FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended October 28, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to .
--------------- ---------------
Commission file number 000-19288
FRED'S, INC.
(Exact name of registrant as specified in its charter)
Tennessee 62-0634010
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4300 New Getwell Rd., Memphis, Tennessee 38118
(Address of principal executive offices) (zip code)
(901) 365-8880
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X . No .
----------- -----------
The registrant had 12,064,257 shares of Class A voting, no par value common
stock outstanding as of December 8, 2000.
<PAGE>
FRED'S, INC.
INDEX
Page No.
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Part I - Financial Information
Item 1 - Financial Statements (unaudited):
Consolidated Balance Sheets as of
October 28, 2000 and January 29, 2000 3
Consolidated Statements of Income
for the Thirteen Weeks Ended October 28, 2000
and October 30, 1999 and the Thirty-nine Weeks
Ended October 28, 2000 and October 30, 1999 4
Consolidated Statements of Cash Flows
for the Thirty-nine Weeks Ended October 28, 2000
and October 30, 1999 5
Notes to Consolidated Financial Statements 6 - 8
Item 2 - Management's Discussion and
Analysis of Financial Condition and
Results of Operations 9 - 12
Item 3 - Quantitative and Qualitative Disclosure
about Market Risk 12
Part II - Other Information 13
---------------------------
Signatures 14
----------
<PAGE>
FRED'S, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except for number of shares)
October 28, January 29,
2000 2000
-------- ---------
ASSETS:
Current assets:
Cash and cash equivalents $ 2,375 $ 3,036
Receivables, less allowance for doubtful
accounts of $569 ($452 at January 29, 2000) 14,680 10,911
Inventories 173,708 141,612
Deferred income taxes 1,909 3,002
Other current assets 1,900 1,865
--------- ---------
Total current assets 194,572 160,426
Property and equipment, at depreciated cost 76,973 73,459
Equipment under capital leases, less accumulated
amortization of $1,192($856 at January 29,2000) 1,499 1,835
Deferred income taxes 1,273 866
Other noncurrent assets 4,541 3,636
--------- ---------
Total assets $ 278,858 $ 240,222
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 54,654 $ 39,653
Current portion of indebtedness 2,159 30,306
Current portion of capital lease obligations 484 430
Accrued liabilities 9,131 9,680
Income taxes payable 4,289 650
--------- ---------
Total current liabilities 70,717 80,719
--------- ---------
Long term portion of indebtedness 50,410 10,027
Capital lease obligations 1,364 1,734
Other noncurrent liabilities 1,960 1,829
--------- ---------
Total liabilities 124,451 94,309
--------- ---------
Shareholders' equity:
Common stock, Class A voting, no par value,
12,056,024 shares issued and outstanding
(11,988,276 shares at January 29, 2000) 68,410 67,326
Retained earnings 86,243 78,902
Deferred compensation on restricted
stock incentive plan (246) (315)
--------- ---------
Total shareholders' equity 154,407 145,913
--------- ---------
Total liabilities and shareholders equity $ 278,858 $ 240,222
========= =========
See accompanying notes to consolidated financial statements
<PAGE>
FRED'S, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
-------------------- -----------------------
October 28, October 30, October 28, October 30,
2000 1999 2000 1999
---------------------- -------------------------
<S> <C> <C> <C> <C>
Net sales $181,092 $158,049 $538,558 $469,481
Cost of goods sold 129,003 110,932 388,176 334,093
------- --------- -------- --------
Gross profit 52,089 47,117 150,382 135,388
Selling, general and
administrative expenses 45,143 41,933 134,341 123,013
------ --------- -------- --------
Operating income 6,946 5,184 16,041 12,375
Interest expense, net 898 723 2,334 1,869
------ --------- -------- --------
Income before income taxes 6,048 4,461 13,707 10,506
Provision for income taxes 2,061 1,565 4,561 3,687
-------- --------- -------- --------
Net income $ 3,987 $ 2,896 $ 9,146 $ 6,819
======== ========= ======== ========
Net income per share
Basic .33 $ .24 $ .77 $ .58
======= ========= ======== ========
Diluted .33 $ .24 $ .75 $ .57
======= ========= ======== ========
Weighted average shares outstanding
Basic 11,960 11,832 11,935 11,823
======= ========= ======== ========
Diluted 12,246 12,076 12,179 12,063
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
FRED'S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Thirty-nine Weeks Ended
-----------------------
October 28, October 30,
2000 1999
Cash flows from operating activities:
Net income $9,146 $6,819
Adjustments to reconcile net income
to net cash flows from operating activities:
Depreciation and amortization 10,453 8,572
Lifo reserve 600 ---
Deferred income taxes 686 475
Provision for uncollectible receivable 117 (223)
Tax benefit on exercise of stock options 267 ----
Other (93) 215
(Increase)decrease in assets:
Receivables (3,886) (1,616)
Inventories (32,696) (29,036)
Other assets (37) 364
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 14,452 7,270
Income taxes payable 3,639 1,153
Other noncurrent liabilities 131 119
------ -------
Net cash provided by (used in)operating
activities 2,779 (5,888)
------ -------
Cash flows from investing activities:
Capital expenditures (12,558) (9,196)
Intangible asset expenditures (1,978) (270)
------- -------
Net cash used in investing activities (14,536) (9,466)
------- -------
Cash flows from financing activities:
Reduction of indebtedness and capital lease
obligations (1,842) (1,440)
Proceeds from revolving line of credit,
net of payments 13,763 16,763
Proceeds from exercise of options 978 241
Cash dividends paid (1,803) (1,795)
------- -------
Net cash provided by financing
activities 11,096 13,769
------- -------
Increase (decrease) in cash and cash
equivalents (661) (1,585)
Cash and cash equivalents:
Beginning of Period 3,036 2,406
------- -------
End of period $2,375 $821
======= =======
Supplemental disclosures of cash flow information:
Interest paid $2,237 $1,808
======= =======
Income taxes paid ---- $2,200
======= =======
See accompanying notes to consolidated financial statements
<PAGE>
FRED'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
Fred's, Inc. ("Fred's" or the "Company") operates 341 discount general
merchandise stores, including 26 franchised Fred's stores, in eleven states in
the southeastern United States. One hundred and ninety-four of the stores have
full service pharmacies.
The accompanying unaudited consolidated financial statements of Fred's have
been prepared in accordance with the instructions to Form 10-Q and therefore do
not include all information and notes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. The statements do reflect all
adjustments (consisting of only normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of financial position
in conformity with generally accepted accounting principles. The statements
should be read in conjunction with the Notes to the Consolidated Financial
Statements for the fiscal year ended January 29, 2000 incorporated into the
Company's Annual Report on Form 10-K.
The results of operations for the thirty-nine week period ended October 28,
2000 are not necessarily indicative of the results to be expected for the full
fiscal year.
Certain prior quarter amounts have been reclassified to conform to the 2000
presentation.
NOTE 2: INVENTORIES
Wholesale inventories are stated at the lower of cost or market using the
FIFO (first-in, first-out) method. Retail inventories are stated at the lower of
cost or market as determined by the retail inventory method. For pharmacy
inventories, which comprise approximately 16% of the retail inventories at
October 28, 2000, cost was determined using the LIFO (last-in, first-out)
method. For the remainder of the retail inventories, the FIFO method was
applied. The current cost of inventories exceeded the LIFO cost by approximately
$3,808,000 and $3,208,000 at October 28, 2000 and January 29, 2000,
respectively.
LIFO inventory costs can only be determined annually when inflation rates and
inventory levels are finalized; therefore, LIFO inventory costs for interim
financial statements are estimated.
<PAGE>
NOTE 3: NET INCOME PER SHARE
Basic income per share is based on the weighted average number of common shares
outstanding, and diluted net income per share is based on the weighted average
number of common shares and common equivalent shares outstanding.
COMPUTATION OF NET INCOME PER SHARE
(unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
----------------------- ------------------------
October 28, October 30, October 28, October 30,
2000 1999 2000 1999
----------------------- ------------------------
<S> <C> <C> <C> <C>
Basic net income per share
Net income $ 3,987 $ 2,896 $ 9,146 $ 6,819
======== ======= ========== =======
Weighted average number of common shares
outstanding during the period
11,960 11,832 11,935 11,823
======== ======= ========== =======
Net income per share $ .33 $ .24 $ .77 $ .58
======== ======= ========== =======
Diluted net income per share
Net income $ 3,987 $ 2,896 $ 9,146 $ 6,819
======== ======= ========== =======
Weighted average number of common shares
outstanding during the period
11,960 11,832 11,935 11,823
Additional shares attributable to common
stock equivalents 286 244 244 240
-------- ------- ---------- -------
12,246 12,076 12,179 12,063
======== ======= ========== =======
Net income per share $ .33 .24 $ .75 $ .57
======== ======= ========== =======
</TABLE>
<PAGE>
NOTE 4: RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 "Revenue Recognition in Financial Statements" (SAB 101). SAB
101 deals with various revenue recognition issues, several which are common
within the retail industry including treatment of revenue recognition on layaway
sales. The Company has not implemented the changes of Staff Accounting Bulletin
No. 101. The most recent announcement by the SEC delays the implementation date
of SAB 101 and would require the Company to implement changes by the fourth
quarter of this fiscal year. The new accounting treatment of layaway sales would
cause an adjustment of earnings from the third quarter to the fourth quarter
since revenue would not be recorded until the layaway sale is complete. However
based on historical customer patterns, the financial effect on the year end
result of the Company is not expected to be material. Historically, layaway
purchases not totally complete by fiscal year end are minimal in relation to
total revenues and the effect on Earnings Per Share of the Company would be less
than $.01 per share.
In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the effective date of FASB
Statement No. 133, which deferred the effective date provisions of SFAS No. 133
for the Company to the first quarter of 2001. The Company does not believe this
new standard will have an impact on its financial statements since it currently
has no derivative instruments.
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
GENERAL
Fred's business is subject to seasonal influences, but the Company has tended to
experience less seasonal fluctuation than many other retailers due to the
Company's mix of everyday basic merchandise and pharmacy business. The fourth
quarter is typically the most profitable quarter because it includes the
Christmas selling season. The overall strength of the fourth quarter is
partially mitigated, however, by the inclusion of the month of January, which is
generally the least profitable month of the year.
The impact of inflation on labor and occupancy costs can significantly affect
Fred's operations. Many of Fred's employees are paid hourly rates related to the
federal minimum wage and, accordingly, any increase affects Fred's. In addition,
payroll taxes, employee benefits and other employee-related costs continue to
increase. Occupancy costs, including rent, maintenance, taxes and insurance,
also continue to rise. Fred's believes that maintaining adequate operating
margins through a combination of price adjustments and cost controls, careful
evaluation of occupancy needs, and efficient purchasing practices is the most
effective tool for coping with increasing costs and expenses.
RESULTS OF OPERATIONS
Thirteen Weeks Ended October 28, 2000 and October 30, 1999
----------------------------------------------------------
Net sales increased to $181.1 million in 2000 from $158.0 million in 1999, an
increase of $23.1 million or 14.6%. The increase was attributable to comparable
store sales increases of 8.5% ($12.4 million) and sales by stores not yet
included as comparable stores ($9.7 million). Sales to franchisees increased
$1.0 million in 2000. The sales mix for the period was 47.7% Hardlines, 35.3%
Pharmacy, 12.0% Softlines, and 5.0% Franchise. This compares with 48.5%
Hardlines, 32.7% Pharmacy, 13.7% Softlines, and 5.1% Franchise for the same
period last year.
Gross profit decreased to 28.8% of sales in 2000 compared with 29.8% of sales in
the prior-year period. Gross profit margins decreased as a result of a higher
percentage of sales from the Pharmacies and promotional activities during the
quarter. The promotions were successful in driving the large increase in
customer traffic.
Selling, general and administrative expenses increased to $45.1 million in 2000
from $41.9 million in 1999. As a percentage of sales, expenses decreased to
24.9% of sales compared to 26.5% of sales last year. Selling, general and
administrative expenses were improved primarily due to the Company being able to
continue to control costs and improve efficiencies in corporate, distribution,
and pharmacy operations. The improved performance in the distribution operations
and better merchandising practices have resulted in stronger control of labor
and related costs.
Interest expense increased to $.9 million in 2000 from $.7 million in 1999,
reflecting higher average revolver borrowings for inventory purchases than last
year as well as rising interest rates.
Thirty-nine Weeks Ended October 28, 2000 and October 30, 1999
-------------------------------------------------------------
Net sales increased to $538.6 million in 2000 from $469.5 million in 1999, an
increase of $69.1 million or 14.7%. The increase was attributable to comparable
store sales increases of 9.3% ($40.3 million) and sales by stores not yet
included as comparable stores ($28.0 million). Sales to franchisees increased
$.8 million in 2000. The sales mix for the period was 49.5% Hardlines, 33.5%
Pharmacy, 12.2% Softlines, and 4.8% Franchise. This compares with 48.5%
Hardlines, 32.2% Pharmacy, 14.0% Softlines, and 5.3% Franchise for the same
period last year.
Gross profit decreased to 27.9% of sales in 2000 compared with 28.8% of sales in
the prior-year period. Gross profit margins decreased as a result of the strong
sales in pharmacy, which typically carry lower margins, as well as the
promotional activities throughout the year.
Selling, general and administrative expenses increased to $134.3 million in 2000
from $123.0 million in 1999. As a percentage of sales, expenses decreased to
24.9% of sales compared to 26.2% of sales last year. Selling, general and
administrative expenses were improved primarily due to significant improvements
to control costs. Pharmacy and corporate expenses as a percentage of sales have
shown considerable improvement.
Interest expense increased to $2.3 million in 2000 from $1.9 million in 1999,
reflecting higher average revolver borrowings than last year for inventory
purchases to improve store in-stock positions.
The provision for income taxes has been reduced by $250,000 to reflect the Work
Opportunity Tax Credit that the Company has earned during the first nine months
of the year to reduce the Federal Tax liability for the year ending February 3,
2001.
LIQUIDITY AND CAPITAL RESOURCES
Due to the seasonality of Fred's business and the continued increase in the
number of stores and pharmacies, inventories are generally lower at year end
than at each quarter end of the following year.
Net cash flow provided by operating activities totaled $2.8 million during the
thirty-nine week period ended October 28, 2000. Cash was primarily used to
increase inventories. Total inventories increased approximately $32.7 million in
the first nine months of 2000. This increase was primarily attributable to 24
new stores and 14 new pharmacies in the first nine months of 2000, coupled with
the additional inventory necessary to improve store in-stock positions over
1999. Accounts payable increased approximately $15.0 million in the first nine
months of 2000.
Net cash flows used by investing activities totaled $14.5 million, and were used
primarily for capital expenditures associated with the Company's store and
pharmacy expansion program. During the first nine months of 2000, the Company
opened 24 stores and closed 2 stores. The Company expects to open approximately
30 stores for the year. The Company's capital expenditure plan for the year 2000
is approximately $15 million dollars and will approximate depreciation expense
for the year.
Net cash flows provided by financing activities totaled $11.1 million and
included $13.8 million of borrowings under the Company's revolver for inventory
and accounts payable needs.
On April 3, 2000, the Company and a bank entered into a new Revolving Loan and
Credit Agreement (the "Agreement") to replace the May 15, 1992 Revolving Loan
and Credit Agreement, as amended. The Agreement provides the Company with an
unsecured revolving line of credit commitment of up to $40 million and bears
interest at the lesser of 1.5% below prime rate or a LIBOR-based rate. Under the
most restrictive covenants of the Agreement, the Company is required to maintain
specified shareholder's equity and net income levels. The Company is required to
pay a commitment fee to the bank at a rate per annum equal to .18% on the
unutilized portion of the revolving line commitment over the term of the
agreement. The term of the Agreement extends to April 3, 2003. The borrowings
outstanding under this agreement at October 28, 2000 were $40.0 million. The
borrowings outstanding under the previous Agreement at October 30, 1999 were
$24.7 million.
On May 5, 1998, the Company and a bank entered into a Loan Agreement (the "1998
Loan Agreement"). The 1998 Loan Agreement provided the Company with an unsecured
term loan of $12 million to finance the modernization and automation of the
Company's distribution center and corporate facilities. The 1998 Loan Agreement
bears interest of 6.82% per annum and matures on November 1, 2005. Borrowings
outstanding under this 1998 Loan Agreement totaled $9.2 million at October 28,
2000 and $10.7 million at October 30, 1999.
On April 23, 1999, the Company and a bank entered into a Loan Agreement (the
"1999 Loan Agreement"). The 1999 Loan Agreement provided the Company with a
four-year unsecured term loan of $2,250,000 to finance the replacement of the
Company's mainframe computer system. The 1999 Loan Agreement bears interest of
6.15% per annum and matures on April 15, 2003. Borrowings outstanding under this
1999 Loan Agreement totaled $1.4 million at October 28, 2000 and $2.0 million at
October 30, 1999.
On October 11, 2000, the Company and a bank entered into a Seasonal Overline
Revolving Credit Agreement (the "2000 Seasonal Agreement"). The 2000 Seasonal
Agreement provides the Company with a ninety day unsecured loan of $5,000,000.
The 2000 Seasonal Agreement bears interest at .5% below prime rate. Borrowings
outstanding under this 2000 Seasonal Agreement totaled $2.0 million at October
28, 2000.
The Company believes that sufficient capital resources are available in both the
short term and long term through currently available cash and cash generated
from future operations and, if necessary, the ability to obtain additional
financing.
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 "Revenue Recognition in Financial Statements" (SAB 101). SAB
101 deals with various revenue recognition issues, several which are common
within the retail industry including treatment of revenue recognition on layaway
sales. The Company has not implemented the changes of Staff Accounting Bulletin
No. 101. The most recent announcement by the SEC delays the implementation date
of SAB 101 and would require the Company to implement changes by the fourth
quarter of this fiscal year. The new accounting treatment of layaway sales would
cause an adjustment of earnings from the third quarter to the fourth quarter
since revenue would not be recorded until the layaway sale is complete. However,
based on historical customer patterns, the financial effect on the year end
result of the Company is not expected to be material. Historically, layaway
purchases not totally completed by fiscal year end are minimal in relation to
total revenues, and the effect on Earnings Per Share of the Company would be
less than $.01 per share.
In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the effective date of FASB
Statement No. 133, which deferred the effective date provisions of SFAS No. 133
for the Company to the first quarter of 2001. The Company does not believe this
new standard will have an impact on its financial statements since it currently
has no derivative instruments.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company has no holdings of derivative financial or commodity instruments as
of October 28, 2000. The Company is exposed to financial market risks, including
changes in interest rates. All borrowings under the Company's Revolving Credit
Agreement bear interest at 1.5% below prime rate or a LIBOR based rate. An
increase in interest rates of 100 basis points would not significantly affect
the Company's income. All of the Company's business is transacted in U.S.
dollars and, accordingly, foreign exchange rate fluctuations have not had a
significant impact on the Company, and they are not expected to in the
foreseeable future
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Statements, other than those based on historical facts, are forward-looking
statements which are based upon a number of assumptions concerning future
conditions that may ultimately prove to be inaccurate. Actual events and results
may materially differ from anticipated results described in such statements. The
Company's ability to achieve such results is subject to certain risks and
uncertainties, including, but not limited to, economic and weather conditions
which affect buying patterns of the Company's customers, changes in consumer
spending and the Company's ability to anticipate buying patterns and implement
appropriate inventory strategies, continued availability of capital and
financing, competitive factors, and other factors affecting business beyond the
Company's control. Consequently, all of the forward-looking statements are
qualified by these cautionary statements and there can be no assurance that the
results or developments anticipated by the Company will be realized or that they
will have the expected effects on the Company or its business or operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable.
Item 2. Changes in Securities
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Securities Holders
Not Applicable.
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
10.24 Loan modification agreement dated May 26, 2000
(modifies the Revolving Loan agreement included as
Exhibit 10.23) [incorporated herein by reference to the
Company's report on Form 10-K for the year ended
January 29, 2000.]
10.25 Seasonal Overline Revolving Credit Agreement dated
October 11, 2000.
Exhibit 27 - Financial Data Schedule (Edgar Filing only)
Reports on Form 8-K:
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FRED'S, INC.
/s/Michael J. Hayes
-------------------
Michael J. Hayes
Date: December 11, 2000 Chief Executive Officer
------------------------
/s/Jerry A. Shore
-----------------
Jerry A. Shore
Date: December 11, 2000 Chief Financial Officer
------------------------
<PAGE>
EXHIBIT 10.25
Seasonal Overline Revolving Credit Note
$5,000,000.00 Memphis, Tennessee
October 11, 2000
FOR VALUE RECEIVED, FRED'S, INC. (hereinafter, the "Borrower") promises
to pay to the order of Union Planters Bank, N.A., (formerly Union Planters
National Bank) with its principal office at 6200 Poplar Avenue, Memphis,
Tennessee (hereinafter, with any subsequent holder, the "Bank") at the Bank's
principal office on January 9, 2000 the sum of Five Million Dollars
($5,000,000.00) or such lesser sum as shall equal the aggregate unpaid principal
amount of all advances made from time to time hereunder by the Bank to the
Borrower. Advances made hereunder are made in addition to credit facilities made
available pursuant to that Revolving Loan and Credit Agreement (Restated)
("Agreement") dated March 31, 2000. Advances made hereunder are made pursuant to
the terms and conditions (not inconsistent herewith) of the Agreement.
The Borrower agrees to pay interest at the Prime Rate less fifty basis
points on any and all amounts of principal advanced and unpaid under this Note
from time to time, and on all other fees, expenses, charges and other amounts
accrued and outstanding hereunder from time to time in the full amount thereof,
monthly in arrears on the first day of each month, commencing on the first day
of the month next following the month first above written.
Any payments received by the Bank on account of this Note prior to
acceleration shall be applied first to any costs, expenses, or charges then owed
the Bank by the Borrower, second to accrued and unpaid interest, and third to
the unpaid principal balance hereof. The Borrower hereby authorizes the Bank to
charge any deposit account which the Borrower may maintain with the Bank for any
payment required hereunder.
The Bank, at its option, may declare the entire unpaid principal
balance of this Note and accrued unpaid interest thereon to be immediately due
and payable without demand, notice of protest (which are hereby waived) upon the
occurrence of an Event of Default (as defined in the Agreement).
No delay or omission by the Bank in exercising or enforcing any of the
Bank's powers, rights, privileges, remedies, or discretion hereunder shall
operate as a waiver thereof on that occasion nor on any other occasion. No
waiver of any default hereunder shall operate as a waiver of any other default
hereunder, nor as a continuing waiver.
The Borrower will pay on demand all reasonable attorneys' fees and
out-of-pocket expenses incurred by the Bank in the collection of this Note and
the collection and administration of all liabilities and obligations of the
Borrower to the Bank upon Default, as provided in the Agreement.
The Borrower, and each endorser and guarantor of this Note,
respectively, waive presentment, demand, notice, and protest, and also waive any
delay on the part of the holder hereof, and each of the foregoing assents to any
extension or other indulgence (including, without limitation, the release of
substitution of collateral) permitted the Borrower or any such endorser or
guarantor by the Bank with respect to this Note and/or any collateral given to
secure this Note and/or any other liability of the Borrower or such endorser or
guarantor to the Bank.
This Note shall be binding upon the Borrower and any endorser and
guarantor hereof and upon their respective heirs, successors and
representatives, and shall inure to the benefit of the Bank and its successors,
endorsees, and assigns.
This Note is delivered to the Bank at its principal office in Memphis,
Tennessee, shall be governed by the laws of the State of Tennessee, except with
respect to the rate of interest which shall be governed by applicable provisions
of federal law. The Borrower, and each endorser and guarantor of this Note,
submit to the jurisdiction of the courts of the State of Tennessee for all
purposes with respect to this Note, any collateral given to secure their
respective liabilities to the Bank, and their respective relationships with the
Bank.
The Borrower has read all of the terms and conditions of this Note and
acknowledges receipt of an exact copy of it.
Borrower:
FRED'S, INC.
By: _______________________
Its: ______________________
