Director With Corporate Governance Expertise—Fred’s Inc.

RESOLVED, that the shareholders request that, as the terms in office of elected directors expire, at least one candidate shall be selected and recommended for election to the company’s board who:

(i) has a high level of expertise and experience in corporate governance and is widely recognized in the business community as an authority in such field, as reasonably determined by the company’s board, and
(ii) will qualify, subject to limited exceptions in extraordinary circumstances explicitly specified by the board, as an independent director under the standards applicable to the company as a New York Stock Exchange listed company.

Supporting Statement: Sound corporate governance policies and practices are prudent controls that serve to protect shareholder value and corporate competitive positioning. Fred’s nominating committee charter states that, among other qualifications, the company will evaluate candidates based upon “skills and expertise necessary to make significant contributions to the Company, its Board and its shareholders” and “accomplishment within the candidate’s own field.”

Fred’s has received significant criticism from proxy advisory firms regarding its corporate governance policies and practices. An analysis of the board composition shows the company does not have an independent director with corporate governance expertise. Furthermore, the company has not acted upon past shareholder votes pertaining to corporate governance. Fred’s board of directors:

  1. nominated directors who failed to win the majority support of shareholders in three consecutive years (2009-2011);
  2. declined to adopt a majority vote standard for election of directors that shareholders approved with 77% support (2009);
  3. adopted a shareholder rights plan (“poison pill”) without shareholder ratification (2008).

We believe that the company must respond to its corporate governance challenges in an effective and transparent manner in order to restore investor trust in the company and its board of directors.

A director nominee with acknowledged corporate governance experience and who is respected in the business community could perform a valuable and strategic service to the company and its shareholders. Such leadership would enable the company to begin to address the corporate governance challenges inherent in Fred’s governance structure.

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