Document:

Exhibit

Exhibit 10.2
AMENDMENT NO. 6
Dated as of December 20, 2016
to
SECOND AMENDED AND RESTATED SENIOR SECURED NOTE PURCHASE AGREEMENT
Dated as of May 9, 2013
THIS AMENDMENT NO. 6 (“Amendment”) is made as of December 20, 2016 by and among Encore Capital Group, Inc. (the “Company”) and the undersigned holders of Notes (the “Noteholders”).  Reference is made to that certain Second Amended and Restated Senior Secured Note Purchase Agreement, dated as of May 9, 2013, between the Company, on the one hand, and the Purchasers named therein, on the other hand (as amended by (a) that certain Amendment No. 1 to Second Amended and Restated Senior Secured Note Purchase Agreement, dated as of May 29, 2013, (b) that certain Amendment No. 2 to Second Amended and Restated Senior Secured Note Purchase Agreement, dated as of February 25, 2014, (c) that certain Amendment No. 3 to Second Amended and Restated Senior Secured Note Purchase Agreement, dated as of August 1, 2014, (d) that certain Amendment No. 4 to Second Amended and Restated Senior Secured Note Purchase Agreement, dated as of July 9, 2015, and (e) that certain Amendment No. 5 to Second Amended and Restated Senior Secured Note Purchase Agreement, dated as of March 24, 2016, and as the same may be further amended, supplemented or otherwise modified from time to time, the “Note Agreement”).  Capitalized terms used herein and not otherwise defined herein shall have the respective meanings given to them in the Note Agreement.
WHEREAS, the Company has requested that the Noteholders agree to certain amendments with respect to the Note Agreement as provided in this Amendment; and
WHEREAS, the Noteholders party hereto have agreed to such amendments on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises set forth above, the terms and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Noteholders party hereto have agreed to enter into this Amendment.
1.    Amendments to Note Agreement.  Effective as of the Effective Date, the Note Agreement is hereby amended as follows:
(a)    Section 9.2 is amended and restated, as follows:
9.2    Conduct of Business.  The Company will, and will cause each Restricted Subsidiary to, (i) carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as it is conducted on the Closing Date, and (ii) do all things necessary to remain duly incorporated or organized, validly existing and (to the extent such concept applies to such entity) in good standing as a domestic corporation, partnership or limited liability company in its jurisdiction of incorporation or 

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organization, as the case may be, as in effect on the Closing Date, and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted, except (i) as permitted by Section 10.2, and (ii) to the extent that the failure to maintain any of the foregoing could not reasonably be expected to have a Material Adverse Effect.
(b)    Section 9.4 is amended and restated, as follows:
9.4    Insurance.  The Company will, and will cause each Restricted Subsidiary to, maintain with financially sound and reputable insurance companies insurance on their Property in such amounts, subject to such deductibles and self-insurance retentions, and covering such risks as is consistent with sound business practice.  The Company shall deliver to the Collateral Agent endorsements in form and substance reasonably acceptable to the Collateral Agent to all general liability and other liability policies naming the Collateral Agent as an additional insured.  The Company shall furnish to any holder of Notes such additional information as such holder may reasonably request regarding the insurance carried by the Company and its Restricted Subsidiaries.  In the event the Company or any of its Restricted Subsidiaries at any time or times hereafter shall fail to obtain or maintain any of the policies of insurance required herein or to pay any premium in whole or in part relating thereto, then the Collateral Agent, without waiving or releasing any obligations or resulting Event of Default hereunder, may at any time or times thereafter (but shall be under no obligation to do so) obtain and maintain such policies of insurance and pay such premiums and take any other action with respect thereto which the Collateral Agent deems advisable.  All sums so disbursed by the Collateral Agent shall constitute part of the Secured Obligations, payable as provided in this Agreement.
Without limiting the foregoing, the Company will, and will cause the applicable Credit Party to (i) maintain, if available, fully paid flood hazard insurance on all real property that is located in a Flood Hazard Area and that constitutes Collateral, on such terms and in such amounts as required by The National Flood Insurance Reform Act of 1994 or as otherwise required by the Required Holders, (ii) furnish to the holders of the Notes evidence of the renewal (and payment of renewal premiums therefor) of all such policies prior to the expiration or lapse thereof, and (iii) furnish to the holders of the Notes prompt written notice of any redesignation of any such improved Mortgage Property into or out of a Flood Hazard Area.  The Company will promptly deliver to any holder of a Note, at such holder’s request, evidence satisfactory to such holder that such insurance has been procured and is being maintained as herein required.
(c)    Sections 9.7 and 9.8 are amended and restated, as follows:
9.7    Guarantors.  The Company shall cause each of its Restricted Subsidiaries (other than Immaterial Subsidiaries) to guarantee pursuant to the Multiparty Guaranty or supplement or counterpart thereto (or, in the case of a Foreign Subsidiary, any other guaranty agreement requested by the Required Holders) the obligations of the Company evidenced by the Notes and under the other Transaction Documents.  In furtherance of the above, after the formation or acquisition of any Restricted Subsidiary or the occurrence of a Subsidiary Redesignation, the Company shall promptly (and in any event upon the earlier of (x) such time as such Restricted Subsidiary becomes a guarantor, co-borrower or other obligor under the Credit Agreement and (y) within 45 days after such formation or acquisition or such Subsidiary Redesignation):  (i) provide written notice to the holders of 

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Notes upon any Person becoming a Subsidiary, setting forth information in reasonable detail describing all of the assets of such Person; (ii) cause such Person (other than any Immaterial Subsidiary) to execute a supplement or counterpart to the Multiparty Guaranty and such other Collateral Documents as are necessary for the Company and its Subsidiaries to comply with Section 9.8; (iii) cause the Applicable Pledge Percentage of the issued and outstanding equity interests of such Person and each other Pledge Subsidiary to be delivered to the Collateral Agent (together with undated stock powers signed in blank, if applicable) and pledged to the Collateral Agent pursuant to an appropriate pledge agreement(s) in substantially the form of the Pledge and Security Agreement (or joinder or other supplement thereto) and otherwise in form reasonably acceptable to the Required Holders; and (iv) deliver such other documentation as the Required Holders may reasonably request in connection with the foregoing, including, without limitation, certified resolutions and other authority documents of such Person and, to the extent requested by the Required Holders, favorable opinions of counsel to such Person (which shall cover, among other things, the legality, validity, binding effect and enforceability of the documentation referred to above), all in form, content and scope reasonably satisfactory to the Required Holders.  Notwithstanding the foregoing, no Foreign Subsidiary shall be required to execute and deliver the Multiparty Guaranty (or supplement thereto) or such other guaranty agreement if such execution and delivery would cause a Deemed Dividend Problem or a Financial Assistance Problem with respect to such Foreign Subsidiary and, in lieu thereof, the Company and the relevant Restricted Subsidiaries shall provide the pledge agreements required under this Section 9.7 or Section 9.8.  Notwithstanding the foregoing, the Company will be required to comply with this Section 9.7 with respect to any Immaterial Subsidiary if it ceases to be an Immaterial Subsidiary under the terms of the definition thereof.
9.8    Collateral.  The Company will cause, and will cause each other Credit Party to cause, all of its owned Property to be subject at all times to first priority, perfected Liens in favor of the Collateral Agent for the benefit of the Secured Parties to secure the Secured Obligations in accordance with the terms and conditions of the Intercreditor Agreement and the Collateral Documents, subject in any case to Liens permitted by Section 10.6 hereof (it being understood and agreed that (a) no control agreements will be required hereunder in respect of bank accounts, and (b) Mortgages and Mortgage Instruments will only be required hereunder in respect of Mortgaged Properties).  Notwithstanding anything herein to the contrary, if any improvement on a Mortgaged Property is located in a Flood Hazard Area, no Mortgage will be executed or recorded with respect to such Mortgaged Property pursuant to this Agreement unless the holders of the Notes have received written notice of such Mortgage at least 30 days prior to such execution or recording and the Required Holders have confirmed that their flood insurance due diligence and flood insurance compliance has been completed in a manner satisfactory to the Required Holders (such confirmation not to be unreasonably withheld or delayed).  Without limiting the generality of the foregoing, the Company:  (i) will cause the Applicable Pledge Percentage of the issued and outstanding equity interests of each Pledge Subsidiary directly owned by the Company or any other Credit Party to be subject at all times to a first priority, perfected Lien in favor of the Collateral Agent to secure the Secured Obligations in accordance with the terms and conditions of the Collateral Documents or such other security documents as the Collateral Agent shall reasonably request; and (ii) will, and will cause each Guarantor to, deliver Mortgages and Mortgage Instruments with respect to real property owned by the Company or such Guarantor to the extent, and within such time period as is, reasonably required by the Collateral Agent.  Notwithstanding the foregoing, 

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no pledge agreement in respect of the equity interests of a Foreign Subsidiary shall be required hereunder to the extent such pledge thereunder is prohibited by applicable law or counsel to the holders of the Notes reasonably determines that such pledge would not provide material credit support for the benefit of the Secured Parties pursuant to legally valid, binding and enforceable pledge agreements.
(d)    Section 10.3 is amended by (i) inserting “and” immediately following the semi-colon at the end of clause 10.3.5 thereof, (ii) deleting the “; and” at the end of clause 10.3.6 thereof and replacing such deletion with a period, and (iii) deleting clause 10.3.7 thereof.
(e)    Section 10.4 is amended by (i) amending and restating clauses 10.4.6 through and including 10.4.11 thereof, and (ii) inserting a new clause 10.4.12, as follows:
10.4.6    creation of, or Investment in, a Restricted Subsidiary (other than a Foreign Subsidiary that is not a Credit Party) and in respect of which the Company has otherwise complied with Sections 9.7 and 9.8, provided that such investment shall be permitted only to the extent that, after giving effect to such investment, (i) no Default shall exist and be continuing and (ii) the Company shall be in compliance with Sections 10.12 and 10.13 on a pro-forma basis as if the Investment occurred on the first day of the applicable period being tested pursuant to such Sections;
10.4.7    Investments constituting Indebtedness permitted by Section 10.5.5, Section 10.5.6 or Section 10.5.7;
10.4.8    Investments by a Credit Party in another Credit Party;
10.4.9    Investments of the Company or any of its Restricted Subsidiaries; provided that the sum of (x) $180,127,845 plus (y) the aggregate amount (valued at the time of the making thereof, and without giving effect to any write-downs or write-offs thereof) of all Investments made on or after the Amendment No. 4 Effective Date pursuant to this clause 10.4.9 shall not, at the time of the making of the proposed Investment, exceed the greater of (1) an amount equal to 200% of the Consolidated Net Worth (determined as of the last day of the most recently ended fiscal quarter for which financial statements have been delivered pursuant to Section 7.1.1 or 7.1.2, as applicable) of the Company and its Restricted Subsidiaries and (2) an amount such that, after giving effect on a pro forma basis to the making of such Investment and the incurrence of any Indebtedness in connection therewith, the Cash Flow Leverage Ratio (determined as of the last day of the most recently ended fiscal quarter for which financial statements have been delivered pursuant to Section 7.1.1 or 7.1.2, as applicable) is less than 1.25:1.00;
10.4.10    Investments made by any Foreign Subsidiary that is not a Credit Party in any other Foreign Subsidiary that is not a Credit Party;
10.4.11    Investments made by any Domestic Subsidiary that is not a Credit Party in any other Domestic Subsidiary that is not a Credit Party; and
10.4.12    Subject to Section 10.19, Investments of the Company and its Restricted Subsidiaries in Persons organized under the laws of Canada in an amount not to exceed $50,000,000 in the aggregate.

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(f)    Section 10.5 is amended by amending and restating each of clauses 10.5.4, 10.5.5 and 10.5.15, as follows:
10.5.4    secured or unsecured purchase money Indebtedness (including Capitalized Leases) incurred by the Company or any of its Restricted Subsidiaries after the Sixth Amendment Effective Date to finance the acquisition of assets used in its business, if (1) the total of all such Indebtedness for the Company and its Restricted Subsidiaries taken together incurred on or after the Sixth Amendment Effective Date, when aggregated with the Indebtedness permitted under Section 10.5.9, shall not exceed an aggregate principal amount of $20,000,000 at any one time outstanding (excluding Capitalized Leases, which shall not be subject to any dollar limitation under this Section 10.5.4), (2) such Indebtedness when incurred shall not exceed the purchase price of the asset(s) financed, (3) no such Indebtedness shall be refinanced for a principal amount in excess of the principal balance outstanding thereon at the time of such refinancing, and (4) any Lien securing such Indebtedness is permitted under Section 10.6 (such Indebtedness being referred to herein as “Permitted Purchase Money Indebtedness”);
10.5.5    Indebtedness arising from intercompany loans and advances (i) made by any Subsidiary to any Credit Party; provided that the Company agrees (and will cause each of its Subsidiaries to agree) that all such Indebtedness owed to any Unrestricted Subsidiary by any Credit Party shall be expressly subordinated to the Secured Obligations pursuant to subordination provisions reasonably acceptable to the Required Holders, (ii) made by any Credit Party to any other Credit Party, (iii) made by the Company or any Restricted Subsidiary to any Restricted Subsidiary solely for the purpose of facilitating, in the ordinary course of business consistent with past practice as of the Closing Date, the payment of fees and expenses in connection with collection actions or proceedings or (iv) made by the Company or any Restricted Subsidiary to any Unrestricted Subsidiary to the extent such loan would be permitted as an investment in compliance with Section 10.4.9;
10.5.15    additional unsecured Indebtedness, Subordinated Indebtedness or Junior Lien Indebtedness of the Company or any of its Restricted Subsidiaries, to the extent not otherwise permitted under this Section 10.5; provided, however, that (i) the aggregate principal amount of such additional Indebtedness shall not exceed $1,100,000,000, (ii) such Indebtedness shall not mature, and shall not be subject to any scheduled mandatory prepayment, redemption or defeasance, in each case prior to five (5) years from the date of issuance of such Indebtedness, (iii) if such Indebtedness is Subordinated Indebtedness, the terms of subordination thereof shall be reasonably acceptable to the Required Holders, and (iv) if such Indebtedness is Junior Lien Indebtedness (x) the aggregate principal amount of such Junior Lien Indebtedness shall not exceed $400,000,000 and (y) such Junior Lien Indebtedness under this clause (iv) shall be on terms and conditions and subject to intercreditor arrangements, in each case, reasonably acceptable to the Required Holders;
(g)    Section 10.5 is amended to delete clause 10.5.16 thereof and to replace such section with “[intentionally omitted]”.
(h)    Section 10.6 is amended by amending and restating clause 10.6.2, as follows:
10.6.2    Liens for taxes, assessments or governmental charges or levies on its Property if the same (i) shall not at the time be delinquent or thereafter can be paid without 

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penalty, (ii) are disclosed on Schedule 10.6, or (iii) are being contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with Agreement Accounting Principles shall have been set aside on its books;
(i)    Section 10.6 is amended by amending and restating clauses 10.6.13 through and including 10.6.16 thereof, as follows:
10.6.13    Liens existing on any asset prior to the acquisition thereof by the Company or any Restricted Subsidiary and not created in contemplation thereof; provided that such Liens do not encumber any other Property;
10.6.14    Liens arising out of the refinancing, extension, renewal or refunding of any Indebtedness secured by any Lien permitted under Sections 10.6.9 through 10.6.13; provided that (a) such Indebtedness is not secured by any additional assets, and (b) the amount of such Indebtedness secured by any such Lien is not increased;
10.6.15    Liens on the Collateral securing Junior Lien Indebtedness permitted by clause (iv) of Section 10.5.15; provided that the holder(s) of such Junior Lien Indebtedness and the Collateral Agent shall have entered into an intercreditor agreement with respect to such Liens (and the assets subject to such Liens) that is in form and content reasonably acceptable to the Required Holders;
10.6.16    Liens securing Indebtedness permitted by Section 10.5.17; provided that the holder(s) of such Indebtedness and the Collateral Agent shall have entered into an intercreditor agreement with respect to such Liens (and the assets subject to such Liens) that is in form and content reasonably acceptable to the Required Holders;
(j)    Section 10.6 is further amended by amending and restating clause 10.6.18 thereof, as follows:
10.6.18    Liens securing Subordinated Indebtedness of the Company or any of its Restricted Subsidiaries permitted under Section 10.5.15; provided that the lenders or investors providing such Indebtedness, or a representative acting on behalf of the lenders or investors providing such Indebtedness, shall have entered into a customary intercreditor agreement reasonably satisfactory to the Required Holders;
(k)    Section 10.9 is amended and restated, as follows:
10.9    Subsidiary Covenants.  The Company will not, nor will it permit any Credit Party to, create or otherwise cause to become effective any consensual encumbrance or restriction of any kind on the ability of any Credit Party (i) to pay dividends or make any other distribution on its stock, (ii) to pay any Indebtedness or other obligation owed to the Company or any other Restricted Subsidiary, (iii) to make loans or advances or other Investments in the Company or any other Restricted Subsidiary, or (iv) to sell, transfer or otherwise convey any of its property to the Company or any other Restricted Subsidiary, other than (A) customary restrictions on transfers, business changes or similar matters relating to earn out obligations in connection with Permitted Acquisitions, and (B) as provided in this Agreement and the Credit Agreement.
(l)    Section 10.11 is amended and restated, as follows:

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10.11    Subordinated Indebtedness and Junior Lien Indebtedness.  The Company will not, nor will it permit any Restricted Subsidiary to, directly or indirectly voluntarily prepay, defease or in substance defease, purchase, redeem, retire or otherwise acquire, any Subordinated Indebtedness and/or any Junior Lien Indebtedness.  Furthermore, the Company will not, and will not permit any Restricted Subsidiary to, amend, supplement or otherwise modify the Subordinated Indebtedness Documents or Junior Lien Indebtedness Documents or any document, agreement or instrument evidencing any Indebtedness incurred pursuant to the Subordinated Indebtedness Documents or Junior Lien Indebtedness Documents (or any replacements, substitutions, extensions or renewals thereof) or pursuant to which such Indebtedness is issued where such amendment, supplement or other modification provides for the following or which has any of the following effects:
(i)    increases the overall principal amount of any such Indebtedness or increases the amount of any single scheduled installment of principal or interest;
(ii)    shortens or accelerates the date upon which any installment of principal or interest becomes due or adds any additional mandatory redemption provisions;
(iii)    shortens the final maturity date of such Indebtedness or otherwise accelerates the amortization schedule with respect to such Indebtedness;
(iv)    increases the rate of interest accruing on such Indebtedness;
(v)    provides for the payment of additional fees or increases existing fees or changes any profit sharing arrangements to the detriment of the Company or any other Credit Party;
(vi)    amends or modifies any financial or negative covenant (or covenant which prohibits or restricts the Company or any of its Restricted Subsidiaries from taking certain actions) in a manner which is more onerous or more restrictive in any material respect to the Company or such Restricted Subsidiary or which is otherwise materially adverse to the Company, its Restricted Subsidiaries and/or the holders of Notes or, in the case of any such covenant, which places material additional restrictions on the Company or such Restricted Subsidiary or which requires the Company or such Restricted Subsidiary to comply with more restrictive financial ratios or which requires the Company to better its financial performance, in each case from that set forth in the existing applicable covenants in the Subordinated Indebtedness Documents, the Junior Lien Indebtedness Documents or the applicable covenants in this Agreement; or
(vii)    amends, modifies or adds any affirmative covenant in a manner which (a) when taken as a whole, is materially adverse to the Company, its Restricted Subsidiaries and/or the holders of Notes, or (b) is more onerous than the existing applicable covenant in the Subordinated Indebtedness Documents, the Junior Lien Indebtedness Documents or the applicable covenant in this Agreement.
(m)    Sections 10.12 and 10.13 are amended and restated, as follows:
10.12    Leverage Ratios.

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10.12.1    Cash Flow Leverage Ratio.  The Company will not at any time permit the ratio (the “Cash Flow Leverage Ratio”) of (i) Consolidated Funded Indebtedness at such time to (ii) Consolidated EBITDA for the then most-recently ended four fiscal quarters to be greater than (a) 2.50 to 1.00 before December 31, 2016, or (b) 3.00 to 1.00 on or after December 31, 2016.
The Cash Flow Leverage Ratio shall be calculated:  (i) based upon (a) Consolidated Funded Indebtedness at the applicable time of determination, and (b) for Consolidated EBITDA, the actual amount as of the last day of each fiscal quarter for the most recently ended four consecutive fiscal quarters; and (ii) giving pro forma effect to any Material Acquisition and Material Disposition.  For purposes of this Section 10.12.1 and Section 10.12.2, “Material Acquisition” means any Acquisition or series of related Acquisitions that involves the payment of consideration by the Company and its Restricted Subsidiaries in excess of $10,000,000; and “Material Disposition” means any Asset Sale or series of related Asset Sales that yields gross proceeds to the Company or any of its Restricted Subsidiaries in excess of $10,000,000.
10.12.2    Cash Flow First Lien Leverage Ratio.  The Company will not at any time permit the ratio (the “Cash Flow First Lien Leverage Ratio”) of (i) Consolidated First Lien Indebtedness at such time to (ii) Consolidated EBITDA for the then most-recently ended four fiscal quarters to be greater than 2.00 to 1.00; provided that the Cash Flow First Lien Leverage Ratio may exceed 2.00 to 1.00, so long as it does not exceed 2.25 to 1.00, for the period (the “Relief Period”) commencing on any date after the Sixth Amendment Effective Date on which the Company or any of its Restricted Subsidiaries has consummated a Permitted Acquisition in which the Purchase Price is $100,000,000 or more (a “Trigger Acquisition”) and continuing until (but excluding) the end of the second full fiscal quarter immediately succeeding the fiscal quarter during which the Trigger Acquisition occurred; provided, further, that the maximum permitted Cash Flow First Lien Leverage Ratio shall return to 2.00 to 1.00 on and after the end of the second full fiscal quarter immediately succeeding the fiscal quarter during which the Trigger Acquisition occurred; provided, further, that following the termination of any Relief Period, no subsequent Relief Period shall be permitted to occur for purpose of the initial proviso of this Section 10.12.2 unless and until the Cash Flow First Lien Leverage Ratio is less than or equal to 2.00 to 1.00 as of the end of at least one fiscal quarter following the most recent Relief Period.
The Cash Flow First Lien Leverage Ratio shall be calculated:  (i) based upon (a) Consolidated First Lien Indebtedness at the applicable time of determination, and (b) for Consolidated EBITDA, the actual amount as of the last day of each fiscal quarter for the most recently ended four consecutive fiscal quarters; and (ii) giving pro forma effect to any Material Acquisition and Material Disposition.
10.12.3    Minimum Net Worth.  The Company will not permit the Consolidated Net Worth of the Company and its Restricted Subsidiaries to be less than the sum of (i) a dollar amount equal to $367,102,500, plus (ii) 50% of such Consolidated Net Income earned in each fiscal quarter beginning with the quarter ending December 31, 2016 (without deduction for losses), plus (iii) 100% of the amount by which the Company’s “total stockholders’ equity” is increased after December 31, 2016 as a result of the issuance or sale by the Company or any of its Restricted Subsidiaries of, or the conversion of any Indebtedness of such Person into, any equity interests (including warrants and similar 

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investments) in such Person, minus (iv) amounts expended by the Company and its Restricted Subsidiaries to repurchase the Company’s capital stock (x) for the period after September 30, 2016 through and including the Sixth Amendment Effective Date and (y) for all periods after the Sixth Amendment Effective Date to the extent such repurchases are permitted under Section 10.1(v).
10.13    Interest Coverage Ratio.  The Company will not permit the ratio, determined as of the end of each of its fiscal quarters (commencing with the fiscal quarter ending December 31, 2016) for the then most-recently completed four fiscal quarters, of (i) Consolidated EBIT, to (ii) Consolidated Interest Expense, in each case as of the end of such period, to be less than 1.75 to 1.00.
(n)    Section 10.19 is amended and restated, as follows:
10.19    Acquisition of Foreign Receivables.  The Company will not, nor will it permit any Restricted Subsidiary to, (i) acquire any Receivable denominated in a currency other than Dollars, (ii) acquire any Receivable with respect to which the debtor is a resident of a jurisdiction other than the United States of America, (iii) acquire any Person which owns any Receivable denominated in a currency other than Dollars or any Receivable with respect to which the debtor is a resident of a jurisdiction other than the United States of America (other than any Person which, contemporaneously with or immediately subsequent to the acquisition thereof, is designated as an Unrestricted Subsidiary in accordance with this Agreement), or (iv) acquire any Person organized under the laws of any jurisdiction other than the United States of America or any state thereof (other than any Person which, contemporaneously with or immediately subsequent to the acquisition thereof, is designated as an Unrestricted Subsidiary in accordance with this Agreement), if, after giving effect to such acquisition, the aggregate outstanding book value (without duplication) of all such Receivables (in the case of clauses (i) and (ii)), all such Receivables owned by such Person (in the case of clause (iii)) and any and all Receivables owned by such Person (in the case of clause (iv)) would exceed in the aggregate 40% of the total book value of all Receivables of the Company and its Restricted Subsidiaries at any time.
(o)    Section 21.3 is amended and restated, as follows:
21.3    Accounting Terms.  All accounting terms used herein which are not expressly defined in this Agreement have the meanings respectively given to them in accordance with Agreement Accounting Principles.  Except as otherwise specifically provided herein, (i) all computations made pursuant to this Agreement shall be made in accordance with Agreement Accounting Principles, and (ii) all financial statements shall be prepared in accordance with Agreement Accounting Principles.  Notwithstanding anything to the contrary contained in this Section or the definition of “Capitalized Lease,” in the event of an accounting change requiring all leases to be capitalized, only those leases that would constitute Capitalized Leases on the Sixth Amendment Effective Date (assuming for purposes hereof that they were in existence on the Sixth Amendment Effective Date) shall be considered Capitalized Leases and all calculations and deliverables under this Agreement shall be made or delivered, as applicable, in accordance therewith (provided that together with all financial statements delivered to the holders of the Notes in accordance with the terms of this Agreement after the date of such accounting change, the Company shall deliver 

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a schedule showing the adjustments necessary to reconcile such financial statements with GAAP as in effect immediately prior to such accounting change).
(p)    Schedule B of the Note Agreement is amended to delete the following existing definitions set forth therein:  “Adjusted Operating Expenses,” “Advance Rate Measurement Date;” “Blocked Propel Subsidiary;” “Blue Ridge Acquisition;” “Cash Flow Secured Leverage Ratio;” “Consolidated Secured Funded Indebtedness;” “Cost to Collect;” “Propel Acquisition;” “Propel Acquisition LLC;” “Propel Disposition;” “Propel Group;” “Propel Indebtedness;” “Propel Stock Purchase Agreement;” and “Tax Liens.”
(q)    Schedule B of the Note Agreement is amended to amend and restate the following existing definitions set forth therein, or to insert the following new definitions in their proper alphabetical order, as applicable:
““Acquisition” means any transaction or any series of related transactions, other than a Permitted Restructuring or purchases or acquisitions of Receivables Portfolios in the ordinary course of business, consummated on or after the Closing Date, by which the Company or any of its Restricted Subsidiaries (i) acquires any going business or all or substantially all of the assets of any firm, corporation or limited liability company, or division thereof, whether through purchase of assets, merger or otherwise, or (ii) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage of voting power) of the outstanding ownership interests of a partnership or limited liability company of any Person; provided, however, that the following shall not be considered an “Acquisition”:  (a) any asset purchase consisting solely of Receivables Portfolios; and (b) the purchase of equity interests of an entity (1) the assets of which consist solely of Receivables and other Immaterial Assets which are used by such entity in connection with managing such receivables, (2) which conducts no business other than managing the Receivables held by such entity, and (3) which has no Indebtedness.
“Advance Rate” means, as of any date of determination on and after the Sixth Amendment Effective Date, 35%, provided that the Advance Rate to be applied with respect to the Estimated Remaining Collections from Debtor Receivables shall in all events be 55%.
“Aggregate Revolving Commitment” means the aggregate revolving commitment under the Credit Agreement.
“Amortized Collections” means, for any period, the aggregate amount of collections from receivable portfolios (including that portion attributable to sales of receivables) of the Company and its Restricted Subsidiaries calculated on a consolidated basis for such period, in accordance with Agreement Accounting Principles, that are not included in consolidated revenues by reason of the application of such collections to principal of such receivable portfolios (for purposes of illustration only, the Amortized Collections have been most recently identified in the amount of $452,226,000 as “Amortized Collections” in the Company’s compliance certificate delivered pursuant to Section 7.1.4 for the twelve-month period ended September 30, 2016).
“Asset Sale” means, with respect to the Company or any Restricted Subsidiary, the sale, lease, conveyance, disposition or other transfer by such Person of any of its assets (including by way of a Sale and Leaseback Transaction, and including the sale or other transfer of any of the capital stock or other equity interests of such Person or any Restricted Subsidiary of such Person) to any 

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Person other than the Company or any of its Wholly-Owned Subsidiaries other than (i) the sale of Receivables in the ordinary course of business, (ii) the sale or other disposition of any obsolete, excess, damaged or worn-out Equipment disposed of in the ordinary course of business, (iii) leases of assets in the ordinary course of business consistent with past practice, and (iv) from and after the Sixth Amendment Effective Date, sales or dispositions of assets outside the ordinary course of business with an aggregate fair market value not to exceed $20,000,000.
“Capitalized Lease” of a Person means, subject to Section 21.3, any lease of Property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles.
“Cash Flow First Lien Leverage Ratio” is defined in Section 10.12.2.
“Cash Flow Leverage Ratio” has the meaning specified in Section 10.12.1.
“Consolidated EBIT” means Consolidated Net Income plus, to the extent deducted from revenues in determining Consolidated Net Income, (i) Consolidated Interest Expense (whether actual or contingent), (ii) expense for taxes paid or accrued, (iii) any extraordinary losses, (iv) integration and restructuring related expenses (specifically excluding any such expenses related to acquisitions of Receivables Portfolios in the ordinary course of business) and expenses related to Permitted Acquisitions, and (v) settlement fees and related administrative expenses; provided that any such amounts described in the foregoing clauses (iv) and (v), individually or collectively, shall not exceed twenty percent (20%) of the amount of Consolidated EBIT for the relevant period (determined prior to giving effect to any such amounts that are added back); minus, to the extent included in Consolidated Net Income, (a) interest income, (b) any extraordinary gains, (c) the income of any Person (1) in which any Person other than the Company or any of its Restricted Subsidiaries has a joint interest or a partnership interest or other ownership interest, and (2) to the extent the Company or any of its Restricted Subsidiaries does not control the board of directors or other governing body of such Person or otherwise does not control the declaration of a dividend or other distribution by such Person, except in each case to the extent of the amount of dividends or other distributions actually paid to the Company or any of its Restricted Subsidiaries by such Person during the relevant period, and (d) the income of any Restricted Subsidiary of the Company to the extent that the declaration or payment of dividends or distributions (including via intercompany advances or other intercompany transactions but in each case up to and not exceeding the amount of such income) by that Restricted Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary, all calculated for the Company and its Restricted Subsidiaries on a consolidated basis.
“Consolidated EBITDA” means Consolidated Net Income plus, (1) to the extent not included in such revenue, Amortized Collections, and (2) to the extent deducted from revenues in determining Consolidated Net Income, (i) Consolidated Interest Expense (whether actual or contingent), (ii) expense for taxes paid or accrued, (iii) depreciation expense, (iv) amortization expense, (v) any extraordinary losses, (vi) non-cash charges arising from compensation expense as a result of the adoption of amendments to Agreement Accounting Principles requiring certain stock based compensation to be recorded as an expense within the Company’s consolidated statement of operations, (vii) integration and restructuring related expenses (specifically excluding any such expenses related to acquisitions of Receivables Portfolios in the ordinary course of business) and expenses related to Permitted Acquisitions, and (viii) settlement fees and related administrative 

11

expenses; provided that any such amounts described in the foregoing clauses (vii) and (viii), individually or collectively, shall not exceed twenty percent (20%) of the amount of Consolidated EBITDA for the relevant period (determined prior to giving effect to any such amounts that are added back) minus, to the extent included in Consolidated Net Income, (a) interest income, (b) any extraordinary gains, (c) the income of any Person (1) in which any Person other than the Company or any of its Restricted Subsidiaries has a joint interest or a partnership interest or other ownership interest, and (2) to the extent the Company or any of its Restricted Subsidiaries does not control the board of directors or other governing body of such Person or otherwise does not control the declaration of a dividend or other distribution by such Person, except in each case to the extent of the amount of dividends or other distributions actually paid to the Company or any of its Restricted Subsidiaries by such Person during the relevant period, and (d) the income of any Restricted Subsidiary of the Company to the extent that the declaration or payment of dividends or distributions (including via intercompany advances or other intercompany transactions but in each case up to and not exceeding the amount of such income) by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, all calculated for the Company and its Restricted Subsidiaries on a consolidated basis.
“Consolidated First Lien Indebtedness” means, at any time of determination, the amount of Consolidated Funded Indebtedness outstanding at such time that is secured by a first priority Lien on any Property of the Company or its Restricted Subsidiaries.
“Credit Agreement” means that certain Third Amended and Restated Credit Agreement, dated as of the Sixth Amendment Effective Date, by and among the Company, the Lenders and the other Persons party thereto and SunTrust Bank, as administrative agent thereunder, as amended, amended and restated, supplemented, refinanced, replaced or otherwise modified from time to time.
“Flood Hazard Area” means an area identified by the Federal Emergency Management Agency as an area having special flood hazards.
“Investment” of a Person means any loan, advance (other than commission, travel and similar advances to officers, employees made in the ordinary course of business), extension of credit (other than Accounts arising in the ordinary course of business, but including Contingent Obligations with respect to any obligation or liability of another Person) or contribution of capital by such Person; stocks, bonds, mutual funds, limited liability company interests, partnership interests, notes, debentures or other securities owned by such Person; any deposit accounts and certificate of deposit owned by such Person; and structured notes, derivative financial instruments and other similar instruments or contracts owned by such Person; provided, however, that the following shall not be considered an “Investment”:  (a) the purchase of equity interests of an entity (1) the assets of which consist solely of Receivables and other Immaterial Assets which are used by such entity in connection with managing such Receivables, (2) which conducts no business other than managing the Receivables held by such entity, and (3) which has no Indebtedness; and (b) Permitted Restructurings.
“Junior Lien Indebtedness” means Indebtedness of the Company or any of its Restricted Subsidiaries that is secured by Liens that are junior to the Liens of the Collateral Agent with respect to any of the Collateral.

12

“Junior Lien Indebtedness Documents” means any document, agreement or instrument evidencing any Junior Lien Indebtedness or entered into in connection with any Junior Lien Indebtedness.
“Sixth Amendment Effective Date” means December 20, 2016.
“Unrestricted Subsidiary” means (a) any Subsidiary designated by the Company as an “Unrestricted Subsidiary” hereunder by written notice to the holders of the Notes; provided that the Company shall only be permitted to so designate a Subsidiary as an Unrestricted Subsidiary if each of the following conditions is satisfied:  (i) immediately before and after giving effect to such designation, (x) no Default or Event of Default shall have occurred and be continuing or shall exist and (y) the Company shall be in pro forma compliance with each of the covenants set forth in Sections 10.12 and 10.13 as of the last day of the most recently ended fiscal quarter for which financial statements have been delivered pursuant to Section 7.1.1 or Section 7.1.2, as applicable, together with the consolidating financial statements relating thereto required under Section 7.1.3 (after giving effect to such designation of such Subsidiary as an Unrestricted Subsidiary), (ii) no Subsidiary may be designated as an Unrestricted Subsidiary if, after giving effect to such designation, it (or any of its Subsidiaries) (x) would be a “Restricted Subsidiary” for the purpose of the Credit Agreement or any other Material Indebtedness of the Company or a Restricted Subsidiary pursuant to which a Subsidiary may be designated an “Unrestricted Subsidiary” or (y) would be a co-borrower or guarantor (or provide security or any other form of credit enhancement) for the purpose of the Credit Agreement or any other Material Indebtedness of the Company or a Restricted Subsidiary, (iii) the designation of any Subsidiary as an Unrestricted Subsidiary shall constitute an Investment by the Company therein at the date of designation in an amount equal to the greater of (I) the portion (proportionate to the Company’s direct or indirect equity interest in such Subsidiary) of the Fair Market Value of the net assets of such Subsidiary (and any Subsidiaries thereof) and (II) the Fair Market Value of the Company’s direct or indirect equity interest in such Subsidiary, in each case at the time that such Subsidiary is designated an Unrestricted Subsidiary and the Company shall be permitted to make such Investment under Section 10.4.9, (iv) neither the Company nor any Restricted Subsidiary shall at any time be directly, indirectly or contingently liable for any Indebtedness or other liability of any Unrestricted Subsidiary, except to the extent the same would constitute a permitted Investment under Section 10.4.9, (v) any Subsidiary to be so designated does not (directly, or indirectly through its own Subsidiaries or otherwise) own any capital stock or Indebtedness of, or own or hold any Lien on any property of, the Company or any Restricted Subsidiary, (vi) [reserved], and (vii) the Company shall have delivered to the holders of the Notes an officer’s certificate executed by a Responsible Officer of the Company, certifying compliance with each of the requirements of the preceding clauses (i) through (v) and (b) any Subsidiary of an Unrestricted Subsidiary.  The Company may designate any Unrestricted Subsidiary to be a Restricted Subsidiary for purposes of this Agreement (each, a “Subsidiary Redesignation”); provided that (A) immediately before and after such Subsidiary Redesignation, no Default or Event of Default shall have occurred and be continuing or shall exist, (B) the designation of any Unrestricted Subsidiary as a Restricted Subsidiary shall constitute the incurrence at the time of such designation of any Indebtedness or Liens of such Subsidiary existing at such time, (C) the Company shall be in pro forma compliance with each of the covenants set forth in Sections 10.12 and 10.13 as of the last day of the most recently ended Fiscal Quarter for which financial statements have been delivered pursuant to Section 7.1.1 or Section 7.1.2, as applicable, together with the consolidating financial statements relating thereto required under Section 7.1.3 (after giving effect to such Subsidiary Redesignation), (D) all representations and warranties contained herein and in the other Transaction Documents shall be true and correct in all material respects with the same effect as though such representations and warranties had been 

13

made on and as of the date of such Subsidiary Redesignation (both immediately before and after giving effect thereto), unless stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date, (E) such Subsidiary Redesignation shall constitute a return on any Investment by the Company in Unrestricted Subsidiaries that are subject to such Subsidiary Redesignation in an amount equal to the greater of (i) the portion (proportionate to the Company’s direct or indirect equity interest in such Subsidiary) of the Fair Market Value of the net assets of such Subsidiary (and any Subsidiaries thereof) and (ii) the Fair Market Value of the Company’s direct or indirect equity interest in such Subsidiary, in each case at the date of such Subsidiary Redesignation of the Company’s or its Subsidiary’s (as applicable) Investment in such Subsidiary), (F) the Company shall cause the Subsidiary that is the subject of such Subsidiary Redesignation to comply with, to the extent applicable, Section 9.7 and 9.8, and (G) the Company shall have delivered to the holders of the Notes an officer’s certificate executed by a Responsible Officer of the Company, certifying compliance with the requirements of the preceding clauses (A) through (E); provided, further, that no Unrestricted Subsidiary that has been designated as a Restricted Subsidiary pursuant to a Subsidiary Redesignation may again be designated as an Unrestricted Subsidiary.  For the avoidance of doubt, the results of operations, cash flows, assets and indebtedness or other liabilities of Unrestricted Subsidiaries will not be taken into account or consolidated with the accounts of any Credit Party or Restricted Subsidiary for any purpose under this Agreement (other than for the financial statements required to be delivered pursuant to Sections 7.1.1 and 7.1.2) or the other Transaction Documents, including for the purposes of determining any financial calculation contained in this Agreement.”
(r)    Schedules 5.6, 5.12, 10.5 and 10.6 of the Note Agreement are hereby amended and restated in their entirety by Schedules 5.6, 5.12, 10.5 and 10.6 attached hereto.
2.    Conditions of Effectiveness.  The effectiveness of this Amendment is subject to the following conditions precedent (the date on which each of which has been satisfied or waived in writing being referred to in this Amendment as the “Effective Date”):  (a) the Noteholders shall have received (i) counterparts of this Amendment, duly executed by the Company and the Required Holders, and the Consent and Reaffirmation attached hereto duly executed by the Guarantors, (ii) a fully executed copy of a corresponding amendment to the Credit Agreement, which shall be in form and substance reasonably satisfactory to the Required Holders, (iii) their ratable share of an amendment fee by wire transfer of immediately available funds in the aggregate amount of $14,000, and (iv) such other instruments, documents and documents as are reasonably requested by the Noteholders on or prior to the date of this Amendment in connection with this Amendment; and (b) the Company shall have paid, to the extent invoiced on or prior to the date of this Amendment, all fees and expenses of the Noteholders (including attorneys’ fees and expenses) in connection with this Amendment and the other Transaction Documents.
3.    Representations and Warranties of the Company.  The Company hereby represents and warrants as follows:
(a)    The execution, delivery and performance by each Credit Party of this Amendment are within such Credit Party’s organizational powers and have been duly authorized by all necessary organizational, and if required, shareholder, partner or member, action.  This Amendment has been duly executed and delivered by each Credit Party.  This Amendment and the Note Agreement as amended hereby constitute legal, valid and binding obligations of the Company and are enforceable against the Company in accordance with their terms.

14

(b)    As of the date hereof and giving effect to the terms of this Amendment, (i) there exists no Default or Event of Default and (ii) the representations and warranties contained in Section 5 of the Note Agreement (as amended hereby) are true and correct, except for representations and warranties made with reference solely to an earlier date, which are true and correct as of such earlier date.
(c)    The execution and delivery of this Amendment by the Credit Parties, and performance by the Company of this Amendment and the Note Agreement, as amended hereby (i) do not require any consent or approval of, registration or filing with, or any action by, any Governmental Authority, except those as have been obtained or made and are in full force and effect, (ii) will not violate any organizational documents of, or any law applicable to, any Credit Party or any judgment, order or ruling of any Governmental Authority, (iii) will not violate or result in a default under the Note Agreement, the Credit Agreement, any other material agreement or other material instrument binding on any Credit Party or any of their assets, or give rise to a right under any of the foregoing agreements (other than the Credit Agreement) to require any payment to be made by any Credit Party, (iv) will not result in the creation or imposition of any Lien on any asset of any Credit Party, except Liens (if any) created under the Transaction Documents and (v) will not result in a material limitation on any licenses, permits or other governmental approvals applicable to the business, operations or properties of the Credit Parties.
4.    Reference to and Effect on the Note Agreement.
(a)    Upon the effectiveness hereof, each reference to the Note Agreement in the Note Agreement or any other Transaction Document shall mean and be a reference to the Note Agreement as amended hereby.
(b)    Except as specifically amended above, the Note Agreement and all other documents, instruments and agreements executed and/or delivered in connection therewith shall remain in full force and effect and are hereby ratified and confirmed.
(c)    Other than as expressly set forth herein, the execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Noteholders, nor constitute a waiver of any provision of the Note Agreement or any other documents, instruments and agreements executed and/or delivered in connection therewith.
(d)    This Amendment shall constitute a “Transaction Document.”
5.    Release of Claims.  In consideration of the amendments contained herein, each of the Credit Parties hereby waives and releases each of the Noteholders from any and all claims and defenses, known or unknown, existing as of the date hereof with respect to the Note Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby.  It is the intention of each of the Company and the Guarantors in providing this release that the same shall be effective as a bar to each and every claim, demand and cause of action specified, and in furtherance of this intention it waives and relinquishes all rights and benefits under Section 1542 of the Civil Code of the State of California (or any comparable provision of any other applicable law), which provides:
“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”

15

6.    Governing Law.  This Amendment shall be governed by and construed in accordance with the internal laws of the State of New York, excluding choice-of-law principles of the law of such state that would permit the application of the laws of a jurisdiction other than such state.
7.    Headings.  Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose.
8.    Counterparts.  This Amendment may be executed by one or more of the parties hereto on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument.  Signatures delivered by facsimile or PDF shall have the same force and effect as manual signatures delivered in person.

[Signature Pages Follow]

16

IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and year first above written.

ENCORE CAPITAL GROUP, INC.

By:_/s/ Jonathan Clark____________________________________________
Name:  Jonathan Clark
Title:  Executive Vice President, CFO and Treasurer

Signature Page to Amendment No. 6
Encore Capital Group, Inc.
Second Amended and Restated Senior Secured Note Purchase Agreement dated as of May 9, 2013

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

By: /s/ Brad Wiginton                        
Vice President

PRUCO LIFE INSURANCE COMPANY

By: /s/ Brad Wiginton                        
Assistant Vice President

PRUDENTIAL RETIREMENT INSURANCE AND ANNUITY COMPANY

By:  PGIM, Inc., investment manager

By: /s/ Brad Wiginton                        
Vice President

PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION

By:  PGIM, Inc., investment manager

By: /s/ Brad Wiginton                        
Vice President

Signature Page to Amendment No. 6
Encore Capital Group, Inc.
Second Amended and Restated Senior Secured Note Purchase Agreement dated as of May 9, 2013

CONSENT AND REAFFIRMATION
Each of the undersigned hereby acknowledges receipt of a copy of the foregoing Amendment No. 6 to the Second Amended and Restated Senior Secured Note Purchase Agreement dated as of May 9, 2013 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Note Agreement”) by and between Encore Capital Group, Inc. (the “Company”) and the holders of Notes party thereto (the “Noteholders”), which Amendment No. 6 is dated as of December 20, 2016 (the “Amendment”).  Capitalized terms used in this Consent and Reaffirmation and not defined herein shall have the meanings given to them in the Note Agreement.  Without in any way establishing a course of dealing by any Noteholder, each of the undersigned consents to the Amendment and reaffirms the terms and conditions of the Multiparty Guaranty, the Pledge and Security Agreement and any other Transaction Document executed by it and acknowledges and agrees that such agreement and each and every such Transaction Document executed by the undersigned in connection with the Note Agreement remains in full force and effect and is hereby reaffirmed, ratified and confirmed.
All references to the Note Agreement contained in the above-referenced documents shall be a reference to the Note Agreement as modified by the Amendment and as each of the same may from time to time hereafter be amended, modified or restated.

Dated:  December 20, 2016

[Signature Page Follows]

SAN_FRANCISCO/#40767.4 

	
		
	MIDLAND CREDIT MANAGEMENT, INC.
MIDLAND INTERNATIONAL LLC
MIDLAND PORTFOLIO SERVICES, INC.
MIDLAND FUNDING LLC
MRC RECEIVABLES CORPORATION
MIDLAND FUNDING NCC-2 CORPORATION
ASSET ACCEPTANCE CAPITAL CORP.
ASSET ACCEPTANCE, LLC
ATLANTIC CREDIT & FINANCE, INC.

By: /s/ Jonathan Clark_________________________
Name:  Jonathan Clark 
Title:  Treasurer

	 

	MIDLAND INDIA LLC

By: /s/ Ashish Masih_________________________
Name:  Ashish Masih 
Title:  President

	 

	ASSET ACCEPTANCE RECOVERY SERVICES, LLC
ASSET ACCEPTANCE SOLUTIONS GROUP, LLC
LEGAL RECOVERY SOLUTIONS, LLC

By: /s/ Darin Herring_________________________
Name:  Darin Herring 
Title:  Vice President, Operations

	 

	ATLANTIC CREDIT & FINANCE SPECIAL FINANCE UNIT, LLC
ATLANTIC CREDIT & FINANCE SPECIAL FINANCE UNIT III, LLC
By: /s/ Greg Call________________________
Name:  Greg Call 
Title:  Secretary

	 

SCHEDULE 5.6
TAXES
The tax return of the Borrower and its subsidiaries for the period of January 1, 2012 through December 31, 2014 is currently being audited by the Florida Department of Revenue.  The Borrower expects the audit to result in a tax liability in the amount of approximately $276,000 for which appropriate FIN 48 reserves have been made.

There are outstanding taxes payable by Asset Acceptance, LLC to the Unemployment Insurance Agency of the State of Michigan in an amount of approximately $316,000.  Asset Acceptance, LLC is currently in the process of arranging for payment of these outstanding amounts and the release of the related tax liens.

SCHEDULE 5.12
MATERIAL AGREEMENTS

Third Amended and Restated Credit Agreement, dated as of December 20, 2016, by and among Encore Capital Group, Inc., as borrower, the several banks and other financial institutions and lenders from time to time party thereto (the “Lenders”), SunTrust Bank, as administrative agent, collateral agent, issuing bank and swingline lender, and the other agents party thereto.
Indenture dated as of November 27, 2012 between Encore Capital Group, Inc., as issuer, and Union Bank, N.A. as trustee. 
Indenture dated as of June 24, 2013 among Encore Capital Group, Inc., as issuer, Midland Credit Management, Inc., as guarantor, and Union Bank, N.A. as trustee.

Indenture dated as of March 11, 2014 among Encore Capital Group, Inc., as issuer, Midland Credit Management, Inc., as guarantor, and Union Bank, N.A. as trustee.

SCHEDULE 10.5
EXISTING INDEBTEDNESS

None.

SCHEDULE 10.6
EXISTING LIENS
	
				
	Jurisdiction
Searched
	Name Searched
(as appears, if found)
	Secured Party
	File Number
Date

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	KEY EQUIPMENT FINANCE INC.
	70546051 filed 2/11/08

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	US BANCORP
	70689760 filed 11/24/09

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	DELL FINANCIAL SERVICES L.L.C.
	70713826 filed 2/3/10

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	CISCO SYSTEMS CAPITAL CORPORATION
	70848903 filed 11/17/10

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	U.S. BANCORP EQUIPMENT FINANCE, INC.
	70854794 filed 12/2/10

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	IBM CREDIT LLC
	71051994 filed 11/26/11

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	U.S. BANK EQUIPMENT FINANCE
	71086081 filed 1/24/12

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	U.S. BANK EQUIPMENT FINANCE
	71105899 filed 3/1/12

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	IBM CREDIT LLC
	71123447 filed 3/30/12

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	IBM CREDIT LLC
	71123603 filed 3/30/12

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	IBM CREDIT LLC
	71124650 filed 4/2/12

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	U.S. BANK EQUIPMENT FINANCE
	71128909 filed 4/6/12

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	Cisco Systems Capital Corporation
	6893994 filed 4/10/12

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	U.S. BANK EQUIPMENT FINANCE
	71139559 filed 4/20/12

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	U.S. BANK EQUIPMENT FINANCE
	71148097 filed 5/2/12

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	U.S. BANK EQUIPMENT FINANCE
	71148105 filed 5/2/12

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	U.S. BANK EQUIPMENT FINANCE, A DVISION OF U.S. BANK NATIONAL ASSOCIAT
	71149731 filed 5/4/12

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	U.S. BANK EQUIPMENT FINANCE, A DVISION OF U.S. BANK NATIONAL ASSOCIAT
	71182559 filed 6/19/12

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	U.S. BANK EQUIPMENT FINANCE
	71191162 filed 6/28/12

	
				
	Jurisdiction
Searched
	Name Searched
(as appears, if found)
	Secured Party
	File Number
Date

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	U.S. BANK EQUIPMENT FINANCE
	71207703 filed 7/23/12

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	IBM CREDIT LLC
	71318823 filed 1/3/13

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	CIT FINANCE LLC
	71320134 filed 1/4/13

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	U.S. BANK EQUIPMENT FINANCE, A DIVISION OF U.S. BANK NATIONAL ASSOCIATION
	71331396 filed 1/17/13

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	Cisco Systems Capital Corporation
	6967145 filed 1/31/13

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	U.S. BANK EQUIPMENT FINANCE, A DIVISION OF U.S. BANK NATIONAL ASSOCIATION
	71368026 filed 3/14/13

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	U.S. BANK EQUIPMENT FINANCE, A DIVISION OF U.S. BANK NATIONAL ASSOCIATION
	71410299 filed 5/8/13

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	U.S. BANK EQUIPMENT FINANCE, A DIVISION OF U.S. BANK NATIONAL ASSOCIATION
	71453778 filed 7/1/13

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	U.S. BANK EQUIPMENT FINANCE
	71496959 filed 8/22/13

	Kansas, State
	Midland Credit Management, Inc.
	Western Alliance Equipment Finance, Inc.
	7030844 filed 9/30/13

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	WESTERN ALLIANCE EQUIPMENT FINANCE, INC.
	71537174 filed 10/17/13

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	U.S. BANK EQUIPMENT FINANCE, A DIVISION OF U.S. BANK NATIONAL ASSOCIATION
	71543362 filed 10/28/13

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	WESTERN ALLIANCE EQUIPMENT FINANCE, INC.
	71547447 filed 10/31/13

	Kansas, State
	Midland Credit Management, Inc.
	Bank of the West
	7045669 filed 11/27/13

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	U.S. BANK EQUIPMENT FINANCE
	71577915 filed 12/20/13

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	BANK OF THE WEST
	71617711 filed 2/18/14

	Kansas, State
	Midland Credit Management Inc.
	Portfolio Recovery Associates, LLC
	101438482 filed 2/18/14

	Kansas, State
	Midland Credit Management Inc.
	Portfolio Recovery Associates, LLC
	101438507 filed 2/18/14

	
				
	Jurisdiction
Searched
	Name Searched
(as appears, if found)
	Secured Party
	File Number
Date

	Kansas, State
	Midland Credit Management Inc.
	Portfolio Recovery Associates, LLC
	101438523 filed 2/18/14

	Kansas, State
	Midland Credit Management Inc.
	Portfolio Recovery Associates, LLC
	101438549 filed 2/18/14

	Kansas, State
	Midland Credit Management Inc.
	Portfolio Recovery Associates, LLC
	101438565 filed 2/18/14

	Kansas, State
	Midland Credit Management Inc.
	Portfolio Recovery Associates, LLC
	101438581 filed 2/18/14

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	U.S. BANK EQUIPMENT FINANCE, A DIVISION OF U.S. BANK NATIONAL ASSOCIATION
	71619675 filed 2/20/14

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	CISCO SYSTEMS CAPITAL CORPORATION
	7067515 filed 2/26/14

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	BANK OF THE WEST
	71628817 filed 3/3/14

	Kansas, State
	Midland Credit Management Inc.
	Portfolio Recovery Associates, LLC
	10504407 filed 3/3/14

	Kansas, State
	Midland Credit Management Inc.
	Portfolio Recovery Associates, LLC
	10504423 filed 3/6/14

	Kansas, State
	Midland Credit Management Inc.
	Portfolio Recovery Associates, LLC
	10504449 filed 3/6/14

	Kansas, State
	MIDLAND CREDIT MANAGEMENT INC.
	U.S. BANK EQUIPMENT FINANCE, A DIVISION OF U.S. BANK NATIONAL ASSOCIATION
	7072267 filed 3/19/14

	Kansas, State
	MIDLAND CREDIT MANAGEMENT INC.
	U.S. BANK EQUIPMENT FINANCE
	71690551 filed 5/19/14

	Kansas, State
	MIDLAND CREDIT MANAGEMENT INC.
	U.S. BANK EQUIPMENT FINANCE
	71700798 filed 6/2/14

	Kansas, State
	MIDLAND CREDIT MANAGEMENT INC.
	U.S. BANK EQUIPMENT FINANCE
	71700806 filed 6/2/14

	Kansas, State
	MIDLAND CREDIT MANAGEMENT INC.
	U.S. BANK EQUIPMENT FINANCE
	71724111 filed 7/1/14

	Kansas, State
	Midland Credit Management, Inc.
	Western Alliance Equipment Finance, Inc.
	7099377 filed 7/25/14

	Kansas, State
	MIDLAND CREDIT MANAGEMENT INC.
	WESTERN ALLIANCE EQUIPMENT FINANCE, INC.
	71749506 filed 8/5/14

	Kansas, State
	MIDLAND CREDIT MANAGEMENT INC.
	CIT FINANCE LLC
	71805019 filed 10/23/14

	Kansas, State
	MIDLAND CREDIT MANAGEMENT INC.
	BANK OF THE WEST
	71841634 filed 12/17/14

	Kansas, State
	MIDLAND CREDIT MANAGEMENT INC.
	WESTERN ALLIANCE EQUIPMENT FINANCE, INC.
WESTERN ALLIANCE BANK
	71845742 filed 12/23/14

	
				
	Jurisdiction
Searched
	Name Searched
(as appears, if found)
	Secured Party
	File Number
Date

	Kansas, State
	MIDLAND CREDIT MANAGEMENT INC.
	WESTERN ALLIANCE EQUIPMENT FINANCE, INC.
WESTERN ALLIANCE BANK
	71857739 filed 1/8/15

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	BANK OF THE WEST
	71893072 filed 2/27/15

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	IBM CREDIT LLC
	72114387 filed 12/29/14

	Kansas, State
	MIDLAND CREDIT MANAGEMENT, INC.
	CANON FINANCIAL SERVICES, INC.
	72339174 filed 10/28/16

	
					
	File #
	File Date
	Type of Filing
	Amount Due
	Debtor

	LIBER 24026 PG209
	05/13/2016
	State Tax Lien (Michigan)
	$2,088.90
	Asset Acceptance, LLC

	LIBER 24386 PG668
	11/15/2016
	State Tax Lien (Michigan)
	$42,872.75
	Asset Acceptance, LLC

	LIBER 24386 PG667
	11/15/2016
	State Tax Lien (Michigan)
	$158,879.55
	Asset Acceptance, LLC

	LIBER 24403 PG256
	11/22/2016
	State Tax Lien (Michigan)
	$112,426.69
	Asset Acceptance, LLCExhibit 4.1

 

 

RIGHTS AGREEMENT

 

dated as of December 26, 2016

 

by and between

 

Fred’s, Inc.,

 

as the Company

 

and

 

American Stock Transfer & Trust Company,
LLC,

 

as Rights Agent

 

     

     

    

 

TABLE OF CONTENTS

 

	 	 	Page
	 	 	 
	SECTION 1.	Certain Definitions	1
	 	 	 
	SECTION 2.	Appointment of Rights Agent	9
	 	 	 
	SECTION 3.	Issue of Rights Certificates	10
	 	 	 
	SECTION 4.	Form of Rights Certificate	12
	 	 	 
	SECTION 5.	Countersignature and Registration	13
	 	 	 
	SECTION 6.	Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates	14
	 	 	 
	SECTION 7.	Exercise of Rights; Exercise Price; Expiration Date of Rights	15
	 	 	 
	SECTION 8.	Cancellation and Destruction of Rights Certificates	17
	 	 	 
	SECTION 9.	Reservation and Availability of Capital Stock	17
	 	 	 
	SECTION 10.	Preferred Stock Record Date	19
	 	 	 
	SECTION 11.	Adjustment of Exercise Price, Number and Kind of Shares or Number of Rights	19
	 	 	 
	SECTION 12.	Certificate of Adjusted Exercise Price or Number of Shares	25
	 	 	 
	SECTION 13.	Consolidation, Merger or Sale or Transfer of Assets or Earning Power	26
	 	 	 
	SECTION 14.	Fractional Rights; Fractional Shares; Waiver	29
	 	 	 
	SECTION 15.	Rights of Action	31
	 	 	 
	SECTION 16.	Agreement of Rights Holders	31
	 	 	 
	SECTION 17.	Rights Certificate Holder Not Deemed a Shareholder	32
	 	 	 
	SECTION 18.	Duties of Rights Agent	32
	 	 	 
	SECTION 19.	Concerning the Rights Agent	35
	 	 	 
	SECTION 20.	Merger or Consolidation or Change of Name of Rights Agent	36
	 	 	 
	SECTION 21.	Change of Rights Agent	37
	 	 	 
	SECTION 22.	Issuance of New Rights Certificates	37
	 	 	 
	SECTION 23.	Redemption	38
	 	 	 
	SECTION 24.	Exchange	39
	 	 	 
	SECTION 25.	Notice of Certain Events	40
	 	 	 
	SECTION 26.	Notices	41
	 	 	 
	SECTION 27.	Supplements and Amendments	42
	 	 	 
	SECTION 28.	Successors	43
	 	 	 
	SECTION 29.	Determinations and Actions by the Board	43
	 	 	 
	SECTION 30.	Benefits of this Agreement	43

 

    - i - 

     

    

  

	SECTION 31.	Severability	43
	 	 	 
	SECTION 32.	Governing Law	44
	 	 	 
	SECTION 33.	Counterparts	44
	 	 	 
	SECTION 34.	Descriptive Headings	44
	 	 	 
	SECTION 35.	Force Majeure	44

 

	Exhibit A	Articles of Amendment
	 	 
	Exhibit B	Summary of Rights
	 	 
	Exhibit C	Rights Certificate

 

    - ii - 

     

    

 

RIGHTS AGREEMENT

 

RIGHTS AGREEMENT, dated
as of December 26, 2016, (this “Agreement”), by and between Fred’s, Inc., a Tennessee corporation
(the “Company”), and American Stock Transfer & Trust Company, LLC, as rights agent (the “Rights
Agent”).

 

WHEREAS, the Board of Directors
of the Company (the “Board”) authorized and declared a dividend of one preferred share purchase right
(a “Right”) for each share of Common Stock of the Company outstanding at the Close of Business on the
Record Date, each Right initially representing the right to purchase one one-thousandth (subject to adjustment) of one share of
Preferred Stock, upon the terms and subject to the conditions herein set forth, and further authorized and directed the issuance
of one Right (subject to adjustment) with respect to each share of Common Stock of the Company that will become outstanding between
the Record Date and the earlier of the Distribution Date and the Expiration Date; provided, however, that Rights may be
issued with respect to shares of Common Stock that will become outstanding after the Distribution Date and prior to the Expiration
Date in accordance with Section 22 hereof;

 

NOW, THEREFORE, in consideration
of the premises and the mutual agreements herein set forth, the parties hereby agree as follows:

 

Section
1.          Certain Definitions.

 

For purposes of this Agreement,
the following terms have the meanings indicated:

 

(a)          “Acquiring
Person” shall mean any Person which, together with all of its Related Persons, is the Beneficial Owner of 10% or
more of the shares of Common Stock of the Company then outstanding, but shall exclude (i) the Exempt Persons and (ii) any
Grandfathered Persons.

 

Notwithstanding anything
in Agreement to the contrary, no Person shall become an “Acquiring Person”:

 

(i)          as
the result of an acquisition of shares of Common Stock by the Company which, by reducing the number of shares of Common Stock outstanding,
increases the percentage of the shares of Common Stock Beneficially Owned by such Person, together with all of its Related Persons,
to 10% or more of the shares of Common Stock of the Company then outstanding; provided, however, that if a Person, together
with all of its Related Persons, becomes the Beneficial Owner of 10% or more of the shares of Common Stock of the Company then
outstanding by reason of share acquisitions by the Company and, after such share acquisitions by the Company, becomes the Beneficial
Owner of any additional shares of Common Stock of the Company (other than pursuant to a dividend or distribution paid or made by
the Company on the outstanding Common Stock or pursuant to a split or subdivision of the outstanding Common Stock), then such Person
shall be deemed to be an “Acquiring Person” unless, upon becoming the Beneficial Owner of such additional shares of
Common Stock, such Person, together with all of its Related Persons, does not Beneficially Own 10% or more of the Common Stock
then outstanding;

 

    	 	1	 

     

    

  

(ii)         if
(A) the Board determines that such Person has become an “Acquiring Person” inadvertently (including, without limitation,
because (1) such Person was unaware that it Beneficially Owned a percentage of the then outstanding Common Stock that would
otherwise cause such Person to be an “Acquiring Person”; or (2) such Person was aware of the extent of its Beneficial
Ownership of Common Stock but had no actual knowledge of the consequences of such Beneficial Ownership under this Agreement); and
(B) such Person divests as promptly as practicable (as determined by the Board) a sufficient number of shares of Common Stock
so that such Person would no longer be an “Acquiring Person”;

 

(iii)        solely
as a result of any unilateral grant of any security by the Company, or through the exercise of any options, warrants, rights or
similar interests (including, without limitation, restricted stock) granted by the Company to its directors, officers and employees;
provided, however, that if a Person, together with all of its Related Persons, becomes the Beneficial Owner of 10% or more
of the shares of Common Stock of the Company then outstanding by reason of a unilateral grant of a security by the Company, or
through the exercise of any options, warrants, rights or similar interests (including, without limitation, restricted stock) granted
by the Company to its directors, officers and employees, then such Person shall nevertheless be deemed to be an “Acquiring
Person” if, subject to Section 1(a)(ii), such Person, together with all of its Related Persons, thereafter becomes the Beneficial
Owner of any additional shares of Common Stock (unless upon becoming the Beneficial Owner of additional shares of Common Stock,
such Person, together with all of its Related Persons, does not Beneficially Own 10% or more of the Common Stock then outstanding),
except as a result of (A) a dividend or distribution paid or made by the Company on the outstanding Common Stock or a split
or subdivision of the outstanding Common Stock; or (B) the unilateral grant of a security by the Company, or through the exercise
of any options, warrants, rights or similar interest (including, without limitation, restricted stock) granted by the Company to
its directors, officers and employees;

 

(iv)        by
means of share purchases or issuances (including, without limitation, debt to equity exchanges), directly from the Company or indirectly
through an underwritten offering of the Company, in a transaction approved by the Board; provided, however, that
a Person shall be deemed to be an “Acquiring Person” if such Person (A) is or becomes the Beneficial Owner of 10% or
more of the shares of Common Stock then outstanding following such transaction and (B) following such transaction, becomes the
Beneficial Owner of any additional shares of Common Stock without the prior written consent of the Company and then Beneficially
Owns 10% or more of the shares of Common Stock then outstanding; or

 

(v)         if
such Person is a bona fide swaps dealer who has become an “Acquiring Person” as a result of its actions in the ordinary
course of its business that the Board determines, in its sole discretion, were taken without the intent or effect of evading or
assisting any other Person to evade the purposes and intent of this Agreement, or otherwise seeking to control or influence the
management or policies of the Company.

 

    	 	2	 

     

    

  

(b)          A
person shall be deemed to be “Acting in Concert” with another Person if such Person knowingly acts pursuant
to an express agreement, arrangement or understanding in concert or in parallel with such other Person, or towards a common goal
with such other Person, relating to (i) acquiring, holding, voting or disposing of voting securities of the Company or (ii) changing
or influencing the control of the Company or in connection with or as a participant in any transaction having that purpose or effect
where at least one additional factor supports a determination by the Board that such Persons intended to act in concert or in parallel,
which such additional factors may include, without limitation, exchanging information, attending meetings, conducting discussions
or making or soliciting invitations to act in concert or in parallel.  In addition, a Person who is Acting in Concert with
another Person shall be deemed to be Acting in Concert with any third Person who is Acting in Concert with such other Person.

 

(c)          “Adjustment
Shares” shall have the meaning set forth in Section 11(a)(ii) hereof.

 

(d)          “Affiliate”
shall have the meaning ascribed to such term in Rule 12b-2 of the Exchange Act Regulations, as in effect on the date of this Agreement.

 

(e)          “Agreement”
shall have the meaning set forth in the Preamble hereof.

 

(f)          “Articles
of Amendment” shall have the meaning set forth in Section 1(l) hereof.

 

(g)          “Associate”
shall have the meaning ascribed to such term in Rule 12b-2 of the Exchange Act Regulations, as in effect on the date of this
Agreement.

 

(h)          A
Person is the “Beneficial Owner” of (and “Beneficially Owns” and has “Beneficial
Ownership”) of any securities (that are as such “Beneficially Owned”):

 

(i)          that
such Person or any of such Person’s Affiliates or Associates Beneficially Owns, directly or indirectly, as determined pursuant
to Rule 13d-3 of the Exchange Act Regulations as in effect on the date of this Agreement;

 

(ii)         that
such Person or any of such Person’s Affiliates or Associates, directly or indirectly, has (A) the right to acquire (whether
such right is exercisable immediately or only after the passage of time or satisfaction of other conditions) pursuant to any agreement,
arrangement or understanding (whether or not in writing), or upon the exercise of conversion rights, exchange rights (other than
the Rights), rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the
“Beneficial Owner” of (1) securities tendered pursuant to a tender or exchange offer made in accordance with the
Exchange Act Regulations by or on behalf of such Person or any of such Person’s Affiliates or Associates until such tendered
securities are accepted for purchase or exchange; (2) securities issuable upon exercise of Rights at any time prior to the
occurrence of a Triggering Event; (3) securities issuable upon exercise of Rights from and after the occurrence of a Triggering
Event if such Rights were acquired by such Person or any of such Person’s Affiliates or Associates prior to the Distribution
Date or pursuant to Section 3(a) or Section 22 hereof (the “Original Rights”) or pursuant to Section
11(a) hereof in connection with an adjustment made with respect to any Original Rights; or (4) securities which such Person or
any of such Person’s Affiliates or Associates may acquire, does or do acquire or may be deemed to have the right to acquire,
pursuant to any merger or other acquisition agreement between the Company and such Person (or one or more of such Person’s
Affiliates or Associates) if such agreement has been approved by the Board prior to such Person’s becoming an Acquiring Person;
or (B) the right to vote pursuant to any agreement, arrangement, or understanding;

 

    	 	3	 

     

    

  

(iii)        that
are Beneficially Owned, directly or indirectly, by any other Person (or any Affiliate or Associate of such Person) with which such
Person (or any of such Person’s Affiliates or Associates) is (A) Acting in Concert, or has (B) any agreement,
arrangement, or understanding (whether or not in writing), for the purpose of acquiring, holding, voting or disposing of any such
securities; or

 

(iv)        which
are Beneficially Owned, directly or indirectly, by a Counterparty (or any of such Counterparty’s Affiliates or Associates)
under any Derivatives Contract (without regard to any short or similar position under the same or any other Derivatives Contract)
to which such Person or any of such Person’s Affiliates or Associates is a Receiving Party; provided, however, that
the number of shares of Common Stock that a Person is deemed to Beneficially Own pursuant to this clause (iv) in connection with
a particular Derivatives Contract shall not exceed the number of Notional Common Shares with respect to such Derivatives Contract;
provided, further, that the number of securities Beneficially Owned by each Counterparty (including, without limitation,
its Affiliates and Associates) under a Derivatives Contract shall for purposes of this clause (iv) include all securities that
are Beneficially Owned, directly or indirectly, by any other Counterparty (or any of such other Counterparty’s Affiliates
or Associates) under any Derivatives Contract to which such first Counterparty (or any of such first Counterparty’s Affiliates
or Associates) is a Receiving Party, with this proviso being applied to successive Counterparties as appropriate.

 

Notwithstanding anything
in this definition of “Beneficial Ownership” to the contrary, (x) no Person engaged in business as an underwriter
of securities shall be the “Beneficial Owner” of any securities acquired through such Person’s participation
in good faith in a firm commitment underwriting until the expiration of 40 days after the date of such acquisition; and (y) no
Person shall be deemed the “Beneficial Owner” of any security as a result of an agreement, arrangement or understanding
to vote such security that would otherwise render such Person the Beneficial Owner of such security if such agreement, arrangement
or understanding is not also then reportable on Schedule 13D and arises solely from a revocable proxy or consent given to such
Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable provisions
of the Exchange Act Regulations.

 

With respect to any Person,
for all purposes of this Agreement, any calculation of the number of shares of Common Stock outstanding at any particular time,
including, without limitation, for purposes of determining the particular percentage of the outstanding shares of Common Stock
of which any such Person is the Beneficial Owner, shall include the number of shares of Common Stock not outstanding at the time
of such calculation that such Person is otherwise deemed to Beneficially Own for purposes of this Agreement, but the number of
shares of Common Stock not outstanding that such Person is otherwise deemed to Beneficially Own for purposes of this Agreement
shall not be included for the purpose of computing the percentage of the outstanding shares of Common Stock Beneficially Owned
by any other Person (unless such other Person is also deemed to Beneficially Own for purposes of this Agreement such shares of
Common Stock not outstanding).

 

(i)          “Board”
shall have the meaning set forth in the Preamble hereof.

 

(j)          “Book
Entry” shall mean an uncertificated book entry for the Common Stock.

 

    	 	4	 

     

    

  

(k)          “Business
Day” shall mean any day other than a Saturday, a Sunday, or a day on which banking or trust institutions in New York
City, New York are authorized or obligated by law or executive order to close.

 

(l)          “Charter”
shall mean the Charter of the Company, as amended, as filed with the Office of the Secretary of State of the State of Tennessee,
and as further amended by the Articles of Amendment of the Company adopted contemporaneously with the approval of this Agreement
and attached hereto as Exhibit A (the “Articles of Amendment”), as the same may hereafter be amended
or restated.

 

(m)          “Close
of Business” on any given date shall mean 5:00 P.M., New York City time, on such date; provided, however,
that if such date is not a Business Day, it shall mean 5:00 P.M., New York City time, on the next succeeding Business Day.

 

(n)          “Closing
Price” shall mean in respect of any security for any day shall mean the last sale price, regular way, reported at
or prior to 4:00 P.M. New York City time or, in case no such sale takes place on such day, the average of the bid and asked prices,
regular way, reported at or prior to 4:00 P.M. New York City time, in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted to trading on NASDAQ or the NYSE or, if the security is not listed
or admitted to trading on NASDAQ or the NYSE, as reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the security is listed or admitted to trading or, if
the security is not listed or admitted to trading on any national securities exchange, the last quoted price reported at or prior
to 4:00 P.M. New York City time or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter
market, as reported by any system then in use reported as of 4:00 P.M. New York City time or, if not so quoted, the average of
the closing bid and asked price furnished by a professional market maker making a market in the security selected by the Board.

 

(o)          “Common
Stock” shall mean (i) when used with reference to the Company, the Class A Common Stock, no par value per share,
of the Company; and (ii) when used with reference to any Person other than the Company, the class or series of capital stock
or equity interest with the greatest voting power (in relation to any other classes or series of capital stock or equity interest)
of such other Person or if such other Person is a Subsidiary of another Person, the Person who ultimately controls such first mentioned
Person.

 

(p)          “Common
Stock Equivalents” shall have the meaning set forth in Section 11(a)(iii) hereof.

 

(q)          “Company”
shall have the meaning set forth in the Preamble hereof.

 

(r)          “Counterparty”
shall have the meaning set forth in Section 1(u) hereof.

 

    	 	5	 

     

    

  

(s)          “Current
Market Price” of any security on any date shall mean the average of the daily closing prices per share of such security
for the 30 consecutive Trading Days immediately prior to, but not including, such date; provided, however, that in the event
that the “Current Market Price” of such security is determined during a period following the announcement by the issuer
of such security of (i) a dividend or distribution on such security payable in shares of such security or securities convertible
into such shares (other than the Rights); or (ii) any subdivision, combination or reclassification of such security, and prior
to the expiration of the requisite 30 Trading Day period after the ex-dividend date for such dividend or distribution or the record
date for such subdivision, combination or reclassification, then, in each such case, the “Current Market Price” shall
be appropriately adjusted, as determined in good faith by the Board, whose determination shall be described in a statement filed
with the Rights Agent and shall be conclusive for all purposes, to take into account ex-dividend trading. If on any such date no
market maker is making a market in such security or such security is not publicly held or not listed or traded, the “Current
Market Price” shall mean the fair value per share as determined in good faith by the Board, whose determination shall be
described in a statement filed with the Rights Agent and shall be conclusive for all purposes.

 

Except as provided in this
paragraph, the “Current Market Price” of the Preferred Stock shall be determined in accordance with the method set
forth above. If the Preferred Stock is not publicly traded, the “Current Market Price” of the Preferred Stock shall
be conclusively deemed to be the Current Market Price of the Common Stock of the Company as determined pursuant to the paragraph
above (appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof),
multiplied by one thousand. If neither the Common Stock nor the Preferred Stock is publicly held or so listed or traded, the “Current
Market Price” of the Preferred Stock shall mean the fair value per share as determined in good faith by the Board, whose
determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes. For all purposes
of this Agreement, the “Current Market Price” of one one-thousandth of
a share of Preferred Stock shall be equal to the “Current Market Price” of one share of Preferred Stock divided by
1,000.

 

(t)          “Current
Value” shall have the meaning set forth in Section 11(a)(iii) hereof.

 

(u)          “Derivatives
Contract” shall mean a contract between two parties (the “Receiving Party” and the “Counterparty”)
that is designed to produce economic benefits and risks to the Receiving Party that correspond substantially to the ownership by
the Receiving Party of a number of shares of Common Stock specified or referenced in such contract (the number corresponding to
such economic benefits and risks, the “Notional Common Shares”), regardless of whether obligations under
such contract are required or permitted to be settled through the delivery of cash, Common Stock or other property, without regard
to any short position under the same or any other Derivatives Contract. For the avoidance of doubt, interests in broad-based index
options, broad-based index futures and broad-based publicly traded market baskets of stocks approved for trading by the appropriate
federal governmental authority shall not be deemed “Derivatives Contracts.”

 

(v)         “Distribution
Date” shall mean the earlier of (i) the Close of Business on the tenth Business Day after the Stock Acquisition
Date (or, if the tenth Business Day after the Stock Acquisition Date occurs before the Record Date, the Close of Business on the
Record Date) and (ii) the Close of Business on the tenth Business Day (or, if such tenth Business Day occurs before the Record
Date, the Close of Business on the Record Date), or such later date as may be determined by the Board prior to such time any Person
becomes an Acquiring Person, after the date of the commencement by any Person (other than any Exempt Person) of, or of the first
public announcement of the intention of any Person (other than any Exempt Person) to commence, a tender or exchange offer the consummation
of which would result in such Person becoming the Beneficial Owner of 10% or more of the outstanding shares of Common Stock.

 

    	 	6	 

     

    

  

(w)          “Equivalent
Preferred Stock” shall have the meaning set forth in Section 11(b) hereof.

 

(x)          “Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended.

 

(y)          “Exchange
Act Regulations” shall mean the General Rules and Regulations under the Exchange Act.

 

(z)          “Exchange
Date” shall have the meaning set forth in Section 7(a) hereof.

 

(aa)         “Exchange
Ratio” shall have the meaning set forth in Section 24(a) hereof.

 

(bb)        “Exempt
Person” shall mean (i) the Company or any of its Subsidiaries; (ii) any officers, directors and employees
or any of its Subsidiaries solely in respect of such Person’s status or authority as such (including, without limitation,
any fiduciary capacity); or (iii) any employee benefit plan of the Company or of any Subsidiary of the Company or any entity
or trustee holding (or acting in a fiduciary capacity in respect of) shares of capital stock of the Company for or pursuant to
the terms of any such plan, or for the purpose of funding other employee benefits for employees of the Company or any Subsidiary
of the Company.

 

(cc)        “Exercise
Price” shall have the meaning set forth in Section 4(a), 11(a)(ii) and 13(a) hereof.

 

(dd)        “Expiration
Date” shall have the meaning set forth in Section 7(a) hereof.

 

(ee)         “Final
Expiration Date” shall have the meaning set forth in Section 7(a) hereof.

 

(ff)         “Flip-In
Event” shall mean any event described in Section 11(a)(ii) hereof.

 

(gg)        “Flip-In
Trigger Date” shall have the meaning set forth in Section 11(a)(iii) hereof.

 

(hh)        “Flip-Over
Event” shall mean any event described in clause (x), (y) or (z) of Section 13(a) hereof.

 

(ii)         “Grandfathered
Person” shall mean any Person which, together with all of its Related Persons, is, as of the date of this Agreement,
the Beneficial Owner of 10% or more of the shares of Common Stock of the Company then outstanding. A Person ceases to be a “Grandfathered
Person” if and when (i) such Person becomes the Beneficial Owner of less than 10% of the shares of Common Stock of the
Company then outstanding; or (ii) such Person increases its Beneficial Ownership of shares of Common Stock of the Company
to an amount equal to or greater than the greater of (A) 10% of the shares of Common Stock of the Company then outstanding and
(B) the sum of (1) the lowest Beneficial Ownership or Voting Ownership of such Person as a percentage of the shares of
Common Stock of the Company outstanding as of any time from and after the public announcement of this Agreement (other than as
a result of an acquisition of shares of Common Stock by the Company) plus (2) one share of Common Stock of the Company.
A Person has “Voting Ownership” of any securities that such Person is the Beneficial Owner of pursuant
to clause (i), (ii) or (iii) of Section 1(h) of this Agreement.

 

    	 	7	 

     

    

  

(jj)         “NASDAQ”
shall mean The NASDAQ Stock Market.

 

(kk)         “Notional
Common Shares” shall have the meaning set forth in Section 1(u) hereof.

 

(ll)         “NYSE”
shall mean the New York Stock Exchange.

 

(mm)      “Person”
shall mean any individual, firm, corporation, partnership (general or limited), limited liability company, limited liability partnership,
association, unincorporated organization, trust or other legal entity, including, without limitation, (i) any syndicate or
group deemed to be a Person under Section 13(d)(3) of the Exchange Act and Rule 13d-5(b) thereunder; and (ii) any successor
(by merger or otherwise) of any such firm, corporation, partnership (general or limited), limited liability company, limited liability
partnership, association, unincorporated organization, trust, or other group or entity.

 

(nn)        “Preferred
Stock” shall mean the Series B Junior Participating Preferred Stock, no par value per
share, of the Company, having the voting rights, powers, designations, preferences and relative, participating, optional or other
special rights and qualifications, limitations and restrictions set forth in the Articles of Amendment.

 

(oo)       “Principal
Party” shall have the meaning set forth in Section 13(b) hereof.

 

(pp)      
“Receiving Party” shall have the meaning set forth in Section 1(u) hereof.

 

(qq)       “Record
Date” shall mean the Close of Business on January 5, 2017.

 

(rr)         “Redemption
Date” shall have the meaning set forth in Section 7(a) hereof.

 

(ss)         “Redemption
Period” shall have the meaning set forth in Section 23(a) hereof.

 

(tt)         “Redemption
Price” shall have the meaning set forth in Section 23(a) hereof.

 

(uu)       “Related
Person” shall mean, as to any Person, any Affiliates or Associates of such Person.

 

(vv)         “Rights”
shall have the meaning set forth in the Preamble hereof.

 

(ww)      “Rights
Agent” shall have the meaning set forth in the Preamble hereof.

 

(xx)        “Rights
Certificate” shall have the meaning set forth in Section 3(d) hereof.

 

(yy)        “Securities
Act” shall mean the Securities Act of 1933, as amended.

 

(zz)         “Spread”
shall have the meaning set forth in Section 11(a)(iii) hereof.

 

    	 	8	 

     

    

  

(aaa)      “Stock
Acquisition Date” shall mean the first date of public announcement (including, without limitation, the filing of
any report pursuant to Section 13(d) of the Exchange Act) by the Company or an Acquiring Person that a Person has become an Acquiring
Person, or such other date, as determined by the Board, on which a Person has become an Acquiring Person.

 

(bbb)     “Subsidiary”
shall mean, with reference to any Person, any other Person of which (i) a majority of the voting power of the voting securities
or equity interests is Beneficially Owned, directly or indirectly, by such first-mentioned Person or otherwise controlled by such
first-mentioned Person; or (ii) an amount of voting securities or equity interests sufficient to elect at least a majority
of the directors or equivalent governing body of such other Person is Beneficially Owned, directly or indirectly, by such first-mentioned
Person, or otherwise controlled by such first-mentioned Person.

 

(ccc)      “Substitution
Period” shall have the meaning set forth in Section 11(a)(iii) hereof.

 

(ddd)     “Summary
of Rights” shall have the meaning set forth in Section 3(a) hereof.

 

(eee)      “Trading
Day” shall mean, in respect to any security, (i) if such security is listed or admitted to trading on any national
securities exchange, a day on which the principal national securities exchange on which such security is listed or admitted to
trading is open for the transaction of business; and (ii) if such security is not so listed or admitted, a Business Day.

 

(fff)        “Triggering
Event” shall mean any Flip-In Event or any Flip-Over Event.

 

(ggg)     “Trust”
shall have the meaning set forth in Section 24(d) hereof.

 

(hhh)     “Trust
Agreement” shall have the meaning set forth in Section 24(d) hereof.

 

(iii)        “Voting
Ownership” shall have the meaning set forth in Section 1(ii) hereof.

 

Section
2.        Appointment of Rights Agent.

 

The Company hereby appoints
the Rights Agent to act as agent for the Company and in accordance with the express terms and conditions hereof (and no implied
terms or conditions), and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such co-Rights
Agents as it may deem necessary or desirable, upon 10 calendar days’ prior written notice to the Rights Agent. In the event
the Company appoints one or more co-Rights Agents, the respective duties of the Rights Agent and any co-Rights Agents under the
provisions of this Agreement shall be as the Company reasonably determines, and the Company shall notify, in writing, the Rights
Agent and any co-Rights Agents of such duties. The Rights Agent shall have no duty to supervise, and shall in no event be liable
for, the acts or omissions of any such co-Rights Agents.

 

    	 	9	 

     

    

  

Section
3.        Issue of Rights Certificates.

 

(a)          On
the Record Date, or as soon as practicable thereafter, the Company will send (directly or, at the expense of the Company, through
the Rights Agent or its transfer agent if the Rights Agent or transfer agent is directed by the Company and provided with all necessary
information and documents) a copy of a Summary of Rights to Purchase Preferred Stock, in substantially the form attached hereto
as Exhibit B and which may be appended to certificates that represent shares of Common Stock (the “Summary of
Rights”), to each record holder of Common Stock as of the Close of Business on the Record Date (other than any Acquiring
Person or any Associate or Affiliate of any Acquiring Person), at the address of such holder shown on the records of the Company
or transfer agent or register for Common Stock. With respect to certificates representing shares of Common Stock (or Book Entry
shares of Common Stock) outstanding as of the Record Date, until the Distribution Date, the Rights shall be evidenced by such shares
of Common Stock registered in the names of the holders thereof together with the Summary of Rights, and not by separate Rights
Certificates. With respect to Book Entry shares of Common Stock outstanding as of the Record Date, until the Distribution Date,
the Rights shall be evidenced by the balances indicated in the Book Entry account system of the transfer agent for the Common Stock
together with the Summary of Rights. Until the earlier of the Distribution Date and the Expiration Date, the transfer of any shares
of Common Stock outstanding on the Record Date (whether represented by certificates or evidenced by the balances indicated in the
Book Entry account system of the transfer agent for the Common Stock, and, in either case, regardless of whether a copy of the
Summary of Rights is submitted with the surrender or request for transfer), shall also constitute the transfer of the Rights associated
with such shares of Common Stock.

 

(b)          Rights
shall be issued, without any further action, in respect of all shares of Common Stock that become outstanding (whether originally
issued or delivered from the Company’s treasury) after the Record Date but prior to the earlier of the Distribution Date
and the Expiration Date; provided, however, that Rights also shall be issued to the extent provided in Section 22 hereof.
Confirmation and account statements sent to holders of Common Stock for Book Entry form or, in the case of certificated shares,
certificates, representing such shares of Common Stock, issued after the Record Date shall bear a legend substantially in the following
form:

 

“[This certificate] [These
shares] also evidence[s] and entitle[s] the holder hereof to certain Rights as set forth in a Rights Agreement between Fred’s,
Inc., a Tennessee corporation (the “Company”), and American Stock Transfer & Trust Company, LLC (the “Rights
Agent”) dated as of December 26, 2016, as the same may be amended from time to time (the “Rights Agreement”),
the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices
of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights shall be evidenced by separate certificates
and will no longer be evidenced by [this certificate] [these shares]. The Company will mail to the holder of [this certificate]
[these shares] a copy of the Rights Agreement as in effect on the date of mailing without charge after receipt of a written request
therefor.

 

    	 	10	 

     

    

  

Under certain circumstances, as set
forth in the Rights Agreement, Rights that are Beneficially Owned by any Person who is, was or becomes an Acquiring Person or any
Related Person thereof (as such capitalized terms are defined in the Rights Agreement), or specified transferees of such Acquiring
Person (or Related Person thereof) may become null and void and will no longer be transferable.”

 

With respect to all certificates
representing shares of Common Stock containing the foregoing legend, until the earliest of the Distribution Date and the Expiration
Date, the Rights associated with the Common Stock represented by such certificates shall be evidenced by such certificates alone
and registered holders of Common Stock shall also be the registered holders of the associated Rights, and the transfer of any such
certificate shall also constitute the transfer of the Rights associated with the shares of Common Stock represented by such certificates.

 

With respect to Common
Stock in Book Entry form for which there has been sent a confirmation or account statement containing the foregoing legend, until
the earliest of the Distribution Date and the Expiration Date, the Rights associated with the Common Stock shall be evidenced by
such Common Stock alone and registered holders of Common Stock shall also be the registered holders of the associated Rights, and
the transfer of any such Common Stock shall also constitute the transfer of the Rights associated with such shares of Common Stock.

 

Notwithstanding this paragraph
(b), the omission of the legend or the failure to send, deliver or provide the registered owner of shares of Common Stock a copy
of the Summary of Rights shall not affect the enforceability of any part of this Agreement or the rights of any holder of the Rights.

 

In the event that the Company
purchases or otherwise acquires any shares of Common Stock after the Record Date but prior to the Distribution Date, any Rights
associated with such shares of Common Stock shall be cancelled and retired so that the Company is not entitled to exercise any
Rights associated with the shares of Common Stock that are no longer outstanding.

 

(c)          Until
the Distribution Date, the Rights shall be transferable only in connection with the transfer of the underlying shares of Common
Stock (including, without limitation, a transfer to the Company).

 

(d)          As
soon as practicable after the Distribution Date, the Company will prepare and execute, and upon the written request of the Company,
the Rights Agent will countersign and the Company will send or cause to be sent (and the Rights Agent will, if so requested and
provided with all necessary information and documents, at the expense of the Company, send) by first-class, insured, postage-prepaid
mail, to each record holder of shares of Common Stock as of the Close of Business on the Distribution Date (other than any Acquiring
Person or any Related Person of an Acquiring Person), at the address of such holder shown on the records of the Company, one or
more rights certificates, in substantially the form of Exhibit C hereto (the “Rights Certificate”),
evidencing one Right for each share of Common Stock so held, subject to adjustment as provided herein. In the event that an adjustment
in the number of Rights per share of Common Stock has been made pursuant to Section 11 hereof, at the time of distribution of the
Rights Certificates, the Company shall make the necessary and appropriate rounding adjustments (in accordance with Section 14(a)
hereof) so that Rights Certificates representing only whole numbers of Rights are distributed and cash is paid in lieu of any fractional
Rights. As of and after the Distribution Date, the Rights shall be evidenced solely by such Rights Certificates, and the Rights
Certificates and the Rights shall be transferable separately from the transfer of Common Stock. The Company shall promptly notify
the Rights Agent in writing upon the occurrence of the Distribution Date and, if such notification is given orally, the Company
shall confirm the same in writing on or prior to the Business Day next following. Until such written notice is received by the
Rights Agent, the Rights Agent may presume conclusively for all purposes that the Distribution Date has not occurred.

 

    	 	11	 

     

    

  

Section
4.        Form of Rights Certificate.

 

(a)          The
Rights Certificates (and the forms of election to purchase and of assignment and the certificate to be printed on the reverse thereof)
shall be substantially in the form set forth in Exhibit C hereto and may have such changes or marks of identification or
designation and such legends, summaries, or endorsements printed thereon as the Company may deem appropriate (but which do not
affect the rights, duties, liabilities or responsibilities of the Rights Agent), and as are not inconsistent with the provisions
of this Agreement, or as may be required to comply with any applicable law or any rule or regulation thereunder or with any applicable
rule or regulation of any stock exchange upon which the Rights may from time to time be listed or the Financial Industry Regulatory
Authority, or to conform to customary usage. Subject to the provisions of this Agreement, the Rights Certificates, whenever distributed,
shall be dated as of the Distribution Date and on their face shall entitle the holders thereof to purchase such number of one one-thousandths
of a share of Preferred Stock as shall be set forth therein at the price set forth therein (such price, the “Exercise
Price”), but the amount and type of securities, cash, or other assets that may be acquired upon the exercise of each
Right and the Exercise Price thereof shall be subject to adjustment as provided herein.

 

(b)          Any
Rights Certificate issued pursuant hereto that represents Rights Beneficially Owned by (i) an Acquiring Person or any Related
Person of an Acquiring Person; (ii) a transferee of an Acquiring Person (or of any such Related Person) that becomes a transferee
after the Acquiring Person becomes an Acquiring Person; or (iii) a transferee of an Acquiring Person (or of any such Related
Person) that becomes a transferee prior to or concurrently with the Acquiring Person becoming an Acquiring Person and that receives
such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person (or any such Related
Person) to holders of equity interests in such Acquiring Person (or any such Related Person) or to any Person with whom such Acquiring
Person (or any such Related Person) has any continuing written or oral plan, agreement, arrangement, or understanding regarding
the transferred Rights, shares of Common Stock, or the Company; or (B) a transfer that the Board has determined in good faith
to be part of a plan, agreement, arrangement, or understanding that has as a primary purpose or effect the avoidance of Section
7(e) hereof (and any Rights Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer, exchange, replacement
or adjustment of any other Rights Certificate referred to in this sentence), shall contain upon the direction of the Board a legend
substantially in the following form:

 

    	 	12	 

     

    

  

“The Rights represented by
this Rights Certificate are or were Beneficially Owned by a Person who was or became an Acquiring Person or a Related Person of
an Acquiring Person (as such terms are defined in the Rights Agreement dated as of December 26, 2016 by and between Fred’s,
Inc. and American Stock Transfer & Trust Company, LLC (the “Rights Agreement”)). Accordingly, this Rights Certificate
and the Rights represented hereby may become null and void in the circumstances specified in Section 7(e) of the Rights Agreement.”

 

The Company shall give
written notice to the Rights Agent promptly after it becomes aware of the existence and identity of any Acquiring Person or any
Related Person thereof. Until such notice is received by the Rights Agent, the Rights Agent may presume conclusively for all purposes
that no Person has become an Acquiring Person or a Related Person of an Acquiring Person. The Company shall instruct the Rights
Agent in writing of the Rights which should be so legended.

 

Section
5.        Countersignature and Registration.

 

(a)          The
Rights Certificates shall be executed on behalf of the Company by its Chief Executive Officer, President, Secretary, Treasurer,
any Vice-President, any Assistant Secretary or any other officer of the Company, shall have affixed thereto the Company’s
corporate seal (or a facsimile thereof), and shall be attested by the Company’s Secretary or one of its Assistant Secretaries.
The signature of any of these officers on the Rights Certificates may be manual or by facsimile or other customary shall mean of
electronic transmission (e.g., “pdf”). Rights Certificates bearing the manual or facsimile signatures of the individuals
who were at the time of execution the proper officers of the Company shall bind the Company, notwithstanding that such individuals
or any of them have ceased to hold such offices prior to the countersigning of such Rights Certificates by the Rights Agent or
did not hold such offices at the date of such Rights Certificates. No Rights Certificate shall be entitled to any benefit under
this Agreement or shall be valid for any purpose unless there appears on such Rights Certificate a countersignature duly executed
by the Rights Agent by manual or facsimile or other customary shall mean of electronic transmission (e.g., “pdf”) of
an authorized officer, and such countersignature upon any Rights Certificate shall be conclusive evidence, and the only evidence,
that such Rights Certificate has been duly countersigned as required hereunder.

 

(b)          Following
the Distribution Date, and receipt by the Rights Agent of written notice to that effect and all other relevant and necessary information
referred to in Section 3(d) hereof, the Rights Agent shall keep or cause to be kept, at its office designated for such purpose,
books for registration and transfer of the Rights Certificates issued hereunder. Such books shall show the name and address of
each holder of the Rights Certificates, the number of Rights evidenced on its face by each Rights Certificate and the date of each
Rights Certificate.

 

    	 	13	 

     

    

 

Section
6.        Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed,
Lost or Stolen Rights Certificates.

 

(a)          Subject
to the provisions of Sections 4(b), 7(e) and 14 hereof, at any time after the Close of Business on the Distribution Date and at
or prior to the Close of Business on the Expiration Date, any Rights Certificate (other than Rights Certificates representing Rights
that have become null and void pursuant to Section 7(e) hereof, that have been redeemed pursuant to Section 23 hereof, or that
have been exchanged pursuant to Section 24 hereof) may be transferred, split up, combined or exchanged for another Rights Certificate,
entitling the registered holder to purchase a like number of one one-thousandths of a share of Preferred Stock (or following a
Triggering Event, Common Stock, other securities, cash or other assets, as the case may be) as the Rights Certificate or Certificates
surrendered then entitled such holder to purchase. Any registered holder desiring to transfer, split up, combine or exchange any
Rights Certificate shall make such request in writing delivered to the Rights Agent, and shall surrender, together with any required
form of assignment duly executed and properly completed, the Rights Certificates to be transferred, split up, combined or exchanged
at the office of the Rights Agent designated for such purpose. The Rights Certificates are transferable only on the books and records
of the Rights Agent. Neither the Rights Agent nor the Company shall be obligated to take any action whatsoever with respect to
the transfer of any such surrendered Rights Certificate until the registered holder has properly completed and executed the certificate
set forth in the form of assignment on the reverse side of such Rights Certificate and has provided such additional evidence of
the identity of the Beneficial Owner (or former Beneficial Owner) of the Rights represented by such Rights Certificate or Related
Person thereof as the Company or the Rights Agent requests, whereupon the Rights Agent shall, subject to the provisions of Sections
4(b), 7(e) and 14 hereof, countersign and deliver to the Person entitled thereto a Rights Certificate or Rights Certificates, as
the case may be, as so requested. The Company may require payment by the holder of the Rights of a sum sufficient to cover any
tax or charge that may be imposed in connection with any transfer, split up, combination or exchange of Rights Certificates. If
and to the extent the Company does require payment of any such taxes or charges, the Company shall give the Rights Agent prompt
written notice thereof and the Rights Agent shall not deliver any Rights Certificate unless and until it is satisfied that all
such payments have been made, and the Rights Agent shall forward any such sum collected by it to the Company or to such Persons
as the Company specifies by written notice. The Rights Agent shall have no duty or obligation to take any action with respect to
a Rights holder under any Section of this Agreement which requires the payment by such Rights holder of applicable taxes and/or
charges unless and until it is satisfied that all such taxes and/or charges have been paid.

 

(b)          If
a Rights Certificate is mutilated, lost, stolen or destroyed, upon request by the registered holder of the Rights represented thereby
and upon payment to the Company and the Rights Agent of all reasonable expenses incident thereto, there shall be issued, in exchange
for and upon cancellation of the mutilated Rights Certificate, or in substitution for the lost, stolen or destroyed Rights Certificate,
a new Rights Certificate, in substantially the form of the prior Rights Certificate, of like tenor and representing the equivalent
number of Rights, but, in the case of loss, theft, or destruction, only upon receipt of evidence satisfactory to the Company and
the Rights Agent of such loss, theft or destruction of such Rights Certificate and such additional evidence of the identity of
the Beneficial Owner (or former Beneficial Owner) or Related Persons thereof as the Company or the Rights Agent requests, and,
if requested by the Company or the Rights Agent, indemnity also satisfactory to it.

 

(c)          Notwithstanding
any other provision hereof, the Company and the Rights Agent may amend this Agreement to provide for uncertificated Rights in addition
to or in lieu of Rights evidenced by Right Certificates, to the extent permitted by applicable law.

 

    	 	14	 

     

    

  

Section
7.        Exercise of Rights; Exercise Price; Expiration Date of Rights.

 

(a)          Subject
to Section 7(e) hereof, the registered holder of any Rights Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein including, without limitation, in the restrictions on exercisability set forth in Sections 9(c), 11(a)(iii) and
23(a) hereof) in whole or in part at any time after the Distribution Date upon surrender of the Rights Certificate, with the form
of election to purchase and the certificate on the reverse side thereof properly completed and duly executed, to the Rights Agent
at the office of the Rights Agent designated for such purpose, together with payment of the Exercise Price for each one one-thousandth
of a share of Preferred Stock (or Common Stock, other securities, cash or other assets, as the case may be) as to which the Rights
are exercised, at or prior to the earliest of (i) the Close of Business on June 26, 2019 (the “Final Expiration
Date”); (ii) the time at which the Rights are redeemed pursuant to Section 23 hereof (the “Redemption
Date”); (iii) the time at which the Rights are exchanged pursuant to Section 24 hereof (the “Exchange
Date”); or (iv) the closing of any merger or other acquisition transaction involving the Company pursuant to an agreement
of the type described in Section 1(h)(ii)(A)(4) and Section 13(f) at which time the Rights are terminated; (the earliest of (i),
(ii) (iii) and (iv) being herein referred to as the “Expiration Date”).

 

(b)          Each
Right shall entitle the registered holder thereof to purchase one one-thousandth of a share of Preferred Stock. The Exercise Price
for each one one-thousandth of a share of Preferred Stock pursuant to the exercise
of a Right shall be initially $100.0, and shall be subject to adjustment from time to time as provided in Sections 11 and
13 hereof and payable in lawful money of the United States in accordance with paragraph (c) of this Section 7.

 

(c)          Upon
receipt of a Rights Certificate representing exercisable Rights, with the form of election to purchase and the certificate properly
completed and duly executed, accompanied by payment, with respect to each Right so exercised, of the Exercise Price per one one-thousandth
of a share of Preferred Stock (or Common Stock, other securities, cash or other assets, as the case may be) to be purchased
and an amount equal to any applicable tax or charge, then the Rights Agent shall, subject to Section 18(j) hereof, promptly (i) (A) requisition
from any transfer agent of the Preferred Stock certificates representing such number of one one-thousandths of a share of Preferred
Stock (or fractions of shares that are integral multiples of one one-thousandth of
a share of Preferred Stock) as are to be purchased and the Company shall direct its transfer agent to comply with all such requests;
or (B) if the Company has elected to deposit the total number of shares of Preferred Stock issuable upon exercise of the Rights
hereunder with a depositary agent, requisition from the depositary agent depositary receipts representing such number of one one-thousandths
of a share of Preferred Stock as are to be purchased (in which case certificates for the shares of Preferred Stock represented
by such receipts shall be deposited by the transfer agent with the depositary agent), and the Company shall direct the depositary
to comply with all such requests; (ii) if necessary to comply with this Agreement, requisition from the Company the amount
of cash, if any, to be paid in lieu of fractional shares in accordance with Section 14 hereof; (iii) after receipt
of such certificates or such depositary receipts, cause the same to be delivered to or upon the order of the registered holder
of such Rights Certificate, registered in such name or names as may be designated by such holder; and (iv) if necessary to
comply with this Agreement, after receipt thereof, deliver such cash, if any, to or upon the order of the registered holder of
such Rights Certificate. In the event that the Company is obligated to issue Common Stock or other securities of the Company, pay
cash and/or distribute other assets pursuant to Section 11(a) hereof, the Company shall make all arrangements necessary so that
such Common Stock, other securities, cash and/or other assets are available for distribution by the Rights Agent, if and when necessary
to comply with this Agreement, and until so received, the Rights Agent shall have no duties or obligations with respect to such
securities, cash and/or other assets. The payment of the Exercise Price (as such amount may be reduced pursuant to Section 11(a)(iii)
hereof) may be made in cash or by certified or bank check or money order payable to the order of the Company.

 

    	 	15	 

     

    

  

(d)          In
the event a registered holder of any Rights Certificate exercises less than all the Rights evidenced thereby, a new Rights Certificate
evidencing the Rights remaining unexercised shall be issued by the Rights Agent and delivered to, or upon the order of, such holder,
registered in such name or names as designated by such holder, subject to the provisions of Sections 6 and 14 hereof.

 

(e)          Notwithstanding
anything in this Agreement to the contrary, from and after the first occurrence of a Flip-In Event, any Rights Beneficially Owned
by (i) an Acquiring Person or a Related Person of an Acquiring Person; (ii) a transferee of an Acquiring Person (or of
any such Related Person) who becomes a transferee after the Acquiring Person becomes such; or (iii) a transferee of an Acquiring
Person (or of any such Related Person) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such
and who receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person
(or any such Related Person) to holders of equity interests in such Acquiring Person (or any such Related Person) or to any Person
with whom the Acquiring Person (or any such Related Person) has any continuing written or oral plan, agreement, arrangement or
understanding regarding the transferred Rights, shares of Common Stock or the Company; or (B) a transfer that the Board has
determined in good faith to be part of a plan, agreement, arrangement or understanding that has as a primary purpose or effect
the avoidance of this Section 7(e), shall be null and void without any further action, and any holder of such Rights thereafter
shall have no rights or preferences whatsoever with respect to such Rights, whether under any provision of this Agreement, the
Rights Certificates or otherwise (including, without limitation, rights and preferences pursuant to Sections 7, 11, 13, 23 and
24 hereof). The Company shall use commercially reasonable efforts to ensure compliance with the provisions of this Section 7(e)
and Section 4(b) hereof, but neither the Company nor the Rights Agent have any liability to any holder of Rights or any other Person
as a result of the Company’s failure to make any determination with respect to an Acquiring Person or its Related Persons
or transferees hereunder.

 

(f)          Notwithstanding
anything in this Agreement or any Rights Certificate to the contrary, neither the Rights Agent nor the Company shall be obligated
to take any action with respect to a registered holder upon the occurrence of any purported transfer or exercise as set forth in
this Section 7 by such registered holder unless such registered holder has (i) properly completed and duly executed the certificate
following the form of election to purchase set forth on the reverse side of the Rights Certificate surrendered for such exercise,
and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) of the Rights
represented by such Rights Certificate or Related Persons thereof as the Company reasonably requests.

 

    	 	16	 

     

    

  

Section
8.        Cancellation and Destruction of Rights Certificates.

 

All Rights Certificates
surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or to
any of its agents, be delivered to the Rights Agent for cancellation or in cancelled form, or, if surrendered to the Rights Agent,
shall be cancelled by it, and no Rights Certificates shall be issued in lieu thereof except as expressly permitted by this
Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel
and retire, any Rights Certificates acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all cancelled Rights Certificates to the Company, or shall, at the written request of the Company, destroy or cause to be destroyed
such cancelled Rights Certificates, and in such case shall deliver a certificate of destruction thereof to the Company.

 

Section
9.        Reservation and Availability of Capital Stock.

 

(a)          The
Company shall cause to be reserved and kept available out of its authorized and unissued shares of Preferred Stock (and following
the occurrence of a Triggering Event, out of its authorized and unissued shares of Common Stock and/or other securities or out
of its authorized and issued shares held in its treasury), a number of shares of Preferred Stock (and, following the occurrence
of a Triggering Event, shares of Common Stock and/or other securities) that, as provided in this Agreement, including Section 11(a)(iii)
hereof, shall be sufficient to permit the exercise in full of all outstanding Rights. Upon the occurrence of any events resulting
in an increase in the aggregate number of shares of Preferred Stock (or Common Stock and/or other equity securities of the Company)
issuable upon exercise of all outstanding Rights above the number then reserved, the Company shall make appropriate increases in
the number of shares so reserved.

 

(b)          As
long as the shares of Preferred Stock (and following the occurrence of a Triggering Event, Common Stock and/or other securities)
issuable upon the exercise of the Rights may be listed or admitted to trading on any national securities exchange, the Company
shall use its commercially reasonable efforts to cause, from and after such time as the Rights become exercisable, all shares reserved
for such issuance to be listed or admitted to trading on such exchange upon official notice of issuance upon such exercise.

 

    	 	17	 

     

    

  

(c)          If
the Company is required to file a registration statement pursuant to the Securities Act with respect to the securities purchasable
upon exercise of the Rights, the Company shall use its commercially reasonable efforts to (i) file, as soon as practicable
following the earliest date after the first occurrence of a Flip-In Event on which the consideration to be delivered by the Company
upon exercise of the Rights has been determined in accordance with this Agreement, or as soon as is required by law following the
Distribution Date, as the case may be, such registration statement; (ii) cause such registration statement to become effective
as soon as practicable after such filing; and (iii) cause such registration statement to remain effective (and to include
a prospectus at all times complying with the requirements of the Securities Act) until the earlier of (A) the date as of which
the Rights are no longer exercisable for the securities covered by such registration statement, and (B) the Expiration Date.
The Company shall also take such action as may be appropriate under, or to ensure compliance with, the securities or “blue
sky” laws of the various states in connection with the exercisability of the Rights. The Company may temporarily suspend,
(with prompt written notice thereof to the Rights Agent), for a period of time not to exceed 90 days after the date set forth in
clause (i) of the first sentence of this Section 9(c), the exercisability of the Rights in order to prepare and file such registration
statement and permit it to become effective. Upon any such suspension, the Company shall issue a public announcement (with prompt
written notice thereof to the Rights Agent; and until such written notice is received by the Rights Agent, the Rights Agent may
presume conclusively that no such suspension has occurred) stating that the exercisability of the Rights has been temporarily suspended,
as well as a public announcement at such time as the suspension has been rescinded (with prompt written notice to the Rights Agent;
and until such written notice is received by the Rights Agent, the Rights Agent may presume conclusively that such suspension has
not been rescinded). In addition, if the Company shall determine that a registration statement is required following the Distribution
Date, the Company may temporarily suspend the exercisability of the Rights until such time as a registration statement has been
declared effective. Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction if the requisite qualification in such jurisdiction shall not have been obtained, the exercise thereof shall not be
permitted under applicable law, or an effective registration statement is required and shall not have been declared effective or
has been suspended.

 

(d)          The
Company shall take such action as may be necessary to ensure that each one one-thousandth of a share of Preferred Stock (and, following
the occurrence of a Triggering Event, Common Stock and/or other securities that may be delivered upon exercise of Rights) shall
be, at the time of delivery of the certificates or depositary receipts for such securities (subject to payment of the Exercise
Price), duly and validly authorized and issued, fully paid and non-assessable.

 

(e)          The
Company shall pay when due and payable any and all documentary, stamp or transfer tax, or other tax or charge, that is payable
in respect of the issuance and delivery of the Rights Certificates or the issuance and delivery of any certificates or depository
receipts or entries in the Book Entry account system of the transfer agent for the Preferred Stock for a number of one one-thousandths
of a share of Preferred Stock (or Common Stock and/or other equity securities of the Company that may be delivered upon exercise
of the Rights) upon the exercise of Rights; provided, however, the Company shall not be required to pay any such tax or
charge that may be payable in connection with the issuance or delivery of any of any certificates or depositary receipts or entries
in the Book Entry account system of the transfer agent for the Preferred Stock for a number of one one-thousandths of a share of
Preferred Stock (or Common Stock and/or other equity securities of the Company as the case may be) to any Person other than the
registered holder of the Rights Certificates evidencing the Rights surrendered for exercise. The Company shall not be required
to issue or deliver any certificates or depositary receipts or entries in the Book Entry account system of the transfer agent for
the Preferred Stock (or Common Stock and/or other equity securities of the Company as the case may be) to, or in a name other than
that of, the registered holder upon the exercise of any Rights until any such tax or charge has been paid (any such tax or charge
being payable by the holder of such Rights Certificate at the time of surrender) or until it has been established to the Company’s
or Rights Agent’s satisfaction that no such tax or charge is due.

 

    	 	18	 

     

    

  

Section
10.      Preferred Stock Record Date.

 

Each Person in whose name
any certificate or entry in the Book Entry account system of the transfer agent for the Preferred Stock for a number of one one-thousandths
of a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) is issued upon the exercise of Rights
shall be for all purposes the holder of record of such fractional shares of Preferred Stock (or Common Stock and/or other securities,
as the case may be) represented thereby on, and such certificate or entry shall be dated the date upon which the Rights Certificate
evidencing such Rights was duly surrendered and payment of the Exercise Price (and any applicable transfer taxes and charges) was
made; provided, however, that if the date of such surrender and payment is a date upon which the applicable transfer books
of the Company are closed, such Person shall be deemed to have become the record holder of such securities (fractional or otherwise)
on, and such certificate or entry shall be dated, the next succeeding Business Day on which the applicable transfer books of the
Company are open; provided, further, that if delivery of a number of one one-thousandths of a share of Preferred Stock is
delayed pursuant to Section 9(c) hereof, such Persons shall be deemed to have become the record holders of such number of one one-thousandths
of a share of Preferred Stock only when such Preferred Stock first become deliverable. Prior to the exercise of the Rights evidenced
thereby, the holder of a Rights Certificate shall not be entitled to any rights of a shareholder of the Company with respect to
the securities for which the Rights are exercisable, including, without limitation, the right to vote, to receive dividends or
other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of
the Company, except as provided herein.

 

Section 11.    Adjustment
of Exercise Price, Number and Kind of Shares or Number of Rights.

  

The Exercise Price, the
number and kind of securities covered by each Right and the number of Rights outstanding are subject to adjustment from time to
time as provided in this Section 11.

 

(a)          (i) In
the event the Company at any time after the date hereof (A) declares a dividend on the Preferred Stock payable
in shares of Preferred Stock; (B) subdivides the outstanding Preferred Stock; (C) combines the outstanding Preferred
Stock into a smaller number of shares; or (D) issues any shares of its capital stock in a reclassification of Preferred Stock
(including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving
corporation), except as otherwise provided in this Section 11(a), then the Exercise Price in effect at the time of the record date
for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares
(or fractions thereof) of Preferred Stock or capital stock, as the case may be, issuable on such date upon exercise of the Rights,
shall be proportionately adjusted so that the holder of any Right exercised after such time becomes entitled to receive, upon payment
of the Exercise Price then in effect, the aggregate number and kind of shares (or fractions thereof) of Preferred Stock or capital
stock, as the case may be, which, if such Right had been exercised immediately prior to such date, such holder would have owned
upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification. If an
event occurs that would require an adjustment under both this Section 11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided
for in this Section 11(a)(i) shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section 11(a)(ii)
hereof.

 

    	 	19	 

     

    

  

(ii)         Subject
to Section 23 and Section 24 hereof, in the event that any Person (other than any Exempt Person), alone or together with its Related
Persons, becomes an Acquiring Person (the first occurrence of such event, the “Flip-In Event”), unless
the event causing such Person to become an Acquiring Person is a transaction set forth in Section 13(a) hereof, then proper provision
shall be made so that promptly following the Redemption Period, each holder of a Right (except as provided below and in Section
7(e) hereof) thereafter has the right to receive, upon exercise thereof and payment of an amount equal to the then current Exercise
Price in accordance with the terms of this Agreement, in lieu of a number of one one-thousandths of a share of Preferred
Stock, a number of shares of Common Stock of the Company equal to the result obtained by (A) multiplying the then current
Exercise Price by the then number of one one-thousandths of a share of Preferred Stock for which a Right was or would have been
exercisable immediately prior to the first occurrence of a Flip-In Event, whether or not such Right was then exercisable; and (B) dividing
that product (which, following such first occurrence, shall be referred to as the “Exercise Price” for
each Right and for all purposes of this Agreement except to the extent set forth in Section 13 hereof) by 50% of the Current Market
Price of Common Stock on the date of such first occurrence (such number of shares, the “Adjustment Shares”).
The Company shall provide the Rights Agent with written notice of the identity of any such Acquiring Person, Related Person or
the nominee or transferee of any of the foregoing, and the Rights Agent may rely on such notice in carrying out its duties under
this Agreement and shall be deemed not to have any knowledge of the identity of any such Acquiring Person, Related Person or the
nominee or transferee of any of the foregoing, unless and until it has received such notice.

 

(iii)        In
the event that the number of shares of Common Stock authorized by the Charter, but not outstanding, or reserved for issuance for
purposes other than upon exercise of the Rights, is not sufficient to permit the exercise in full of the Rights in accordance with
the foregoing clause (ii), the Board shall, to the extent permitted by applicable law and by any agreements or instruments then
in effect to which the Company is a party, (A) determine the excess of (1) the value of the Adjustment Shares issuable
upon the exercise of a Right (the “Current Value”) over (2) the Exercise Price (such excess being
the “Spread”), and (B) with respect to each Right (subject to Section 7(e) hereof), make adequate
provision to substitute for some or all of the Adjustment Shares, upon exercise of a Right and payment of the applicable Exercise
Price, (1) cash; (2) a reduction in the Exercise Price; (3) shares or fractions of a share of Preferred Stock or
other equity securities of the Company (including, without limitation, shares, or units of shares, of Preferred Stock which the
Board has determined to have the same value as shares of Common Stock) (such shares of equity securities being herein called “Common
Stock Equivalents”); (4) debt securities of the Company; (5) other assets; or (6) any combination
of the foregoing, in each case having an aggregate value equal to the Current Value, as determined by the Board based upon the
advice of a financial advisor selected by the Board; provided, however, if the Company has not made adequate provision to
deliver value pursuant to clause (B) above within 30 days following the later of (x) the first occurrence of a Flip-In Event;
and (y) the date on which the Redemption Period expires (the later of (x) and (y) being referred to herein as the “Flip-In
Trigger Date”), then the Company shall deliver, upon the surrender for exercise of a Right and without requiring
payment of the Exercise Price, shares of Common Stock (to the extent available), and then, if necessary such number or fractions
of shares of Preferred Stock (to the extent available) and then, if necessary, cash, which shares and/or cash have an aggregate
value equal to the Spread.

 

    	 	20	 

     

    

  

If, upon the occurrence
of a Flip-In Event, the Board determines in good faith that it is likely that sufficient additional shares of Common Stock could
be authorized for issuance upon exercise in full of the Rights, then if the Board so elects, the 30-day period set forth above
may be extended to the extent necessary, but not more than 90 days after the Flip-In Trigger Date, in order that the Company may
seek shareholder approval for the authorization of such additional shares (such period, as it may be extended, the “Substitution
Period”). To the extent that action is to be taken pursuant to the preceding provisions of this Section 11(a)(iii),
the Company (aa) shall provide, subject to Section 7(e) hereof, that such action shall apply uniformly to all outstanding
Rights; and (bb) may suspend the exercisability of the Rights until the expiration of the Substitution Period in order to
seek an authorization of additional shares and/or to decide the appropriate form of distribution to be made pursuant to the second
sentence of this Section 11(a)(iii) and to determine the value thereof. In the event of any such suspension, the Company shall
issue a public announcement (with prompt written notice thereof to the Rights Agent) stating that the exercisability of the Rights
has been temporarily suspended, as well as a public announcement (with prompt written notice thereof to the Rights Agent) at such
time as the suspension is no longer in effect. For purposes of this Section 11(a)(iii), the value of the Common Stock shall be
the Current Market Price of the Common Stock on the Flip-In Trigger Date and the value of any Common Stock Equivalents shall have
the same value as the Common Stock on such date. The Board may establish procedures to allocate the right to receive shares of
Common Stock upon the exercise of the Rights among holders of Rights pursuant to this Section 11(a)(iii).

 

(b)          In
case the Company fixes a record date for the issuance of rights, options or warrants to all holders of Preferred Stock entitling
them (for a period expiring within 45 days after such record date) to subscribe for or purchase Preferred Stock (or shares having
the same rights, privileges and preferences as the shares of Preferred Stock (“Equivalent Preferred Stock”))
or securities convertible into Preferred Stock or Equivalent Preferred Stock at a price per share of Preferred Stock or per share
of Equivalent Preferred Stock (or having a conversion price per share, if a security convertible into Preferred Stock or Equivalent
Preferred Stock) less than the Current Market Price of the Preferred Stock on such record date, the Exercise Price to be in effect
after such record date shall be determined by multiplying the Exercise Price in effect immediately prior to such record date by
a fraction, the numerator of which shall be the number of shares of Preferred Stock or Equivalent Preferred Stock outstanding on
such record date, plus the number of shares of Preferred Stock or Equivalent Preferred Stock which the aggregate offering price
of the total number of shares of Preferred Stock and/or Equivalent Preferred Stock so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase at such Current Market Price, and the denominator
of which shall be the number of shares of Preferred Stock or Equivalent Preferred Stock outstanding on such record date, plus the
number of additional shares of Preferred Stock and/or Equivalent Preferred Stock to be offered for subscription or purchase (or
into which the convertible securities so to be offered are initially convertible). In case such subscription price may be paid
by delivery of consideration all or part of which may be in a form other than cash, the value of such consideration shall be determined
by the Board, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights
Agent and the holders of the Rights. Shares of Preferred Stock or Equivalent Preferred Stock owned by or held for the account of
the Company or any Subsidiary will not be deemed outstanding for the purpose of such computation. Such adjustment shall be made
successively whenever such a record date is fixed, and in the event that such rights, options or warrants are not so issued, the
Exercise Price shall be adjusted to be the Exercise Price that would then be in effect if such record date had not been fixed.

 

    	 	21	 

     

    

  

(c)          In
case the Company fixes a record date for a distribution to all holders of shares of Preferred Stock (including, without limitation,
any such distribution made in connection with a consolidation or merger in which the Company is the continuing or surviving corporation),
evidences of indebtedness, cash (other than a regular quarterly cash dividend out of the earnings or retained earnings of the Company),
assets (other than a dividend payable in shares of Preferred Stock, but including any dividend payable in stock other than Preferred
Stock), or subscription rights, options or warrants (excluding those referred to in Section 11(b) hereof), then, in each case,
the Exercise Price to be in effect after such record date shall be determined by multiplying the Exercise Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the Current Market Price of the Preferred Stock on such
record date minus the fair market value (as determined in good faith by the Board, whose determination shall be described in a
statement filed with the Rights Agent and shall be binding and conclusive for all purposes on the Rights Agent and the holders
of the Rights) of the portion of the cash, assets or evidences of indebtedness so to be distributed or of such subscription rights
or warrants distributable in respect of a share of Preferred Stock, and the denominator of which shall be the Current Market Price
of the Preferred Stock on such record date. Such adjustments shall be made successively whenever such a record date is fixed; and
in the event that such distribution is not so made, the Exercise Price shall be adjusted to be the Exercise Price that would have
been in effect if such record date had not been fixed.

 

(d)          Notwithstanding
anything herein to the contrary, no adjustment in the Exercise Price is required unless such adjustment would require an increase
or decrease of at least one percent (1%) in the Exercise Price; provided, however, that any adjustments that by reason of
this Section 11(d) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All
calculations under this Section 11 shall be made to the nearest cent or to the nearest one-thousandth of a share of Common Stock
or other share or one-millionth of a share of Preferred Stock, as the case may be. Notwithstanding the first sentence of this Section
11(d), no adjustment required by this Section 11 may be made after the earlier of (i) three years from the date of the transaction
that requires such adjustment and (ii) the Expiration Date.

 

(e)          If,
as a result of an adjustment made pursuant to Sections 11(a)(ii) or 13(a) hereof, the holder of any Right thereafter exercised
becomes entitled to receive any shares of capital stock other than Preferred Stock, the number of such other shares shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to
the Preferred Stock contained in Sections 11(a), (b), (c), (d), (f), (g), (h), (i), (j) and (k) hereof, and the provisions of Sections
7, 9, 10, 13 and 14 hereof with respect to the Preferred Stock shall apply on like terms to any such other shares.

 

    	 	22	 

     

    

  

(f)          All
Rights originally issued by the Company subsequent to any adjustment made to the Exercise Price hereunder will evidence the right
to purchase, at the adjusted Exercise Price, the number of one one-thousandths of a share of Preferred Stock (or other securities
or amount of cash or combination thereof) that may be acquired from time to time hereunder upon exercise of the Rights, all subject
to further adjustment as provided herein.

 

(g)          Unless
the Company has exercised its election pursuant to Section 11(h), upon each adjustment of the Exercise Price as a result of the
calculations made in Sections 11(b) and (c) hereof, each Right outstanding immediately prior to the making of such adjustment will
thereafter evidence the right to purchase, at the adjusted Exercise Price, a number of one one-thousandths of a share of Preferred
Stock (calculated to the nearest one-millionth of a share) obtained by (i) multiplying (A) the number of one one-thousandths
of a share covered by a Right immediately prior to this adjustment by (B) the Exercise Price in effect immediately prior to
such adjustment of the Exercise Price; and (ii) dividing the product so obtained by the Exercise Price in effect immediately
after such adjustment of the Exercise Price.

 

(h)          The
Company may elect, on or after the date of any adjustment of the Exercise Price, to adjust the number of Rights, in lieu
of any adjustment in the number of one one-thousandths of a share of Preferred Stock that may be acquired upon the exercise of
a Right. Each of the Rights outstanding after the adjustment in the number of Rights shall be exercisable for the number of one
one-thousandths of a share of Preferred Stock for which a Right was exercisable immediately prior to such adjustment. Each Right
held of record prior to such adjustment of the number of Rights shall become a number of Rights (calculated to the nearest one
one-thousandth of a Right) obtained by dividing the Exercise Price in effect immediately prior to adjustment of the Exercise Price
by the Exercise Price in effect immediately after adjustment of the Exercise Price. The Company shall make a public announcement
(with prompt written notice thereof to the Rights Agent) of its election to adjust the number of Rights, indicating the record
date for the adjustment, and, if known at the time, the amount of the adjustment to be made. Such record date may be the date on
which the Exercise Price is adjusted or any day thereafter, but, if the Rights Certificates have been issued, shall be at least
10 days later than the date of such public announcement. If Rights Certificates have been issued, upon each adjustment of the number
of Rights pursuant to this Section 11(h), the Company shall, as promptly as practicable, at the option of the Company, either (A) cause
to be distributed to holders of record of Rights Certificates on such record date Rights Certificates evidencing, subject to Section
14 hereof, the additional Rights to which such holders are entitled as a result of such adjustment, or (B) cause to be
distributed to such holders of record in substitution and replacement for the Rights Certificates held by such holders prior to
the date of adjustment, and upon surrender thereof, if required by the Company, new Rights Certificates evidencing all the Rights
to which such holders become entitled after such adjustment. Rights Certificates so to be distributed shall be issued, executed
and delivered by the Company, and countersigned and delivered by the Rights Agent, in the manner provided for herein (and may bear,
at the option of the Company, the adjusted Exercise Price) and shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.

 

(i)          Irrespective
of any adjustment or change in the Exercise Price or the number of one one-thousandths of a share of Preferred Stock issuable upon
the exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the Exercise Price
per one one-thousandth of a share and the number of one one-thousandths of a share
which were expressed in the initial Rights Certificates issued hereunder.

 

    	 	23	 

     

    

  

(j)          In
any case in which this Section 11 requires that an adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer (with prompt written notice thereof to the Rights Agent; and until such written
notice is received by the Rights Agent, the Rights Agent may presume conclusively that no such election has occurred) until the
occurrence of such event the issuance to the holder of any Right exercised after such record date of that number of one one-thousandths
of a share of Preferred Stock and shares of other capital stock or securities of the Company, if any, issuable upon such exercise
over and above the number of one one-thousandths of a share of Preferred Stock and shares of other capital stock or securities
of the Company, if any, issuable upon such exercise on the basis of the Exercise Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder’s
right to receive such additional shares (fractional or otherwise) or securities upon the occurrence of the event requiring such
adjustment.

 

(k)          Notwithstanding
anything in this Section 11 to the contrary, prior to the Distribution Date, the Company is entitled to make such reductions in
the Exercise Price, in addition to those adjustments expressly required by this Section 11, to the extent that the Board determines
that any (i) consolidation or subdivision of the Preferred Stock; (ii) issuance wholly for cash of any shares of Preferred
Stock at less than the Current Market Price; (iii) issuance wholly for cash of shares of Preferred Stock or securities that
by their terms are convertible into or exchangeable for shares of Preferred Stock; (iv) stock dividends; or (v) issuance
of rights, options or warrants referred to in this Section 11, hereafter made by the Company to holders of its Preferred Stock
is taxable to such holders or reduces the taxes payable by such holders.

 

(l)          The
Company may not, at any time after the Distribution Date, (i) consolidate with any other Person (other than a direct or indirect,
wholly owned Subsidiary of the Company in a transaction that complies with Section 11(m) hereof); (ii) merge with or into
any other Person (other than a direct or indirect, wholly owned Subsidiary of the Company in a transaction that complies with Section
11(m) hereof); or (iii) sell or transfer (or permit any Subsidiary to sell or transfer), in one transaction, or a series of
transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person or Persons (other than the Company and/or any of its direct or indirect, wholly owned Subsidiaries
in one or more transactions, each of which complies with Section 11(m) hereof), if (A) at the time of or immediately after
such consolidation, merger or sale there are any rights, warrants or other instruments or securities outstanding or agreements
in effect that would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights; or (B) prior
to, simultaneously with or immediately after such consolidation, merger or sale, the shareholders or other Persons holding an equity
interest in such Person that constitutes, or would constitute, the “Principal Party” for purposes of Section 13(a)
hereof shall have received a distribution of, or otherwise have transferred to them, the Rights previously owned by such Person
or any of its Related Persons; provided, however, this Section 11(l) shall not affect the ability of any Subsidiary of the
Company to consolidate with, merge with or into, or sell or transfer assets or earning power to, any other Subsidiary of the Company.

 

    	 	24	 

     

    

  

(m)          After
the earlier of the Distribution Date and the Stock Acquisition Date and as long as any Rights are outstanding (other than Rights
that have become null and void pursuant to Section 7(e) hereof), the Company may not, except as permitted by Section 23, Section
24, and Section 27 hereof, take (or permit any Subsidiary of the Company to take) any action if at the time such action is taken
it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded
by the Rights.

 

(n)          Notwithstanding
anything in this Agreement to the contrary, in the event that the Company, at any time after the date hereof and prior to the Distribution
Date, (i) declares a dividend on the outstanding shares of Common Stock payable in shares of Common Stock; (ii) subdivides
any outstanding shares of Common Stock; (iii) combines any of the outstanding shares of Common Stock into a smaller number
of shares; or (iv) issues any shares of its capital stock in a reclassification of the Common Stock (including any such reclassification
in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), then the number
of Rights associated with each share of Common Stock then outstanding or issued or delivered thereafter but prior to the Distribution
Date shall be proportionately adjusted so that the number of Rights thereafter associated with each share of Common Stock following
any such event equals the result obtained by multiplying the number of Rights associated with each share of Common Stock immediately
prior to such event by a fraction the numerator of which shall be the total number of shares of Common Stock outstanding immediately
prior to the occurrence of the event and the denominator of which shall be the total number of shares of Common Stock outstanding
immediately following the occurrence of such event. The adjustments provided for in this Section 11(n) shall be made successively
whenever such a dividend is declared or paid or such a subdivision, combination, or reclassification is effected. If an event occurs
that would require an adjustment under Section 11(a)(ii) hereof and this Section 11(n), the adjustments provided for in this Section
11(n) shall be in addition and prior to any adjustment required pursuant to Section 11(a)(ii) hereof.

 

Section
12.      Certificate of Adjusted Exercise Price or Number of Shares.

 

Whenever an adjustment
is made or any event affecting the Rights or their exercisability (including, without limitation, an event that causes Rights to
become null and void) occurs as provided in Section 11 or Section 13 hereof, the Company shall (a) promptly prepare a certificate
setting forth such adjustment or describing such event, and a brief reasonably detailed statement of the facts, computations and
methodology accounting for such adjustment; (b) promptly file with the Rights Agent, and with each transfer agent for the
Preferred Stock and the Common Stock, a copy of such certificate; and (c) mail a brief summary thereof to each holder of a
Rights Certificate (or, if prior to the Distribution Date, each registered holder of shares of Common Stock) in accordance with
Section 26 hereof. Notwithstanding the foregoing sentence, the failure of the Company to make such certification or give such notice
shall not affect the validity of or the force or effect of the requirement for such adjustment. Any adjustment to be made pursuant
to Section 11 or Section 13 hereof shall be effective as of the date of the event giving rise to such adjustment. The Rights Agent
shall be fully protected in relying on any such certificate and on any adjustment or statement therein contained and shall have
no duty or liability with respect thereto, and shall not be deemed to have knowledge of any such adjustment or any such event unless
and until it shall have received such certificate.

 

    	 	25	 

     

    

  

Section
13.      Consolidation, Merger or Sale or Transfer of Assets or Earning
Power.

 

(a)          Subject
to Section 23 hereof, at any time after a Person has become an Acquiring Person, in the event that, directly or indirectly,

 

(x) the Company consolidates
with, or merges with and into, any other Person (other than a direct or indirect, wholly owned Subsidiary of the Company in a transaction
that complies with Section 11(m) hereof), and the Company is not the continuing or surviving entity of such consolidation or merger;

 

(y) any Person (other than a
direct or indirect, wholly owned Subsidiary of the Company in a transaction that complies with Section 11(m) hereof) consolidates
with, or merges with or into, the Company, and the Company is the continuing or surviving entity of such consolidation or merger
and, in connection with such consolidation or merger, all or part of the outstanding shares of Common Stock is converted into or
exchanged for stock or other securities of any other Person (or the Company) or cash or any other property; or

 

(z) the Company sells or otherwise
transfers (or one or more of its Subsidiaries sells or otherwise transfers) to any Person or Persons (other than the Company or
any of its direct or indirect, wholly owned Subsidiaries in one or more transactions, each of which complies with Section 11(m)
hereof), in one or more transactions, assets or earning power aggregating 50% or more of the assets or earning power of the Company
and its Subsidiaries, taken as a whole;

 

(any such event described in (x), (y), or (z),
a “Flip-Over Event”), then, in each such case, proper provision shall be made so that:

 

(i)          each
holder of a Right, except as provided in Section 7(e) hereof, upon the expiration of the Redemption Period, will have the right
to receive, upon the exercise of the Right at the then current Exercise Price in accordance with the terms of this Agreement, and
in lieu of a number of one one-thousandth shares of Preferred Stock, a number of validly
authorized and issued, fully paid, non-assessable and freely tradable shares of Common Stock of the Principal Party, free of any
liens, encumbrances, rights of first refusal, transfer restrictions or other adverse claims, equal to the result obtained by:

 

(A)         multiplying
such then current Exercise Price by the number of one one-thousandths of a share of Preferred Stock for which such Right is exercisable
immediately prior to the first occurrence of a Flip-Over Event (or, if a Flip-In Event has occurred prior to the first occurrence
of a Flip-Over Event, multiplying the number of one one-thousandths of a share of Preferred Stock for which a Right would be exercisable
hereunder but for the first occurrence of such Flip-In Event by the Exercise Price that would be in effect hereunder but for such
first occurrence), and

 

(B)         dividing
that product (which, following the first occurrence of a Flip-Over Event, shall be the “Exercise Price”
for each Right and for all purposes of this Agreement) by 50% of the then Current Market Price of the shares of Common Stock of
such Principal Party on the date of consummation of such Flip-Over Event (or the fair market value on such date of other securities
or property of the Principal Party, as provided for herein);

 

    	 	26	 

     

    

  

(ii)         such
Principal Party shall be liable for, and shall assume, by virtue of such Flip-Over Event, all the obligations and duties of the
Company pursuant to this Agreement;

 

(iii)        the
term “Company” will thereafter be deemed to refer to such Principal Party, it being specifically intended that the
provisions of Section 11 hereof shall apply only to such Principal Party following the first occurrence of a Flip-Over Event;

 

(iv)        such
Principal Party will take such steps (including, without limitation, the reservation of a sufficient number of shares of its Common
Stock) in connection with the consummation of any such transaction as may be necessary to ensure that the provisions hereof shall
be applicable, as nearly as reasonably may be possible, to its shares of Common Stock thereafter deliverable upon the exercise
of the Rights; and

 

(v)         the
provisions of Section 11(a)(ii) hereof shall be of no further effect following the first occurrence of any Flip-Over Event, and
the Rights that have not theretofore been exercised shall thereafter become exercisable in the manner described in this Section
13.

 

(b)          “Principal
Party” shall mean

 

(i)          in
the case of any transaction described in clause (x) or (y) of the first sentence of Section 13(a) hereof, (A) the Person (including
the Company as successor thereto or as the surviving entity) that is the issuer of any securities or other equity interests into
which shares of Common Stock of the Company are converted in such merger or consolidation, or, if there is more than one such issuer,
the issuer of Common Stock that has the highest aggregate Current Market Price; and (B) if no securities or other equity interests
are so issued, (1) the Person that is the other constituent party to such merger, if such Person survives the merger, or, if there
is more than one such Person, the Person, the Common Stock of which has the highest aggregate Current Market Price or (2) if the
Person that is the other party to the merger does not survive the merger, the Person that does survive the merger (including the
Company if it survives) or (3) the Person resulting from the consolidation; and

 

(ii)         in
the case of any transaction described in clause (z) of the first sentence of Section 13(a) hereof, the Person that is the party
receiving the largest portion of the assets or earning power transferred pursuant to such transaction or transactions, or, if each
Person that is a party to such transaction or transactions receives the same portion of the assets or earning power transferred
pursuant to such transaction or transactions or if the Person receiving the largest portion of the assets or earning power cannot
be determined, whichever Person that has received assets or earning power pursuant to such transaction or transactions, the Common
Stock of which has the highest aggregate Current Market Price; provided, however, that in any such case: (1) if the
Common Stock of such Person is not at such time and has not been continuously over the preceding 12 month period registered under
Section 12 of the Exchange Act, and such Person is a direct or indirect Subsidiary of another Person the Common Stock of which
is and has been so registered, “Principal Party” will refer to such other Person; (2) if the Common Stock of such
Person is not and has not been so registered and such Person is a Subsidiary, directly or indirectly, of more than one Person,
the Common Stocks of two or more of which are and have been so registered, “Principal Party” will refer to whichever
of such Persons is the issuer of the Common Stock having the highest aggregate market value; and (3) if the Common Stock of
such Person is not and has not been so registered and such Person is owned, directly or indirectly, by a joint venture formed by
two or more Persons that are not owned, directly or indirectly, by the same Person, the rules set forth in (1) and (2) above will
apply to each of the chains of ownership having an interest in such joint venture as if such party were a Subsidiary of both or
all of such joint venturers, and the Principal Parties in each such chain shall bear the obligations set forth in this Section
13 in the same ratio as their direct or indirect interests in such Person bear to the total of such interests.

 

    	 	27	 

     

    

  

(c)          The
Company may not consummate any Flip-Over Event unless the Principal Party has a sufficient number of authorized shares of its Common
Stock that have not been issued (or reserved for issuance) or that are held in its treasury to permit the exercise in full of the
Rights in accordance with this Section 13 and unless prior thereto the Company and such Principal Party have executed and delivered
to the Rights Agent a supplemental agreement providing for the terms set forth in paragraphs (a) and (b) of this Section 13 and
further providing that, as soon as practicable after the date of any such Flip-Over Event, the Principal Party, at its own expense,
shall:

 

(i)          if
the Principal Party is required to file a registration statement pursuant to the Securities Act with respect to the Rights and
the securities purchasable upon exercise of the Rights, (A) prepare and file such registration statement; (B) use its
best efforts to cause such registration statement to become effective as soon as practicable after such filing and remain effective
(and to include a prospectus at all times complying with the requirements of the Securities Act) until the Expiration Date; and
(C) take such action as may be required to ensure that any acquisition of such securities that may be acquired upon exercise
of the Rights complies with any applicable state security or “blue sky” laws as soon as practicable following the execution
of such agreement;

 

(ii)         deliver
to holders of the Rights historical financial statements for the Principal Party and each of its Affiliates that comply in all
respects with the requirements for registration on Form 10 (or any successor form) under the Exchange Act;

 

(iii)        use
its best efforts to obtain any and all necessary regulatory approvals as may be required with respect to the securities that may
be acquired upon exercise of the Rights;

 

(iv)        use
its best efforts, if such Common Stock of the Principal Party is listed or admitted to trading on NASDAQ, the NYSE or on another
national securities exchange, to list or admit to trading (or continue the listing of) the Rights and the securities that may be
acquired upon exercise of the Rights on NASDAQ, the NYSE or on such securities exchange, or if the securities of the Principal
Party that may be acquired upon exercise of the Rights are not listed or admitted to trading on NASDAQ, the NYSE or a national
securities exchange, to cause the Rights and the securities that may be acquired upon exercise of the Rights to be authorized for
quotation on any other system then in use; and

 

    	 	28	 

     

    

  

(v)         obtain
waivers of any rights of first refusal or preemptive rights in respect of the Common Stock of the Principal Party subject to purchase
upon exercise of outstanding Rights.

 

(d)          In
case the Principal Party that is to be a party to a transaction referred to in this Section 13 has at the time of such transaction,
or immediately following such transaction has a provision in any of its authorized securities or in its certificate or articles
of incorporation or by-laws or other instrument governing its affairs, or any other agreements or arrangements, which provision
would have the effect of (i) causing such Principal Party to issue, in connection with, or as a consequence of, the consummation
of a transaction referred to in this Section 13, shares of Common Stock of such Principal Party at less than the then Current Market
Price or securities exercisable for, or convertible into, Common Stock of such Principal Party at less than such then Current Market
Price (other than to holders of Rights pursuant to this Section 13); (ii) providing for any special payment, tax or similar
provisions in connection with the issuance of the Common Stock of such Principal Party pursuant to the provisions of this Section
13; or (iii) otherwise eliminating or substantially diminishing the benefits intended to be afforded by the Rights in connection
with, or as a consequence of, the consummation of a transaction referred to in this Section 13, then, in each such case, the Company
may not consummate any such transaction unless prior thereto the Company and such Principal Party have executed and delivered to
the Rights Agent a supplemental agreement providing that the provision in question of such Principal Party has been cancelled,
waived or amended, or that the authorized securities have been redeemed, so that the applicable provision will have no effect in
connection with, or as a consequence of, the consummation of such transaction.

 

(e)          The
provisions of this Section 13 shall apply similarly to successive mergers or consolidations or sales or other transfers. In the
event that a Flip-Over Event occurs after the occurrence of a Flip-In Event, the Rights that have not theretofore been exercised
shall thereafter become exercisable in the manner described in Section 13(a) hereof.

 

(f)          Notwithstanding
anything contained herein to the contrary, in the event of any merger or other acquisition transaction involving the Company pursuant
to a merger or other acquisition agreement between the Company and any Person (or one or more of such Person's Affiliates or Associates)
which agreement has been approved by the Board prior to any Person becoming an Acquiring Person, this Agreement and the rights
of holders of Rights hereunder shall be terminated in accordance with Section 7(a).

 

Section
14.      Fractional Rights; Fractional Shares; Waiver.

 

(a)          The
Company is not required to issue fractions of Rights except prior to the Distribution Date as provided in Section 11(n) hereof,
or to distribute Rights Certificates that evidence fractional Rights. In lieu of such fractional Rights, the Company shall pay
to the Persons to which such fractional Rights would otherwise be issuable an amount in cash equal to such fraction of the market
value of a whole Right. For purposes of this Section 14(a), the market value of a whole Right is the Closing Price of the Rights
for the Trading Day immediately prior to the date that such fractional Rights would have been otherwise issuable.

 

    	 	29	 

     

    

  

(b)          The
Company is not required to issue fractions of shares of Preferred Stock (other than fractions which are integral multiples of one
one-thousandth of a share of Preferred Stock) upon exercise of the Rights or to distribute
certificates which evidence fractional shares of Preferred Stock (other than fractions which are integral multiples of one one-thousandth
of a share of Preferred Stock). In lieu of fractional shares of Preferred Stock that are not integral multiples of one
one-thousandth of a share of Preferred Stock, the Company may pay to the registered
holders of Rights Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction
of the current market value of one one-thousandth of a share of Preferred Stock. For
purposes of this Section 14(b), the current market value of one one-thousandth of a
share of Preferred Stock is one one-thousandth of the Closing Price of a share of Preferred
Stock for the Trading Day immediately prior to the date of such exercise.

 

(c)          Following
the occurrence of one of the events specified in Section 11 hereof giving rise to the right to receive Common Stock, Common Stock
Equivalents or other securities upon the exercise of a Right, the Company will not be required to issue fractions of shares of
Common Stock, Common Stock Equivalents or other securities upon exercise of the Rights or to distribute certificates which evidence
fractional shares of Common Stock, Common Stock Equivalents or other securities. In lieu of fractional shares of Common Stock,
Common Stock Equivalents or other securities, the Company may pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one share
of Common Stock, Common Stock Equivalents or other securities. For purposes of this Section 14(c), the current market value of
one share of Common Stock is the Closing Price of one share of Common Stock for the Trading Day immediately prior to the date of
such exercise.

 

(d)          The
holder of a Right, by the acceptance of the Right, expressly waives such holder’s right to receive any fractional Rights
or any fractional shares upon exercise of a Right, except as permitted by this Section 14.

 

(e)          Whenever
a payment for fractional Rights or fractional shares is to be made by the Rights Agent under this Agreement, the Company shall
(i) promptly prepare and deliver to the Rights Agent a certificate setting forth in reasonable detail the facts related to
such payments and the prices and formulas utilized in calculating such payments; and (ii) provide sufficient monies to the
Rights Agent in the form of fully collected funds to make such payments. The Rights Agent may rely upon such a certificate and
has no duty with respect to, and will not be deemed to have knowledge of, any payment for fractional Rights or fractional shares
under any Section of this Agreement relating to the payment of fractional Rights or fractional shares unless and until the Rights
Agent has received such a certificate and sufficient monies.

 

    	 	30	 

     

    

  

Section
15.      Rights of Action.

 

All rights of action in
respect of this Agreement, other than the rights of action vested in the Rights Agent hereunder, are vested in the respective registered
holders of the Rights Certificates (and, prior to the Distribution Date, the registered holders of shares of the Common Stock);
and any registered holder of a Rights Certificate (or, prior to the Distribution Date, any registered holder of shares of the Common
Stock), without the consent of the Rights Agent or of the holder of any other Rights Certificate (or, prior to the Distribution
Date, any registered holder of shares of the Common Stock), may, in such holder’s own behalf and for such holder’s
own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company or any other Person to
enforce, or otherwise act in respect of, such holder’s right to exercise the Rights evidenced by such Rights Certificate
in the manner provided in such Rights Certificate and in this Agreement. Without limiting the foregoing or any remedies available
to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for
any breach of this Agreement by the Company and shall be entitled to specific performance of the obligations hereunder, and injunctive
relief against actual or threatened violations by the Company of the obligations hereunder of any Person (including, without limitation,
the Company) subject to this Agreement.

 

Section
16.      Agreement of Rights Holders.

 

Every holder of a Right,
by accepting such Right, consents and agrees with the Company and the Rights Agent and with every other holder of a Right that:

 

(a)          prior
to the Distribution Date, the Rights shall be evidenced by the balances indicated in the Book Entry account system of the transfer
agent for the Common Stock registered in the names of the holders of Common Stock (which Common Stock shall also be deemed to represent
certificates for Rights) or, in the case of certificated shares, the certificates for the Common Stock registered in the names
of the holders of the Common Stock (which certificates for shares of Common Stock also constitute certificates for Rights) and
each Right is transferable only in connection with the transfer of the Common Stock;

 

(b)          after
the Distribution Date, the Rights Certificates shall be transferable only on the registry books of the Rights Agent if surrendered
at the office of the Rights Agent designated for such purposes, duly endorsed or accompanied by a proper instrument of transfer
and with the appropriate forms and certificates properly completed and duly executed;

 

(c)          subject
to Section 6(a) and Section 7(e) hereof, the Company and the Rights Agent may deem and treat the Person in whose name a Rights
Certificate (or, prior to the Distribution Date, the associated balance indicated in the Book Entry account system of the transfer
agent for the Common Stock, or in the case of certificated shares, by the associated Common Stock certificate) is registered as
the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Rights
Certificates or the associated balance indicated in the Book Entry account system of the transfer agent for the Common Stock, or
in the case of certificated shares, by the associated Common Stock certificate made by anyone other than the Company or the Rights
Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent, subject to the last sentence of Section 7(e)
hereof, shall be affected by any notice to the contrary; and

 

(d)          notwithstanding
anything in this Agreement to the contrary, neither the Company nor the Rights Agent has any liability to any holder of a Right
or any other Person as a result of the inability of the Company or the Rights Agent to perform any of its or their obligations
under this Agreement by reason of any preliminary or permanent injunction or other order, decree, judgment or ruling (whether interlocutory
or final) issued by a court of competent jurisdiction or by a governmental, regulatory, self-regulatory or administrative agency
or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting
or otherwise restraining performance of such obligation; provided, however, the Company shall use its commercially reasonable
efforts to have any such injunction, order, decree, judgment or ruling lifted or otherwise overturned as promptly as practicable.

 

    	 	31	 

     

    

  

Section
17.      Rights Certificate Holder Not Deemed a Shareholder.

 

No holder, as such, of
any Rights Certificate is entitled to vote, receive dividends or be deemed for any purpose the holder of the shares of Preferred
Stock or any other securities of the Company that may at any time be issuable on the exercise of the Rights represented thereby,
nor shall anything contained herein or in any Rights Certificate be construed to confer upon the holder of any Rights Certificate,
as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter
submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or, except as provided
in Section 25 hereof, to receive notice of meetings or other actions affecting shareholders, or to receive dividends or subscription
rights, or otherwise, until the Right evidenced by such Rights Certificate have been exercised in accordance with the provisions
hereof.

 

Section
18.      Duties of Rights Agent.

 

The Rights Agent undertakes
to perform only the duties and obligations expressly imposed by this Agreement (and no implied duties or obligations)
upon the following terms and conditions, by all of which the Company and the holders of Rights Certificates, or, prior to the Distribution
Date, Common stock, by their acceptance thereof, shall be bound:

 

(a)          The
Rights Agent may consult with legal counsel selected by it (who may be legal counsel for the Rights Agent or the Company or an
employee of the Rights Agent), and the advice or opinion of such counsel shall be full and complete authorization and protection
to the Rights Agent, and the Rights Agent will have no liability for or in respect of, any action taken, suffered or omitted to
be taken by it in the absence of bad faith in accordance with such advice or opinion.

 

(b)          Whenever
in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter
(including the identity of any Acquiring Person and the determination of Current Market Price) be proved or established by the
Company prior to taking, suffering or omitting to take any action hereunder, such fact or matter (unless other evidence in respect
thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the
Chairman of the Board, the President and Chief Executive Officer, the Chief Financial Officer, any Executive Vice President, the
Secretary or any Assistant Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full and complete
authorization and protection to the Rights Agent, and the Rights Agent shall incur no liability for or in respect of any action
taken, suffered or omitted to be taken by it, in the absence of bad faith, under the provisions of this Agreement in reliance upon
such certificate.

 

    	 	32	 

     

    

  

(c)          The
Rights Agent shall be liable hereunder to the Company and any other Person only for its own gross negligence, bad faith, or willful
misconduct (which gross negligence, bad faith or willful misconduct must be determined by a final judgment of a court of competent
jurisdiction).  Anything to the contrary notwithstanding, in no event shall the Rights Agent be liable for special,
punitive, indirect, consequential or incidental loss or damage of any kind whatsoever (including, without limitation, lost profits),
even if the Rights Agent has been advised of the likelihood of such loss or damage. Any liability of the Rights Agent under this
Agreement will be limited to the amount of annual fees paid by the Company to the Rights Agent.

 

(d)          The
Rights Agent will not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in
the Rights Certificates or be required to verify the same (except as to its countersignature thereof), but all such statements
and recitals are deemed to have been made by the Company only.

 

(e)          The
Rights Agent shall not have any liability for nor be under any responsibility in respect of the validity of this Agreement or the
execution and delivery hereof (except the due execution and delivery hereof by the Rights Agent) or for the validity or execution
of any Rights Certificate (except its countersignature thereon); nor will it be liable or responsible for any breach by the Company
of any covenant or failure by the Company to satisfy any condition contained in this Agreement or in any Rights Certificate; nor
will it be liable or responsible for any change in the exercisability of the Rights (including, without limitation, the Rights
becoming null and void pursuant to Section 7(e) hereof) or any change or adjustment in the terms of the Rights including, without
limitation, to any adjustment required under the provisions of Sections 11, 13, 23 or 24 hereof or for the manner, method or amount
of any such change or adjustment or the ascertaining of the existence of facts that would require any such change or adjustment
(except with respect to the exercise of Rights evidenced by Rights Certificates after receipt by the Rights Agent of the certificate
describing any such adjustment contemplated by Section 12 hereof, upon which the Rights Agent may rely); nor will it by any act
hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of the Common Stock,
the Preferred Stock or any other securities to be issued pursuant to this Agreement or any Rights Certificate or as to whether
any shares of Common Stock, Preferred Stock or any other securities will, when so issued, be validly authorized and issued, fully
paid and non-assessable.

 

(f)          The
Company shall perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such
further acts, instruments and assurances as may reasonably be required by the Rights Agent for the performance by the Rights Agent
of its duties under this Agreement.

 

    	 	33	 

     

    

  

(g)          The
Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder and
certificates delivered pursuant to any provision hereof from the Chairman of the Board, the President and Chief Executive Officer,
the Chief Financial Officer, any Executive Vice President, the Secretary or any Assistant Secretary of the Company, and to apply
to such officers for advice or instructions in connection with its duties, and such advice or instruction shall be full authorization
and protection to the Rights Agent and the Rights Agent shall incur no liability for or in respect of any action taken or suffered
or omitted to be taken by it by it, in the absence of bad faith, in accordance with advice or instructions of any such officer
or for any delay in acting while waiting for those instructions. Any application by the Rights Agent for written instructions from
the Company may, at the option of the Rights Agent, set forth in writing any action proposed to be taken or omitted by the Rights
Agent under this Agreement and the date on and/or after which such action shall be taken or such omission shall be effective. The
Rights Agent shall be fully authorized and protected in relying upon the most recent instructions received from any such officer,
and shall not be liable for any action taken, suffered or omitted to be taken by the Rights Agent in the absence of bad faith in
accordance with a proposal included in any such application on or after the date specified in such application (which date shall
not be less than five Business Days after the date any officer of the Company actually receives such application unless any such
officer shall have consented in writing to an earlier date) unless, prior to taking any such action (or the effective date in the
case of an omission), the Rights Agent shall have received written instructions in response to such application specifying the
action to be taken, suffered or omitted.

 

(h)          The
Rights Agent and any shareholder, affiliate, director, officer or employee of the Rights Agent may buy, sell or deal in any of
the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested,
or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this
Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other Person.

 

(i)          The
Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself
(through its directors, officers and employees) or by or through its attorneys or agents, and the Rights Agent shall not be liable,
answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any
loss to the Company, any holder of Rights or any other Person resulting from any such act, default, neglect or misconduct, absent
gross negligence, bad faith or willful misconduct (each as determined by a final judgment of a court of competent jurisdiction)
in the selection and continued employment thereof.

 

(j)          No
provision of this Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if there are reasonable grounds
for believing that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured
to it.

 

(k)          If,
with respect to any Rights Certificate surrendered to the Rights Agent for exercise or transfer, either (i) the certificate attached
to the form of assignment or form of election to purchase, as the case may be, has either not been completed or indicates an affirmative
response to clause 1 and/or 2 thereof, or (ii) any other actual or suspected irregularity exists, the Rights Agent shall not take
any further action with respect to such requested exercise or transfer without first consulting with the Company.

 

    	 	34	 

     

    

  

Section
19.      Concerning the Rights Agent.

 

(a)          The
Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and from time to time,
on demand of the Rights Agent, to reimburse the Rights Agent for all of its reasonable and documented expenses, counsel fees and
disbursements and other disbursements incurred in the preparation, delivery, amendment, administration and execution of this Agreement
and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold
it harmless against, any loss, liability, damage, demand, judgment, fine, penalty, claim, settlement, cost or expense (including
the reasonable fees and expenses of legal counsel), incurred without gross negligence, bad faith or willful misconduct on the part
of the Rights Agent (each as determined by a final judgment of a court of competent jurisdiction) for any action taken, suffered
or omitted to be taken by the Rights Agent pursuant to this Agreement or in connection with the acceptance, administration, exercise
and performance of its duties under this Agreement, including the reasonable and documented costs and expenses of defending against
any claim of liability arising therefrom, directly or indirectly, or enforcing its rights hereunder.

 

(b)          The
Rights Agent shall be authorized and protected and shall incur no liability for or in respect of any action taken, suffered or
omitted to be taken by it in connection with its acceptance and administration of this Agreement and the exercise and performance
of its duties hereunder in reliance upon any Rights Certificate or Book Entry for Common Stock or other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate,
statements or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, guaranteed,
verified or acknowledged, by the proper Person or Persons, or otherwise upon the advice of counsel as set forth in Section 18 hereof.
The Rights Agent shall not be deemed to have knowledge of any event of which it was supposed to receive notice thereof hereunder,
and the Rights Agent shall be fully protected and shall incur no liability for failing to take action in connection therewith unless
and until it has received such notice in writing.

 

(c)          Notwithstanding
anything in this Agreement to the contrary, in no case shall the Company be liable with respect to any action, proceeding, suit
or claim against the Rights Agent unless the Rights Agent shall have notified the Company in accordance with Section 26 hereof
of the assertion of such action, proceeding, suit or claim against the Rights Agent, promptly after the Rights Agent shall have
notice of such assertion of an action, proceeding, suit or claim or have been served with the summons or other first legal process
giving information as to the nature and basis of the action, proceeding, suit or claim; provided that the failure to provide such
notice promptly shall not affect the rights of the Rights Agent hereunder except to the extent that such failure actually prejudices
the Company. The Company shall be entitled to participate at its own expense in the defense of any such action, proceeding, suit
or claim, and, if the Company so elects, the Company shall assume the defense of any such action, proceeding, suit or claim. In
the event that the Company assumes such defense, the Company shall not thereafter be liable for the fees and expenses of any counsel
retained by the Rights Agent, so long as the Company shall retain counsel satisfactory to the Rights Agent, in the exercise of
its reasonable judgment, to defend such action, proceeding, suit or claim, and provided that the Rights Agent does not have defenses
that are adverse to or different from any defenses of the Company. The Rights Agent agrees not to settle any litigation in connection
with any action, proceeding, suit or claim with respect to which it may seek indemnification from the Company without the prior
written consent of the Company, which shall not be unreasonably withheld.

 

    	 	35	 

     

    

  

(d)          The
provisions of this Section 19 and Section 21 below shall survive the termination of this Agreement, the resignation, replacement
or removal of the Rights Agent and the exercise, termination and the expiration of the Rights. Notwithstanding anything in this
Agreement to the contrary, in no event shall the Rights Agent be liable for special, punitive, incidental, indirect or consequential
loss or damage of any kind whatsoever (including, without limitation, to lost profits), even if the Rights Agent has been advised
of the likelihood of such loss or damage and regardless of the form of the action; and the Company agrees to indemnify the Rights
Agent and to hold it harmless to the fullest extent permitted by law against any loss, liability or expense incurred as a result
of claims for special, punitive, incidental, indirect or consequential loss or damages of any kind whatsoever provided in each
case that such claims are not based on the gross negligence, bad faith or willful misconduct of the Rights Agent (each as determined
by a final judgment of a court of competent jurisdiction). Any liability of the Rights Agent under this Agreement shall be limited
to the amount of annual fees paid by the Company to the Rights Agent.

 

Section
20.      Merger or Consolidation or Change of Name of Rights Agent.

 

(a)          Any
Person into which the Rights Agent or any successor Rights Agent is merged or with which the Rights Agent or any successor Rights
Agent is consolidated, or any Person resulting from any merger or consolidation to which the Rights Agent or any successor Rights
Agent is a party, or any Person succeeding to the corporate trust, stock transfer or other shareholder services business of the
Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution
or filing of any paper or any further act on the part of any of the parties hereto; but only if such Person would be eligible
for appointment as a successor Rights Agent under the provisions of Section 21 hereof. The purchase of all or substantially all
of the Rights Agent’s assets employed in the performance of transfer agent activities shall be deemed a merger or consolidation
for purposes of this Section 20. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement,
any of the Rights Certificates have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature
of a predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights
Certificates have not been countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name
of the predecessor or in the name of the successor Rights Agent; and in all such cases such Rights Certificates shall have the
full force provided in the Rights Certificates and in this Agreement.

 

(b)          In
case at any time the name of the Rights Agent shall be changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates
so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may
countersign such Rights Certificates either in its prior name or in its changed name; and in all such cases such Rights Certificates
shall have the full force provided in the Rights Certificates and in this Agreement.

 

    	 	36	 

     

    

  

Section
21.      Change of Rights Agent.

 

The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this Agreement upon at least 30 days’ notice in
writing mailed to the Company. The Company may remove the Rights Agent or any successor Rights Agent upon at least 30 days’
notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the
Common Stock and Preferred Stock, by registered or certified mail, and, if such removal occurs after the Distribution Date, to
the holders of the Rights Certificates by first-class mail. If the Rights Agent resigns or is removed or otherwise becomes incapable
of acting, the Company shall appoint a successor to the Rights Agent. If the Company fails to make such appointment within a period
of 30 days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Rights Certificate (such holder shall, with such notice, submit its
Rights Certificate for inspection by the Company), then the incumbent Rights Agent or any registered holder of any Rights Certificate
may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether
appointed by the Company or by such a court, shall be (a) a Person organized and doing business under the laws of the United States
or any State thereof, in good standing, which is authorized under such laws to exercise corporate trust, stock transfer or shareholder
services powers and which at the time of its appointment as Rights Agent has, or with its parent has, a combined capital and surplus
of at least $50,000,000 or (b) an affiliate of a Person described in clause (a) of this sentence. After appointment, the successor
Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights
Agent under this Agreement without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor
Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed
necessary for the purpose. Not later than the effective date of any such appointment, the Company shall file notice thereof in
writing with the predecessor Rights Agent and each transfer agent of the Common Stock and the Preferred Stock, and, if such appointment
occurs after the Distribution Date, mail a notice thereof in writing to the registered holders of the Rights Certificates. Failure
to give any notice provided for in this Section 21, or any defect therein, shall not affect the legality or validity of the resignation
or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be.

 

Section
22.      Issuance of New Rights Certificates.

 

Notwithstanding any of
the provisions of this Agreement or the Rights Certificates to the contrary, the Company may, at its option, issue new Rights Certificates
evidencing Rights in such form as may be approved by the Board to reflect any adjustment or change made in accordance with the
provisions of this Agreement in the Exercise Price or the number or kind or class of shares or other securities or property that
may be acquired under the Rights Certificates. In addition, in connection with the issuance or sale of shares of Common Stock following
the Distribution Date (other than upon exercise of a Right) and prior to the redemption or the Expiration Date, the Company (a) shall,
with respect to shares of Common Stock so issued or sold pursuant to the exercise of stock options or under any employee plan or
arrangement, or upon the exercise, conversion or exchange of securities hereinafter issued by the Company, and (b) may, in
any other case, if deemed necessary or appropriate by the Board, issue Rights Certificates representing the appropriate number
of Rights in connection with such issuance or sale; provided, however, that (i) no such Rights Certificate may be issued
if, and to the extent that, the Company has been advised by counsel that such issuance would create a significant risk of material
adverse tax consequences to the Company or the Person to whom such Rights Certificate would be issued, and (ii) no such Rights
Certificate may be issued if, and to the extent that, appropriate adjustment shall otherwise have been made in lieu of the issuance
thereof.

 

    	 	37	 

     

    

  

Section
23.      Redemption.

 

(a)          The
Board may, within its sole discretion, at any time before any Person becomes an Acquiring Person (the “Redemption Period”)
cause the Company to redeem all, but not less than all, of the then outstanding Rights at a redemption price of $0.01 per Right,
as such amount may be appropriately adjusted to reflect any stock split, reverse stock split, stock dividend or similar transaction
occurring after the date hereof (such redemption price, as adjusted, the “Redemption Price”). Notwithstanding
anything contained in this Agreement to the contrary, the Rights will not be exercisable after the first occurrence of a Flip-In
Event or Flip-Over Event until such time as the Company’s right of redemption hereunder has expired. The redemption of the
Rights by the Board pursuant to this paragraph (a) may be made effective at such time, on such basis and with such conditions as
the Board may establish, in its sole discretion. The Company may, at its option, pay the Redemption Price in cash, shares of Common
Stock based on the Current Market Price or any other form of consideration deemed appropriate by the Board.

 

(b)          Immediately
upon the action of the Board ordering the redemption of the Rights pursuant to paragraph (a) of this Section 23 (or such later
time as the Board may establish for the effectiveness of such redemption), and without any further action and without any notice,
the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the
Redemption Price for each Right held. The Company shall promptly give (i) written notice to the Rights Agent of any such redemption
(and until such written notice is received by the Rights Agent, the Rights Agent may presume conclusively that no such redemptions
have occurred); and (ii) public notice of any such redemption; provided, however, that the failure to give, or any
defect in, any such notice will not affect the validity of such redemption. Within 10 days after such action of the Board ordering
the redemption of the Rights, the Company shall mail a notice of redemption to all the holders of the then outstanding Rights at
their last addresses as they appear upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry
books of the transfer agent for the Common Stock. Any notice that is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the
Redemption Price shall be made. Neither the Company nor any of its Related Persons may redeem, acquire or purchase for value any
Rights at any time in any manner other than that specifically set forth in this Section 23 or in Section 24 hereof, or other than
in connection with the purchase of shares of Common Stock or the conversion or redemption of shares of Common Stock in accordance
with the applicable provisions of the Charter prior to the Distribution Date.

 

    	 	38	 

     

    

  

Section
24.      Exchange.

 

(a)          The
Board may, at its option, at any time after any Person becomes an Acquiring Person, exchange all or part of the then outstanding
and exercisable Rights (which shall not include Rights that have become null and void pursuant to the provisions of Section 7(e)
hereof) for shares of Common Stock at an exchange ratio of one share of Common Stock per each outstanding Right, as appropriately
adjusted to reflect any stock split, reverse stock split, stock dividend or similar transaction occurring after the date hereof
(such exchange ratio being hereinafter referred to as the “Exchange Ratio”). Notwithstanding the foregoing,
the Board is not empowered to effect such exchange at any time after any Acquiring Person, together with all of its Related Persons,
becomes the Beneficial Owner of 50% or more of the shares of Common Stock then outstanding. The exchange of the Rights by the Board
may be made effective at such time, on such basis and with such conditions as the Board in its sole discretion may establish. From
and after the occurrence of a Flip-Over Event, any Rights that theretofore have not been exchanged pursuant to this Section 24(a)
will thereafter be exercisable only in accordance with Section 13 hereof and may not be exchanged pursuant to this Section 24(a).

 

(b)          Immediately
upon the action of the Board ordering the exchange of any Rights pursuant to paragraph (a) of this Section 24 and without any further
action or notice, the right to exercise such Rights will terminate and the only right thereafter of a holder of such Rights shall
be to receive a number of shares of Common Stock equal to the number of such Rights held by such holder multiplied by the Exchange
Ratio. The Company shall promptly give (i) written notice to the Rights Agent of any such exchange (and until such written
notice is received by the Rights Agent, the Rights Agent may presume conclusively that no such exchange has occurred); and (ii) public
notice of any such exchange; provided, however, that the failure to give, or any defect in, such notice will not affect
the validity of such exchange. The Company promptly shall mail a notice of any such exchange to all of the holders of such Rights
at their last addresses as they appear upon the registry books of the Rights Agent. Any notice that is mailed in the manner herein
provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method
by which the exchange of the shares of Common Stock for Rights shall be effected and, in the event of any partial exchange, the
number of Rights that shall be exchanged. Any partial exchange shall be effected pro rata based on the number of Rights
(other than Rights that have become null and void pursuant to the provisions of Section 7(e) hereof) held by each holder of Rights.

 

(c)          The
Company may at its option substitute, and, in the event that there shall not be sufficient shares of Common Stock issued but not
outstanding or authorized but unissued to permit an exchange of Rights for Common Stock as contemplated in accordance with this
Section 24, the Company shall substitute to the extent of such insufficiency, for each share of Common Stock that would otherwise
be issuable upon exchange of a Right, a number of shares of Preferred Stock or fraction thereof (or Equivalent Preferred Stock,
as such term is defined in Section 11(b)) such that the Current Market Price of one share of Preferred Stock (or Equivalent Preferred
Share) multiplied by such number or fraction is equal to the Current Market Price of one share of Common Stock as of the date of
such exchange.

 

    	 	39	 

     

    

  

(d)          Upon
declaring an exchange pursuant to this Section 24, or as promptly as reasonably practicable thereafter, the Company may implement
such procedures as it deems appropriate, in its sole discretion, for the purpose of ensuring that the Common Stock (or such other
consideration) issuable upon an exchange pursuant to this Section 24 is not received by holders of Rights that have become null
and void pursuant to Section 7(e) hereof. Before effecting an exchange pursuant to this Section 24, the Board may direct the Company
to enter into a Trust Agreement in such form and with such terms as the Board shall then approve (the “Trust Agreement”).
If the Board so directs, the Company shall enter into the Trust Agreement and the Company shall issue to the trust created by the
Trust Agreement (the “Trust”) all or a portion (as designated by the Board) of the shares of Common Stock
and other securities, if any, distributable pursuant to the Exchange, and all shareholders entitled to distribution of such shares
or other securities (and any dividends or distributions made thereon after the date on which such shares or other securities are
deposited in the Trust) shall be entitled to receive a distribution of such shares or other securities (and any dividends or distributions
made thereon after the date on which such shares or other securities are deposited in the Trust) only from the Trust and solely
upon compliance with all relevant terms and provisions of the Trust Agreement. Prior to effecting an exchange and registering shares
of Common Stock (or other such securities) in any Person’s name, including any nominee or transferee of a Person, the Company
may require (or cause the trustee of the Trust to require), as a condition thereof, that any holder of Rights provide evidence,
including, without limitation, the identity of the Beneficial Owners thereof and their Related Persons (or former Beneficial Owners
thereof and their Related Persons) as the Company reasonably requests in order to determine if such Rights are null and void. If
any Person fails to comply with such request, the Company shall be entitled conclusively to deem the Rights formerly held by such
Person to be null and void pursuant to Section 7(e) hereof and not transferable or exercisable or exchangeable in connection herewith.
Any shares of Common Stock or other securities issued at the direction of the Board in connection herewith shall be validly issued,
fully paid and nonassessable shares of Common Stock or of such other securities (as the case may be).

 

Section
25.      Notice of Certain Events.

 

(a)          In
case the Company proposes, at any time after the earlier of the Distribution Date or the Stock Acquisition Date, (i) to pay
any dividend payable in stock of any class or series to the holders of Preferred Stock or to make any other distribution to the
holders of Preferred Stock (other than a regular quarterly cash dividend out of earnings or retained earnings of the Company);
(ii) to offer to the holders of Preferred Stock rights or warrants to subscribe for or to purchase any additional shares of
Preferred Stock or shares of stock of any class or any other securities, rights or options; (iii) to effect any reclassification
of Preferred Stock (other than a reclassification involving only the subdivision of outstanding shares of Preferred Stock); (iv) to
effect any consolidation or merger into or with any other Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(m) hereof) or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect
any sale or other transfer), in one or more transactions, of more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company and/or any of its Subsidiaries in one or
more transactions each of which complies with Section 11(m) hereof); or (v) to effect the liquidation, dissolution or winding
up of the Company, then, in each such case, the Company shall give to each registered holder of a Rights Certificate, to the extent
feasible, and to the Rights Agent in accordance with Section 26 hereof, a written notice of such proposed action, which shall specify
the record date for the purposes of such stock dividend, distribution of rights or warrants, or the date on which such reclassification,
consolidation, merger, sale, transfer, liquidation, dissolution or winding up is to take place and the date of participation therein
by the holders of the shares of Preferred Stock if any such date is to be fixed, and such notice shall be so given in the case
of any action covered by clause (i) or (ii) above at least 10 days prior to the record date for determining holders of the shares
of Preferred Stock for purposes of such action and, in the case of any such other action, at least 10 days prior to the date of
the taking of such proposed action or the date of participation therein by the holders of the shares of Preferred Stock, whichever
is earlier; provided, however, that no such action shall be taken pursuant to this Section 25(a) that will or would conflict
with any provision of the Charter; provided, further, that no such notice is required pursuant to this Section 25 if any
Subsidiary of the Company effects a consolidation or merger with or into, or effects a sale or other transfer of assets or earning
power to, any other Subsidiary of the Company.

 

    	 	40	 

     

    

  

(b)          In
case any Flip-In Event occurs, (i) the Company shall, as soon as practicable thereafter, give to each registered holder of
a Rights Certificate, to the extent feasible, and to the Rights Agent in accordance with Section 26 hereof, a written notice of
the occurrence of such event, which notice shall describe such event and the consequences of such event to holders of Rights under
Section 11(a)(ii) hereof; and (ii) all references in paragraph (a) of this Section 25 to Preferred Stock shall be deemed thereafter
to refer to Common Stock and/or, if appropriate, to any other securities that may be acquired upon exercise of a Right.

 

(c)          In
case any Flip-Over Event occurs, then the Company shall, as soon as practicable thereafter, give to each registered holder of a
Rights Certificate, to the extent feasible, and to the Rights Agent in accordance with Section 26 hereof, a written notice of the
occurrence of such event, which notice shall describe such event and the consequences of such event to holders of Rights under
Section 13(a) hereof.

 

Section
26.      Notices.

 

Notices or demands authorized
by this Agreement to be given or made by the Rights Agent or by the holder of any Rights Certificate to or on the Company shall
be sufficiently given or made if sent by first-class or express United States mail, FedEx or UPS, postage prepaid and properly
addressed (until another address is filed in writing by the Rights Agent with the Company) as follows:

 

	If to the Company, at its address at:
	 
	Fred’s, Inc.
	4300 New Getwell Road
	Memphis, TN 38118
	Attention:  Michael K. Bloom
	 
	with a copy to:
	 
	Vinson & Elkins L.L.P.
	666 Fifth Avenue, 26th Floor
	New York, NY 10103
	Attention:  Kai H. Liekefett, Esq.

 

Subject to the
provisions of Section 21 hereof, any notice or demand authorized by this Agreement to be given or made by the Company or by the
holder of any Rights Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class or express
United States mail, FedEx or UPS, postage prepaid and properly addressed (until another address is filed in writing with the Rights
Agent) as follows:

 

    	 	41	 

     

    

  

	American Stock Transfer & Trust Company, LLC
	6201 15th Avenue
	Brooklyn, NY 11219
	Attention:  Relationship Management
	 
	With a copy to (which copy shall not constitute notice):
	 
	American Stock Transfer & Trust Company, LLC
	48 Wall Street, 22nd Floor
	New York, NY 10005
	Attention:  Legal Department

 

Notices or demands authorized
by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Rights Certificate (or, if prior
to the Distribution Date, to the holder of shares of Common Stock) shall be sufficiently given or made if sent by first-class or
express United States mail, FedEx or UPS, postage prepaid and properly addressed, to such holder at the address of such holder
as shown on the registry books of the Company.

 

Section
27.      Supplements and Amendments.

 

Except as otherwise provided
in this Section 27, the Company, by action of the Board, may from time to time and in its sole and absolute discretion, and the
Rights Agent shall if the Company so directs, supplement or amend this Agreement in any respect without the approval of any holders
of Rights, including, without limitation, in order to (a) cure any ambiguity; (b) correct or supplement any provision
contained herein that may be defective or inconsistent with any other provisions herein; (c) shorten or lengthen any time
period hereunder; (d) otherwise change, amend, or supplement any provisions hereunder in any manner that the Company may deem
necessary or desirable; provided, however, that from and after any Person becomes an Acquiring Person, this Agreement
may not be supplemented or amended in any manner that would adversely affect the interests of the holders of Rights (other than
Rights that have become null and void pursuant to Section 7(e) hereof) as such or cause this Agreement to become amendable other
than in accordance with this Section 27. Without limiting the foregoing, the Company, by action of the Board, may at any time before
any Person becomes an Acquiring Person amend this Agreement to make the provisions of this Agreement inapplicable to a particular
transaction by which a Person might otherwise become an Acquiring Person or to otherwise alter the terms and conditions of this
Agreement as they may apply with respect to any such transaction. Upon the delivery of a certificate from an appropriate officer
of the Company that states that the proposed supplement or amendment is in compliance with the terms of this Section 27, the Rights
Agent shall execute such supplement or amendment; provided, however, that any supplement or amendment that does not amend
Sections 18, 19, 20, 21, or this Section 27 in a manner adverse to the Rights Agent shall become effective immediately upon execution
by the Company, whether or not also executed by the Rights Agent. The Company shall provide within three Business Days of the adoption
of an amendment to the Agreement written notification of such amendment to the Rights Agent.

 

    	 	42	 

     

    

  

Notwithstanding anything
contained in this Agreement to the contrary, the Rights Agent may enter into any supplement or amendment that affects the Rights
Agent’s own rights, duties, obligations or immunities under this Agreement.

 

Prior to the Distribution
Date, the interests of the holders of Rights shall be deemed coincident with the interests of the holders of Common Stock.

 

Section
28.      Successors.

 

All the covenants and provisions
of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective
successors and assigns hereunder.

 

Section
29.      Determinations and Actions by the Board.

 

(a)          Except
as otherwise specifically provided herein, the Board has the exclusive power and authority to administer this Agreement
and to exercise all rights and powers specifically granted to the Board or to the Company hereunder, or as may be necessary or
advisable in the administration of this Agreement, including, without limitation, the right and power (a) to interpret the
provisions of this Agreement, and (b) to make all determinations deemed necessary or advisable for the administration of this
Agreement (including, without limitation, a determination to redeem or not redeem the Rights in accordance with Section 23 hereof,
to exchange or not exchange the rights in accordance with Section 24 hereof, to amend or not amend this Agreement in accordance
with Section 27 hereof). All such actions, calculations, interpretations and determinations (including, for purposes of clause
(ii) below, all omissions with respect to the foregoing) that are done or made by the Board shall be (i) be final, conclusive,
and binding on the Company, the Rights Agent, the holders of the Rights and all other parties; and (ii) not subject the Board
or any member thereof to any liability to the holders of the Rights.

 

Section
30.      Benefits of this Agreement.

 

Nothing in this Agreement
may be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Rights Certificates
(and, prior to the Distribution Date, the registered holders of shares of the Common Stock of the Company) any legal or equitable
right, remedy or claim under this Agreement; rather, this Agreement is for the sole and exclusive benefit of the Company, the Rights
Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, the registered holders of shares
of Common Stock of the Company).

 

Section
31.      Severability.

 

If any term, provision,
covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement will remain in full force and
effect and will in no way be affected, impaired or invalidated; provided, however, that notwithstanding anything in this
Agreement to the contrary, if any such term, provision, covenant or restriction is held by such court or authority to be invalid,
void or unenforceable and the Board determines in good faith judgment that severing the invalid language from this Agreement would
materially and adversely affect the purpose or effect of this Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and will not expire until the Close of Business on the 10th Business Day following the date of such determination
by the Board.

 

    	 	43	 

     

    

  

Section
32.      Governing Law.

 

This Agreement, each Right,
and each Rights Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Tennessee and
for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made
and performed entirely within such State.

 

Section
33.      Counterparts.

 

This Agreement may be executed
in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be
deemed to be an original, but all of which taken together shall constitute one and the same instrument. Delivery of an executed
signature page of Agreement by facsimile or other customary shall mean of electronic transmission (e.g., “pdf”) shall
be effective as delivery of a manually executed counterpart hereof.

 

Section
34.     Descriptive Headings.

 

The headings contained
in this Agreement are for descriptive purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

 

Section
35.      Force Majeure.

 

Notwithstanding anything
to the contrary contained herein, the Rights Agent will not have any liability for not performing, or a delay in the performance
of, any act, duty, obligation or responsibility by reason of any occurrence beyond the reasonable control of the Rights Agent (including,
without limitation, any act or provision of any present or future law or regulation or governmental authority, any act of God,
war, civil or military disobedience or disorder, riot, rebellion, terrorism, insurrection, fire, earthquake, storm, flood, strike,
work stoppage, interruptions or malfunctions of computer facilities, loss of data due to power failures or mechanical difficulties
with information, labor dispute, accident or failure or malfunction of any utilities, communication or computer (software or hardware)
services or similar occurrence).

 

[Signature Page Follows]

 

    	 	44	 

     

    

  

IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be duly executed, all as of the date first above written.

 

	 	Fred’s, Inc., 
	 	as Company
	 	 
	 	By:	/s/ Michael Bloom
	 	Name:	Michael Bloom
	 	Title:	Chief Executive Officer

	 	 
	 	American Stock Transfer & Trust Company, LLC,
	 	as Rights Agent
	 	 
	 	By:	/s/ Michael A. Nespoli

	 	Name:	Michael A. Nespoli
	 	Title:	Executive Director

 

Signature Page to

Rights Agreement

 

 

     

     

    

 

Exhibit A

ARTICLES OF AMENDMENT TO THE CHARTER

OF

FRED’S, INC.

(Pursuant to Section 48-20-102 of the Tennessee
Business Corporation Act)

 

In accordance with Sections
48-20-102 and 48-20-106 of the Tennessee Business Corporation Act, the undersigned corporation adopts the following Articles of
Amendment (the “Articles of Amendment”) to its Charter:

 

I. The name of the corporation
is FRED’S, INC.

 

II. The text of the amendment
is as follows:

 

Article Four of the Charter
is hereby amended, pursuant to the authority granted to the Board of Directors of this corporation by the Charter, by adding a
new section G that reads as follows:

 

“Section G. Series
B Junior Participating Preferred Stock:

 

1. Designation and Amount.
The shares of such series shall be designated as “Series B Junior Participating Preferred Stock” (the “Series
B Preferred Stock”) and the number of shares constituting the Series B Preferred Stock shall be 50,000. Such number of shares
may be increased or decreased by resolution of the Board; provided that no decrease shall reduce the number of shares of Series
B Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon
the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation
convertible into Series B Preferred Stock.

 

    	 	A-1	 

     

    

  

2. Dividends
and Distributions.

 

(A) Subject to
the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the
Series B Preferred Stock with respect to dividends, the holders of shares of Series B Preferred Stock, in preference to the holders
of Class A common stock, no par value per share and Class B common stock, no par value per share (collectively, the “Common
Stock”) and the holders of Series A Junior Participating Preferred Stock, no par value per share, of the Corporation, and
of any other junior stock, shall be entitled to receive, when, as and if declared by the Board out of funds legally available for
the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such
date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment
Date after the first issuance of a share or fraction of a share of Series B Preferred Stock, in an amount per share (rounded to
the nearest cent) equal to the greater of (1) $1.00 or (2) subject to the provision for adjustment hereinafter set forth,
1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind)
of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series B Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend
on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater
or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series B Preferred
Stock were entitled immediately prior to such event under clause (2) of the preceding sentence shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

 

(B) The Corporation
shall declare a dividend or distribution on the Series B Preferred Stock as provided in paragraph (a) of this subsection immediately
after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided,
that in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series B Preferred
Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.

 

(C) Dividends
shall begin to accrue and be cumulative on outstanding shares of Series B Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares,
or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders
of shares of Series B Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued
but unpaid dividends shall not bear interest. Dividends paid on the shares of Series B Preferred Stock in an amount less than the
total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board may fix a record date for the determination of holders of shares of Series
B Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.

 

3. Voting Rights. The holders
of shares of Series B Preferred Stock shall have the following voting rights:

 

    	 	A-2	 

     

    

  

(A) Subject to
the provision for adjustment hereinafter set forth, each share of Series B Preferred Stock shall entitle the holder thereof to
1,000 votes on all matters submitted to a vote of the shareholders of the Corporation. In the event the Corporation shall at any
time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination
or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share
to which holders of shares of Series B Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying
such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

 

(B) Except as
otherwise provided herein, in any other articles of amendment creating a series of Preferred Stock or any similar stock, or by
law, the holders of shares of Series B Preferred Stock and the holders of shares of Common Stock and any other capital stock of
the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of shareholders
of the Corporation.

 

(C) Except as
set forth herein, or as otherwise provided by law, holders of Series B Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein)
for taking any corporate action.

 

4. Certain Restrictions.

 

(A) Whenever
quarterly dividends or other dividends or distributions payable on the Series B Preferred Stock as provided in Section (2) are
in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series
B Preferred Stock outstanding shall have been paid in full, the Corporation shall not:

 

(i) declare or
pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series B Preferred Stock;

 

(ii) declare or
pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series B Preferred Stock, except dividends paid ratably on the Series B Preferred Stock and
all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all
such shares are then entitled;

 

    	 	A-3	 

     

    

  

(iii) redeem or
purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series B Preferred Stock other than (A) such redemptions or purchases that may be deemed to occur
upon the exercise of stock options, warrants or similar rights or grant, vesting or lapse of restrictions on the grant of any other
performance shares, restricted stock, restricted stock units or other equity awards to the extent that such shares represent all
or a portion of (x) the exercise or purchase price of such options, warrants or similar rights or other equity awards and (y) the
amount of withholding taxes owed by the recipient of such award in respect of such grant, exercise, vesting or lapse of restrictions;
(B) the repurchase, redemption, or other acquisition or retirement for value of any such shares from employees, former employees,
directors, former directors, consultants or former consultants of the Corporation or their respective estate, spouse, former spouse
or family member, pursuant to the terms of the agreements pursuant to which such shares were acquired, provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series B Preferred Stock;
or

 

(iv) redeem or
purchase or otherwise acquire for consideration any shares of Series B Preferred Stock, or any shares of stock ranking on a parity
with the Series B Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined
by the Board) to all holders of such shares upon such terms as the Board, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result
in fair and equitable treatment among the respective series or classes.

 

(B) The Corporation
shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (a) of this Section (4), purchase or otherwise acquire such shares
at such time and in such manner.

 

5. Reacquired Shares. Any
shares of Series B Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired
and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions
on issuance set forth herein, in the Charter, or in any other articles of amendment creating a series of Preferred Stock or any
similar stock or as otherwise required by law.

 

    	 	A-4	 

     

    

  

6. Liquidation, Dissolution
or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, voluntary or otherwise, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding
up) to the Series B Preferred Stock unless, prior thereto, the holders of shares of Series B Preferred Stock shall have received
the greater of (A) $1,000 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or
not declared, to the date of such payment, and (B) an amount, subject to the provision for adjustment hereinafter set forth, equal
to 1,000 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders
of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series
B Preferred Stock, except distributions made ratably on the Series B Preferred Stock and all such parity stock in proportion to
the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the
event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect
a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such
case the aggregate amount to which holders of shares of Series B Preferred Stock were entitled immediately prior to such event
under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which
is the number of shares of Common Stock that were outstanding immediately prior to such event.

 

7. Consolidation, Merger,
Etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case
each share of Series B Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject
to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount of stock, securities, cash and/or
any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock,
or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series B Preferred
Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.

 

8. No Redemption. The shares
of Series B Preferred Stock shall not be redeemable.

 

9. Rank. The Series B Preferred
Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all series of any other class
of the Corporation’s Preferred Stock, and shall rank senior to the Common Stock as to such matters.

 

10. Amendment. The Charter
of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special
rights of the Series B Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds
of the outstanding shares of Series B Preferred Stock, voting together as a single class.

 

    	 	A-5	 

     

    

  

11. Fractional
Shares. The Series B Preferred Stock may be issued in fractions of a share, which fractions shall entitle the holder, in proportion
to such holder’s fractional shares, to exercise voting rights, receive dividends,
participate in distributions, and to have the benefit of all other rights of holders of Series B Preferred Stock.”

 

III. Except as amended
by these Articles of Amendment, the Charter of the Corporation shall remain in full force and effect.

 

IV. These Articles of Amendment
were duly adopted by the Board of Directors of the Corporation on December 26, 2016, without shareholder approval as no such approval
was required.

 

V. These Articles of Amendment
to the Charter of the Corporation will be effective as of 6:00 p.m. Central Time on December 26, 2016.

 

    	 	A-6	 

     

    

  

Exhibit B

 

SUMMARY OF RIGHTS

TO PURCHASE SERIES B JUNIOR PARTICIPATING PREFERRED STOCK

 

The Board of Directors
(the “Board”) of Fred’s, Inc., a Tennessee corporation (the “Company”),
declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of Class
A common stock, no par value per share, of the Company (the “Common Stock”). The dividend is payable
on January 5, 2017 (the “Record Date”) to the shareholders of record on that date. Each Right entitles
the registered holder to purchase from the Company one one-thousandth of a share of
Series B Junior Participating Preferred Stock, no par value per share, of the Company (the “Preferred Stock”)
at a price of $100.0 per one one-thousandth of a share of Preferred Stock (the “Purchase
Price”), subject to adjustment. The description and terms of the Rights are set forth in a Rights Agreement dated
as of December 26, 2016, as the same may be amended from time to time (the “Rights Agreement”), between
the Company and American Stock Transfer & Trust Company, LLC, as Rights Agent (the “Rights Agent”).

 

Until the earlier to occur
of (i) the close of business on the 10th business day after a public announcement that a person or group of affiliated or
associated persons (with certain exceptions, an “Acquiring Person”) has acquired beneficial ownership
of 10% or more of the outstanding shares of Common Stock and (ii) the close of business on the 10th business day
after the commencement by any person of, or of the first public announcement of the intention of any Person to commence, a tender
or exchange offer the consummation of which would result in such Person becoming the Beneficial Owner of 10% or more of the outstanding
shares of Common Stock (the earlier of such dates being called the “Distribution Date”), the Rights will
be evidenced, with respect to any of the Common Stock certificates (or book entry shares) outstanding as of the Record Date, by
such Common Stock certificate (or book entry shares) together with this Summary of Rights.

 

The Rights Agreement provides
that, until the Distribution Date (or earlier expiration or redemption of the Rights), the Rights will be transferred with and
only with the Common Stock. Until the Distribution Date (or earlier expiration or redemption of the Rights), new Common Stock certificates
issued after the Record Date upon transfer or new issuances of Common Stock will contain a legend incorporating the Rights Agreement
by reference, and notice of such legend will be furnished to holders of book entry shares. Until the Distribution Date (or earlier
expiration or redemption of the Rights), the surrender for transfer of any certificates for shares of Common Stock (or book entry
shares of Common Stock) outstanding as of the Record Date, even without such legend or a copy of this Summary of Rights, will also
constitute the transfer of the Rights associated with the shares of Common Stock represented by such certificate or registered
in book entry form. As soon as practicable following the Distribution Date, separate certificates evidencing the Rights (“Rights
Certificates”) will be mailed to holders of record of the Common Stock as of the close of business on the Distribution
Date and such separate Right Certificates alone will evidence the Rights.

 

    	 	B-1	 

     

    

  

The Rights are not exercisable
until the Distribution Date. The Rights will expire on June 26, 2019 (the “Final Expiration Date”), unless
the Rights are earlier redeemed or exchanged by the Company, in each case as described below.

 

The Purchase Price payable,
and the number of shares of Preferred Stock or other securities or property issuable, upon exercise of the Rights is subject to
adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification
of, the Preferred Stock, (ii) upon the grant to holders of the Preferred Stock of certain rights or warrants to subscribe for or
purchase Preferred Stock at a price, or securities convertible into Preferred Stock with a conversion price, less than the then-current
market price of the Preferred Stock or (iii) upon the distribution to holders of the Preferred Stock of evidences of indebtedness
or assets (excluding regular periodic cash dividends or dividends payable in Preferred Stock) or of subscription rights or warrants
(other than those referred to above).

 

The number of outstanding
Rights is subject to adjustment in the event of a stock dividend on the Common Stock payable in shares of Common Stock or subdivisions,
consolidations or combinations of the Common Stock occurring, in any such case, prior to the Distribution Date.

 

Shares of Preferred Stock
purchasable upon exercise of the Rights will not be redeemable. Each share of Preferred Stock will be entitled, when, as and if
declared, to a minimum preferential quarterly dividend payment of the greater of (a) $1.00 per share, and (b) an amount equal to
1,000 times the dividend declared per share of Common Stock. In the event of liquidation, dissolution or winding up of the Company,
the holders of the Preferred Stock will be entitled to a minimum preferential payment of the greater of (i) $1,000.00 per share
(plus any accrued but unpaid dividends), and (ii) an amount equal to 1,000 times the payment made per share of Common Stock. Each
share of Preferred Stock will have 1,000 votes, voting together with the Common Stock. Finally, in the event of any merger, consolidation
or other transaction in which outstanding shares of Common Stock are converted or exchanged, each share of Preferred Stock will
be entitled to receive 1,000 times the amount received per share of Common Stock. These rights are protected by customary anti-dilution
provisions.

 

Because of the nature of
the Preferred Stock’s dividend, liquidation and voting rights, the value of the one one-thousandth
interest in a share of Preferred Stock purchasable upon exercise of each Right should approximate the value of one share
of Common Stock.

 

In the event that any person
or group of affiliated or associated persons becomes an Acquiring Person, each holder of a Right, other than Rights beneficially
owned by the Acquiring Person, affiliates and associates of the Acquiring Person and certain transferees thereof (which will thereupon
become null and void), will thereafter have the right to receive upon exercise of a Right that number of shares of Common Stock
having a market value of two times the exercise price of the Right.

 

    	 	B-2	 

     

    

  

In the event that, after
a person or group has become an Acquiring Person, the Company is acquired in a merger or other business combination transaction
or 50% or more of its consolidated assets or earning power are sold, proper provisions will be made so that each holder of a Right
(other than Rights beneficially owned by an Acquiring Person, affiliates and associates of the Acquiring Person and certain transferees
thereof which will have become null and void) will thereafter have the right to receive upon the exercise of a Right that number
of shares of common stock of the person with whom the Company has engaged in the foregoing transaction (or its parent) that at
the time of such transaction have a market value of two times the exercise price of the Right.

 

At any time after any person
or group becomes an Acquiring Person and prior to the earlier of one of the events described in the previous paragraph or the acquisition
by such Acquiring Person of 50% or more of the outstanding shares of Common Stock, the Board may exchange the Rights (other than
Rights owned by such Acquiring Person and certain transferees thereof which will have become null and void), in whole or in part,
for shares of Common Stock or Preferred Stock (or a series of the Company’s preferred stock having equivalent rights, preferences
and privileges), at an exchange ratio of one share of Common Stock, or a fractional share of Preferred Stock (or other preferred
stock) equivalent in value thereto, per Right.

 

With certain exceptions,
no adjustment in the Purchase Price will be required until cumulative adjustments require an adjustment of at least 1% in such
Purchase Price. No fractional shares of Preferred Stock or Common Stock will be issued (other than fractions of shares of Preferred
Stock which are integral multiples of one one-thousandth of a share of Preferred Stock,
which may, at the election of the Company, be evidenced by depositary receipts), and in lieu thereof an adjustment in cash will
be made based on the current market price of the Preferred Stock or the Common Stock.

 

At any time prior to the
time an Acquiring Person becomes such, the Board may redeem the Rights in whole, but not in part, at a price of $0.01 per Right
(the “Redemption Price”) payable, at the option of the Company, in cash, shares of Common Stock or such
other form of consideration as the Board shall determine. The redemption of the Rights may be made effective at such time, on such
basis and with such conditions as the Board in its sole discretion may establish. Immediately upon any redemption of the Rights,
the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price.

 

For so long as the Rights
are then redeemable, the Company may, except with respect to the Redemption Price, amend the Rights Agreement in any manner. After
the Rights are no longer redeemable, the Company may, except with respect to the Redemption Price, amend the Rights Agreement in
any manner that does not adversely affect the interests of holders of the Rights (other than holders of Rights owned by or transferred
to any person who is or becomes an Acquiring Person or affiliates and associates of an Acquiring Person and certain transferees
thereof).

 

Until a Right is exercised
or exchanged, the holder thereof, as such, will have no rights as a shareholder of the Company, including, without limitation,
the right to vote or to receive dividends.

 

A copy of the Rights Agreement
has been filed with the Securities and Exchange Commission as an exhibit to a Registration Statement on Form 8-A dated December
[__], 2016. A copy of the Rights Agreement is available free of charge from the Company. This summary description of the Rights
does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, as the same may be amended
from time to time, which is hereby incorporated herein by reference.

 

    	 	B-3	 

     

    

  

Exhibit C

FORM OF RIGHTS CERTIFICATE

 

	Certificate No. R-________	________ Rights

 

NOT EXERCISABLE AFTER JUNE
26, 2019 OR EARLIER IF REDEEMED OR EXCHANGED BY THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY,
AT $0.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY
OWNED BY AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF ANY SUCH PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT)
AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. THE RIGHTS SHALL NOT BE EXERCISABLE, AND SHALL BE VOID, AS LONG
AS HELD BY A HOLDER IN ANY JURISDICTION WHERE THE REQUISITE QUALIFICATION TO THE ISSUANCE TO SUCH HOLDER, OR THE EXERCISE BY SUCH
HOLDER, OF THE RIGHTS IN SUCH JURISDICTION SHALL NOT HAVE BEEN OBTAINED OR BE OBTAINABLE.

 

[The
Rights represented by this Rights Certificate are or were Beneficially Owned by a Person who was or became an Acquiring Person
or a Related Person of an Acquiring Person (as such terms are defined in the Rights Agreement. Accordingly, this Rights Certificate
and the Rights represented hereby may become null and void in the circumstances specified in Section 7(e) of the Rights Agreement.]*

 

 

*
The portion of the legend in brackets shall be inserted only if applicable and shall replace the preceding sentence.

  

    	 	C-1	 

     

    

  

RIGHTS CERTIFICATE

 

This certifies that _________________,
or its registered assigns, is the registered holder of the number of Rights set forth above, each of which entitles the holder
thereof, subject to the terms, provisions and conditions of the Rights Agreement dated as of December 26, 2016, as amended from
time to time (the “Rights Agreement”), between Fred’s, Inc., a Tennessee corporation (the “Company”),
and American Stock Transfer & Trust Company, LLC, as Rights Agent (the “Rights Agent”), to purchase
from the Company at any time after the Distribution Date and prior to 5:00 p.m., New York City time, on June 26, 2019, at the office
or offices of the Rights Agent designated for such purpose, or its successors as Rights Agent, one one-thousandth
of a fully paid, non-assessable share of Series B Junior Participating Preferred Stock, no par value per share
(the “Preferred Stock”), of the Company, at a purchase price of $100.0 per one one-thousandth
share of Preferred Stock (the “Exercise Price”), upon presentation and surrender of this Rights
Certificate with the Election to Purchase and related Certificate duly executed. The number of Rights evidenced by this Rights
Certificate (and the number of shares that may be purchased upon exercise thereof) set forth above, and the Exercise Price per
share as set forth above, are the number and Exercise Price as of December 26, 2016, based on the Preferred Stock as constituted
at such date, and are subject to adjustment upon the happening of certain events as provided in the Rights Agreement. Capitalized
terms used and not defined herein shall have the meanings specified in the Rights Agreement.

 

From and after the occurrence
of a Flip-In Event or Flip-Over Event, the Rights evidenced by this Rights Certificate beneficially owned by (i) an Acquiring Person
or an Affiliate or Associate of any such Acquiring Person, (ii) a transferee of any such Acquiring Person, Associate or Affiliate,
or (iii) under certain circumstances specified in the Rights Agreement, a transferee of a person who, concurrently with or after
such transfer, became an Acquiring Person or an Affiliate or Associate of an Acquiring Person shall become null and void and no
holder hereof shall have any right with respect to such Rights from and after the occurrence of such Flip-In Event or Flip-Over
Event.

 

The Rights evidenced by
this Rights Certificate shall not be exercisable, and shall be void as long as held, by a holder in any jurisdiction where the
requisite qualification to the issuance to such holder, or the exercise by such holder, of the Rights in such jurisdiction shall
not have been obtained or be obtainable.

 

As provided in the Rights
Agreement, the Exercise Price and the number and kind of shares of Preferred Stock or other securities which may be acquired upon
the exercise of the Rights evidenced by this Rights Certificate are subject to modification and adjustment upon the happening of
certain events, including Triggering Events.

 

This Rights Certificate
is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby
incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description
of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders
of the Rights Certificates, which limitations of rights include the temporary suspension of the exercisability of such Rights under
the specific circumstances set forth in the Rights Agreement. Copies of the Rights Agreement are on file at the above-mentioned
office of the Rights Agent and are also available upon written request to the Rights Agent.

 

    	 	C-2	 

     

    

  

This Rights Certificate,
with or without other Rights Certificates, upon surrender at the office or offices of the Rights Agent designated for such purpose,
may be exchanged for another Rights Certificate of like tenor and date evidencing Rights entitling the holder to purchase a like
aggregate number of one one-thousandths of a share of Preferred Stock as the Rights evidenced by the Rights Certificate or Rights
Certificates surrendered shall have entitled such holder to purchase. If this Rights Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Rights Certificate or Rights Certificates for the number of whole
Rights not exercised.

 

Subject to the provisions
of the Rights Agreement, the Rights evidenced by this Certificate may be redeemed by the Company under certain circumstances at
its option at a redemption price of $0.01 per Right at any time prior to the earlier of the Close of Business on (i) the Stock
Acquisition Date and (ii) the Final Expiration Date.

 

At any time after a person
becomes an Acquiring Person and prior to the acquisition by such person of 50% or more of the outstanding Common Stock, the Board
may exchange the Rights (other than Rights owned by such Acquiring Person which have become void), in whole or in part, at an exchange
ratio of one share of Common Stock per each outstanding Right or, in certain circumstances, other equity securities of the Company
which are deemed by the Board to have the same value as shares of Common Stock, subject to adjustment.

 

No fractional shares of
Preferred Stock will be issued upon the exercise of any Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-thousandth of a share of Preferred Stock, which may, at the election
of the Company, be evidenced by depositary receipts), but in lieu thereof a cash payment will be made, as provided in the Rights
Agreement.

 

No holder of this Rights
Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of shares of Preferred
Stock or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained
in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a shareholder of
the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders
(except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by this Rights Certificate shall have been exercised as provided in the Rights Agreement.

 

This Rights Certificate shall not be valid or
obligatory for any purpose until it shall have been countersigned by an authorized signatory of the Rights Agent.

 

    	 	C-3	 

     

    

  

WITNESS the facsimile signature
of the proper officers of the Company. Dated as of _____________, ______.

 

 

	 	FRED’S, INC.
	 	 
	 	By:	 
	 	 	 
	 	Name:	 
	 	 	 
	 	Title:	 

 

	COUNTERSIGNED: 	 
	 	 
	Dated as of _____________, ______.	 

 

	American Stock Transfer & Trust Company, LLC, 	 
	as Rights Agent 	 
	 	 
	By:	 	 
	 	 	 
	Name:	 	 
	 	 	 
	Title:	 	 

 

    	 	C-4	 

     

    

 

[Form of Reverse Side of Rights Certificate]

 

FORM OF ASSIGNMENT

 

(To be executed by the registered holder if

such holder desires to transfer the

Rights Certificate.)

 

FOR VALUE RECEIVED _____________________________
hereby sells, assigns and transfers unto

 

	 
	 (Please print name and address of transferee)
	 
	 
	 
	this Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ___________________ as Attorney, to transfer the within Rights Certificate on the books of the within-named Company, with full power of substitution.

 

Dated _____________, ______.

 

	 	 
	 	Signature
	Signature Guaranteed:	 

 

    	 	C-5	 

     

    

  

CERTIFICATE

 

The undersigned hereby
certifies by checking the appropriate boxes that:

 

(1)         this
Rights Certificate [   ] is [   ] is not being sold, assigned and transferred by or on behalf of a Person who is or was
an Acquiring Person or an Affiliate or Associate of any such Person (as such terms are defined pursuant to the Rights Agreement);
and

 

(2)         after
due inquiry and to the best knowledge of the undersigned, it [  ] did [  ] did not acquire the Rights evidenced by
this Rights Certificate from any Person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate of
any such Person.

 

Dated _____________, ______.

 

	 	 
	 	Signature
	Signature Guaranteed:	 

 

    	 	C-6	 

     

    

  

NOTICE

 

The signature to the foregoing
Assignment and Certificate must correspond to the name as written upon the face of this Rights Certificate in every particular,
without alteration or enlargement or any change whatsoever.

 

Signatures must be guaranteed
by a participant in a Medallion Signature Guarantee Program at a level acceptable to the Rights Agent.

 

In the event the certification
set forth above is not completed, the Company will deem the beneficial owner of the Rights evidenced by this Rights Certificate
to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) and, in the case of an Assignment,
will affix a legend to that effect on any Rights Certificates issued in exchange for this Rights Certificate.

 

    	 	C-7	 

     

    

  

FORM OF ELECTION TO PURCHASE

 

(To be executed if the registered holder

desires to exercise Rights represented

by the Rights Certificate.)

 

	To: ______________________

 

The undersigned hereby
irrevocably elects to exercise _______ Rights represented by this Rights Certificate to purchase the shares of Preferred Stock
issuable upon the exercise of the Rights (or such other securities of the Company or of any other person or such other property
which may be issuable upon the exercise of the Rights) and requests that certificates for such shares (or such other securities
of the Company or of any other person or such other property as may be issuable upon the exercise of the Rights) be issued in the
name of and delivered to:

 

	 
	 
	 (Please print name and address)
	 

  

	Please insert social security	 
	or other identifying number:	 

 

If such number of Rights
shall not be all the Rights evidenced by this Rights Certificate, a new Rights Certificate for the balance of such Rights shall
be registered in the name of and delivered to:

 

	 
	 
	 (Please print name and address)
	 

  

	Please insert social security	 
	or other identifying number:	 

 

Dated _____________, ______.

 

	 	 
	 	Signature
	Signature Guaranteed:	 

 

    	 	C-8	 

     

    

  

CERTIFICATE

 

The undersigned hereby
certifies by checking the appropriate boxes that:

 

(1)         the
Rights evidenced by this Rights Certificate [  ] are [  ] are not being exercised by or on behalf of a Person who is
or was an Acquiring Person or an Affiliate or Associate of any such Person (as such terms are defined in the Rights Agreement);
and

 

(2)         after
due inquiry and to the best knowledge of the undersigned, the undersigned [  ] did [  ] did not
acquire the Rights evidenced by this Rights Certificate from any Person who is, was or became an Acquiring Person or an
Affiliate or Associate of any such Person.

 

Dated _____________, ______.

 

	 	 
	 	Signature
	Signature Guaranteed:	 

 

    	 	C-9	 

     

    

  

NOTICE

 

The signature to the foregoing
Election to Purchase and Certificate must correspond to the name as written upon the face of this Rights Certificate in every particular,
without alteration or enlargement or any change whatsoever.

 

Signatures must be guaranteed
by a participant in a Medallion Signature Guarantee Program at a level acceptable to the Rights Agent.

 

In the event the certification
set forth above is not completed, the Company will deem the beneficial owner of the Rights evidenced by this Rights Certificate
to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) and, in the case of an Assignment,
will affix a legend to that effect on any Rights Certificates issued in exchange for this Rights Certificate.

 

    	 	C-10

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