v) Administrative Agent shall have received prior notice and other information related to such transactions in a manner and on terms to be mutually agreed.

 

    	 	B-14	 

     

    

 

	 	The negative covenants will include a provision permitting the acquisition by the Borrowers of additional stores (and related assets) from Seller under the Acquisition Agreement, provided that the consummation of any such Subsequent Closing shall be subject only to the following conditions (the “Subsequent Acquisition Conditions”):  (a) the closing of the acquisition of Purchased Assets pursuant to such Subsequent Closing, in accordance with the Acquisition Agreement as in effect on the date hereof (subject to the Permitted Amendments (as defined on Exhibit C)), (b) as of the date of any such purchase and after giving effect thereto, Excess Availability shall be not less than the greater of (x) 25% of the Combined Loan Cap and (y) $150,000,000 (determined after giving effect to the acquisition of the eligible assets related to such stores), (c) to the extent not previously provided, the Administrative Agent shall have received customary lien release documents with respect to the assets then being acquired, (d) Administrative Agent shall have received a current borrowing base certificate with respect to the assets acquired pursuant to such Subsequent Closing, (e) Administrative Agent shall have received not less than three business days’ prior written notice of the proposed Subsequent Closing, (f) (i) at any time during the Acquisition Period (x) the Specified Representations shall be true and correct in all material respects at such time where not already qualified by materiality or “material adverse effect”, otherwise in all respects, (y) the Acquisition Agreement Representations (set forth in (1) the first sentence of Section 3.05 of the Acquisition Agreement, (2) Section 3.09 of the Acquisition Agreement, (3) the second and third sentence of Section 3.13 of the Acquisition Agreement, (4) the last sentence of Section 3.15 of the Acquisition Agreement, and (5) the last sentence of Section 3.18 of the Acquisition Agreement) will be true and correct as and to the same extent required by Section 6 of the Commitment Letter (it being understood that references to “the Acquisition” therein shall for this purpose refer to such Subsequent Closing) and (z) the Sellers shall have certified to the Borrowers that the covenants contained in the first sentence of Section 5.01 of the Acquisition Agreement (with respect to Inventory levels and prescription volumes) and Section 5.01(f) of the Acquisition Agreement have been complied with in all material respects; and (ii) at any time after the Acquisition Period or after the LCT Limitation (as defined in the ABL Commitment Letter) has been exceeded, the Borrowers shall have satisfied  all conditions precedent set forth below under the heading “Conditions Precedent to Initial Draw and Delayed Draw” with respect to such Term Loans, and (g) Administrative Agent shall have received a certificate of a responsible officer of the Company certifying and attaching calculations demonstrating (as applicable), compliance with each of the conditions set forth herein.
	 	 
	 	“Acquisition Period” means, the period commencing on the Closing Date and ending on the six-month anniversary of the Closing Date.

 

    	 	B-15	 

     

    

 

	 	Any new domestic or foreign subsidiary acquired pursuant to an acquisition after the Closing Date will be joined as a Borrower or Guarantor (except as to any subsidiary that is not required to be a Guarantor) and additional Loan Documents executed and delivered in connection therewith.  Assets acquired after the Closing Date (other than pursuant to the terms of the Acquisition Agreement) will only be eligible after a satisfactory field examination, appraisal and legal diligence, provided, in all instances (including in respect of assets acquired pursuant to the terms of the Acquisition Agreement) subject to reserves and eligibility criteria.
	 	 
	 	“Payment Conditions” means, at the time of determination with respect to any specified transaction or payment the following:
	 	 
	 	(a)   The Administrative Agent shall have received unqualified audited financial statements for the fiscal year of the Borrowers ended January 2018,
	 	 
	 	(b)   as of the date of any such transaction or payment, and after giving effect thereto, no default or event of default shall exist or have occurred and be continuing, 
	 	 
	 	(c)   as of the date of any such transaction or payment, on a pro forma basis and after giving effect thereto, either:
	 	 
	 	(i)      (A) the Excess Availability for the immediately preceding 30 consecutive day period shall have been not less than the greater of (1) 20.0% of the Combined Loan Cap or (2) $250,000,000, (B) the Excess Availability on the date of such specified transaction or payment shall be not less than the greater of such amounts, (C) Excess Availability as projected as of the end of each month for each of the twelve (12) months following such transaction or payment (with certain exceptions to be agreed) shall be not less than the greater of such amounts and (D) the Fixed Charge Coverage Ratio based on the most recent financial statement received by the Administrative Agent prior to the date thereof for the 12 month period prior thereto, shall be not less than 1.00 to 1.00; or
	 	 
	 	(ii)     provided that the Fixed Charge Coverage Ratio for any 12 month period ended on or after the second anniversary of the Closing Date, shall not have been less than 1.00 to 1.00, (A) the Excess Availability for the immediately preceding 30 consecutive day period shall have been not less than the greater of (1) 30.0% of the Combined Loan Cap or (2) $375,000,000, (B) the Excess Availability on the date of such specified transaction or payment shall be not less than the greater of such amounts, and (C) Excess Availability as projected as of the end of each month for each of the twelve (12) months following such transaction or payment shall be not less than the greater of such amounts; and,
	 	 
	 	(d)   Administrative Agent shall have received a certificate of an authorized officer of Borrowers certifying as to compliance with the preceding clauses and demonstrating (in reasonable detail) the calculations required thereby which is reasonably acceptable to the Administrative Agent and the Term Loan Lenders.

 

    	 	B-16	 

     

    

 

	 	Borrowers shall not be permitted to draw the ABL FILO Term Loan under the ABL Loan Facility until the Term Loan Facility is fully funded.
	 	 
	Events of Default:	Limited to the following, subject to the Documentation Principles, and subject to cure periods to be agreed, materiality and other negotiated limitations, in each case as agreed by the parties, the term loan agreement governing the Term Loan Facility will contain the following events of default: payment and performance defaults under any of the Loan Documents, cross-defaults to other material indebtedness (to be defined as indebtedness in excess of $25,000,000), an early termination date occurs under any swap contract, breach of representations and warranties, insolvency (whether or not insolvency proceedings have been instituted), voluntary and involuntary bankruptcy, judgments and attachments in excess of an amount to be agreed (or not subject to stay), non-monetary judgments that could have a material adverse effect, revocation of (or attempted revocation of) any guaranty, dissolution, change in control, impairment of a material portion of the security, ERISA, actual or asserted invalidity or unenforceability of any Loan Documents or liens securing obligations under the Loan Documents, invalidity of subordination or intercreditor provisions, material uninsured loss, felony indictment, injunction or court or other governmental order preventing continuing conduct of all or any material part of the business affairs of the Loan Parties, or suspension or termination of all or a substantial portion of its business.
	 	 
	Conditions Precedent to Closing:	The conditions precedent to the closing of the Term Loan Facility will consist of those conditions precedent set forth in Section 6 of the Commitment Letter.
	 	 
	Conditions Precedent to Initial Draw and Delayed Draw:	
        The Initial Draw shall be made in one advance
        on or before ten (10) business days after the Closing Date. The advance under the Initial Draw shall be subject to (i) five (5)
        days’ prior written notice from the Company to the Administrative Agent of the request for the Term Loan in accordance with
        the procedures set out in the Loan Documents and (ii) the Draw Conditions (as defined below).

         

        The Delayed Draw shall be made in one advance
        on or before the Outside Draw Date. The advance under the Delayed Draw shall be subject to (i) five (5) days’ prior written
        notice from the Company to the Administrative Agent of the request for the Term Loan in accordance with the procedures set out
        in the Loan Documents and (ii) the Draw Conditions (as defined below).

         

        “Draw Conditions” means,
        as of the date of any advance under the Term Loan Facility and after giving effect thereto, (a) Excess Availability shall be not
        less than the greater of (x) 25% of the Combined Loan Cap and (y) $150,000,000 (determined after giving pro forma effect to the
        acquisition of the eligible assets related to stores acquired on such date as part of a Subsequent Closing that has satisfied the
        Subsequent Acquisition Conditions), (b) Administrative Agent shall have received a current borrowing base certificate dated as
        of the date of such advance giving effect to the assets acquired pursuant to a Subsequent Closing occurring on such date (if any),
        provided that the Subsequent Acquisition Conditions are satisfied with respect to such Subsequent Closing, and (c) the Specified
        Representations shall be true and correct in all material respects at such time where not already qualified by materiality or “material
        adverse effect”, otherwise in all respects.

 

    	 	B-17	 

     

    

 

	Assignments and Participations:	
        Each Term Loan Lender will be permitted to
        make assignments of its interest in the Term Loan Facility in a minimum amount equal to $5,000,000 (other than in the case of assignments
        to other affiliates, approved funds or other Term Loan Lenders) to any affiliates, approved funds or other Term Loan Lenders and
        other financial institutions (other than Disqualified Lenders) constituting an “eligible assignee”. For the avoidance
        of doubt, each of the Approved Assignees shall be deemed to be an “eligible assignee”.

         

        No assignment or participation may be made
        to natural persons, any Loan Party or any of their affiliates or subsidiaries, or any holder of any subordinated debt of a Loan
        Party or any Disqualified Lenders that have been identified to Administrative Agent and whose identity is available to each Term
        Loan Lender on request, provided that the Term Loan Lenders may make an assignment or participation to Disqualified Lenders after
        an event of default. Administrative Agent shall not have any responsibility or obligations to determine whether any Term Loan Lender
        or potential Term Loan Lender is a Disqualified Lender and will have no liability with respect to any assignment to a Disqualified
        Lender. Each Term Loan Lender may collaterally assign its rights under the Term Loan Facility to any financing source.

         

        Notwithstanding the foregoing, any assignment
        of a portion of commitments prior to the funding of the Delayed Draw shall be subject to the Assignment Provisions set forth in
        paragraph 17 of the Commitment Letter (as though the references therein to Initial Draw also refer to Delayed Draw).

	 	 
	Amendments and Waivers:	Amendments, waivers and consents with respect to the provisions of the Loan Documents will require the approval of Administrative Agent and the Required Lenders, provided that, in addition to the approval of Required Lenders, (a) the consent of each Term Loan Lender directly and adversely affected thereby will be required with respect to matters relating to (i) increases in the commitment of such Term Loan Lender, (ii) reductions of principal, interest or fees (provided that a waiver of default interest, default or event of default shall not constitute a reduction of interest for this purpose), (iii) extensions of final maturity or the due date of any interest, fee or other payments, and (iv) changes to the order of application of funds and (b) the consent of all Term Loan Lenders will be required with respect to: (i) modifications of the pro rata sharing requirements of the Loan Documents, (ii) modification of the voting percentage or change in the definition of “Required Lenders” or any other provisions specifying the number of Term Loan Lenders or portion of the Loans or commitments required to take any action under the Loan Documents, (iii) permitting any Borrower to assign its rights under the Loan Documents, (iv) releases of all or substantially all of the value of the Collateral or guarantees (other than in connection with transactions permitted pursuant to the Loan Documents), (v) subordination of the lien on Collateral in favor of Administrative Agent (other than with respect to certain permitted liens to be agreed) or subordination of the payment of the obligations in respect of the Term Loan Facility and (vi) increases in the percentages applied to eligible assets in the Term Loan Borrowing Base or other modifications to the Term Loan Borrowing Base or any components thereof which would result in an increase in the amount of the Term Loan Borrowing Base.  

 

    	 	B-18	 

     

    

 

	 	“Required Lenders” means those non-defaulting Term Loan Lenders who collectively hold more than 50% of the aggregate amount of outstanding commitments under the Term Loan Facility plus the outstanding amount of the Term Loans under the Term Loan Facility, provided, that, at any time that there are 2 or more unaffiliated Term Loan Lenders, “Required Lenders” must include at least 2 unaffiliated Term Loan Lenders.
	 	 
	 	The Loan Documents shall contain customary provisions for replacing defaulting Term Loan Lenders, replacing Term Loan Lenders claiming increased costs, tax gross ups and similar required indemnity payments and replacing non-consenting Term Loan Lenders in connection with amendments and waivers requiring the consent of all Term Loan Lenders or of all Term Loan Lenders adversely affected thereby so long as Term Loan Lenders holding at least 50% of the aggregate amount of the loans and commitments under the Term Loan Facility shall have consented thereto.  
	 	 
	Cost and Yield Protections:	Customary for facilities and transactions of this type, including customary tax gross-up provisions and including provisions relating to Dodd-Frank, Basel III and FATCA.
	 	 
	Governing Law:	New York but excluding any principles of conflicts of law or other rule of law that would cause the application of the law of any jurisdiction other than the State of New York (other than certain security documents that will be governed by local law as applicable or as the parties may otherwise agree); subject to the proviso set forth in the “Governing Law” section of the Commitment Letter.
	 	 
	Expenses, Waivers and Indemnity:	The Loan Parties will pay all of the reasonable and documented out-of-pocket costs and expenses and customary administrative charges incurred by Administrative Agent, Lead Arranger and the Initial Lenders including, without limitation, reasonable legal costs and expenses, reasonable financial consultant and advisor costs and expenses, filing and search charges, recording taxes, appraisals, real estate evaluations and field examination charges and expenses, provided, that, legal fees shall be limited to the reasonable fees of one counsel for Lead Arranger and one counsel for  Administrative Agent and, in addition, one local counsel in each appropriate jurisdiction and, to the extent required by the subject matter, one specialist counsel for each such specialized area of law in each appropriate jurisdiction, and in the case of the enforcement, collection or protection of the rights of Term Loan Lenders, in addition, one additional counsel for the Term Loan Lenders in the absence of any conflict of interest.  

 

    	 	B-19	 

     

    

 

	 	Waivers to include, but not be limited to a waiver by Administrative Agent, Arrangers, Term Loan Lenders and each Loan Party of its rights to jury trial; waiver by each Loan Party of claims for special, punitive, exemplary, indirect or consequential damages in respect any breach or alleged breach by Administrative Agent, Arrangers, or any Term Loan Lender of any of the Loan Documents.
	 	 
	 	Loan Parties shall indemnify and hold harmless Administrative Agent, Arrangers and Term Loan Lenders and their respective directors, officers, agent, representatives and employees from and against all losses, claims, damages, expenses, or liabilities including, but not limited to, reasonable and documented legal or other expenses incurred in connection with investigating, preparing to defend, or defending any such loss, claim, damage, expenses or liability, incurred in respect of the Term Loan Facility or the relationship between Administrative Agent, Arrangers or any Term Loan Lender and any Loan Party (provided, that, the obligation to reimburse any indemnified person for legal fees and expenses shall be limited to legal fees and expenses of one firm of counsel for all such indemnified persons and one local counsel in each appropriate jurisdiction (and, to the extent required by the subject matter, one specialist counsel for each such specialized area of law in each appropriate jurisdiction) and in the case of an actual or perceived conflict of interest as determined by the affected indemnified person, one counsel for such affected indemnified person), except that the foregoing indemnity will not, as to any Indemnified Person, apply to costs, expenses or liabilities to the extent they (a) are found in a final, non-appealable judgment of a court of competent jurisdiction to have resulted from (i) the willful misconduct, bad faith or gross negligence of such indemnified person or (ii) a material breach of the material obligations of such indemnified person under the Commitment Letter, the Fee Letters or the Loan Documents or (b) relate to any claim, litigation, investigation or proceeding between or among indemnified persons other than (i) claims against any Administrative Agent, Arranger or Term Loan Lenders or their respective affiliates, in each case in their respective capacities or in fulfilling their respective roles as the agent or arranger or any other similar role under the Term Loan Facility as the case may be (excluding their role as a Term Loan Lender) to the extent such persons are otherwise entitled to indemnification and (ii) claims arising out of any act or omission on the part of the Loan Parties or their subsidiaries or affiliates.

 

This Term Sheet for the Term Loan Facility
is not meant to be, nor shall it be construed as an attempt to describe all of the terms of the documentation, or the specific
phrasing for, the provisions of the documentation. Rather, it is intended only to outline certain material terms to be included
in the Loan Documents, provided, that the Loan Documents will not contain any conditions precedent to (x) the initial funding under
the Term Loan Facility other than those set forth in Section 6 of the Commitment Letter and (y) borrowings used to consummate a
Subsequent Acquisition under the Term Loan Facility other than the Subsequent Acquisition Conditions. All references to any Term
Loan Lender in this Term Sheet include its successors and assigns and such Term Loan Lender may designate one of its affiliates
to act in its place in any of the roles for which it is specified in the Term Sheet.

 

    	 	B-20	 

     

    

 

SCHEDULE 1

TO

EXHIBIT B TO COMMITMENT LETTER

 

Interest and Certain Fees

 

	Interest Rate:	
        Term Loans shall bear interest at a rate per
        annum equal to the LIBOR Rate plus the Applicable Margin. If LIBOR Rate shall be less than zero, such rate shall be deemed zero
        for purposes of the Term Loan Facility.

         

        As used herein:

         

        “Applicable Margin” means
        a percentage determined in accordance with the pricing grids attached hereto as Schedule 2 to Exhibit B to the Commitment Letter.

         

        “LIBOR Rate” means the greater
        of (i) 1.00% or (ii) the rate per annum equal to the London Interbank Offered Rate, or a comparable or successor rate which rate
        is approved by the Administrative Agent, as published on the applicable Bloomberg screen page (or such other commercially available
        source providing such quotations as may be designated by the Administrative Agent in its reasonable discretion from time to time)
        at or about 11:00 a.m., London time, two (2) Business Days prior to the commencement of each month for a one month term (and, if
        any such rate is below zero, the LIBOR Rate shall be deemed to be zero).

	 	 
	Default Rate:	Following the occurrence and during the continuance of an event of default, the applicable rates of interest for all Term Loans shall be increased by 2% per annum above the otherwise then applicable rates.  
	 	 
	Rate and Fee Basis; Payment Dates:	All per annum rates and fees will be computed on basis of actual days elapsed over a 360 day year.  Interest is payable on the first day of each month in arrears.
	 	 
	Fees:	
        The Company shall pay all fees as and when
        required under the Fee Letters.

         

        At the option of any Term Loan Lender, all
        or any portion of the fees payable to such Term Loan Lender under the Commitment Letter or under the Fee Letters may be taken in
        the form of original issue discount.

 

    	 	B-21	 

     

    

 

SCHEDULE 2

TO

EXHIBIT B TO COMMITMENT LETTER

 

Pricing Grid

 

	Aggregate Term Loan Commitments	 	 	Applicable 
 Margin	 	 	Tranche A 
 Revolver 
 Borrowing Base 
 under ABL Loan 
 Facility
	 	 	 	 	 	 	 
	$	600,000,000	 	 	 	10.00	%	 	0% of the NOLV of pharmacy scripts
	 	 	 	 	 	 	 	 	 
	$	525,000,000	 	 	 	10.25	%	 	7.5% of the NOLV of pharmacy scripts
	 	 	 	 	 	 	 	 	 
	$	450,000,000	 	 	 	10.50	%	 	15% of the NOLV of pharmacy scripts

 

    	 	B-22	 

     

    

 

EXHIBIT C

TO

COMMITMENT LETTER

 

Conditions Precedent to the Closing of the
Term Loan Facility

 

The conditions precedent to the closing of the
Term Loan Facility will consist of the condition precedent set forth in Section 6(a) of the Commitment Letter and the following
conditions precedent:

 

	((a)	The Administrative Agent and Term Loan Lenders shall have received evidence that the Acquisition (other than assets to be acquired in any Subsequent Closing or the Distribution Center Closing, as each of such terms is defined in the Acquisition Agreement as in effect on the date hereof, subject to the Permitted Amendments) shall have been, or, substantially concurrently with the closing of the Term Loan Facility shall be, consummated in all material respects in accordance with applicable laws and the terms of the Acquisition Agreement and the Ancillary Agreements (each, as in effect on the date hereof), but without giving effect to any amendments, waivers or consents by the Company to the Acquisition Agreement, Ancillary Agreements or any related documents that are materially adverse to the interests of the Term Loan Lenders, Arrangers or the Administrative Agent in their capacities as such without their consent (any such amendments which are not materially adverse to the interests of the Term Loan Lenders, Arrangers or the Administrative Agent in their capacities as such, being hereinafter referred to as “Permitted Amendments”), provided, that any change to the definition of “Material Adverse Effect” in the Acquisition Agreement, any waiver of the conditions precedent set forth in Section 7.02(e) of the Acquisition Agreement regarding the absence of a “Material Adverse Effect”, and any change in the representations in the Acquisition Agreement to eliminate (from the scope thereof) any event or condition that has otherwise resulted, or would otherwise result, in a “Material Adverse Effect” shall be deemed to be materially adverse to the interests of the Term Loan Lenders), except as consented to by Arrangers.
	 	 
	(b)	The Acquired Store Series of the Company commencing on the Closing Date shall not consist of less than 100 retail stores of the Acquired Business (which, for the avoidance of doubt, shall be completed within 10 business days thereafter).
	 	 
	(c)	The ABL Loan Facility shall have been or, substantially concurrently with the closing of the Term Loan Facility shall be, consummated.

 

    	 	C-1	 

     

    

 

	(d)	Subject in all cases to the Certain Funds Provisions, the Administrative Agent and Initial Lenders shall have received: (i) the loan agreement, guaranties, security agreements, pledge agreements, intellectual property security agreements, Intercreditor Agreement, collateral assignment of rights under acquisition documents (including any transition services agreement) and other definitive documentation for the Term Loan Facility, in each case to the extent the Loan Parties are party thereto, executed and delivered by the applicable Loan Parties and the Commitment Parties party thereto subject to and on terms and consistent with this Commitment Letter (including the Funds Certain Provisions and Documentation Principles), (ii) a reasonably satisfactory cooperation and license agreement from the Sellers and its affiliates in connection with the Administrative Agent’s and/or Term Loan Lenders’ access to conduct field examinations of the Purchased Assets, including the Duplicate IT System (subject to the limits on field examinations set forth herein), use of intellectual property licensed to the Borrowers and exercise of rights and remedies under the Term Loan Facility (including conducting “store closing” and similar themed sales), as applicable, in respect of any retail stores of the Acquired Business subject to the Transition Services Agreement or which utilize (in accordance with the Acquisition Agreement) intellectual property of the Sellers, (iii) customary legal opinions, (iv) customary evidence of authority from each Loan Party, (v) customary officer’s certificates from each Loan Party, (vi) good standing certificates (to the extent applicable) in the respective jurisdictions of organization of each Loan Party, (vii) customary lien searches with respect to each Loan Party, (viii) UCC financing statements for each Loan Party, (ix) current borrowing base certificate dated as of the Closing Date (or such other date agreed to by the Administrative Agent) (x) evidence of insurance coverage including certificates naming the Administrative Agent as additional insured and lender’s loss payee to casualty and business interruption insurance and (xi) borrowing request and disbursement authorization letter (including funds flow memorandum).  Administrative Agent shall have received evidence that notices to each credit card processor used by Borrowers have been sent to such credit card processor with respect to the security interest of Administrative Agent and instructions to remit payments to a bank account of Borrowers specified therein and not to change such bank account without the prior written consent of Administrative Agent.  Subject in all cases to the Certain Funds Provision, Administrative Agent, for the benefit of itself and Term Loan Lenders, shall hold perfected, first priority (subject to certain specified permitted liens) security interests in and liens upon the Term Loan Priority Collateral and perfected second priority (subject to certain specified permitted liens) security interests in and liens upon the ABL Priority Collateral, and none of the Collateral shall be subject to any other pledges, security interests, mortgages or assignments as security, except for liens permitted under the Loan Documents.  Receipt by Administrative Agent of (A) customary payoff letters as to the Company’s existing ABL credit facility (the “Existing Fred’s ABL”) reflecting the amounts required to repay in full all outstanding obligations thereunder (other than (x) contingent indemnity and expense reimbursement obligations for which no claims have been asserted and (y) any letters of credit outstanding thereunder which shall be permitted to be rolled into the ABL Loan Facility and “grandfathered” thereunder) and providing that upon receipt of such funds all such arrangements under the Existing Fred’s ABL are terminated and the liens securing any obligations thereunder are released and (B) customary lien releases and discharges
in respect of the Existing Credit Facility for the assets acquired on the Closing Date under the Acquisition Agreement.
	 	 
	 	On the Closing Date, after giving effect to the Transactions, the Company, the Loan Parties and their respective subsidiaries shall not have any third party debt for borrowed money other than (i) the Term Loan Facility, (ii) the ABL Loan Facility, (iii) ordinary course capital leases, purchase money indebtedness, equipment financings, letters of credit, bank guarantees and surety bonds of the Loan Parties and their respective subsidiaries that are not otherwise prohibited by the Loan Documents, (iv) intercompany indebtedness of the Loan Parties and their subsidiaries not otherwise prohibited by the Loan Documents and (v) certain other debt for borrowed money that the Company and the Administrative Agent reasonably agree may remain outstanding after the Closing Date.
	 	 
	(e)	The opening Excess Availability at closing after the application of proceeds of the initial funding under the ABL Loan Facility and/or issuance of initial Letters of Credit (as such term is defined in the ABL Loan Facility documents) under the ABL Loan Facility and after payment of all fees and expenses of the Transactions payable on the Closing Date, shall be not less than the greater of (x) 25% of the Combined Loan Cap and (y) $150,000,000.
	 	 
	(f)	Administrative Agent, Administrative Agent and each Term Loan Lender shall have received at least 5 business days prior to the Closing Date all documentation and information as is reasonably requested by Administrative Agent or a Term Loan Lender that is required by regulatory authorities under applicable “know your customer” and anti-money-laundering rules and regulations, including, without limitation, the USA Patriot Act, in each case to the extent requested in writing at least 10 business days prior to the Closing Date.

 

    	 	C-2	 

     

    

 

	(g)	Administrative Agent shall have received (i) (A) projected balance sheets, income statements, statements of cash flows and projected Excess Availability and Borrowing Base, FILO Borrowing Base and Term Loan Borrowing Base of the Company and its subsidiaries after giving effect to the Transactions and covering the term of the Term Loan Facility, which projections shall be on a monthly basis for the twelve-month period following the Closing Date and on an annual basis thereafter for the term of the Term Loan Facility, in each case with the results and assumptions in all of such projections in form and substance reasonably satisfactory to Administrative Agent (it being understood that Administrative Agent has received all such projections under this clause (A) as of the date of the Commitment Letter) and (B) to the extent the Company may prepare them, any updates and modifications to such projected financial statements of the Company and its subsidiaries, (ii) an opening pro forma balance sheet, income statements, statements of cash flows for the Company and its subsidiaries (including the Acquired Business) as of and for the twelve-month period ended at least 30 calendar days prior to the Closing Date, (iii) interim unaudited financial statements of the Company and its subsidiaries for the year to date period ended at least 30 calendar days prior to the Closing Date, with prior year comparison since the last audited financial statements for which financial statements are available, and (iv) a quality of earnings report from Ernst & Young for the 865 retail stores of the Acquired Business setting forth 4-wall EBITDA for the period of 12 fiscal months ended October 31, 2016 and 4-wall EBITDA for the fiscal year ended January 30, 2016.  
	 	 
	(h)	Administrative Agent shall have received a customary solvency certificate from the chief financial officer of the Company substantially in the form attached hereto as Annex I as of the Closing Date.  
	 	 
	(i)	All costs, fees and expenses contemplated hereby or in the Fee Letters due and payable on the Closing Date to Administrative Agent, Arrangers, and the Term Loan Lenders in respect of the Transactions shall have been paid, provided that invoices for any costs and expenses to be reimbursed on the Closing Date must be received at least two business days (or such later date as to which the Company may agree in its sole discretion) prior to the Closing Date or otherwise such costs and expenses will be paid no later than 10 days after the Closing Date.
	 	 
	(j)	The Specified Representations shall be true and correct in all material respects on the Closing Date where not already qualified by materiality or “material adverse effect”, otherwise in all respects, and the Acquisition Agreement Representations will be true and correct as and to the extent required by Section 6 of the Commitment Letter.

 

    	 	C-3	 

     

    

 

ANNEX I

TO

EXHIBIT C TO COMMITMENT LETTER

 

SOLVENCY CERTIFICATE

of

FRED’S, INC. AND ITS SUBSIDIARIES

 

[Pursuant to the [Term Loan Agreement], the undersigned hereby certifies,
solely in such undersigned’s capacity as chief financial officer of Fred’s, Inc. (the “Company”)
and not individually, as follows:

 

As of the date hereof, after giving effect to the consummation of
the Transactions, including the making of any Term Loans under the Term Loan Agreement on the date hereof, and after giving effect
to the application of the proceeds of such Term Loans:

 

		(a)	The fair value of the assets of the Company and its Subsidiaries,
on a consolidated basis, exceeds, on a consolidated basis, their debts and liabilities, subordinated, contingent or otherwise;

 

		(b)	The present fair saleable value of the property of the
Company and its Subsidiaries, on a consolidated basis, is greater than the amount that will be required to pay the probable liability,
on a consolidated basis, of their debts and other liabilities, subordinated, contingent or otherwise, as such debts and other
liabilities become absolute and matured;

 

		(c)	the Company and its Subsidiaries, on a consolidated basis,
are able to pay their debts and liabilities, subordinated, contingent or otherwise, as such liabilities become absolute and matured;
and

 

		(d)	the Company and its Subsidiaries, on a consolidated basis,
are not engaged in, and are not about to engage in, business for which they have unreasonably small capital.

 

For purposes of this Certificate, the amount of any contingent liability
at any time shall be computed as the amount that would reasonably be expected to become an actual and matured liability. Capitalized
terms used but not otherwise defined herein shall have the meanings assigned to them in the Term Loan Agreement.

 

The undersigned is familiar with the business and financial position
of the Company and its Subsidiaries. In reaching the conclusions set forth in this Certificate, the undersigned has made such other
investigations and inquiries as the undersigned has deemed appropriate, having taken into account the nature of the particular
business anticipated to be conducted by the Company and its Subsidiaries after consummation of the transactions contemplated by
the Commitment Letter.]

 

[Signature Page Follows]

 

    	 	Annex I-1	 

     

    

 

IN WITNESS WHEREOF, the undersigned has executed
this Certificate in such undersigned’s capacity as chief financial officer of the Company, on behalf of the Company, and
not individually, as of the date first stated above.

 

	 	[COMPANY]
	 	 	 
	 	By:	 
	 	 	Name:
	 	 	Title:

  

    	 	Annex I-2Exhibit 10.14 

 

CONFIDENTIAL

 

	BANK OF AMERICA, N.A.	REGIONS BUSINESS 	CITIZENS BANK, N.A.
	MERRILL LYNCH, PIERCE,	CAPITAL,	28 State Street
	FENNER & SMITH 	A DIVISION OF REGIONS	Boston, MA 02109
	INCORPORATED	BANK	 
	One Bryant Park	250 Park Avenue, 6th Floor	 
	New York, New York  10036	New York, New York 10177	 

 

January 18, 2017

 

Fred’s, Inc.

4300 New Getwell Road

Memphis, Tennessee 38118

Attention: Mr. Rick Hans

   Executive Vice President and Chief Financial Officer

 

$1,200,000,000 Senior Secured Loan Facility

Amended and Restated Commitment Letter

 

Ladies and Gentlemen:

 

Fred’s, Inc. (the “Company”)
has advised Bank of America, N.A. (“Bank of America”), Merrill Lynch, Pierce, Fenner & Smith Incorporated (together,
with its designated affiliates, “MLPFS”, and together with Bank of America, “BofA”), Regions Business Capital,
a Division of Regions Bank (“Regions”) and Citizens Bank, N.A. (“Citizens” and together with BofA and Regions,
individually, a “Commitment Party” and collectively, the “Commitment Parties”) that it is seeking a new
senior secured asset-based loan facility in an aggregate principal amount of $1,200,000,000 (the “Credit Facility”)
in connection with its acquisition (the “Acquisition”) of the business and operations consisting of not less than 750,
but up to 1,000, retail stores of Rite Aid Corporation (the “Acquired Business”) and to consummate the other transactions
described in the Transaction Description attached hereto as Exhibit A (the “Transaction Description”). Capitalized
terms used herein but not otherwise defined shall have the meanings assigned to them in the annexes to this letter, the Transaction
Description and in the Summary of Principal Terms and Conditions attached hereto as Exhibit B (the “Term Sheet” and
together with this amended and restated commitment letter, the Transaction Description, and the annexes, exhibits and schedules
to this amended and restated commitment letter, collectively, the “Commitment Letter”).

 

1.          Commitment.
Each of Bank of America, Regions and Citizens (individually, an “Initial Lender” and collectively, “Initial Lenders”)
is pleased to advise the Company of its several and not joint commitment, in the case of Bank of America to provide 50% of the
aggregate principal amount of the Credit Facility, in the case of Regions to provide 30% of the aggregate principal amount of the
Credit Facility and in the case of Citizens to provide 20% of the aggregate principal amount of the Credit Facility, in each case,
allocated between the ABL Revolving Facility and the ABL FILO Term Facility (as each such term is defined in the Term Sheet) on
a ratable basis on the terms set forth in this Commitment Letter (including the Certain Funds Provision set forth herein), the
amended and restated fee letter of even date herewith among the Commitment Parties (as hereinafter defined) and the Company (the
“Arranger Fee Letter”), the amended and restated fee letter of even date herewith between Regions and the Company (the
“Regions Fee Letter”), and the amended and restated fee letter of even date herewith between BofA and the Company (the
“Lead Arranger Fee Letter” and, together with the Arranger Fee Letter and the Regions Fee Letter, collectively, the
“Fee Letters”). The commitments of the Initial Lenders are several and not joint. The Commitment Parties shall be severally
liable in respect of their respective commitments and all other obligations in this Commitment Letter and in the Fee Letters and
no Commitment Party shall be responsible for the commitment or any other obligation of any other Commitment Party.

 

     

     

    

 

2.          Titles
and Roles; Sell-Side Advisor. The Company hereby appoints each of MLPFS, Regions
and Citizens, in each case acting alone or through or with branches or affiliates selected by it, to act as the joint lead arrangers
and joint bookrunners (in such capacities, each an “Arranger” and collectively, the “Arrangers”). MLPFS
in its capacity as Arranger is referred to herein as “Lead Arranger.” Bank of America will act as sole and exclusive
administrative agent under the Credit Facility (in such capacity, the “Agent”), Bank of America and Regions will act
as co-collateral agents under the Credit Facility (in such capacities, the “Collateral Agents”), and Regions will
act as exclusive syndication agent under the Credit Facility (in such capacity, the “Syndication Agent”), in each
case, for the Initial Lenders and any other parties to the Credit Facility as lenders (individually a “Lender” and
collectively “Lenders”). Each of Arrangers, Agent, Collateral Agents and Syndication Agent will perform the duties
and exercise the authority customarily performed and exercised by it in such role, subject to the terms below and Bank of America
will be the sole physical bookrunning manager. MLPFS will have “left” and highest placement in the information memorandum
and all marketing materials and other documentation used in connection with the Credit Facility, Regions will have second placement
and appear immediately to the right of MLPFS in the information memorandum and all marketing materials and other documentation
used in connection with the Credit Facility and Citizens will appear immediately to the right of Regions in the information memorandum
and all marketing materials and other documentation used in connection with the Credit Facility. The Company agrees that no other
agents, co-agents, arrangers or bookrunners will be appointed, no other titles will be awarded and no compensation (other than
compensation expressly contemplated by this Commitment Letter and the Fee Letters) will be paid to any Lender in connection with
the Credit Facility unless Arrangers and the Company shall so agree.

 

The parties acknowledge that MLPFS and/or its
affiliates have been retained as the sell-side financial advisor to the Seller and/or the Acquired Business (in such capacity,
the “Financial Advisor”) in connection with the Transactions. The Company agrees to any such retention, and further
agrees not to assert any claim the Company or any of its affiliates might allege based on any actual or potential conflicts of
interest that might be asserted to arise or result from, on the one hand, the engagement of the Financial Advisor or from MLPFS’
and/or its affiliates’ arranging or providing or contemplating arranging or providing financing for a competing bidder and,
on the other hand, the relationship of MLPFS and/or its affiliates with the Company and its affiliates as described and referred
to herein.

 

3.          Syndication.
The Company agrees, and agrees to cause its subsidiaries, to use commercially reasonable efforts to actively assist in achieving
a timely syndication that is mutually and reasonably satisfactory to the Commitment Parties and the Company. The parties agree
that syndication shall be as set forth in Annex B to this Commitment Letter. The syndication of the Credit Facility is not a condition
to the closing of the Credit Facility.

 

    	 	2	 

     

    

 

4.          Expenses
and Indemnification. The Company agrees (a) to pay or reimburse all reasonable and documented out-of-pocket fees, costs and
expenses incurred by the Commitment Parties or their affiliates in connection with their due diligence, approval, documentation,
syndication and closing of the Credit Facility, whether incurred before or after the date hereof, including the preparation and
negotiation of this Commitment Letter and the Original Commitment Letter (as hereinafter defined) (including any amendment or modification
hereto or thereto), and including reasonable attorneys’ fees and legal expenses (provided, that, legal fees shall be limited
to the reasonable fees and disbursements of one counsel each for each Commitment Party and, in addition, one local counsel in each
appropriate jurisdiction), appraisal fees, expenses related to the USA Patriot Act compliance and background checks, electronic
reporting system set-up fees (if any), filing and search charges, recording taxes and field examination expenses and the enforcement
of any of the rights and remedies of the Commitment Parties under this Commitment Letter, in each case regardless of whether the
Credit Facility is closed, (b) to pay or reimburse all reasonable and documented out-of-pocket fees, costs and expenses incurred
by the Commitment Parties or their affiliates in connection with the retention of the Agent’s Advisor (as set forth in the
Term Sheet) (such amounts described in clauses (a) and (b), collectively, the “Expenses”) and (c) to indemnify, defend,
and hold harmless the Commitment Parties, each of their affiliates, and each of their officers, directors, employees, agents, advisors,
and other representatives (each, an “Indemnified Person”) as set forth on Annex A hereto. For the avoidance of any
doubt, Expenses shall include all costs and expenses associated with (x) the field exam report of the Company and the Acquired
Business heretofore conducted by Richter Consulting, Inc. (which field exam report may have been, in part or in whole, previously
conducted on behalf of Wells Fargo Bank, National Association and subsequently provided to the Commitment Parties) and (y) the
inventory and prescription list appraisal report of the Company and the Acquired Business heretofore conducted by Tiger Valuation
Services, LLC (which appraisal report may have been, in part or in whole, previously conducted on behalf of Wells Fargo Bank, National
Association and subsequently provided to the Commitment Parties). All Expenses are to be paid to Lead Arranger upon demand by any
Commitment Party, together with such advance funds on account of such charges and expenses as Lead Arranger may from time to time
request. The Company agrees that, once paid, none of the Expenses shall be refundable under any circumstances, regardless of whether
the Credit Facility closes, and shall not be credited against any other amount payable by the Company to any Commitment Party in
connection with the Credit Facility or otherwise.

 

5.          Fees.
As consideration for the commitments and agreements of the Commitment Parties hereunder, the Company agrees to pay the fees described
in the Term Sheet and the Fee Letters on the Closing Date on the terms and subject to the conditions set forth therein. The terms
of the Fee Letters are an integral part of each Commitment Party’s commitment and other obligations hereunder. Each of the
fees described herein and in the Fee Letters shall be nonrefundable when paid. All fees payable hereunder and under the Fee Letters
will be paid in immediately available funds. The obligation to pay any fee provided for herein or therein or to cause any such
fee to be paid will be joint and several with any other party having such an obligations, shall be absolute and unconditional and
shall not be subject to reduction by way of setoff or counterclaim.

 

6.          Conditions.
The commitments of each of the Commitment Parties under this Commitment Letter and its obligations to make Revolving Loans and
issue Letters of Credit (each as defined in the Term Sheet) on the Closing Date are subject solely to: (a) since the date of the
Original Commitment Letter, there shall not have been any event or circumstances that, individually or in the aggregate, has had,
or would reasonably be expected to have, a Target Material Adverse Effect (as such term is defined below) that is continuing and
(b) the satisfaction of (or procurement of a waiver of) the conditions set forth in Exhibit C to this Commitment Letter. For the
avoidance of doubt, the compliance by the Company with its obligations under this Commitment Letter and the Fee Letters, other
than satisfaction by the Company of (or procurement of a waiver of) the conditions described (x) in Section 6(a) and (y) on Exhibit
C, is not a condition to the closing and initial funding of the Credit Facility on the Closing Date.

 

    	 	3	 

     

    

 

The term “Target Material Adverse Effect”
means a material adverse effect on the financial condition or results of operations of the Acquired Stores, taken as a whole, but
shall not be deemed to include any adverse effect arising out of, resulting from or attributable to: (a) an event or circumstance
or series of events or circumstances affecting (i) the United States (or any other country or jurisdiction) or the global economy
generally or capital, financial, banking, credit or securities markets generally, including changes in interest or exchange rates,
(ii) political conditions generally of the United States or any other country or jurisdiction in which Seller or its Affiliates
operates or (iii) any of the industries generally in which Seller or any customers thereof operates (including demand for, and
the availability and pricing of, pharmaceutical drugs) or in which products or services of the Acquired Stores are used or distributed,
(b) the negotiation, execution or the announcement of, the consummation of the transactions contemplated by, or the performance
of obligations under, the Acquisition Agreement or the other Transaction Agreements, including effects related to compliance with
the covenants or agreements contained herein or the failure to take any action as a result of any restrictions or prohibitions
set forth herein, and any adverse effect proximately caused by (A) shortfalls or declines in revenue, margins or profitability,
(B) loss of, or disruption in, any customer, supplier, and/or vendor relationships, or (C) loss of any personnel, (c) any changes
in applicable Law or U.S. GAAP, or accounting principles, practices or policies that Seller is required to adopt, or the enforcement
or interpretation thereof, (d) actions specifically permitted to be taken or omitted pursuant to the Acquisition Agreement or taken
with Buyer’s consent, (e) the effect of any action taken by Buyer or its Affiliates with respect to the transactions contemplated
hereby or with respect to Seller or its Affiliates, (f) any acts of God, including any earthquakes, hurricanes, tornadoes, floods,
tsunami, or other natural disasters, or any other damage to or destruction of Assets caused by casualty, (g) any hostilities, acts
of war (whether or not declared), sabotage, terrorism or military actions, or any escalation or worsening of any such hostilities,
act of war, sabotage, terrorism or military actions, (h) any failure to meet internal or published projections, estimates or forecasts
of revenues, earnings, or other measures of financial or operating performance for any period (provided that the underlying causes
of such failures (subject to the other provisions of this definition) shall not be excluded) or (i) any adverse change or effect
that is cured prior to Closing (or each Subsequent Closing, as applicable); provided, however, that if the event or circumstance
described in any of the foregoing clauses (a) or (c), individually or in the aggregate, has a disproportionate effect on the Acquired
Stores relative to other industry participants, the exception described in any of the foregoing clauses (a) or (c) shall not apply
with respect to the portion of such event or circumstance that had such a disproportionate effect on the Acquired Stores. Capitalized
terms used in this paragraph have the meanings given to such terms in the Acquisition Agreement as in effect on the date of the
Original Commitment Letter.

 

Notwithstanding anything to the contrary in
this Commitment Letter, the Fee Letters, the Loan Documents (as defined in the Term Sheet) or any other agreement entered into
by a Commitment Party concerning the financing of the Acquisition contemplated hereby to the contrary, (a) the only representations
and warranties the accuracy of which shall be a condition to the initial funding under the Credit Facility on the Closing Date
shall be (i) such of the representations and warranties made by the Seller or any of its affiliates in the Acquisition Agreement
as are material to the interests of Agent, Collateral Agents, Arrangers and Lenders, but only to the extent that the Company or
any of its affiliates has the right to terminate the Company’s (or such of its affiliates’) obligations under the Acquisition
Agreement (or to not consummate the Acquisition) as a result of a breach of such representations and warranties in the Acquisition
Agreement (the “Acquisition Agreement Representations”) and (ii) the Specified Representations (as defined below) and
(b) the terms of the Loan Documents shall be in a form such that they do not provide for additional conditions to the initial funding
under the Credit Facility on the Closing Date if the conditions set forth in this Section 6 are satisfied (it being understood
that, (i) to the extent any collateral (including the perfection of any security interest therein) is not or cannot be provided
on the Closing Date (other than (A) the pledge and perfection of collateral with respect to which a lien may be perfected upon
closing solely by the filing of financing statements under the Uniform Commercial Code in the jurisdiction of organization of each
Loan Party, and (B) the pledge and perfection of security interests in the equity interests of subsidiaries owned by the Loan Parties
(after giving effect to the Acquisition); the assets described in clauses (A) and (B) being referred to as the “Specified
Collateral”) after the use of commercially reasonable efforts by the Company (and the Seller to the extent provided for in
the Acquisition Agreement) to do so, then the provision of such collateral or perfection of any such lien or security interest
in such collateral shall not constitute a condition precedent to the initial funding under the Credit Facility on the Closing Date,
but shall be required to be provided within 60 days after the Closing Date, subject to such extensions as are agreed to by the
Arrangers). For purposes hereof, “Specified Representations” means representations and warranties of the Loan Parties
in the Loan Documents relating to organization, existence, organizational power and authority to enter into the Loan Documents;
due authorization, execution, delivery, enforceability of such Loan Documents; solvency as of the Closing Date (after giving effect
to the Transactions) of the Company and its subsidiaries (in form and scope consistent with the solvency certificate to be delivered
pursuant to Exhibit C hereto); no conflicts of the Loan Documents with organizational documents or material laws; Federal Reserve
margin regulations; the Investment Company Act; USA Patriot Act; use of proceeds not violating (i) laws applicable to sanctioned
persons, (ii) laws and regulations promulgated by OFAC, and (iii) anti-money laundering laws or the Foreign Corrupt Practices Act;
and the creation, perfection and priority of the security interests (subject to customary permitted liens) granted in the collateral
(subject in all respects to the foregoing provisions of this paragraph). This paragraph and the provisions herein are referred
to herein as the “Certain Funds Provision”.

 

    	 	4	 

     

    

 

7.          Confidentiality.
The Company agrees that this Commitment Letter (including the Term Sheet) and the Fee Letters are for its confidential use only
and that neither its existence, nor the terms hereof or thereof, will be disclosed by the Company to any person other than (a)
its officers, directors (or equivalent managers), employees, accountants, affiliates, independent auditors, attorneys, and other
advisors, and then only on a “need-to-know” basis in connection with the Transactions and on a confidential basis,
(b) the Seller and Walgreens Boots Alliance, Inc. and their respective officers, directors (or equivalent managers), employees,
accountants, independent auditors, attorneys, and other advisors of each of the Seller and Walgreens Boots Alliance, Inc., and
then only on a “need-to-know” basis, in connection with their consideration of the Transactions and on a confidential
basis (provided that, with respect to the Fee Letters, to the extent portions thereof have been redacted in respect of the amounts,
percentages and basis points of compensation set forth therein and the pricing and other terms of the “flex provisions”
in a manner satisfactory to the respective Arrangers party thereto). The foregoing notwithstanding, the Company (and, in the case
of clause (ii) below, each of the Seller and Walgreens Boots Alliance, Inc.) may (i) provide a copy of the Commitment Letter (and
the Fee Letters, to the extent portions thereof have been redacted in respect of the amounts, percentages and basis points of compensation
set forth therein and the pricing and other terms of the “flex provisions” in a manner satisfactory to the respective
Arrangers party thereto) to potential lenders under the Term Loan Facility and their officers, directors (or equivalent managers),
employees, accountants, affiliates, attorneys, and other advisors involved in the related commitments subject to confidentiality
provisions similar to those provided herein, (ii) following the acceptance of the Company of this Commitment Letter and the Fee
Letters, file or make such other public disclosures of the terms and conditions hereof (including the Term Sheet, but not including
the Fee Letters) as it is required by law, in the opinion of its counsel, to make and (iii) disclose this Commitment Letter and
Fee Letters in connection with any exercise of its remedies in respect hereof and thereof.

 

Each Commitment Party agrees that material,
non-public information regarding the Company and its subsidiaries and the Acquired Business, their operations, assets, and existing
and contemplated business plans shall be treated by it in a confidential manner, and shall not be disclosed by it to persons who
are not parties to this Commitment Letter, except: (i) to its officers, directors, employees, attorneys, advisors, accountants,
auditors, and consultants to such Commitment Party on a “need to know” basis in connection with Transactions and on
a confidential basis, (ii) to subsidiaries and affiliates of such Commitment Party, provided that any such subsidiary or affiliate
shall have agreed to receive such information hereunder subject to the terms of this paragraph, (iii) to regulatory authorities
with jurisdiction over such Commitment Party or its affiliates, (iv) as may be required by statute, decision, or judicial or administrative
order, rule, or regulation, provided that prior to any disclosure under this clause (iv), the disclosing party agrees to provide
the Company with prior notice thereof, to the extent that it is practicable to do so and to the extent that the disclosing party
is permitted to provide such prior notice to the Company pursuant to the terms of the applicable statute, decision, or judicial
or administrative order, rule, or regulation, (v) as may be agreed to by the Company (not to be unreasonably withheld or delayed),
(vi) as requested or required by any governmental authority pursuant to any subpoena or other legal process, provided that prior
to any disclosure under this clause (vi) the disclosing party agrees to provide the Company with prior notice thereof, to the extent
that it is practicable to do so and to the extent that the disclosing party is permitted to provide such prior notice to the Company
pursuant to the terms of the subpoena or other legal process, (vii) as to any such information that is or becomes generally available
to the public (other than as a result of disclosure by such Commitment Party in violation of the terms hereof), (viii) in connection
with any proposed assignment or participation of such Commitment Party’s interest in the Credit Facility, provided that any
such proposed assignee or participant shall have agreed to receive such information subject to the terms of this paragraph or as
provided below, (ix) to the extent that such information was already in the possession of such Commitment Party or its affiliates
or is independently developed by it or them, (x) to the extent that such information was received by such Commitment Party from
a third party, that is not, to its knowledge, subject to confidentiality obligations owing to the Company, and (xi) for purposes
of establishing a “due diligence” defense and in connection with any litigation or other adverse proceeding involving
any parties to this Commitment Letter or the Fee Letters. This paragraph shall terminate on the second anniversary of the date
of the Original Commitment Letter.

 

    	 	5	 

     

    

 

Notwithstanding anything to the contrary in
this Commitment Letter, the Company agrees that (i) each Commitment Party shall have the right to provide information concerning
the Credit Facility to loan syndication and reporting services, and (ii) that the Projections, the Marketing Materials and all
other information provided by or on behalf of the Company and its affiliates to a Commitment Party regarding the Company and its
affiliates and the Transactions in connection with the Credit Facility may be disseminated by or on behalf of such Commitment Party
to prospective lenders and other persons, who have agreed to be bound by customary confidentiality undertakings (including, “click-through”
agreements), all in accordance with the standard loan syndication practices of such Commitment Party (whether transmitted electronically
by means of a website, e-mail or otherwise, or made available orally or in writing, including at potential lender or other meetings).
Notwithstanding anything to the contrary in this Commitment Letter, the Company agrees that a Commitment Party may share with its
affiliates any information relating to the Credit Facility, the Company or its subsidiaries or the Acquired Business for purposes
of the evaluation, negotiation, documentation and syndication of the Credit Facility and on and after the Closing Date, may disclose
information relating to the Credit Facility to Gold Sheets and other publications or for its marketing materials, with such information
to consist of deal terms and other information customarily found in such publications or marketing materials and that a Commitment
Party may otherwise use the corporate name and logo of the Company or its subsidiaries or the Acquired Business in “tombstones”
or other advertisements, marketing materials or public statements.

 

8.          Information.
The Company hereby represents and warrants (but limited, solely in the case of the Acquired Business, to the best of its knowledge)
that (i) all written information, other than Projections (as defined below) and other than forward-looking information and information
of a general economic nature or industry specific information, which has been or is hereafter made available to the Arrangers by
or on behalf of the Company or its subsidiaries or any of their representatives in connection with the Company and its subsidiaries
and the Acquired Business (“Information”), as and when furnished, is or will be, when furnished and taken as a whole,
correct in all material respects and does not or will not, when furnished and taken as a whole, contain any untrue statement of
a material fact or omit to state a material fact necessary to make the statements contained therein not materially misleading in
light of the circumstances under which such statements are made and (ii) all financial projections concerning the Company and its
subsidiaries and the Acquired Business that have been or are hereafter made available to Arrangers or prospective Lenders by the
Company or its subsidiaries (the “Projections”), have been or will be prepared in good faith based upon assumptions
that are believed by the Company to be reasonable at the time made and made available to the Arrangers (it being understood that
projections by their nature are inherently uncertain and that, even though the Projections are prepared in good faith on the basis
of assumptions believed to be reasonable at the time such Projections were prepared, the results reflected in the Projections may
not be achieved and actual results may differ and such differences may be material). If at any time the Company becomes aware that
any of the representations in the preceding sentence would be incorrect in any material respect if the Information and Projections
were being furnished, and such representations were being made at such time, then the Company will promptly supplement the Information
and Projections so that such representations will be correct in all material respects under those circumstances. The Company agrees
to furnish, or cause to be furnished (using commercially reasonable efforts with respect to the Acquired Business), to each Commitment
Party such Information and Projections as it may reasonably request and to supplement the Information and the Projections from
time to time until the earlier of the Closing Date and the occurrence of a Successful Syndication (as defined in the Arranger Fee
Letter). In arranging and syndicating each Credit Facility, Arrangers and Lenders will be using and relying on the Information
and the Projections without independent verification thereof. Notwithstanding anything to the contrary contained in this Commitment
Letter or the Fee Letters, none of the accuracy of any representation under this Section 8, the provision of any supplement to
any Information or the Projections, nor the accuracy of any such supplement shall constitute a condition precedent to the closing
and/or initial funding of any of the Credit Facility on the Closing Date.

 

    	 	6	 

     

    

 

9.          Sharing
Information; Absence of Fiduciary Relationship; Affiliate Activities. The Company acknowledges that each Commitment Party or
one or more of its affiliates may be providing debt financing, equity capital or other services (including financial advisory services)
to other companies in respect of which the Company may have conflicting interests regarding the transactions described herein or
otherwise. The Company also acknowledges that the Commitment Parties do not have any obligation to use in connection with the transactions
contemplated by this Commitment Letter, or to furnish to the Company, confidential information obtained by a Commitment Party from
other companies (including the Seller).

 

Each of the parties hereto further acknowledges
that Regions and BofA is currently providing debt financing and other services to the Company in respect of which Regions and BofA
may have conflicting interests regarding the transactions described herein or otherwise. Each of the parties hereto also acknowledges
that neither Regions or BofA have any obligation to any other Commitment Party to disclose confidential information obtained by
Regions or BofA in connection with such existing debt financing.

 

The Company further acknowledges and agrees
that (a) no fiduciary, advisory or agency relationship between the Company, on the one hand, and a Commitment Party, on the other
hand, is intended to be or has been created in respect of any of the transactions contemplated by this Commitment Letter, irrespective
of whether such Commitment Party or one or more of its affiliates has advised or is advising the Company on other matters, (b)
each Commitment Party, on the one hand, and the Company, on the other hand, has an arms-length business relationship that does
not directly or indirectly give rise to, nor do you rely on, any fiduciary duty on the part of such Commitment Party, (c) the Company
is capable of evaluating and understanding, and it understands and accepts, the terms, risks and conditions of the transactions
contemplated by this Commitment Letter, (d) the Company has been advised that each Commitment Party or one or more of its affiliates
is engaged in a broad range of transactions that may involve interests that differ from its interests and that such Commitment
Party does not have any obligation to disclose such interests and transactions to it by virtue of any fiduciary, advisory or agency
relationship, and (e) the Company waives, to the fullest extent permitted by law, any claims it may have against a Commitment Party
for breach of fiduciary duty or alleged breach of fiduciary duty and agrees that the Commitment Parties shall not have any liability
(whether direct or indirect) to it in respect of such a fiduciary duty claim or to any person asserting a fiduciary duty claim
on behalf of or in right of the Company, including its stockholders, employees or creditors. For the avoidance of doubt, the provisions
of this paragraph apply only to the transactions contemplated by this Commitment Letter and the relationships and duties created
in connection with the transactions contemplated by this Commitment Letter.

 

    	 	7	 

     

    

 

The Company further acknowledges that one or
more of the affiliates of any Commitment Party are full service securities firm engaged in securities trading and brokerage activities
as well as providing investment banking and other financial services. In the ordinary course of business, each Commitment Party
or one or more of its affiliates may provide investment banking and other financial services to, and/or acquire, hold or sell,
for their respective own accounts and the accounts of customers, equity, debt and other securities and financial instruments (including
bank loans and other obligations) of, the Company, and other companies with which the Company may have commercial or other relationships.
With respect to any debt or other securities and/or financial instruments so held by a Commitment Party or one or more of its affiliates
or any of their respective customers, all rights in respect of such securities and financial instruments, including any voting
rights, will be exercised by the holder of the rights, in its sole discretion.

 

In particular, the Company acknowledges that
the Company has been advised of the role of MLPFS and/or its affiliates as Financial Advisor and that, in such capacity, (i) the
Financial Advisor may recommend to the Seller that the Seller not pursue or accept the offer or proposal of the Company for the
acquisition of the Acquired Business, (ii) the Financial Advisor may advise the Seller and/or the Acquired Business in other manners
adverse to the interests of the Company, including, without limitation, by providing advice on pricing, leverage levels, and timing
and conditions of closing with respect to the bid by the Company, taking other actions with respect to the bid of the Company and
taking action under any definitive agreement between the Company, Seller and/or the Acquired Business, and (iii) the Financial
Advisor may possess information about the Seller and/or the Acquired Business, the acquisition of the Acquired Business, and other
potential purchasers and their respective strategies and proposals, but the Financial Advisor shall have no obligation to disclose
to the Company the substance of such information or the fact that it is in possession thereof. In addition, the Company acknowledges
that any of the Arrangers or Commitment Parties or their respective affiliates may be arranging or providing (or contemplating
arranging or providing) a committed form of acquisition financing to other potential purchasers of the Acquired Business and that,
in such capacity, such Arranger, Commitment Party or affiliate may acquire information about the Acquired Business, the sale thereof,
and such other potential purchasers and their strategies and proposals, but such party shall have no obligation to disclose to
the Company the substance of such information or the fact that such party is in possession thereof.

 

10.        USA
Patriot Act. Each Commitment Party hereby notifies the Company that pursuant to the requirements of the USA PATRIOT Act, Title
III of Pub. L. 107-56 (signed into law October 26, 2001) (the “USA Patriot Act”), the Commitment Parties and the other
Lenders may be required to obtain, verify and record information that identifies the Loan Parties (as defined in the Term Sheet),
which information includes the name, address, tax identification number and other information regarding the Loan Parties that will
allow the Commitment Parties and other Lenders to identify the Loan Parties in accordance with the USA Patriot Act. This notice
is given in accordance with the requirements of the USA Patriot Act and is effective as to each Lender.

 

    	 	8	 

     

    

 

11.        Entire
Agreement. This Commitment Letter contains the entire commitment of the Commitment Parties for this transaction and, upon acceptance
by the Company, supersedes all prior proposals, commitment letters, negotiations, discussions and correspondence (including, without
limitation, the Original Commitment Letter (except to the extent provided herein)). This Commitment Letter may not be contradicted
by evidence of any alleged oral agreement. No party has been authorized by a Commitment Party to make any oral or written statements
inconsistent with this Commitment Letter. This Commitment Letter is addressed solely to the Company and is not intended to confer
any obligations to or on, or benefits to or on, any third party (other than the Indemnified Persons). Each of the parties hereto
agrees that, if executed and accepted by the parties in the manner required herein, each of this Commitment Letter and the Fee
Letters is a binding and enforceable agreement with respect to the subject matter contained herein or therein (including the obligation
of the parties to negotiate the Loan Documents in good faith); it being acknowledged and agreed that the initial funding of the
Credit Facility is subject solely to the satisfaction of the conditions specified in Section 6 hereof, including the execution
and delivery of the relevant Loan Documents by the parties hereto in a manner consistent with this Commitment Letter (including
the applicable Documentation Principles and the obligation to negotiate in good faith); provided that nothing contained in this
Commitment Letter obligates the Company or any of its affiliates to consummate the Acquisition or to draw down any portion of the
Credit Facility.

 

12.        Surviving
Provisions. The expense and indemnification, sharing information; absence of fiduciary relationship; affiliate transactions,
confidentiality, jurisdiction, governing law and waiver of jury trial provisions contained herein shall remain in full force and
effect regardless of whether definitive financing documentation shall be executed and delivered and notwithstanding the termination
or expiration of this Commitment Letter or termination of the commitments of the Commitment Parties described herein; provided,
that, upon the execution and effectiveness of such definitive financing documentation, to the extent subject to, and covered by
the provisions of such financing documentation, the provisions hereof with respect to expense, indemnification and confidentiality
shall be superseded thereby.

 

13.        Counterparts.
This Commitment Letter may be executed in any number of counterparts, each of which shall be an original, and all of which, when
taken together, shall constitute one agreement. Delivery of an executed signature page of this Commitment Letter by facsimile transmission
or other electronic means (including an email with a “pdf”) shall be effective as delivery of a manually executed counterpart
hereof.

 

14.        Assignment;
Governing Law. This Commitment Letter may not be assigned by the Company without the prior written consent of each Commitment
Party and may not be amended, waived or modified, except in writing signed by each Commitment Party and the Company. This Commitment
Letter and the Fee Letters, the rights of the parties hereto or thereto with respect to all matters arising hereunder or related
hereto, and any and all claims, controversies or disputes arising hereunder or related hereto shall be governed by, and construed
in accordance with, the law of the State of New York, but excluding any principles of conflicts of law or other rule of law that
would cause the application of the law of any jurisdiction other than the State of New York, provided, that, notwithstanding the
preceding sentence and the governing law provisions of this Commitment Letter and the Fee Letters, it is understood and agreed
that (a) the interpretation of the definition of “Target Material Adverse Effect” (and whether or not a Target Material
Adverse Effect has occurred), (b) the determination of the accuracy of any Acquisition Agreement Representation and whether as
a result of any inaccuracy thereof the Company or any of its affiliates has the right to terminate its or their obligations under
the Acquisition Agreement or to decline to consummate the Acquisition and (c) the determination of whether the Acquisition has
been consummated in accordance with the terms of the Acquisition Agreement and, in any case, claims or disputes arising out of
any such interpretation or determination or any aspect thereof, in each case, shall be governed by, and construed and interpreted
in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof. Each of the parties hereto agrees that all claims, controversies, or disputes arising hereunder or
hereto shall be tried and litigated only in the state courts, and to the extent permitted by applicable law, federal courts, in
each case located in New York County, New York and each of the parties hereto submits to the exclusive jurisdiction and venue of
such courts relative to any such claim, controversy or dispute. It is understood that with respect to any suit, action or proceeding
arising out of or relating to the Acquisition Agreement or the transactions contemplated thereby and which does not involve this
Commitment Letter, the Credit Facility or claims by or against the Company, any Commitment Party or Lenders or any Indemnified
Person, the immediately preceding sentence shall not override any jurisdiction provision set forth in the Acquisition Agreement.

 

    	 	9	 

     

    

 

Notwithstanding anything to the contrary contained
herein, the parties hereby agree that MLPFS may, without notice to the Company or any other Commitment Party, assign its rights
and obligations under this Commitment Letter and the Fee Letters to any other registered broker-dealer wholly-owned by Bank of
America Corporation to which all or substantially all of Bank of America Corporation’s or any of its subsidiaries’
investment banking, commercial lending services or related businesses may be transferred following the date of this Commitment
Letter.

 

15.        JURY
TRIAL WAIVER. EACH COMMITMENT PARTY AND THE COMPANY EACH WAIVES ITS RIGHT TO A JURY TRIAL IN RESPECT OF ANY CLAIM, CONTROVERSY,
OR DISPUTE (WHETHER BASED IN CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS COMMITMENT LETTER OR THE TRANSACTIONS
OR THE ACTIONS OF A COMMITMENT PARTY OR ANY OF ITS AFFILIATES IN THE NEGOTIATION, PERFORMANCE, OR ENFORCEMENT OF THIS COMMITMENT
LETTER OR THE TRANSACTIONS OR THE ACTIONS OF A COMMITMENT PARTY OR ANY OF ITS AFFILIATES IN THE NEGOTIATION, PERFORMANCE, OR ENFORCEMENT
OF THIS COMMITMENT LETTER.

 

16.        Amendment
and Restatement. This Commitment Letter amends and restates in its entirety that certain commitment letter dated as of December
19, 2016 (as amended by that certain joinder letter dated as of December 23, 2016, and as in effect immediately prior to effectiveness
of this Commitment Letter, the “Original Commitment Letter”) among the Commitment Parties and the Company.

 

17.        Acceptance
and Termination. This Commitment Letter will be of no force and effect unless executed by each Commitment Party and a counterpart
hereof is accepted and agreed to by the Company and, as so accepted and agreed to, received by Bank of America by 11:59 p.m. (Central
time) on January 18, 2017, together with the Fee Letters as duly authorized, executed and delivered by the Company and the applicable
parties thereto. The commitment of each Commitment Party under this Commitment Letter, if accepted and agreed to by the Company
as provided in the immediately preceding sentence, will terminate upon the earliest of (i) 5:00 p.m. on June 30, 2017 unless the
Closing Date occurs on or prior thereto, (ii) the closing of the Acquisition without the closing of the Credit Facility, or (iii)
the valid termination of the Acquisition Agreement; provided that the termination of any commitment or this Commitment Letter pursuant
to this sentence does not prejudice your rights and remedies in respect of any breach of this Commitment Letter that occurred prior
to any such termination.

 

Signature Pages to Follow

 

    	 	10	 

     

    

 

If the Company accepts and agrees to the foregoing,
please so indicate by executing and returning the enclosed copy of this letter to Bank of America, together with the Fee Letters.
We look forward to continuing to work with you to complete this transaction.

 

	 	Very truly yours,	 
	 	 	 	 
	 	BANK OF AMERICA, N.A.	 
	 	 	 	 
	 	By:	/s/ Darryl Kuriger	 
	 	 	Name: Darryl Kuriger	 
	 	 	Title: Managing Director	 
	 	 	 	 
	 	MERRILL LYNCH, PIERCE,	 
	 	FENNER & SMITH INCORPORATED	 
	 	 	 	 
	 	By:	/s/ Darryl Kuriger	 
	 	 	Name: Darryl Kuriger	 
	 	 	Title: Managing Director	 

 

Signatures Continue on Next Page

 

     

     

    

 

	 	REGIONS BUSINESS CAPITAL,	 
	 	A DIVISION OF REGIONS BANK	 
	 	 	 	 
	 	By:	/s/ Jun Park	 
	 	 	Name: Jun Park	 
	 	 	Title: Managing Director	 

 

Signatures Continue on Next Page

 

	 	 	[signature page to Project Flintstone A&R Commitment Letter]

 

    	 	 	

     

    

 

	 	CITIZENS BANK, N.A.	 
	 	 	 	 
	 	By:	/s/ James J. Ward	 
	 	 	Name: James J. Ward	 
	 	 	Title: Senior Vice President	 
	 	 	 	 
	 	CITIZENS BANK, N.A.	 
	 	 	 	 
	 	By:	/s/ Leah Culver	 
	 	 	Name: Leah Culver	 
	 	 	Title: Director	 

 

Signatures Continue on Next Page

 

	 	 	[signature page to Project Flintstone A&R Commitment Letter]

 

    	 	 	

     

    

 

	 	Accepted on this 18th day	 
	 	of January, 2017:	 
	 	 	 	 
	 	FRED’S, INC.	 
	 	 	 	 
	 	By:	/s/ Rick J. Hans	 
	 	 	Name: Rick J. Hans	 
	 	 	Title: Chief Financial Officer	 

 

	 	 	[signature page to Project Flintstone A&R Commitment Letter]

 

    	 	 	

     

    

 

ANNEX A

 

Indemnification Provisions

 

To the fullest extent permitted by applicable
law, the Company (the “Indemnifying Person”) agrees that it will indemnify, defend, and hold harmless each of the Indemnified
Persons from and against (i) any and all losses, claims, damages, obligations, penalties, judgments, awards, liabilities, costs,
expenses and disbursements and (ii) any and all actions, suits, proceedings and investigations in respect thereof, and (iii) any
and all legal costs (provided, that, the obligations to reimburse any Indemnified Person for legal fees and expenses shall be limited
to reasonable legal fees and expenses of one firm of counsel for all such Indemnified Persons and if necessary, of one local counsel
in each appropriate jurisdiction (and, to the extent required by the subject matter, one specialist counsel for each such specialized
area of law in each appropriate jurisdiction) and in the case of an actual or perceived conflict of interest, one counsel for such
affected Indemnified Person) or other costs, expenses or disbursements in giving testimony or furnishing documents in response
to a subpoena or otherwise (including, without limitation, the costs, expenses and disbursements, as and when incurred, of investigating,
preparing or defending any such action, proceeding or investigation (whether or not in connection with litigation in which any
of the Indemnified Persons is a party) and including, without limitation, any and all losses, claims, damages, obligations, penalties,
judgments, awards, liabilities, costs, expenses and disbursements, resulting from any act or omission of any of the Indemnified
Persons), directly or indirectly, caused by, relating to, based upon, arising out of or in connection with (a) the Transactions
or (b) the Commitment Letter, the Original Commitment Letter or the Fee Letters; provided, that, such indemnity agreement
shall not apply to any portion of any such loss, claim, damage, obligation, penalty, judgment, award, liability, cost, expense
or disbursement of an Indemnified Person to the extent it is found in a final judgment by a court of competent jurisdiction (not
subject to further appeal) to have resulted from the gross negligence or willful misconduct of such Indemnified Person. These Indemnification
Provisions shall be in addition to any liability which the Indemnifying Person may have to the Indemnified Persons.

 

If any action, suit, proceeding or investigation
is commenced, as to which any of the Indemnified Persons proposes to demand indemnification, it shall notify the Indemnifying Person
with reasonable promptness; provided, that, any failure by any of the Indemnified Persons to so notify the Indemnifying
Person shall not relieve the Indemnifying Person from its obligations hereunder. The Indemnified Persons shall have the right to
retain counsel of their choice to represent them, and the Indemnifying Person shall pay the reasonable fees, expenses, and disbursement
of such counsel, and such counsel shall, to the extent consistent with its professional responsibilities, cooperate with the Indemnifying
Person and any counsel designated by the Indemnifying Person. The Indemnifying Person shall be liable for any settlement of any
claim against any of the Indemnified Persons made with its written consent, which consent shall not be unreasonably withheld. Without
the prior written consent of the applicable Indemnified Person, the Indemnifying Person shall not settle or compromise any claim,
unless (i) such Indemnified Person and each other Indemnified Person from which such Indemnified Person could have sought indemnification
or contribution has given his, her or its prior written consent or (ii) the settlement, compromise, consent or termination (A)
includes an express unconditional release of all Indemnified Persons and their respective affiliates from all losses, claims, damages,
expenses and liabilities, directly or indirectly, arising out of, relating to, resulting from or otherwise in connection with such
claim, (B) does not include any statements as to or any findings (or admissions) of fault, culpability or failure to act by or
on behalf of any Indemnified Person and (C) is paid by the Indemnifying Person in cash.

 

    	 	15	 

     

    

 

In order to provide for just and equitable contribution,
if a claim for indemnification pursuant to these Indemnification Provisions is made but is found by a judgment of a court of competent
jurisdiction (not subject to further appeal) that such indemnification may not be enforced in such case, even though the express
provisions hereof provide for indemnification in such case, then the Indemnifying Person, on the one hand, and the applicable Indemnified
Persons, on the other hand, shall contribute to the losses, claims, damages, obligations, penalties, judgments, awards, liabilities,
costs, expenses and disbursements to which the applicable Indemnified Persons may be subject in accordance with the relative benefits
received by the Indemnifying Person, on the one hand, and the applicable Indemnified Persons, on the other hand, and also the relative
fault of the Indemnifying Person, on the one hand, and the applicable Indemnified Persons collectively and in the aggregate, on
the other hand, in connection with the statements, acts or omissions which resulted in such losses, claims, damages, obligations,
penalties, judgments, awards, liabilities, costs, expenses and disbursements and the relevant equitable considerations shall also
be considered, provided, that, no Indemnified Person shall be liable for any fault, fraud, tort, or breach of any other Indemnified
Person or for a claim or cause of action against such other Indemnified Person. No person found liable for a fraudulent misrepresentation
shall be entitled to contribution from any other person who is not also found liable for such fraudulent misrepresentation.

 

Neither expiration nor termination of the commitment
of a Commitment Party under the Commitment Letter or funding or repayment of the loans under the Credit Facility shall affect these
Indemnification Provisions which shall remain operative and continue in full force and effect.

 

No Indemnified Person shall be liable for any
damages arising from the use by others of Information or other materials obtained through internet, Intralinks, SyndTrak or other
similar transmission systems in connection with the Credit Facility, unless to the extent it is found in a final non-appeable judgment
by a court of competent jurisdiction (not subject to further appeal) to have resulted from the gross negligence or willful misconduct
of such Indemnified Person. In addition, no Indemnified Person shall be responsible or liable for special, indirect, consequential,
exemplary, incidental or punitive damages which may be alleged as a result of this Commitment Letter or the Fee Letters and the
Company, on behalf of itself and each of its affiliates, irrevocably and unconditionally waives any right to seek such damages
for any claim that may be alleged as a result of any breach, or as a result, of this Commitment Letter or any element of the transactions
contemplated hereby.

 

    	 	16	 

     

    

 

ANNEX B

 

Syndication Provisions

 

Arrangers will be entitled, in consultation
with the Company, to manage all aspects of the syndication of the Credit Facility, including decisions as to the selection of prospective
lenders to be approached and included, the timing of all offers to prospective lenders, the amount offered, the allocation and
acceptance of prospective commitments, the amount of compensation payable to prospective lenders, and any titles to be awarded
to such prospective lenders. The Company agrees that no Lender in such capacity will receive any compensation for its participation
in the Credit Facility except as expressly agreed to and offered by the Arrangers. In any event Arrangers will not syndicate to
(i) any natural person, (ii) those banks, financial institutions and other institutional lenders and investors that have been separately
identified in writing by the Company to Arrangers prior to the date of the Original Commitment Letter, (iii) those persons that
are competitors of the Company that are separately identified by the Company to Arrangers in writing (it being understood and agreed
that any bona fide debt funds or any financial investors in such persons shall not constitute a competitor thereof) prior to the
date of the Original Commitment Letter or from time to time thereafter (and if after the date of the Original Commitment Letter
subject to the approval of Arrangers and provided that such notice shall not apply to retroactively disqualify any parties that
have previously acquired an assignment of or participation interest in the commitments in respect of the Credit Facility), and
(iv) in the case of each of clauses (i), (ii) and (iii), any of their affiliates that are clearly identifiable as such by their
names or identified in writing by the Company to Arrangers (clauses (i), (ii), (iii) and (iv) above, collectively, “Disqualified
Lenders”).

 

Until the earlier of 60 days after the Closing
Date and a Successful Syndication (as defined in the Arranger Fee Letter), the Company agrees to cooperate, and to use commercially
reasonable efforts to cause the Seller (including the Acquired Business) to cooperate, and in each case to assist Arrangers in
completing a Successful Syndication. To assist Arrangers in their syndication efforts, without limiting the foregoing, the Company
agrees, upon the reasonable request of Lead Arranger, to:

 

(a) make senior management and representatives
of the Company, and using commercially reasonable efforts, management and representatives of the Acquired Business, if requested,
available to participate in meetings and to provide information to prospective lenders in a timely manner at such times and places
as Lead Arranger may reasonably request,

 

(b) use commercially reasonable efforts to ensure
that the syndication efforts of the Arrangers benefits from the existing lending relationships of the Company and the Seller,

 

(c) at the expense of the Company, host, with
the Arrangers, one or more meetings of prospective lenders, and, in connection with any such lender meeting (a “Lender Meeting”),
consulting with the Lead Arranger with respect to the presentations to be made at any such Lender Meeting, and making available
appropriate officers and other representatives of the Company (and using commercially reasonable efforts, senior management and
representatives of the Acquired Business) to attend and participate, and allowing Arrangers to participate in rehearsing such presentations
prior to such Lender Meetings, as reasonably requested by Lead Arranger, and

 

(d) promptly prepare and provide (and to use
its commercially reasonable efforts to cause the Acquired Business to assist in the preparing and providing) to Arrangers such
information with respect to the Company and its subsidiaries (including the Acquired Business) and the Transactions as Arrangers
may reasonably request, including, without limitation, (i) a confidential information memorandum that includes information with
respect to the Company and its subsidiaries (including the Acquired Business) and the Transactions as Arrangers may reasonably
request, including the Projections, all in form and substance reasonably satisfactory to the Arrangers (the “Marketing Materials”),
and (ii) a version of the Marketing Materials (the “Public Information Materials”) that does not contain Projections
or other material non-public information concerning the Company and its subsidiaries (including the Acquired Business) or its securities
for purposes of the United States federal and state securities laws (“Material Non-Public Information”).

 

    	 	17	 

     

    

 

The Company understands that in arranging and
syndicating the Credit Facility, Arrangers may use and rely on the Marketing Materials without independent verification thereof.
Until the earlier of 60 days after the Closing Date and a Successful Syndication, the Company will promptly notify the Arrangers
of any changes in circumstances that could be expected to call into question the continued reasonableness of any assumption underlying
the Projections and agrees to update the Marketing Materials as may be reasonably requested by Arrangers.

 

Before distribution of any Marketing Materials
(a) to prospective lenders that do not wish to receive Material Non-Public Information concerning the Company and its subsidiaries
(including the Acquired Business) or their securities (such lenders, “Public Lenders;” all other lenders, “Private
Lenders”), the Company agrees to provide the Arrangers with a customary letter authorizing the dissemination of the Public
Information Materials and confirming the absence of Material Non-Public Information therein and (b) to prospective Private Lenders,
the Company agrees to provide Arrangers with a customary letter authorizing the dissemination of those materials. In addition,
at the request of Arrangers, the Company will identify Public Information Materials by clearly and conspicuously marking the same
as “PUBLIC.” The Company agrees that the Arrangers may distribute the following documents to all prospective lenders,
unless the Company advises the Arrangers in writing (including by email) within a reasonable time prior to their intended distributions
that such material should only be distributed to prospective Private Lenders: (i) administrative materials for prospective lenders
such as lender meeting invitations and funding and closing memoranda, and (ii) other materials intended for prospective lenders
after the initial distribution of the Marketing Materials, including drafts and final versions of the definitive documentation
for the Credit Facility. If the Company advises the Arrangers that any of the foregoing items should be distributed only to Private
Lenders, then Arrangers agree not to distribute such materials to Public Lenders without the prior written consent (including by
email) of the Company, not to be unreasonably withheld or delayed.

 

To ensure an orderly and effective syndication
of the Credit Facility, the Company agrees that:

 

(a) from the date of the Original Commitment
Letter until the earlier of the completion of a Successful Syndication and 60 days following the Closing Date, the Company will
not, and will not permit any of its subsidiaries to, and will require that the Acquired Business (but not the Seller) agree not
to, syndicate or issue, attempt to syndicate or issue, announce or authorize the announcement of the syndication or issuance of,
or engage in discussions concerning the syndication or issuance of, any debt facility, or debt security, syndicated credit facilities,
or bank or institutional financings of the Company or any of its subsidiaries, including the Acquired Business (other than the
syndication of the Credit Facility as contemplated hereby and the syndication of the Term Loan Facility), including any renewals
or refinancings of any existing debt facility, without the prior written consent of the Arrangers, provided, that, the foregoing
shall not apply to (i) purchase money financing of equipment, (ii) borrowings under existing credit facilities, (iii) the Term
Loan Facility and (iv) other immaterial ordinary course indebtedness, and

 

(b) the Arrangers shall have a syndication period
prior to the Closing Date commencing on January 6, 2017 and ending February 15, 2017.

 

    	 	18	 

     

    

 

Notwithstanding any other provision of the Commitment
Letter or this Annex B to the contrary and notwithstanding any syndication, assignment or other transfer by any Initial Lender
(a) no Initial Lender shall be relieved, released or novated from its obligations hereunder (including its obligation to fund its
applicable percentage of the Credit Facility on the Closing Date upon the satisfaction (or waiver by the Commitment Parties) of
the conditions specified in Section 6 of the Commitment Letter) in connection with any syndication, assignment or other transfer
until after the initial funding of such Initial Lender’s commitment under the Credit Facility on the Closing Date or the
Company otherwise agrees in writing, which consent shall not be unreasonably withheld, (b) no such syndication, assignment or other
transfer shall, with respect to any portion of any Initial Lender’s commitments to fund its applicable percentage of the
Credit Facility on the Closing Date, relieve such Initial Lender from its obligations hereunder to fund its applicable percentage
of the Credit Facility on the Closing Date upon the satisfaction (or waiver by the Commitment Parties) of the conditions specified
in Section 6 of the Commitment Letter, except to the extent such portion is otherwise funded upon the initial funding on the Closing
Date) and (c) unless the Company agrees in writing, each Initial Lender, Commitment Party and Arranger shall retain exclusive control
over all rights and obligations with respect to its commitments in respect of the Credit Facility, including all rights with respect
to consents, waivers, modifications, supplements and amendments, until the Closing Date has occurred.

 

    	 	19	 

     

    

 

CONFIDENTIAL

 

EXHIBIT A

 

FRED’S, INC.

 

Transaction Description

January 18, 2017

 

Capitalized terms used but not defined in this
Exhibit A shall have the meanings set forth in the Commitment Letter or the other Exhibits and Annexes thereto.

 

The Company (through one or more of its wholly-owned
domestic subsidiaries) intends to acquire (the “Acquisition”) all of the Purchased Assets and assume the Assumed Liabilities
(as each of such terms is defined in the Acquisition Agreement as in effect on the date of the Original Commitment Letter) of not
less than 750, but up to 1,000, retail stores of Rite Aid Corporation (the “Acquired Business”) from Rite Aid Corporation
(“Seller”), all as set forth in the Acquisition Agreement as defined below. In connection therewith:

 

(a) The Acquisition will be effected pursuant
to the Asset Purchase Agreement by and among the Company and Seller, and for the limited purposes set forth therein, Walgreen Boots
Alliance, Inc. (and together with the schedules and exhibits thereto and the Ancillary Agreements referred to therein, the “Acquisition
Agreement”). Such Acquisition shall be consummated pursuant to an initial Closing and one or more Subsequent Closings (each,
as defined in the Acquisition Agreement) (such retail store locations and the related assets acquired pursuant to a Subsequent
Closing, being hereinafter a “Series”, provided that, all retail store locations and the related assets acquired pursuant
to a Series of Subsequent Closings (each an “Acquired Store Series”) occurring on consecutive business days (with an
average of not less than 50 retail stores per day acquired pursuant thereto (or, if less, (x) the entire remaining balance of stores
and related assets to be acquired by the Company pursuant to the Acquisition Agreement, (y) at any time after to the date that
the Borrowers shall have acquired 67% of all retail store locations and related assets required to be acquired pursuant to the
Acquisition Agreement, up to 25 separate transfers of one or more retail store locations and related assets to be acquired by the
Company pursuant to the Acquisition Agreement or (z) as agreed to by Agent) shall be deemed to form a part of the same Acquired
Store Series). Following the Acquisition, the Acquired Business will be owned by the Company, except for any assets to be acquired
in connection with any Subsequent Closing or the Distribution Center Closing (as each of such terms are defined in the Acquisition
Agreement as in effect on the date of the Original Commitment Letter).

 

(b) The Acquired Business will be released from
all obligations in connection with any debt for borrowed money, including the credit facility provided to Seller and its subsidiaries
for which Citibank, N.A. is the agent (the “Existing Credit Facility”) and any security interests in, encumbrances
or liens on any of the assets of the Acquired Business (other than Permitted Liens (as defined in the Acquisition Agreement)) will
be released and terminated (such release of obligations and the termination and discharge of such liens and encumbrances, the “Release”).

 

(d) Borrowers and the other Loan Parties (as
defined in Exhibit B) will enter into the Credit Facility and the applicable Loan Documents.

 

    		A-1	 

     

    

 

(e) Borrowers will enter into a term loan facility
on the terms and conditions set forth in that certain $600,000,000 Senior Secured Term Loan Facility Commitment Letter, dated as
of December 19, 2016, by and among the Company, MLPFS, as arranger and agent and the other parties thereto, with such changes thereto
as are reasonably satisfactory to the Arrangers (the “Term Loan Facility”), which shall be secured by liens that are
subordinated to the liens securing the Credit Facility, except for the liens on equipment, fixtures, real property and certain
related assets that secure the Term Loan Facility which will be senior to the liens securing the Credit Facility.

 

(f) The fees, premiums, expenses and other transaction
costs incurred in connection with the Transactions that are due and payable on or prior to the Closing Date (the “Transaction
Costs”) will be paid.

 

(g) The proceeds of the Credit Facility and
Term Loan Facility will be used to pay the consideration and other amounts owing in connection with the Acquisition under the Acquisition
Agreement, to pay all or a portion of the Transaction Costs and for general corporate purposes.

 

The Acquisition, the Release, the Credit Facility
and the Term Loan Facility and the other transactions described above or related thereto are collectively referred to as the “Transactions”.

 

    		A-2	 

     

    

 

EXHIBIT B

TO

AMENDED AND RESTATED COMMITMENT LETTER

 

FRED’S, INC.

 

$1,200,000,000 Senior Secured Revolving Loan
Facility 

(“Credit Facility”)

 

Summary of Principal Terms and Conditions

January 18, 2017

 

This Summary of Principal Terms and Conditions
(the “Term Sheet”) is part of the commitment letter, dated January 18, 2017 (the “Commitment Letter”),
addressed to Fred’s, Inc. (the “Company”) by Bank of America, N.A. (“Bank of America”), Merrill Lynch,
Pierce, Fenner & Smith Incorporated (together, with its designated affiliates, “MLPFS”, and together with Bank
of America, “BofA”), Regions Business Capital, a Division of Regions Bank (“Regions”) and Citizens Bank,
N.A. (“Citizens”) and is subject to the terms and conditions of the Commitment Letter. Capitalized terms used herein
and the accompanying annexes shall have the meanings set forth in the Commitment Letter unless otherwise defined herein.

 

	Borrowers:	The Company, AFAE, LLC and any other wholly-owned subsidiary of the Company organized under the laws of the United States or a State or instrumentality thereof with assets to be included in the Borrowing Base (individually, a “Borrower” and collectively, “Borrowers”).  All references to Borrowers shall mean such subsidiaries of the Company after giving effect to the Acquisition.
	 	 
	Guarantors:	Each of the Company’s existing and subsequently acquired or organized direct or indirect subsidiaries that are not Borrowers (collectively, the “Guarantors”, and together with Borrowers, individually a “Loan Party” and collectively, “Loan Parties”); provided, that, Guarantors shall not include (a) any non-US subsidiary of the Company organized or acquired after the Closing Date that is a “controlled foreign corporation” (within the meaning of Section 957 of the Internal Revenue Code) (“CFC”) and any U.S. subsidiary of the Company that is treated as a “disregarded entity” for federal income tax purposes the sole assets of which are equity interests in CFCs and that has no material assets or material operations other than the equity interests of CFC’s (such entity, a “CFC Holdco”), (b) immaterial subsidiaries (to be defined in a mutually acceptable manner as to individual and aggregate revenues and assets), and (c) special purpose entities whose only assets consist of real estate, improvements and fixtures thereon that are subject to existing mortgages to secure debt for borrowed money.   Notwithstanding the foregoing, in the event any holder of any debt for borrowed money of any Loan Party obtains any guaranty from any such CFC or such CFC Holdco, then, in such event, such CFC and/or CFC Holdco shall be required to provide a guaranty of the obligations under the Credit Facility.  Agent may agree that the special purpose entity that owns certain intellectual property used by the Company, which is expected to be dissolved and its assets transferred to the Company, will not be a Guarantor, provided, that, (i) if such company is not dissolved and all of its assets are not transferred to the Company within 6 months after the Closing Date, such entity will become a Guarantor and all of its assets subject to the perfected security interest of Agent and (ii) prior to such dissolution and transfer, such company will not engage in any business activities, own any material assets or have any material obligations or liabilities, other than the intellectual property that it currently owns, the licensing thereof, and transactions directly related thereto.

 

    		B-1	 

     

    

 

	Agent:	Bank of America (in such capacity, “Agent”).
	 	 
	Collateral Agent:	Bank of America and Regions as co-collateral agents (in such capacities, “Collateral Agents”).  The Collateral Agents and Agent shall enter into a customary co-collateral agent’s agreement, pursuant to which, among other things, Collateral Agents shall have rights as expansive as the rights afforded to the Agent under the Loan Document relating to (i) (x) the definition of the term “Excess Availability” and any component of such definition, and (y) the definitions in the Loan Documents of the Borrowing Base and the FILO Borrowing Base and any component of each such definition (including, without limitation, reserves, advance rates and eligibility criteria), (ii) reporting requirements and appraisals, examinations and collateral audits, and (iii) the establishment, determination, modification or release of any of the reserves established pursuant to the Loan Documents.
	 	 
	Syndication Agent:	Regions as syndication agent (in such capacity, “Syndication Agent”).
	 	 
	Co-Documentation

Agents:	

Citizens and other Lenders to be determined.
	 	 
	Lenders:	
        Bank of America, Regions, Citizens, Wells Fargo
        Bank, National Association (“Wells Fargo”), BMO Harris Bank (“BMO”) and such other institutions as may
        become parties to the Credit Facility as lenders (collectively, “Lenders”) but not including any Disqualified Lenders.
        Lenders holding commitments under the ABL Revolving Facility are referred to herein, collectively, as the “Revolving Lenders”.
        Lenders holding commitments or term loans under the ABL FILO Term Facility are referred to herein, collectively, as the “FILO
        Term Lenders”.

         

        The term “Disqualified Lender”
        means (i) any natural person, (ii) those banks, financial institutions and other institutional lenders and investors that have
        been separately identified in writing by the Company to Arrangers (as defined in the Commitment Letter) prior to the date of the
        Original Commitment Letter, (iii) those persons that are competitors of the Company that are separately identified by the Company
        to Arrangers in writing (it being understood and agreed that any bona fide debt funds or any financial investors in such persons
        shall not constitute a competitor thereof) prior to the date of the Original Commitment Letter or from time to time thereafter
        (and if after the date of the Original Commitment Letter subject to the approval of Agent and provided that such notice shall not
        apply to retroactively disqualify any parties that have previously acquired an assignment of or participation interest in the loans
        or commitments in respect of the Credit Facility), and (iv) in the case of each of clauses (i), (ii) and (iii), any of their affiliates
        that are clearly identifiable as such by their names or identified in writing by the Company to Arrangers.

 

    		B-2	 

     

    

 

	Swing Line Lender:	Bank of America (in such capacity, “Swing Line Lender”).
	 	 
	Letter of Credit Issuer:	Bank of America, Regions and other Lenders who shall agree to become a letter of credit issuer (in such capacity, each an “Issuing Bank”), with such sublimits as each may require for the outstanding aggregate amount of Letters of Credit issued by it at any time.
	 	 
	Joint Lead Arrangers and Bookrunners:	MLPFS, Regions, Citizens, Wells Fargo and BMO.
	 	 
	Credit Facility:	
        A senior secured asset-based credit facility
        provided to Borrowers in an aggregate principal amount of $1,200,000,000 consisting of (a) senior secured asset-based term loans
        advanced on a “first-in, last-out” basis in an aggregate principal amount of $300,000,000, subject to the terms and
        conditions contained herein (the “ABL FILO Term Facility”) and (b) a senior secured asset-based revolving loan and
        letter of credit facility in an aggregate principal amount of $900,000,000, subject to the Borrowing Base as provided herein and
        other terms and conditions contained herein (the “ABL Revolving Facility”). Amounts under the Credit Facility will
        be available in U.S. dollars.

         

        The term “Maximum Credit” as used
        herein means the aggregate amount of the commitments under the ABL Revolving Facility. In the event that at least 865 stores are
        not purchased under the Acquisition Agreement or if the final Subsequent Closing does not occur prior to the one year anniversary
        of the Closing Date, the Lenders shall be entitled to reduce the Maximum Credit in manner and subject to terms to be agreed.

         

        Revolving loans under the ABL Revolving Facility
        (the “Revolving Loans”) may be drawn, repaid and reborrowed.

         

        The entire principal amount of the ABL FILO
        Term Facility will be available in a single drawing on the date that is the earlier to occur of (x) the date that the Borrower
        shall have acquired 625 retail store locations (and related assets) required to be acquired pursuant to the Acquisition Agreement
        and (y) September 30, 2017 (or such earlier date as may be requested by the Borrowers upon five (5) business days’ written
        notice to Agent) (subject to the implementation of any applicable ABL FILO Push Down Reserve as provided herein and other terms
        and conditions contained herein), provided that in each such case, the entire Term Loan Facility shall be fully funded at such
        time. The term loans advanced under ABL FILO Term Facility (the “ABL FILO Term Loans”) may not be repaid or prepaid,
        except (i) in connection with a termination of all commitments under the Credit Facility and payment in full of all secured obligations
        under or described in the Credit Facility or (ii) twelve full months after giving effect to the final Subsequent Closing, if the
        FILO Prepayment Conditions (as described below) are satisfied.

 

    		B-3	 

     

    

 

	 	
        “FILO Prepayment Conditions” means,
        at the time of determination with respect to any prepayment of the ABL FILO Term Loans, the following:

         

        (a)   as
        of the date of any such prepayment, and after giving effect thereto, no default or event of default shall exist or have occurred
        and be continuing,

         

        (b)   as
        of the date of any prepayment, on a pro forma basis and after giving effect thereto: (A) the Excess Availability for the immediately
        preceding 30 consecutive day period shall have been not less than the greater of (1) 30.0% of the Combined Loan Cap or (2) $450,000,000,
        (B) the Excess Availability on the date of such prepayment shall be not less than the greater of such amounts, and (C) Excess Availability
        as projected as of the end of each month for each of the twelve (12) months following such prepayment shall be not less than the
        greater of such amounts; and

         

        (c)   Agent
        shall have received a certificate of an authorized officer of Borrowers certifying as to compliance with the preceding clauses
        and demonstrating (in reasonable detail) the calculations required thereby.

         

        The ABL FILO Term Loans that are repaid or
        prepaid may not be reborrowed.

         

        The Company will be appointed to act as the
        agent for Loan Parties for all purposes of dealing with Agent, Issuing Bank, and Lenders, including requesting Revolving Loans
        and Letters of Credit.

	 	 
	Facility Increase:	
        Borrowers will have the option to
increase the aggregate amount of the commitments under the ABL Revolving Facility (each, a “Facility Increase”) after
the Closing Date in an aggregate amount not to exceed for all such Facility Increases $200,000,000, provided, that, as to each
Facility Increase, each of the following conditions is satisfied: (a) Borrowers shall deliver to Agent a certificate of each Loan
Party dated as of the effective date of such Facility Increase (the “Increase Effective Date”) signed by a responsible
officer of such Loan Party (i) certifying and attaching the resolutions adopted by such Loan Party approving or consenting to
such increase, and (ii) certifying that, before and after giving effect to such increase, the representations and warranties contained
in the Loan Documents are true and correct on and as of the Increase Effective Date, except to the extent that such representations
and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date; (b) Borrowers
shall have paid such fees and other compensation to Arrangers as may be agreed; (c) Borrowers shall deliver to Agent and Lenders
an opinion or opinions, in form and substance reasonably satisfactory to Agent, from counsel to Borrowers reasonably satisfactory
to Agent and dated the Increase Effective Date; (d) Borrowers shall have delivered such other instruments, documents and agreements
as Agent may have reasonably requested; (e) as of the Increase Effective Date and after giving effect thereto, no default or event
of default exists; (f) each such Facility Increase shall be in minimum increments of $10,000,000; (g) each such Facility Increase
shall be offered to each of the existing Lenders on a pro rata basis and, to the extent the existing Lenders do not agree to provide
the entire amount of the requested Facility Increase, to new Lenders reasonably acceptable to Agent; (h) no Lender shall be required
to provide additional commitments for such Facility Increase; (i) such Facility Increase shall be subject to obtaining additional
commitments of Lenders (whether existing Lenders or new Lenders); (j) the terms of such Facility Increase shall be the same as
for all commitments under the ABL Revolving Facility (other than as to fees payable for such additional commitments); and (k)
Agent and Lenders shall have received not less than 10 business days’ prior written notice of the request prior to the effectiveness
of any Facility Increase.

	 	 

    		B-4	 

     

    

 

	 	In no event shall the fees, interest rate and other compensation offered or paid in respect of additional commitments or increase in commitments have higher rates than the amounts paid and payable to the then existing Lenders in respect of their commitments, unless the fees, interest rate and other compensation payable to the then existing Lenders are increased to the same as those paid in connection with the new or additional commitments, except for the initial fee payable in respect of the new or additional commitment of a Lender.

 

	Letters of Credit Subfacility:	
        A portion of the ABL Revolving Facility will
        be available for letters of credit arranged by Agent and issued by an Issuing Bank (“Letters of Credit”) in an aggregate
        amount at any time outstanding not to exceed $100,000,000. Letters of Credit will reduce the amount of the Revolving Loans available
        under the Borrowing Base and the Maximum Credit.

         

        Letters of Credit will be issued by the Issuing
        Bank and each Lender will purchase an irrevocable and unconditional participation in each Letter of Credit.

         

        If any Lender becomes a “Defaulting Lender”,
        then the Letter of Credit exposure of such Defaulting Lender will automatically be reallocated among the non-defaulting Lenders
        pro rata in accordance with their commitments under the ABL Revolving Facility up to an amount such that the revolving credit exposure
        of each such non-defaulting Lender does not exceed its commitments. In the event such reallocation does not fully cover the exposure
        of such Defaulting Lender, the Issuing Bank may require Borrowers to repay (or provide cash collateral for) such “uncovered”
        exposure in respect of the Letters of Credit and will have no obligation to provide Letters of Credit to the extent such Letters
        of Credit would result in the exposure of the non-defaulting Lenders exceeding their commitments under the ABL Revolving Facility.

	 	 
	Swing Line Facility:	A portion of the ABL Revolving Facility will be available as swing line loans (“Swing Line Loans”) with a sublimit on Swing Line Loans to Borrowers outstanding at any time of $100,000,000 (the “Stated Swing Line Limit”); provided, however, that notwithstanding the Stated Swing Line Limit and solely during the Acquisition Period (as hereinafter defined), the Swing Line Lender may (in its sole and absolute discretion and in lieu of Agent requiring Lenders to make Revolving Loans or FILO Loans), make Swing Line Loans available to the Borrowers to fund the purchase price of the Purchased Assets acquired in connection with any Subsequent Closing.  Swing Line Loans will reduce the amount of the Revolving Loans available under the Borrowing Base and the Maximum Credit.  The term “Revolving Loans” as used herein includes Swing Line Loans, except as otherwise provided herein.  

 

    		B-5	 

     

    

 

	 	
        Swing Line Loans will be made available by
        Swing Line Lender and each Lender will purchase an irrevocable and unconditional participation in each Swing Line Loan.

         

        If any Lender becomes a “Defaulting Lender”,
        then the swing line exposure of such Defaulting Lender will automatically be reallocated among the non-defaulting Lenders pro rata
        in accordance with their commitments under the ABL Revolving Facility up to an amount such that the revolving credit exposure of
        each such non-defaulting Lender does not exceed its commitments. In the event such reallocation does not fully cover the exposure
        of such Defaulting Lender, the Swing Line Lender may require Borrowers to repay such “uncovered” exposure in respect
        of the Swing Line Loans and will have no obligation to make Swing Line Loans to the extent such Swing Line Loans would result in
        the non-defaulting Lenders exceeding their commitments.

         

        Swing Line Loans shall be repaid by the Borrowers
        (other than with the proceeds of other Swing Line Loans) no later than 7 days after the funding thereof (or, during the Acquisition
        Period, such other increased frequency as may be required by the Swing Line Lender).

	 	 
	Borrowing Base and

FILO Borrowing Base:	
        Revolving Loans and Letters of Credit shall
        be provided to Borrowers subject to the terms and conditions of the Loan Documents (which will be consistent with the terms of
        this Commitment Letter) and availability under the ABL Revolving Facility will be calculated as follows (the “Borrowing Base”):

         

        (a)   90%
        of the face amount of eligible credit card receivables of Borrowers; plus

         

        (b)   85%
        of the net amount of eligible pharmacy receivables of Borrowers; plus

         

        (c)   90%
        of the Net Recovery Percentage of eligible merchandise inventory (other than pharmacy inventory) of Borrowers multiplied by the
        value of such eligible inventory; plus

         

        (d)   90%
        of the Net Recovery Percentage of eligible pharmacy inventory of Borrowers multiplied by the value of such eligible inventory;
        plus

         

        (e)   Pharmacy
        Scripts Availability; minus

         

        (f)    the
        ABL FILO Push Down Reserve; minus

         

        (g)   the
        Term Loan Push Down Reserve; minus

 

    		B-6	 

     

    

 

	 	
        (h)   applicable
        reserves established by Agent in its Permitted Discretion.

         

        The amount of the “Net Recovery Percentage”
        means the fraction, expressed as a percentage (a) the numerator of which is the amount equal to the recovery on the aggregate amount
        of the applicable category of eligible inventory at such time on a “going out of business” basis (or, in the case of
        any Acquired Store (through the period during which the Transition Services Agreement is in effect), on a “store closing
        sale” basis) as set forth in the most recent acceptable inventory appraisal received by Agent in accordance with the requirements
        of the Loan Documents, net of operating expenses, liquidation expenses and commissions reasonably anticipated in the disposition
        of such assets and (b) the denominator of which is the original cost (or as to certain categories of inventory as specified by
        Agent, the retail value) of the aggregate amount of the eligible inventory subject to such appraisal.

         

        The “value” of each category of
        eligible inventory will be determined in accordance with generally accepted accounting principles as consistently applied by the
        Company pursuant to its then current practices (or in the case of certain categories of inventory to be specified by Agent, the
        retail value thereof), but in any event at all times consistent with the practices used in the most recent field examination and
        appraisals that have been received by Agent.

         

        “Pharmacy Scripts Availability”
        means 5% of the product of (i) the average per script “net orderly liquidation value” of eligible prescription files
        (“pharmacy scripts”) based on the most recent acceptable appraisal received by Agent in accordance with the requirements
        of the Loan Documents, net of operating expenses, liquidation expenses and commissions reasonably anticipated in the disposition
        of such assets, multiplied by (ii) the number of eligible pharmacy scripts; provided that in no event shall such amount exceed
        6.67% of the Borrowing Base at any time.

         

        The term “Permitted Discretion”
        as used in this Term Sheet with reference to Agent, shall mean a determination made in good faith in the exercise of its reasonable
        (from the perspective of a secured asset based lender in credit facilities of this type) business judgment based on how an asset-based
        lender with similar rights providing a credit facility of the type set forth herein would act in similar circumstances at the time
        with the information then available to it.

         

        The ABL FILO Term Facility shall be provided
        to Borrowers subject to the terms and conditions of the Loan Documents (which will be consistent with the terms of this Commitment
        Letter). The FILO Borrowing Base will be calculated as follows (the “FILO Borrowing Base”):

         

        (a)   the
        FILO Pharmacy Scripts Availability; minus

         

        (b)   applicable
        reserves established by Agent in its Permitted Discretion (provided that such reserves shall not be duplicative of reserves maintained
        against the Borrowing Base).

 

    		B-7	 

     

    

 

	 	
        “FILO Pharmacy Scripts Availability”
        means 30% of the product of (i) the average per script “net orderly liquidation value” of eligible prescription files
        (“pharmacy scripts”) based on the most recent acceptable appraisal received by Agent in accordance with the requirements
        of the Loan Documents, net of operating expenses, liquidation expenses and commissions reasonably anticipated in the disposition
        of such assets, multiplied by (ii) the number of eligible pharmacy scripts.

         

        If at any time, and for so long as, the outstanding
        amount of the ABL FILO Term Loans under the ABL FILO Term Facility exceeds the FILO Borrowing Base, Agent shall establish and maintain
        a reserve against the Borrowing Base in an amount equal to the difference between (a) such outstanding amount of the loans under
        the ABL FILO Term Facility and (b) FILO Borrowing Base at such time (the “ABL FILO Push Down Reserve”).

         

        From and after the date of delivery of a notice
        (a “Notice of TSA Termination”) from the Borrowers and the Sellers of their intention to terminate the Transition Services
        Agreement, upon which termination, the Borrowers would be required to purchase the Distribution Center (as such term is defined
        in the Acquisition Agreement as in effect on the date of the Original Commitment Letter), Agent may, or shall upon the request
        of the Required Lenders, establish reserves in an amount equal to the purchase price of the Distribution Center (exclusive of the
        allocable share of such purchase price in respect of inventory located at the Distribution Center) (which reserves may be implemented
        from time to time and in incremental amounts), which reserve shall be released upon the purchase of the Distribution Center (as
        such term is defined in the Acquisition Agreement on the date of the Original Commitment Letter).

         

        If at any time the outstanding amount of the
        loans under the Term Loan Facility exceed the borrowing base established under the Term Loan Facility, Agent may be required to
        establish a reserve against the Borrowing Base in an amount equal to the difference between (a) such outstanding amount of the
        loans under the Term Loan Facility and (b) such term loan borrowing base at such time (the “Term Loan Push Down Reserve”).
        For purposes of the Term Loan Push Down Reserve, Agent will be entitled to rely solely on the calculation made by Borrowers unless
        Agent is notified by the Term Loan Agent (as defined below) that such calculation is inaccurate. In such event, Agent shall be
        entitled to rely solely on the calculation of the Term Loan Push Down Reserve made by the Term Loan Agent.

	 	 
	Eligibility:	Criteria for determining eligible credit card receivables, eligible pharmacy receivables, eligible merchandise inventory, eligible pharmacy inventory, and eligible pharmacy scripts will be in the Permitted Discretion of Agent in accordance with Agent’s customary practices and as appropriate under the circumstances as determined by Agent pursuant to field examinations and other due diligence (it being understood that eligibility criteria with respect to the foregoing as of the Closing Date shall be mutually acceptable to the Collateral Agents).

 

    		B-8	 

     

    

 

	 	Notwithstanding anything contained herein to the contrary, Agent will retain the right from time to time to establish or modify standards of eligibility and reserves against availability that it deems necessary or appropriate in its Permitted Discretion.  The right of Agent to establish reserves will be in accordance with its customary practices in the exercise of its Permitted Discretion and as may be applicable under the circumstances based on its field examination and other due diligence to be conducted and for matters that adversely affect the Collateral, its value or the amount that Agent might receive from the sale or other disposition thereof or the ability of Agent to realize thereon, defaults and other matters.  The amount of any reserve established by Agent shall have a reasonable relationship to the event, condition or other matter which is the basis for such reserve as determined by Agent in its Permitted Discretion and to the extent that such reserve is in respect of amounts that may be payable to third parties the applicable reserve may be deducted from the Maximum Credit at any time that such limit is less than the amount of the Borrowing Base.  It is understood and agreed that reserves as of the Closing Date shall be mutually acceptable to the Collateral Agents.
	 	 
	Optional Prepayments:	
        The Revolving Loans may be prepaid in whole
        or in part from time to time without penalty or premium, but including all breakage or similar costs actually incurred by a Lender.

        The ABL FILO Term Loans may not be prepaid
        except as expressly provided under the heading “Credit Facility” above.

	 	 
	Mandatory Prepayments:	
        Borrowers will be required to repay Revolving
        Loans and provide cash collateral to the extent that Revolving Loans and Letters of Credit exceed the lesser of the Borrowing Base
        then in effect or the Maximum Credit, in each case, in cash without any prepayment premium or penalty (but including all breakage
        or similar costs).

         

        At any time there is a Cash Dominion Event,
        all proceeds of Collateral shall be applied to the obligations under the Credit Facility in a manner to be agreed.

         

        In addition, Borrowers will be required to make prepayments:

         

        (a)   in
        an amount equal to 100% of the net cash proceeds of asset dispositions (except for dispositions resulting from casualty losses
        or condemnations and subject to exceptions to the extent mutually agreed upon and including sales in the ordinary course of business,
        but not any bulk sales);

         

        (b)   in
        an amount equal to 100% of the net cash proceeds of any debt issued by any Loan Party or its subsidiaries (other than certain categories
        of permitted debt to be specified);

 

    		B-9	 

     

    

 

	 	
        (c)   in
        an amount equal to 100% of the net cash proceeds of any equity issuance by any Loan Party or its subsidiaries (other than equity
        issuances by a Loan Party or its subsidiary to its or their members or management and other employees, in each case as to such
        members, management or other employees pursuant to employee stock or option plans approved by the board of directors and other
        exceptions to be agreed);

         

        (d)   in
        an amount equal to 100% of the net cash proceeds of casualty insurance and condemnation receipts received by any Loan Party or
        its subsidiaries, subject to reinvestment rights to be agreed;

         

        (e)   in
        an amount equal to 100% of the net proceeds of extraordinary receipts (the definition of which is to be agreed).

         

        Mandatory prepayments specified in clauses
        (a) through (e) will be applied first to the Revolving Loans (without permanent reduction in commitments), to cash collateralize
        Letters of Credit and then to the outstanding ABL FILO Term Loans in the event that the asset sold or that is the basis for the
        receipts is ABL Priority Collateral or first to the loans under the Term Loan Facility in the event that the asset sold is the
        basis for the receipts is Term Loan Priority Collateral; provided that, if the Prepayment Exception Conditions are satisfied at
        the time of a prepayment under clauses (b) or (c) above, such amounts may be applied first to the loans under the Term Loan Facility
        and thereafter to the Revolving Loans (and in the case of the Revolving Loans, without permanent reduction in commitments), to
        cash collateralize Letters of Credit and then to the outstanding ABL FILO Term Loans.

         

        The “Prepayment Exception Conditions”
        means: (A) no Default or Event of Default has occurred and is continuing, (B) Excess Availability for the immediately preceding
        30 consecutive day period shall have been (i) for the period from the Closing Date through the second anniversary of the Closing
        Date, not less than the greater of (1) 35% of the Combined Loan Cap or (2) $450,000,000 and (ii) thereafter, not less than the
        greater of (1) 30% of the Combined Loan Cap or (2) $400,000,000, (C) after giving effect to any such payment, the Excess Availability
        shall be not less than the greater of such amounts in the foregoing clause (B), (D) Excess Availability as projected as of the
        end of each month for each of the twelve (12) months following such payment shall be not less than the greater of such amounts
        in the foregoing clause (B), and (E) the Fixed Charge Coverage Ratio, on a pro forma basis, after giving effect to the incurrence
        of such debt (x) based on the most recent financial statement received by Agent prior to the date thereof for the 12 month period
        prior thereto and (y) as projected as of the end of each month for each of the twelve (12) months following the incurrence of such
        debt, in each case of clause (x) and (y), shall be not less than 1.00 to 1.00.

	 	 
	Interest and Fees:	See Schedules 1 and 2 to this Exhibit B and the Fee Letters.
	 	 
	Use of Proceeds:	The proceeds of the Loans and Letters of Credit will be used by Borrowers (a) on the Closing Date, for the payment of a portion of the consideration for the Acquisition, (b) to pay costs, expenses and fees in connection with the Credit Facility, the Acquisition and the other Transactions, and (c) on and after the Closing Date, for payment of consideration for the acquisition of additional retail stores and related assets and/or the Distribution Center pursuant to, and in accordance with the terms of the Acquisition Agreement and for working capital of Borrowers and their subsidiaries and other general corporate purposes including funding permitted acquisitions and capital expenditures.

 

    		B-10	 

     

    

 

	Closing Date:	The date on or before June 30, 2017 on which the conditions set forth in Section 6 of the Commitment Letter are satisfied or waived and the initial funding of loans under the Credit Facility (the “Closing Date”).
	 	 
	Term:	5 years from the Closing Date (the “Maturity Date”).
	 	 
	Collateral:	
        Subject to the Certain Funds Provisions and
        the limitations set forth below, to secure all obligations of each Loan Party, (a) first priority (subject to certain specified
        permitted liens), perfected security interests in and liens on all ABL Priority Collateral and (b) second priority (subject to
        certain specified permitted liens), perfected security interests in and liens on all Term Loan Priority Collateral subordinate
        only to the liens securing the Term Loan Facility pursuant to the terms of the Intercreditor Agreement (as defined below).

         

        “ABL Priority Collateral” means
        all present and future assets and properties of the Loan Parties, including (a) accounts (other than accounts arising under contracts
        for sale of Term Loan Priority Collateral as such term is defined below) and payment intangibles, including credit card receivables,
        (b) general intangibles (including all intellectual property and loans or advances payable by a Loan Party to any other Loan Party)
        and prescription files, (c) chattel paper (other than chattel paper relating to Term Loan Priority Collateral), (d) documents,
        (e) instruments (including any promissory notes), (f) supporting obligations, (g) letters of credit and letter-of-credit rights,
        (g) deposit and securities accounts, investment property (including any stock or other equity or ownership interests in the subsidiaries
        and affiliates of each Loan Party), (h) commercial tort claims, (i) inventory, (j) all books, records and documents related to
        the foregoing (including databases, customer lists and other records, whether tangible or electronic, which contain any information
        relating to any of the foregoing and (k) all proceeds and products of any or all of the foregoing in whatever form received, including
        proceeds of business interruption and other insurance and claims against third parties), other than (x) Excluded Assets or (y)
        to the extent constituting Term Loan Priority Collateral.

         

        “Term Loan Priority Collateral”
        means all present and future assets and properties of the Loan Parties consisting of (a) equipment, (b) fixtures, (c) motor vehicles,
        (d) fee and leasehold real property (including improvements and rights related thereto), (e) any deposit account used exclusively
        for the deposit of proceeds of Term Loan Priority Collateral, (f) to the extent evidencing, governing, securing or otherwise related
        to any of the foregoing and the other Term Loan Priority Collateral, documents, general intangibles (excluding all intellectual
        property, any loans or advances payable by a Loan Party to any other Loan Party and all prescription files), chattel paper, instruments,
        investment property (excluding any stock or other equity or ownership interests in the subsidiaries and affiliates of each Loan
        Party), commercial tort claims, letters of credit, supporting obligations and letter of credit rights, (g) accounts arising from
        contracts of sale of Term Loan Priority Collateral and (h) all proceeds and products of any or all of the foregoing in whatever
        form received (but not including proceeds of business interruption insurance or any identifiable proceeds of ABL Priority Collateral),
        other than Excluded Assets.

 

    		B-11	 

     

    

 

	 	
         

        “Collateral” means the ABL Priority
        Collateral and the Term Loan Priority Collateral.

         

        Notwithstanding anything to the contrary contained
        herein, except to the extent that Arrangers may determine otherwise, the Collateral will not include real property.

         

        Notwithstanding anything to the contrary contained
        herein, the Collateral shall not include the following (the “Excluded Assets”): (a) shares of any subsidiary that is
        a CFC or a CFC Holdco, in each case in excess of sixty-five percent of all of the issued and outstanding shares of capital stock
        of such subsidiary entitled to vote to secure the obligations of Borrowers, if a pledge of a greater percentage would result in
        material adverse tax consequences to the Company, (b) leasehold interests in real property, (c) deposit accounts exclusively used
        for trust, payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of any Loan Party’s
        employees, (d) any rights or interests in any contract, agreement, lease, permit, license, charter or license agreement, as such,
        if under the terms of such contract, agreement, lease, permit, license, charter or license agreement covering real or personal
        property, or applicable law with respect thereto, the valid grant of a security interest or lien therein to Agent would constitute
        or result in a breach, termination or default under such contract, agreement, lease, permit, license, charter or license agreement
        and such breach, termination or default has not been or is not waived or the consent of the other party to such contract, agreement,
        lease, permit, license, charter or license agreement has not been or is not otherwise obtained or under applicable law such prohibition
        cannot be waived; provided, that, the foregoing exclusion shall in no way be construed (i) to apply if any such prohibition is
        unenforceable under Sections 9-406, 9-407 or 9-408 of the Uniform Commercial Code or other applicable law or (ii) so as to limit,
        impair or otherwise affect Agent’s unconditional continuing security interests in and liens upon any rights or interests
        of a Loan Party in or to monies due or to become due under any such contract, lease, permit, license, charter or license agreement,
        (e) any United States intent-to-use trademark applications to the extent that, and solely during the period in which, the grant
        of a security interest therein would impair the validity or enforceability of such intent-to-use trademark applications under applicable
        federal law; provided, that, upon submission and acceptance by the U.S. Patent and Trademark Office of an amendment to allege use
        pursuant to 15 U.S.C. Section 1060(a), such intent-to-use trademark application shall be considered Collateral, (f) any governmental
        licenses or state or local franchises, charters and authorizations, to the extent security interests in such licenses, franchises,
        charters or authorizations are prohibited thereby, provided, that, the foregoing exclusion shall in no way be construed (i) to
        apply if any such prohibition is unenforceable under the Uniform Commercial Code or other applicable law or (ii) so as to limit,
        impair or otherwise affect Agent’s unconditional continuing security interests in and liens upon any proceeds thereof, (g)
        equipment owned by any Loan Party on the date hereof or hereafter acquired that is subject to a lien securing a purchase money
        obligation or capitalized lease permitted to be incurred pursuant to the Loan Document if the contract or other agreement in which
        such lien is granted validly prohibits the creation of any other lien on such equipment, and (h) pledges and security interests
        prohibited by applicable law, rule or regulation (including any legally effective requirement to obtain the consent of any governmental
        authority). Proceeds of Excluded Assets shall be deemed Collateral.

 

    		B-12	 

     

    

 

	 	
         

        In addition, no actions will be required by
        Loan Parties to perfect security interests in (i) motor vehicles or other assets subject to a certificate of title other than by
        filing UCC or PPSA financing statements in the appropriate jurisdiction, (ii) commercial tort claims with a value of less than
        an amount to be agreed, (iii) promissory notes in an principal amount of less than an amount to be agreed, (iv) share certificates
        of subsidiaries organized under the laws of a jurisdiction outside of the United States or Canada and (v) store deposit accounts
        which are not maintained at a depository bank where other deposit accounts are and so long as funds in such accounts are remitted
        to a concentration account on a daily basis or other regular periodic basis in a manner consistent with the requirements contained
        under the heading “Cash Management”.

         

        As to specific items of Collateral, Agent may
        determine not to perfect its security interest therein based on the de minimus value thereof relative to the costs of such perfection.
        The obligations secured shall include hedging and bank product obligations of any Loan Party where a Lender or an affiliate of
        a Lender is a counterparty.

         

        Intercreditor arrangements between Agent and
        the agent or other representative for the Term Loan Facility (the “Term Loan Agent”) will be set forth in an intercreditor
        agreement (the “Intercreditor Agreement”), which will be in form and substance reasonably satisfactory to Agent, the
        Lenders, the Term Loan Agent and the Company.

	 	 
	Documentation:	Definitive loan documentation (collectively, the “Loan Documents”), including, without limitation, a credit agreement, security agreements, pledge agreements, guarantees, control agreements, evidence of insurance coverage, lender’s loss payable endorsements as to casualty and business interruption insurance, the Intercreditor Agreement, lien search results, customary opinion letters of counsel to the Loan Parties, collateral access agreements, collateral assignment of rights under acquisition documents (including any transition services agreement), payoff letters, borrowing base certificate and documents and agreements related to all of the foregoing, each in form and substance reasonably satisfactory to the Company, Agent and Arrangers.

 

    		B-13	 

     

    

 

	 	
        The terms and provisions of the Loan Documents
        will be mutually agreed upon, the terms of which (including materiality thresholds, baskets, exceptions, qualifications and grace
        periods) will be negotiated in good faith (giving due regard to the operational requirements, size, industry, businesses, financial
        condition, leverage, capital structure, projected performance, reporting and accounting systems, Excess Availability, collateral
        and practices of the Company and its subsidiaries, the Transactions, and the practices and procedures of Agent and the asset-based
        lending market), and will be consistent with this Term Sheet (the “Documentation Principles”).

         

        With respect to lien waivers and access agreements
        from lessors of leased real property or operators of premises where inventory of Borrowers is located, Borrowers shall use commercially
        reasonable efforts to obtain such agreements prior to closing for the corporate headquarters, distribution centers and warehouses
        (but not for retail store locations) and to the extent not delivered prior to closing, shall use commercially reasonable efforts
        to obtain such agreements thereafter. To the extent that Agent has not received a reasonably acceptable lien waiver and access
        agreement for a leased or third party location of any Loan Party consisting of a warehouse, distribution center or store location
        in a state where a landlord has a lien under applicable law, Agent shall establish a one-month reserve in respect of amounts payable
        under the applicable lease or other agreement with such lessor or operator subject to certain limitations to be agreed.

	 	 
	Representations and Warranties:	Subject to the Certain Funds Provisions and the Documentation Principles, limited to the following, and subject to materiality and other negotiated limitations and exceptions, in each case as agreed by the parties, the credit agreement governing the Credit Facility will contain the following representations and warranties: due organization and qualification; accuracy of financial information; subsidiaries; due authorization; no conflict; governmental consents; binding obligations; perfected liens; title to assets; no encumbrances; jurisdiction of organization; location of chief executive office; organizational identification number; commercial tort claims; litigation; compliance with law (including regulatory and licensing requirements), regulation, etc. (including without limitation Regulations T, U and X, Investment Company Act, the USA Patriot Act, environmental laws, FCPA, OFAC and other anti-terrorism laws); no material adverse change; fraudulent transfer; solvency; ERISA compliance; employee and labor matters; environmental matters; intellectual property; leases; deposit accounts and securities accounts; complete disclosure; material contracts; indebtedness; payment of taxes; margin stock; the Acquisition and acquisition documents (including the Acquisition Agreement and the Transition Services Agreement); eligible credit card receivables, eligible pharmacy receivables, eligible inventory and other eligible assets; location of inventory and equipment; inventory records; insurance; no default; no brokers; equity interests; customer and trade relations; no casualty.

 

    		B-14	 

     

    

 

	Affirmative Covenants:	
        Subject to the Certain Funds Provisions and
        the Documentation Principles, limited to the following, and subject to materiality and other negotiated limitations and exceptions,
        in each case as agreed by the parties, the credit agreement governing the Credit Facility will contain the following affirmative
        covenants: financial statements, financial projections, management letters and other information; notices of defaults, litigation
        and other material events; collateral matters (including without limitation, reporting, notices and appraisal requirements); payment
        of obligations; cash management; reports and certificates; existence; maintenance of properties, including implementation and maintenance
        of appropriate systems; taxes; insurance; inspection; compliance with laws (including without limitation the USA Patriot Act, FCPA,
        OFAC and other anti-terrorism laws and Medicaid/Medicare or other regulatory laws); environmental; disclosure updates; formation
        of subsidiaries; senior debt status; bank products; accounting changes; further assurances; additional loan parties; lender meetings;
        material contracts (including the Acquisition Agreement and the Transition Services Agreement); employee and labor matters; new
        locations of Collateral; use of proceeds; compliance with terms of leaseholds; books and records; accountants; physical inventories;
        ERISA matters.

         

        (a) Not later than 10 business days after the
        Closing Date (or, if earlier, the date that is 5 business days after the date the Company shall have provided to the lenders a
        request for the initial borrowing under the Term Loan Facility), the Borrowers shall have received term loan proceeds in an amount
        not less than 50% of the aggregate principal amount of the Term Loan Facility (after giving effect to any reduction thereof on
        account of any Facility Increase effected on the Closing Date) and (b) not later than the earliest to occur of (x) the date that
        the Borrower shall have acquired 425 retail store locations (and related assets) required to be acquired pursuant to the Acquisition
        Agreement, (y) September 30, 2017 and (z) 5 business days’ after the date the Company shall have provided to the lenders
        a request for the borrowing of the remaining term loans under the Term Loan Facility, the Borrowers shall have received all remaining
        proceeds of the term loans to be made under the Term Loan Facility (subject, in each case, to the implementation of any applicable
        Term Loan Push Down Reserve). The proceeds of such Term Loans (i) to the extent drawn to fund any portion of the purchase price
        payable in connection with amounts payable with respect to the Purchased Assets under a Subsequent Closing, shall (x) first,
        be applied to the payment of such purchase price, (y) second, be applied to the repayment of Revolving Loans under the Credit
        Facility (without a reduction in the commitments relating thereto), in each case, substantially concurrently with such borrowing
        and (ii) to extent not drawn to fund any portion of the purchase price payable in connection with amounts payable with respect
        to the Purchased Assets under a Subsequent Closing, shall be applied to the repayment of Revolving Loans under the Credit Facility
        (without a reduction in the commitments relating thereto), substantially concurrently with such borrowing.

	 	 
	Collateral and Financial Reporting:	
        Collateral and financial reporting shall be
        usual and customary for facilities of this nature and as may be deemed appropriate by Agent, including:

         

        (a)   At
        any time prior to the date that the Borrowers shall have acquired 90% of all retail store locations (and related assets) required
        to be acquired pursuant to the Acquisition Agreement, weekly borrowing base certificates (except that, in connection with a Subsequent
        Closing, such borrowing base certificate may be delivered upon the consummation of a Subsequent Closing) and, thereafter, monthly
        borrowing base certificates so long as Excess Availability is not less than the greater of (i) 20.0% of the Combined Loan Cap or
        (ii) $250,000,000 and no default or event of default exists, otherwise weekly; provided, that, at any time borrowing base certificates
        are delivered on a weekly basis, it shall continue for not less than four consecutive weeks;

	 	 

 

    		B-15	 

     

    

 

	 	
         

        (b)   field
        examinations and appraisals as Agent may from time to time require (which at a minimum will be 1 field examination and 1 appraisal
        each 12 month period), but no more than:

         

        (i)     2
        field examinations and 2 appraisals of each of inventory and pharmacy scripts in any 12 month period at the expense of Borrowers
        so long as Excess Availability is not less than the greater of (A) 20.0% of the Combined Loan Cap or (B) $250,000,000 during such
        12 months;

         

        (ii)    3
        field examinations and 3 appraisals of each of inventory and pharmacy scripts in any 12 month period at the expense of Borrowers
        if at any time Excess Availability during such 12 months is less than the greater of (A) 20.0% of the Combined Loan Cap or (B)
        $250,000,000; and

         

        (iii)   such
        other field examinations and appraisals as Agent may request at any time upon the occurrence and during the continuance of an Event
        of Default at the expense of Borrowers, or at any time at the expense of Agent;

         

        (c)    monthly
        financial statements, annual unqualified audited financial statements and projections (on a monthly basis);

         

        (d)   other
        financial and collateral reports (including, rolling 13-week cash flow projections and reporting); and

         

        (e)  
        prior to the Closing Date the Company shall provide monthly financial statements for Fred’s Inc. and shall use reasonable
        best efforts to cause the Seller to deliver monthly financial statements for the 865 retail stores of the Acquired Business including
        the 4-Wall EBITDA.

         

        The term “Combined Loan Cap” means,
        at any time, (i) prior to the repayment in full of the Term Loan Facility, the lesser of (A) the Maximum Credit, plus the then
        outstanding principal amount of the term loans and commitments under the ABL FILO Term Facility, plus the then outstanding principal
        amount of the loans and commitments under the Term Loan Facility or (B) the sum of the Borrowing Base (without giving effect to
        the ABL FILO Push Down Reserve or the Term Loan Push Down Reserve) plus the FILO Borrowing Base plus the borrowing base under the
        Term Loan Facility and (ii) after the repayment in full of the Term Loan Facility, the lesser of (A) the Maximum Credit plus the
        then outstanding principal amount of the term loans and commitments under the ABL FILO Term Facility or (B) the sum of the Borrowing
        Base (without giving effect to the ABL FILO Push Down Reserve) plus the FILO Borrowing Base.

 

    		B-16	 

     

    

 

	 	
        The term “Loan Cap” means, at any
        time, the lesser of (i) the Borrowing Base at such time and (ii) the Maximum Credit at such time.

         

        The term “Excess Availability”
        as used herein means, at any time, (i) the Loan Cap at such time (plus, at any time prior to September 30, 2017 and solely to the
        extent the ABL FILO Term Facility is not funded, the lesser of (x) FILO Borrowing Base and (y) undrawn commitments under the ABL
        FILO Term Facility), minus (ii) the Revolving Loans and Letters of Credit then outstanding. At all times Excess Availability is
        tested the Borrowers shall certify to the Agent that all expenses, including rent, trade payables and amounts due under the Transition
        Services Agreement have been paid in the ordinary course of business, in all material respects.

         

        Through the later of the date that is (x) the
        six (6) month anniversary of the Closing Date and (y) sixty (60) days following the date that the Borrowers shall have acquired
        80% of all retail store locations (and related assets) required to be acquired pursuant to the Acquisition Agreement, the Agent
        will, at the expense of the Borrowers, retain Berkeley Research Group, LLC as a consultant and financial advisor (“Agent’s
        Advisor”) to provide: (i) financial reporting and borrowing base validation services (including, without limitation, rolling
        13-week cash flow projections and reporting); (ii) pre-close evaluation of the cash management and collateral reporting available
        off the clone system following a month-end close during the ten (10) store pre-close testing project; (iii) progress reporting
        on the Company’s progress relating to integration and Transition Services Agreement processes; (iv) evaluation of the satisfactory
        integration (during such period of engagement) and plan of integration of the ERP system; and (v) financial advisory services as
        requested by the Agent and approved by the Company.

	 	 
	Cash Management:	
        As of the Closing Date, Loan Parties shall
        have a cash management system in form and substance reasonably satisfactory to Agent (it being understood that a cash management
        system similar in function to that of Rite Aid Corporation shall be satisfactory to Agent). Loan Parties will direct all credit
        card issuers and processors, and those customers making payments on receivables, to remit payments to deposit accounts that, subject
        to the Certain Funds Provision, are the subject of control agreements among the applicable Loan Party, Agent and the depository
        bank in form and substance reasonably satisfactory to Agent and Loan Parties will be required to promptly remit any payments received
        by them to these accounts. Funds deposited into the deposit accounts of Loan Parties shall be remitted to Agent for application
        to the obligations upon a Cash Dominion Event.

         

        “Cash Dominion Event” means (a)
        Excess Availability is less than the greater of (i) 15.0% of the Combined Loan Cap at any time or (ii) $200,000,000, or (b) an
        event of default exists or has occurred and is continuing; provided, that,

 

    		B-17	 

     

    

 

	 	
        (i)     to
        the extent that the Cash Dominion Event has occurred due to clause (a) of this definition, if Excess Availability shall be equal
        to or greater than the applicable amount for at least 30 consecutive days, the Cash Dominion Event shall no longer be deemed to
        exist or be continuing until such time as Excess Availability may again be less than the amount in clause (a) of this definition,
        and

         

        (ii)    to
        the extent that the Cash Dominion Event has occurred due to clause (b) of this definition, if such event of default is cured or
        waived or otherwise no longer exists, the Cash Dominion Event shall no longer be deemed to exist or be continuing.

	 	 
	Financial Covenant:	Borrowers shall maintain minimum Excess Availability at all times equal to the greater of (a) 10% of the Combined Loan Cap or (b) (x) from the Closing Date through the 60 day anniversary of the Closing Date, $100,000,000 and (y) thereafter, $150,000,000.
	 	 
	Negative Covenants:	Subject to the Certain Funds Provisions and the Documentation Principles, limited to the following, and subject to materiality and other negotiated limitations and exceptions (including baskets in amounts to be agreed for certain covenants), in each case as agreed by the parties, the credit agreement governing the Credit Facility will contain the following negative covenants: dividends, distributions, redemptions and repurchases of capital stock; incurrence of debt (including capital leases) and guarantees; repurchases, repayments, or prepayment of subordinated debt or optional repurchases, prepayments or other optional payments in respect of other debt; creation or suffering of liens; loans, investments and acquisitions (including the acquisition of additional store locations under the Acquisition Agreement after the Closing Date); affiliate transactions; changes in the conduct of business, fiscal year or accounting practices; asset sales, store closings, mergers, consolidations and other fundamental changes; restrictions affecting subsidiaries; limitation on amendment of organizational documents and certain material agreements (including the Acquisition Agreement and Transition Services Agreement); use of proceeds; inventory and equipment with bailees; bank accounts and credit card arrangements; and burdensome agreements.
	 	 
	 	The negative covenant on dividends, redemptions and repurchases of capital stock and on optional prepayments of indebtedness will expressly allow such dividends, redemptions and repurchases, or such optional prepayments, provided, that, (i) no such dividends, redemptions and repurchases or optional prepayments may be made on or before the second anniversary of the Closing Date (other than dividends in an aggregate amount not to exceed $10,000,000 in any fiscal year, so long as no default or event of default shall have occurred and be continuing or would result therefrom (including under the Financial Covenant)) and (ii) Loan Parties may make dividends, redemptions and repurchases of capital stock and on optional prepayments of indebtedness after the second anniversary of the Closing Date, provided, that, (A) as of the date of any such payment in respect thereof, and after giving effect thereto, each of the Payment Conditions (as defined below) is satisfied and (B) Agent shall have received prior notice and other information related to such transactions in a manner and on terms to be agreed.

 

    		B-18	 

     

    

 

	 	The negative covenant governing acquisitions after the Closing Date (other than pursuant to the Acquisition Agreement) will expressly allow an acquisition, provided, that, except as otherwise provided below, (i)  no acquisition or series of related acquisitions involving consideration in excess of $40,000,000 per year (of which, not more than $20,000,000 shall be paid in consideration of any acquisition of assets not constituting script files through the first anniversary of the Closing Date), in any one case or in the aggregate, shall occur prior to the second anniversary of the Closing Date; provided that the limitations set forth in this clause (i) shall no longer apply in the event that Excess Availability as of the fiscal year ended January 2018 is greater than $500,000,000, (ii) as of the date of any such acquisition and after giving effect thereto, each of the Payment Conditions is satisfied, (iii) the acquisition shall be with respect to an operating company or division or line of business that engages in a line of business substantially similar, reasonably related or incidental to the business that Borrowers are engaged in, (iv) the board of directors (or other comparable governing body) of the person to be acquired shall have duly approved such acquisition and such person shall not have announced that it will oppose such acquisition or shall not have commenced any action which alleges that such acquisition will violate applicable law, and (v) Agent shall have received prior notice and other information related to such transactions in a manner and on terms to be mutually agreed.
	 	 
	 	The negative covenants will include a provision permitting the acquisition by the Borrowers of additional stores (and related assets) from Seller under the Acquisition Agreement, provided that the consummation of any such Subsequent Closing shall be subject only to the following conditions (the “Subsequent Acquisition Conditions”):  (a) the closing of the acquisition of Purchased Assets pursuant to such Subsequent Closing, in accordance with the Acquisition Agreement as in effect on the date of the Original Commitment Letter (subject to the Permitted Amendments (as defined on Exhibit C)), (b) as of the date of any such purchase and after giving effect thereto, Excess Availability shall be not less than the greater of (x) 25% of the Combined Loan Cap and (y) $150,000,000 (determined after giving effect to the acquisition of the eligible assets related to such stores), (c) to the extent not previously provided, the Agent shall have received customary lien release documents with respect to the assets then being acquired, (d) Agent shall have received a current borrowing base certificate with respect to the assets acquired pursuant to such Subsequent Closing, (e) Agent shall have received not less than three business days’ prior written notice of the proposed Subsequent Closing, (f) (i) at any time during the Acquisition Period (so long as (after giving effect to the proposed Acquired Store Series) no more than (A) six (6) Acquired Store Series shall have been made in reliance on this clause (f)(i)(A) (of which, not more than two (2) such Series shall consist of Acquired Store Series of less than 100 retail stores, unless (x) otherwise agreed to by Agent (such agreement not to be unreasonably withheld or delayed)) and (B) at any time after to the date that the Borrowers shall have acquired 67% of all retail store locations and related assets required to be acquired pursuant to the Acquisition Agreement, twenty-five (25) additional Acquired Store Series shall have been made in reliance on this clause (f)(i)(B) (collectively, clauses (A) and (B), the “LCT Limitation”)), (x) the Specified Representations shall be true and correct in all material respects at such time where not already qualified by materiality or “material adverse effect”, otherwise in all respects, (y) the Acquisition Agreement Representations (set forth in (1) the first sentence of Section 3.05 of the Acquisition Agreement, (2) Section 3.09 of the Acquisition Agreement, (3) second and third sentence of Section 3.13 of the Acquisition Agreement, (4) the last sentence of Section 3.15 of the Acquisition Agreement, and (5) the last sentence of Section 3.18 of the Acquisition Agreement) will be true and correct as and to the same extent required by Section 6 of the Commitment Letter (it being understood that references to “the Acquisition” therein shall for this purpose refer to such Subsequent Closing) and (z) the Sellers shall have certified to the Borrowers that the covenants contained in the first sentence of Section 5.01 of the Acquisition Agreement (with respect to Inventory levels and prescription volumes) and Section 5.01(f) of the Acquisition Agreement have been complied with in all material respects; and subject to upon satisfaction of such conditions set forth in clauses (a) through this (f)(i), and the request of the Company (which request shall be delivered in accordance with the terms of the Loan Documents), Lenders will make Revolving Loans (or, at the option of the Swing Line Lender, the Swing Line Lender shall made Swing Line Loans) the proceeds of which shall be used to pay the purchase price for such Acquired Store Series in the applicable Subsequent Closing in the amounts required by the Acquisition Agreement as in effect on the date of the Original Commitment Letter (subject to the Permitted Amendments), notwithstanding that any other conditions precedent set forth below under the heading “Conditions Precedent to all Borrowings After the Closing Date” with respect to such
Revolving Loans are not satisfied as of the date of such Revolving Loans, and (ii) at any time after the Acquisition Period or after the LCT Limitation has been exceeded, the Borrowers shall have satisfied  all conditions precedent set forth below under the heading “Conditions Precedent to all Borrowings” with respect to such Revolving Loans, and (g) Agent shall have received a certificate of a responsible officer of the Company certifying and attaching calculations demonstrating (as applicable), compliance with each of the conditions set forth herein.

 

    		B-19	 

     

    

 

	 	“Acquisition Period” means, the period commencing on the Closing Date and ending on the six-month anniversary of the Closing Date.  
	 	 
	 	Any new domestic or foreign subsidiary acquired pursuant to an acquisition after the Closing Date will be joined as a Borrower or Guarantor (except as to any subsidiary that is not required to be a Guarantor) and additional Loan Documents executed and delivered in connection therewith.  Assets acquired after the Closing Date (other than pursuant to the terms of the Acquisition Agreement) will only be eligible after a satisfactory field examination, appraisal and legal diligence, provided, in all instances (including in respect of assets acquired pursuant to the terms of the Acquisition Agreement) subject to reserves and eligibility criteria.
	 	 
	 	“Payment Conditions” means, at the time of determination with respect to any specified transaction or payment the following:
	 	 
	 	(a)   The Agent shall have received unqualified audited financial statements for the fiscal year of the Borrowers ended January 2018,

 

    		B-20	 

     

    

 

	 	(b)   as of the date of any such transaction or payment, and after giving effect thereto, no default or event of default shall exist or have occurred and be continuing, 
	 	 
	 	(c)   as of the date of any such transaction or payment, on a pro forma basis and after giving effect thereto, either:
	 	 
	 	(i)     (A) the Excess Availability for the immediately preceding 30 consecutive day period shall have been not less than the greater of (1) 20.0% of the Combined Loan Cap or (2) $250,000,000, (B) the Excess Availability on the date of such specified transaction or payment shall be not less than the greater of such amounts, (C) Excess Availability as projected as of the end of each month for each of the twelve (12) months following such transaction or payment (with certain exceptions to be agreed) shall be not less than the greater of such amounts and (D) the Fixed Charge Coverage Ratio based on the most recent financial statement received by Agent prior to the date thereof for the 12 month period prior thereto, shall be not less than 1.00 to 1.00; or
	 	 
	 	(ii)    provided that the Fixed Charge Coverage Ratio for any 12 month period ended on or after the second anniversary of the Closing Date, shall not have been less than 1.00 to 1.00, (A) the Excess Availability for the immediately preceding 30 consecutive day period shall have been not less than the greater of (1) 30.0% of the Combined Loan Cap or (2) $375,000,000, (B) the Excess Availability on the date of such specified transaction or payment shall be not less than the greater of such amounts, and (C) Excess Availability as projected as of the end of each month for each of the twelve (12) months following such transaction or payment shall be not less than the greater of such amounts; and,
	 	 
	 	(d)   Agent shall have received a certificate of an authorized officer of Borrowers certifying as to compliance with the preceding clauses and demonstrating (in reasonable detail) the calculations required thereby.
	 	 
	 	Borrowers shall not be permitted to consummate the Distribution Center Closing without providing the Agent with a Notice of TSA Termination not less than 90 days prior to the termination of the Transition Services Agreement (it being understood and agreed that such acquisition shall be a permitted acquisition under the Closing Date, subject only to the satisfaction of the Subsequent Acquisition Conditions.

 

    		B-21	 

     

    

 

	Events of Default:	Limited to the following, subject to the Documentation Principles, and subject to cure periods to be agreed, materiality and other negotiated limitations, in each case as agreed by the parties, the credit agreement governing the Credit Facility will contain the following events of default: payment and performance defaults under any of the Loan Documents, cross-defaults to other material indebtedness (to be defined as indebtedness in excess of $25,000,000), an early termination date occurs under any swap contract, breach of representations and warranties, insolvency (whether or not insolvency proceedings have been instituted), voluntary and involuntary bankruptcy, judgments and attachments in excess of an amount to be agreed (or not subject to stay), non-monetary judgments that could have a material adverse effect, revocation of (or attempted revocation of) any guaranty, dissolution, change in control, impairment of a material portion of the security, ERISA, actual or asserted invalidity or unenforceability of any Loan Documents or liens securing obligations under the Loan Documents, invalidity of subordination or intercreditor provisions, material uninsured loss, felony indictment, injunction or court or other governmental order preventing continuing conduct of all or any material part of the business affairs of the Loan Parties, or suspension or termination of all or a substantial portion of its business.
	 	 
	Conditions Precedent to All Borrowings:	Subject on (x) the Closing Date, to the Certain Funds Provision, and (y) with respect to any Subsequent Closing, the Subsequent Acquisition Conditions, the conditions to all Revolving Loans, the ABL FILO Term Loans and Letters of Credit will consist of (a) prior written notice of the request for the Revolving Loan, the ABL FILO Term Loan or Letter of Credit in accordance with the procedures set out in the Loan Documents, (b) the accuracy of representations and warranties in the Loan Documents in all material respects (except where qualified by materiality, then just the accuracy thereof), (c) the absence of any default or event of default at the time of, and after giving effect to the making of the Revolving Loan or the ABL FILO Term Loan or the issuance (or amendment or extension) of the Letter of Credit, and (d) after giving effect to the requested Revolving Loan, ABL FILO Term Loan or Letter of Credit, the outstanding Revolving Loans and Letters of Credit will not exceed the lesser of the Maximum Credit or the Borrowing Base; provided that with respect to any Revolving Loan or ABL FILO Term Loan used to consummate a Subsequent Closing, the foregoing shall be limited to only the Subsequent Acquisition Conditions (it being understood and agreed that Swing Line Lender may in its sole discretion, in lieu of requesting Lenders to fund any such Revolving Loan or ABL FILO Term Loan, fund a Swing Line Loan).
	 	 
	Conditions Precedent to Initial Borrowings:	The conditions precedent to the initial borrowings under the Credit Facility will consist of those conditions precedent set forth in Section 6 of the Commitment Letter to the Commitment Letter.

 

    		B-22	 

     

    

 

	Assignments and Participations:	Each Lender will be permitted to make assignments of its interest in the Credit Facility in a minimum amount equal to $5,000,000 to other financial institutions (other than (to the extent not consented to by the Company) Disqualified Lenders) approved by Agent, Swing Line Lender, Issuing Banks, and the Company, which approval of the Company shall not be unreasonably withheld, conditioned or delayed; provided, that, (a) the approval of the Company not be required at any time that an event of default exists or has occurred and is continuing, and (b) the approval of the Company shall not be required in connection with assignments to other Lenders, to any affiliate of a Lender, to any Approved Fund (as such term will be defined in the Loan Documents), or for any participation.  The Company’s consent shall be deemed to have been given if the Company has not responded within 10 business day of an assignment request made in writing.  No assignment or participation may be made to natural persons, any Loan Party or any of their affiliates or subsidiaries, or any holder of any subordinated debt of a Loan Party or any Disqualified Lenders that have been identified to Agent and whose identity is available to each Lender on request.  Agent shall not have any responsibility or obligations to determine whether any Lender or potential Lender is a Disqualified Lender and will have no liability with respect to any assignment to a Disqualified Lender.
	 	 
	Amendments and Waivers:	
        Amendments, waivers and consents with respect
        to the provisions of the Loan Documents will require the approval of Agent and the Required Lenders, provided that, in addition
        to the approval of Required Lenders, (a) the consent of each Lender directly and adversely affected thereby will be required with
        respect to matters relating to (i) increases in the commitment of such Lender, (ii) reductions of principal, interest or fees (provided
        that a waiver of default interest, default or event of default shall not constitute a reduction of interest for this purpose),
        (iii) extensions of final maturity or the due date of any interest, fee or other payments, and (iv) changes to the order of application
        of funds, (b) the consent of all Lenders will be required with respect to: (i) modifications of the pro rata sharing requirements
        of the Loan Documents, (ii) modification of the voting percentage or change in the definition of “Required Lenders”
        or any other provisions specifying the number of Lenders or portion of the Loans or commitments required to take any action under
        the Loan Documents, (iii) permitting any Borrower to assign its rights under the Loan Documents, (iv) releases of all or substantially
        all of the value of the Collateral or guarantees (other than in connection with transactions permitted pursuant to the Loan Documents),
        or (v) subordination of the lien on Collateral in favor of Agent (other than with respect to certain permitted liens to be agreed)
        or subordination of the payment of the obligations in respect of the Credit Facility, (c) the consent of all Revolving Lenders
        will be required with respect to: (i) increases in the percentages applied to eligible assets in the Borrowing Base and (ii) modifications
        to the Borrowing Base or any components thereof which would result in an increase in the amount of the Borrowing Base (but exclusive
        of the right of the Agent to add, increase, eliminate or reduce the amount of reserves or to exercise other discretion it may have
        pursuant to such provisions) and (d) the consent of all FILO Term Lenders will be required with respect to certain matters, including
        (i) increases in the percentages applied to eligible assets in the FILO Borrowing Base, (ii) modifications to the FILO Borrowing
        Base or any components thereof which would result in an increase in the amount of the FILO Borrowing Base (but exclusive of the
        right of the Agent to add, increase, eliminate or reduce the amount of reserves or to exercise other discretion it may have pursuant
        to such provisions) and (iii) modifications of the “ABL FILO Push Down Reserve”. Matters affecting Agent, the Swing
        Line Lender or an Issuing Bank will require the approval of such party.

         

        “Required Lenders” means those
        non-defaulting Lenders who collectively hold more than 50% of the total commitments or exposure under the Credit Facility, provided,
        that, at any time that there are 2 or more unaffiliated Lenders, “Required Lenders” must include at least 2 unaffiliated
        Lenders.

         

        The Loan Documents shall contain customary
        provisions for replacing defaulting Lenders, replacing Lenders claiming increased costs, tax gross ups and similar required indemnity
        payments and replacing non-consenting Lenders in connection with amendments and waivers requiring the consent of all Lenders or
        of all Lenders adversely affected thereby so long as Lenders holding at least 50% of the aggregate amount of the loans and commitments
        under the Credit Facility shall have consented thereto.

 

    		B-23	 

     

    

 

	Cost and Yield Protections:	Customary for facilities and transactions of this type, including customary tax gross-up provisions and including provisions relating to Dodd-Frank, Basel III and FATCA.
	 	 
	Governing Law:	New York but excluding any principles of conflicts of law or other rule of law that would cause the application of the law of any jurisdiction other than the State of New York (other than certain security documents that will be governed by local law as applicable or as the parties may otherwise agree), subject to the proviso set forth in the “Governing Law” section of the Commitment Letter.
	 	 
	Expenses, Waivers and Indemnity:	The Loan Parties will pay all of the reasonable and documented out-of-pocket costs and expenses and customary administrative charges incurred by Agent and MLPFS (in its capacity as Arranger, Swing Line Lender and Issuing Bank), including, without limitation, reasonable legal costs and expenses, reasonable financial consultant and advisor costs and expenses, filing and search charges, recording taxes, appraisals, and field examination charges and expenses, provided, that, legal fees shall be limited to the reasonable fees of one counsel for Agent and, in addition, one local counsel in each appropriate jurisdiction and, to the extent required by the subject matter, one specialist counsel for each such specialized area of law in each appropriate jurisdiction, and in the case of the enforcement, collection or protection of the rights of Lenders, in addition, one additional counsel for the Lenders in the absence of any conflict of interest.  
	 	 
	 	Waivers to include, but not be limited to a waiver by Agent, Lenders and each Loan Party of its rights to jury trial; waiver by each Loan Party of claims for special, punitive, exemplary, indirect or consequential damages in respect any breach or alleged breach by Agent, Arrangers, Issuing Bank or any Lender of any of the Loan Documents.

 

    		B-24	 

     

    

 

	 	Loan Parties shall indemnify and hold harmless Agent, Arrangers, Lenders and Issuing Banks and their respective directors, officers, agent, representatives and employees from and against all losses, claims, damages, expenses, or liabilities including, but not limited to, reasonable and documented legal or other expenses incurred in connection with investigating, preparing to defend, or defending any such loss, claim, damage, expenses or liability, incurred in respect of the Credit Facility or the relationship between Agent, any Arranger, any Lender or Issuing Bank and any Loan Party (provided, that, the obligation to reimburse any indemnified person for legal fees and expenses shall be limited to legal fees and expenses of one firm of counsel for all such indemnified persons and one local counsel in each appropriate jurisdiction (and, to the extent required by the subject matter, one specialist counsel for each such specialized area of law in each appropriate jurisdiction) and in the case of an actual or perceived conflict of interest as determined by the affected indemnified person, one counsel for such affected indemnified person), except that the foregoing indemnity will not, as to any Indemnified Person, apply to costs, expenses or liabilities to the extent they (a) are found in a final, non-appealable judgment of a court of competent jurisdiction to have resulted from (i) the willful misconduct, bad faith or gross negligence of such indemnified person or (ii) a material breach of the material obligations of such indemnified person under the Commitment Letter, the Fee Letters or the Loan Documents or (b) relate to any claim, litigation, investigation or proceeding solely between or among indemnified persons other than (x) claims against any Agent, Arranger or Lenders or their respective affiliates, in each case in their respective capacities or in fulfilling their respective roles as the agent or arranger or any other similar role under the Credit Facility as the case may be (excluding their role as a Lender) to the extent such persons are otherwise entitled to indemnification and (y) claims arising out of any act or omission on the part of the Loan Parties or their subsidiaries or affiliates.

 

This Summary of Principal Terms and Conditions
for the Credit Facility is not meant to be, nor shall it be construed as an attempt to describe all of the terms of the documentation,
or the specific phrasing for, the provisions of the documentation. Rather, it is intended only to outline certain material terms
to be included in the Loan Documents, provided, that the Loan Documents will not contain any conditions precedent to (x) the initial
borrowings under the Credit Facility other than those set forth in Section 6 of the Commitment Letter and (y) borrowings used to
consummate a Subsequent Closing under the Credit Facility other than the Subsequent Acquisition Conditions. All references to any
Commitment Party in this Term Sheet include its successors and assigns and such Commitment Party may designate one of its affiliates
to act in its place in any of the roles for which it is specified in the Term Sheet.

 

    		B-25	 

     

    

 

SCHEDULE 1

TO

EXHIBIT B TO COMMITMENT LETTER

 

Interest and Certain Fees

 

	Interest Rate Options:	Borrowers may elect that Revolving Loans (other than Swing Line Loans) bear interest at a rate per annum equal to (a) the Base Rate (to be defined as the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the Bank of America prime rate and (iii) the one (1) month LIBOR adjusted daily plus 1.00%) plus the Applicable Margin or (b) the LIBOR Rate plus the Applicable Margin.  Swing Line Loans will bear interest at a rate per annum equal to the Base Rate plus the Applicable Margin.  Borrowers may elect that ABL FILO Terms Loans bear interest at a rate per annum equal to (a) the Base Rate plus the Applicable Margin or (b) the LIBOR Rate plus the Applicable Margin.   If LIBOR or the Base Rate shall be less than zero, such rate shall be deemed zero for purposes of the Credit Facility.
	 	 
	 	As used herein:
	 	 
	 	“Applicable Margin” means with respect to Revolving Loans, other than Swing Line Loans, and ABL FILO Term Loans, a percentage determined in accordance with the pricing grids attached hereto as Schedule 2 to Exhibit B to the Commitment Letter,
	 	 
	 	“LIBOR Rate” means the rate per annum equal to the London Interbank Offered Rate, or a comparable or successor rate which rate is approved by the Agent, as published on the applicable Bloomberg screen page (or such other commercially available source providing such quotations as may be designated by the Agent in its reasonable discretion from time to time) at or about 11:00 a.m., London time, two (2) Business Days prior to the commencement of any interest period, for Dollar deposits (for delivery on the first day of such interest period) with a term equivalent to such interest period.  The LIBOR Rate shall be available for interest periods of one, two, three or six months.  
	 	 
	 	Interest rate reference terms will be subject to customary provisions, including applicable reserve requirements, limits on the number of outstanding LIBOR Rate loans and minimum amounts of each LIBOR Rate loan.
	 	 
	Unused Line Fee:	Borrowers shall pay to Agent an unused line fee calculated at 0.50% per annum until the last day of the 6th full month after the Closing Date and adjusted thereafter every month to an amount equal to 0.50% per annum if the average of the outstanding Revolving Loans and Letters of Credit during the immediately preceding month is less than 50% of the Maximum Credit and 0.375% per annum if the average of the outstanding Revolving Loans and Letters of Credit during the immediately preceding month is equal to or greater than 50% of the Maximum Credit.  The unused line fee shall be calculated based on the then applicable percentage multiplied by the difference between the Maximum Credit and the average outstanding Revolving Loans and Letters of Credit during the immediately preceding month and payable monthly in arrears.  Swing Line Loans will not be considered in the calculation of the unused line fee.

 

    		B-26	 

     

    

 

	ABL FILO Term Facility

Unused Commitment Fee:	Borrowers shall pay to Agent an unused commitment fee in respect of the ABL FILO Term Facility calculated at 0.50% per annum until the funding of all ABL FILO Term Loans under the ABL FILO Term Facility.  The unused commitment fee in respect of the ABL FILO Term Facility shall be calculated based on 0.50% per annum multiplied by the difference between the aggregate commitments under the ABL FILO Term Facility and the outstanding ABL FILO Term Loans during the immediately preceding month (calculated on a daily basis) and payable monthly in arrears.  
	 	 
	Letter of Credit Fees:	Borrowers shall pay to Agent, for the account of Lenders (to the extent and in accordance with the arrangements by and among Lenders), on the daily outstanding balance of Letters of Credit, a letter of credit fee which shall accrue at a per annum rate equal to the Applicable LIBOR Rate Margin for the ABL Revolving Facility times the daily outstanding balance of the undrawn amount of all outstanding Letters of Credit, payable monthly in arrears.  In addition, Borrowers shall pay customary issuance, arranging and other fees of the Issuing Bank.
	 	 
	Default Rate:	Following the occurrence and during the continuance of an event of default, the applicable rates of interest for all Revolving Loans, ABL FILO Term Loans and commitments and rate for letter of credit fees shall be increased by 2% per annum above the otherwise then applicable rates.  
	 	 
	Rate and Fee Basis; Payment Dates:	

All per annum rates and fees will be computed on basis of actual days elapsed over a 360 day year (or 365 or 366 days, as the case may be, in the case of Revolving Loans or ABL FILO Term Loans for which the Base Rate is used).  In the case of Revolving Loans or ABL FILO Term Loans for which the LIBOR Rate is used, interest is payable on the last day of each relevant interest period or in the case of an interest period longer than 3 months, then within 3 months, in arrears, and in the case of Revolving Loans or ABL FILO Term Loans for which the Base Rate is used, interest is payable monthly in arrears.

 

    		B-27	 

     

    

 

SCHEDULE 2

TO

EXHIBIT B TO COMMITMENT LETTER

 

	Tier	 	Quarterly Average Excess Availability	 	Applicable LIBOR 
 Rate
 Margin for the ABL 
 Revolving Facility	 	 	Applicable 
 Base Rate Margin for 
 the ABL Revolving 
 Facility	 
	1	 	Greater than 66 2/3% of the Maximum Credit	 	 	2.25	%	 	 	1.25	%
	 	 	 	 	 	 	 	 	 	 	 
	2	 	Less than or equal to 66 2/3% of the Maximum Credit and greater than 33 1/3% of the Maximum Credit	 	 	2.50	%	 	 	1.50	%
	 	 	 	 	 	 	 	 	 	 	 
	3	 	Less than or equal to 33 1/3% of the Maximum Credit	 	 	2.75	%	 	 	1.75	%

 

The Applicable Margin for the interest rates for the ABL Revolving
Facility shall be the applicable percentage calculated based on the percentage set forth in Tier 3 of the chart above until the
last day of the fourth full fiscal quarter after the Closing Date. The interest rates will be adjusted every fiscal quarter thereafter
based on the chart above.

 

	Tier	 	Quarterly Average Excess Availability	 	Applicable LIBOR 
 Rate
 Margin for the ABL 
 FILO Term Facility	 	 	Applicable 
 Base Rate Margin for 
 the ABL FILO Term 
 Facility	 
	1	 	Greater than 66 2/3% of the Maximum Credit	 	 	3.75	%	 	 	2.75	%
	 	 	 	 	 	 	 	 	 	 	 
	2	 	Less than or equal to 66 2/3% of the Maximum Credit and greater than 33 1/3% of the Maximum Credit	 	 	4.00	%	 	 	3.00	%
	 	 	 	 	 	 	 	 	 	 	 
	3	 	Less than or equal to 33 1/3% of the Maximum Credit	 	 	4.25	%	 	 	3.25	%

 

The Applicable Margin for the interest rates
for the ABL FILO Term Facility shall be the applicable percentage calculated based on the percentage set forth in Tier 2 of the
chart above until the last day of the fourth full fiscal quarter after the Closing Date. The interest rates will be adjusted every
fiscal quarter thereafter based on the chart above.

 

    		B-28	 

     

    

 

The Applicable Margin shall be calculated and established once every
fiscal quarter, effective as of the first day of such fiscal quarter and shall remain in effect until adjusted thereafter at the
end of such fiscal quarter.

 

The term “Applicable Margin” as
used in the Term Sheet means, at any time (subject to the paragraph above), (a) as to Revolving Loans for which interest is calculated
based on the Base Rate, the Applicable Base Rate Margin for the ABL Revolving Facility, (b) as to Revolving Loans for which interest
is calculated based on the LIBOR Rate, the Applicable LIBOR Rate Margin for the ABL Revolving Facility, (c) as to ABL FILO Term
Loans for which interest is calculated based on the Base Rate, the Applicable Base Rate Margin for the ABL FILO Term Facility,
and (d) as to ABL FILO Term Loans for which interest is calculated based on the LIBOR Rate, the Applicable LIBOR Rate Margin for
the ABL FILO Term Facility, in each case under clauses (a) through (d) determined if the Quarterly Average Excess Availability
for the immediately preceding fiscal quarter period is at or within the amounts indicated for such percentage as of the last day
of the immediately preceding fiscal quarter.

 

The term “Quarterly Average Excess Availability”
shall mean, at any time, the average of the Excess Availability for the immediately preceding fiscal quarter as calculated by Agent.

 

    		B-29	 

     

    

 

EXHIBIT C

TO

COMMITMENT LETTER

 

Conditions Precedent to Initial Borrowings
under Credit Facility

 

The conditions precedent to the initial borrowings
under the Credit Facility will consist of the condition precedent set forth in Section 6(a) of the Commitment Letter and the following
conditions precedent:

 

	(a)	The Arrangers shall have received evidence the Acquisition (other than assets to be acquired in any Subsequent Closing or the Distribution Center Closing, as each of such terms is defined in the Acquisition Agreement as in effect on the date of the Original Commitment Letter, subject to the Permitted Amendments) shall have been, or, substantially concurrently with the initial borrowing under the Credit Facility shall be, consummated in all material respects in accordance with applicable laws and the terms of the Acquisition Agreement and the Ancillary Agreements (each, as in effect on the date of the Original Commitment Letter), but without giving effect to any amendments, waivers or consents by the Company to the Acquisition Agreement, Ancillary Agreements or any related documents that are materially adverse to the interests of the Lenders or the Arrangers in their capacities as such without the consent of the Arrangers (any such amendments which are not materially adverse to the interests of the Lenders or the Arrangers in their capacities as such, being hereinafter referred to as “Permitted Amendments”), provided, that any change to the definition of “Material Adverse Effect” in the Acquisition Agreement, any waiver of the conditions precedent set forth in Section 7.02(e) of the Acquisition Agreement regarding the absence of a “Material Adverse Effect”, and any change in the representations in the Acquisition Agreement to eliminate (from the scope thereof) any event or condition that has otherwise resulted, or would otherwise result, in an “Material Adverse Effect” shall be deemed to be materially adverse to the interests of the Lenders), except as consented to by Arrangers.
	 	 
	(b)	The Acquired Store Series of the Company commencing on the Closing Date shall not consist of less than 100 retail stores of the Acquired Business (which, for the avoidance of any doubt, shall be completed within 10 business days thereafter).
	 	 
	(c)	The Term Loan Facility shall have been or, substantially concurrently with the initial borrowing under the Credit Facility shall be, closed (but not funded).  

 

    		C-1	 

     

    

 

	(d)	Subject in all cases to the Certain Funds Provisions, the Agent shall have received: (i) the loan agreement, guaranties, security agreements, pledge agreements, intellectual property security agreements, Intercreditor Agreement, collateral assignment of rights under acquisition documents (including any transition services agreement) and other definitive documentation for the Credit Facility, in each case to the extent the Loan Parties are party thereto, executed and delivered by the applicable Loan Parties and the Commitment Parties party thereto subject to and on terms and consistent with this Commitment Letter (including the Funds Certain Provisions and Documentation Principles) and the Fee Letters (including the “flex provisions” thereunder), (ii) a reasonably satisfactory cooperation and license agreement from the Sellers and its affiliates in connection with the Agent’s and/or Lenders’ access to conduct field examinations of the Purchased Assets, including, the Duplicate IT System (subject to the limits on field examinations set forth herein), use of intellectual property licensed to the Borrowers and exercise of rights and remedies under the Credit Facility (including conducting “store closing” and similar themed sales), as applicable, in respect of any retail stores of the Acquired Business subject to the Transition Services Agreement or which utilize (in accordance with the Acquisition Agreement) intellectual property of the Sellers, (iii) customary legal opinions, (iv) customary evidence of authority from each Loan Party, (v) customary officer’s certificates from each Loan Party, (v) good standing certificates (to the extent applicable) in the respective jurisdictions of organization of each Loan Party, (vi) customary lien searches with respect to each Loan Party, (vii) UCC financing statements for each Loan Party, (viii) evidence of insurance coverage including certificates naming the Agent as additional insured and lender’s loss payee to casualty and business interruption insurance, (ix) current borrowing base certificate dated as of the Closing Date (or such other date agreed to by Agent), and (x) borrowing request and disbursement authorization letter (including funds flow memorandum).  Agent shall have received evidence that notices to each credit card processor used by Borrowers have been sent to such credit card processor with respect to the security interest of Agent and instructions to remit payments to a bank account of Borrowers specified therein and not to change such bank account without the prior written consent of Agent.  Subject in all cases to the Certain Funds Provision, Agent, for the benefit of itself, Lenders, Issuing Bank, bank product providers, and swap providers shall hold perfected, first priority (subject to certain specified permitted liens) security interests in and liens upon the Revolving Loan Priority Collateral and perfected second priority (subject to certain specified permitted liens) security interests in and liens upon the Term Loan Priority Collateral (other than real property), and none of the Collateral shall be subject to any other pledges, security interests, mortgages or assignments as security, except for liens permitted under the Loan Documents.  Receipt by Agent of (A) customary payoff letters as to Fred’s existing ABL credit facility  (the “Existing Fred’s ABL”) reflecting the amounts required to repay in full all outstanding obligations thereunder (other than (x) contingent indemnity and expense reimbursement obligations for which no claims have been asserted and (y) any letters of the credit outstanding thereunder which shall be permitted to be rolled into the Credit Facility and “grandfathered” thereunder)  and providing that upon receipt of such funds all such arrangements under the Existing Fred’s ABL are terminated and the liens securing any obligations thereunder are released and (B) customary lien releases and discharges
in respect of the Existing Credit Facility for the assets acquired on the Closing Date under the Acquisition Agreement.
	 	 
	 	On the Closing Date, after giving effect to the Transactions, the Company, the Loan Parties and their respective subsidiaries shall not have any third party debt for borrowed money other than (i) the Credit Facility, (ii) the Term Loan Facility, (iii) ordinary course capital leases, purchase money indebtedness, equipment financings, letters of credit, bank guarantees and surety bonds of the Loan Parties and their respective subsidiaries that are not otherwise prohibited by the Loan Documents, (iv) intercompany indebtedness of the Loan Parties and their subsidiaries not otherwise prohibited by the Loan Documents and (v) certain other debt for borrowed money that the Company and the Arrangers reasonably agree may remain outstanding after the Closing Date.
	 	 
	(e)	The opening Excess Availability at closing after the application of proceeds of the initial funding under the Credit Facility and/or issuance of initial Letters of Credit under the Credit Facility and after payment of all fees and expenses of the Transactions payable on the Closing Date, shall be not less than the greater of (x) 25% of the Combined Loan Cap and (y) $150,000,000.  
	 	 
	(f)	Arrangers (and each Lender) shall have received at least 5 business days prior to the Closing Date all documentation and information as is reasonably requested by Arranger or Agent or a Lender that is required by regulatory authorities under applicable “know your customer” and anti-money-laundering rules and regulations, including, without limitation, the USA Patriot Act, in each case to the extent requested in writing at least 10 business days prior to the Closing Date.

 

    		C-2	 

     

    

 

	(g)	Arrangers shall have received (i) (A) projected balance sheets, income statements, statements of cash flows and projected Excess Availability, Borrowing Base and FILO Borrowing Base of the Company and its subsidiaries after giving effect to the Transactions and covering the term of the Credit Facility, which projections shall be on a monthly basis for the twelve-month period following the Closing Date and on an annual basis thereafter for the term of the Credit Facility, in each case with the results and assumptions in all of such projections in form and substance reasonably satisfactory to Arrangers (it being understood that Arrangers have received all such projections under this clause (A) as of the date of the Original Commitment Letter) and (B) to the extent the Company may prepare them, any updates and modifications to such projected financial statements of the Company and its subsidiaries, (ii) an opening pro forma balance sheet, income statements, statements of cash flows for the Company and its subsidiaries (including the Acquired Business) as of and for the twelve-month period ended at least 30 calendar days prior to the Closing Date, (iii) interim unaudited financial statements of the Company and its subsidiaries for the year to date period ended at least 30 calendar days prior to the Closing Date, with prior year comparison since the last audited financial statements for which financial statements are available, and (iv) a quality of earnings report from Ernst & Young for the 865 retail stores of the Acquired Business setting forth 4-wall EBITDA for the period of 12 fiscal months ended October 31, 2016 and 4-wall EBITDA for the fiscal year ended January 30, 2016.
	 	 
	(h)	Arrangers shall have received a customary solvency certificate from the chief financial officer of the Company substantially in the form attached hereto as Annex I as of the Closing Date.  
	 	 
	(i)	All costs, fees and expenses contemplated hereby or in the Fee Letters due and payable on the Closing Date to Agent, Arrangers and Lenders in respect of the Transactions shall have been paid, provided that invoices for any costs and expenses to be reimbursed on the Closing Date must be received at least two business days (or such later date as to which the Company may agree in its sole discretion) prior to the Closing Date or otherwise such costs and expenses will be paid no later than 10 days after the Closing Date.  
	 	 
	(j)	The Specified Representations shall be true and correct in all material respects on the Closing Date where not already qualified by materiality or “material adverse effect”, otherwise in all respects, and the Acquisition Agreement Representations will be true and correct as and to the extent required by Section 6 of the Commitment Letter.
	 	 
	(k)	Arrangers shall have a syndication period prior to the Closing Date commencing on January 6, 2017 and ending February 15, 2017.

 

    		C-3	 

     

    

 

ANNEX I

TO

EXHIBIT B TO COMMITMENT LETTER

 

SOLVENCY CERTIFICATE

of

FRED’S, INC. AND ITS SUBSIDIARIES

 

[Pursuant to the [Credit Agreement], the undersigned hereby certifies,
solely in such undersigned’s capacity as chief financial officer of Fred’s, Inc. (the “Company”) and not
individually, as follows:

 

As of the date hereof, after giving effect to the consummation of
the Transactions, including the making of any Revolving Loans and the issuance of any Letters of Credit under the Credit Agreement
on the date hereof, and after giving effect to the application of the proceeds of such Loans:

 

		(a)	The fair value of the assets of the Company and its Subsidiaries,
on a consolidated basis, exceeds, on a consolidated basis, their debts and liabilities, subordinated, contingent or otherwise;

 

		(b)	The present fair saleable value of the property of the
Company and its Subsidiaries, on a consolidated basis, is greater than the amount that will be required to pay the probable liability,
on a consolidated basis, of their debts and other liabilities, subordinated, contingent or otherwise, as such debts and other
liabilities become absolute and matured;

 

		(c)	the Company and its Subsidiaries, on a consolidated basis,
are able to pay their debts and liabilities, subordinated, contingent or otherwise, as such liabilities become absolute and matured;
and

 

		(d)	the Company and its Subsidiaries, on a consolidated basis,
are not engaged in, and are not about to engage in, business for which they have unreasonably small capital.

 

For purposes of this Certificate, the amount of any contingent liability
at any time shall be computed as the amount that would reasonably be expected to become an actual and matured liability. Capitalized
terms used but not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.

 

The undersigned is familiar with the business and financial position
of the Company and its Subsidiaries. In reaching the conclusions set forth in this Certificate, the undersigned has made such other
investigations and inquiries as the undersigned has deemed appropriate, having taken into account the nature of the particular
business anticipated to be conducted by the Company and its Subsidiaries after consummation of the transactions contemplated by
the Commitment Letter.]

 

[Signature Page Follows]

 

    		C-4	 

     

    

 

IN WITNESS WHEREOF, the undersigned has executed
this Certificate in such undersigned’s capacity as chief financial officer of the Company, on behalf of the Company, and
not individually, as of the date first stated above.

 

	 	[COMPANY]
	 	 	 
	 	By:	 
	 		Name:
	 		Title:

  

    		C-5

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00269-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00269-of-00352.parquet"}]]