-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LvuplAvoxuFvuvsF5RmQdV32EZO+hDyBWJpjS5aJR3hII76lEBmHXPuRqyWfocPT o0sEmnwizkChX0XmB8LNpg== 0000893877-96-000289.txt : 19960906 0000893877-96-000289.hdr.sgml : 19960906 ACCESSION NUMBER: 0000893877-96-000289 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19960905 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEYER FRED INC CENTRAL INDEX KEY: 0000701169 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 930798201 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-11403 FILM NUMBER: 96625804 BUSINESS ADDRESS: STREET 1: 3800 SE 22ND AVE CITY: PORTLAND STATE: OR ZIP: 97202 BUSINESS PHONE: 5032328844 MAIL ADDRESS: STREET 1: PO BOX 42121 CITY: PORTLAND STATE: OR ZIP: 97242 S-3 1 FORM S-3 As filed with the Securities and Exchange Commission on September 5, 1996 Registration No. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------- FORM S-3 REGISTRATION STATEMENT Under The Securities Act of 1933 ------------------- FRED MEYER, INC. (Exact name of registrant as specified in its charter) ------------------- Delaware 93-0798201 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3800 SE 22nd Avenue Portland, Oregon 97202 (503) 232-8844 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------- ROGER A. COOKE Senior Vice President, General Counsel and Secretary Fred Meyer, Inc. 3800 SE 22nd Avenue Portland, Oregon 97202 (503) 232-8844 (Name, address, including zip code, and telephone number, including area code, of agent for service) It is respectfully requested that the Commission send copies of all notices, orders and communications to: HENRY H. HEWITT ANTHONY J. RICHMOND Stoel Rives LLP Latham & Watkins 900 SW Fifth Avenue, Suite 2300 633 West Fifth Street, Suite 4000 Portland, Oregon 97204 Los Angeles, California 90071 (503) 224-3380 (213) 485-1234 ------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As promptly as practicable after this registration statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. / / If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. / / ______________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / /
CALCULATION OF REGISTRATION FEE ==================================================================================================================================== PROPOSED PROPOSED MAXIMUM MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------------------------------ Common Stock, $.01 par value........ 4,000,000 $ 29.6875 $ 118,750,000 $ 40,949 ==================================================================================================================================== (1) Includes shares which may be sold upon the exercise of the Underwriters' option to purchase shares solely to cover over-allotments, if any. (2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based upon the average high and low prices as reported on the New York Stock Exchange on September 3, 1996.
------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH A DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ - -------------------------------------------------------------------------------- INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION. - -------------------------------------------------------------------------------- SUBJECT TO COMPLETION, DATED SEPTEMBER 5, 1996 3,600,000 SHARES [COMPANY LOGO] COMMON STOCK (PAR VALUE, $.01 PER SHARE) -------------------- All of the shares of Common Stock offered hereby are being sold by the Selling Stockholder. The Company will not receive any of the proceeds from the sale of the shares offered hereby. Concurrently with the consummation of the offering, the Company will repurchase an estimated 2,400,000 outstanding shares of Common Stock from the Selling Stockholder. The actual number of shares to be repurchased will be based on the initial public offering price of the Common Stock and the number of shares offered hereby is subject to adjustment depending upon the number of shares to be repurchased. Following completion of the offering and the stock repurchase, it is expected that the Selling Stockholder, an affiliate of Kohlberg Kravis Roberts & Co., L.P., will beneficially own approximately 18% of the Common Stock of the Company (assuming no exercise of the Underwriters' over-allotment option). See "The Selling Stockholder." The last reported sale price of the Common Stock, which is listed under the symbol "FMY," on the New York Stock Exchange on September 3, 1996 was $29 5/8 per share. See "Price Range of Common Stock." ------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. -------------------
INITIAL PUBLIC UNDERWRITING PROCEEDS TO SELLING OFFERING PRICE DISCOUNT(1) STOCKHOLDER(2) -------------- ----------- -------------- Per Share............................................ $ $ $ Total(3)............................................. $ $ $ (1) The Company and the Selling Stockholder have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. See "Underwriting." (2) Expenses of the offering, estimated at $270,000, will be paid by the Company. (3) The Selling Stockholder has granted the Underwriters an option for 30 days to purchase up to an additional 400,000 shares at the initial public offering price per share, less the underwriting discount, solely to cover over-allotments. If the option is exercised in full, the total initial public offering price, underwriting discount and proceeds to the Selling Stockholder will be $______, $______ and $______, respectively. See "Underwriting."
------------------- The shares offered hereby are offered severally by the Underwriters, as specified herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that certificates for the shares will be ready for delivery in New York, New York, on or about _____________, 1996 against payment therefor in immediately available funds. Goldman, Sachs & Co. Lehman Brothers Salomon Brothers Inc William Blair & Company ------------------- The date of this Prospectus is ____________, 1996 [ART WORK] [FRONT INSIDE COVER] [Photograph of front of Fred Meyer store] [Floor plan of standard store highlighting locations of Apparel and Home Electronics Group, Food Group, Jewelry Group and Home Group] [Photograph of "FM Elements" [Photograph of Service Fish Section] Market] IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. AVAILABLE INFORMATION Fred Meyer, Inc. ("Fred Meyer" or the "Company") is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files periodic reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports and other information may be inspected and copies may be obtained at the Commission's Public Reference Section, Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549, as well as the following regional offices: 7 World Trade Center, New York, New York 10048 and 500 West Madison Street, Chicago, Illinois 60661. The Commission maintains a Website that contains reports, proxy and information statements and other information regarding reporting companies under the Exchange Act, including the Company, at http://www.sec.gov. The Company has filed with the Commission a Registration Statement under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the securities offered pursuant to this Prospectus. For further information, reference is made to the Registration Statement and the exhibits thereto, which are available for inspection at no fee at the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street NW, Washington, D.C. 20549. Copies of the foregoing material can also be obtained at prescribed rates from the Public Reference Section of the Commission. The Common Stock is listed on the New York Stock Exchange, and such reports and other information may also be inspected at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents previously filed by the Company with the Commission pursuant to the Exchange Act are incorporated in this Prospectus by reference: (a) the Company's Annual Report on Form 10-K for the year ended February 3, 1996; (b) the Company's Quarterly Reports on Form 10-Q for the quarters ended May 25, 1996 and August 17, 1996; (c) the Company's definitive proxy statement dated May 3, 1996; and (d) the description of the Company's Common Stock contained in the Company's registration under Section 12 of the Exchange Act, dated September 25, 1986, including any amendment or report updating such description. In addition, all documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the offering (the "Offering") shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents (such documents, and the documents enumerated above, being hereinafter referred to as "Incorporated Documents"). Any statement contained in an Incorporated Document shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed Incorporated Document modifies or supersedes such statement. Any such statement shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company hereby undertakes to provide without charge to each person to whom a copy of this Prospectus has been delivered, including any beneficial owner, on the written or oral request of any 3 such person, a copy of any or all of the Incorporated Documents, other than exhibits to such documents, unless such exhibits are specifically incorporated by reference therein. Requests should be directed to Fred Meyer, Inc., 3800 SE 22nd Avenue, Portland, Oregon 97202, Attention: Roger A. Cooke, Senior Vice President, General Counsel and Secretary (Telephone Number (503) 232-8844). This Prospectus constitutes a part of the Registration Statement on Form S-3 filed by the Company with the Commission under the Securities Act. This Prospectus omits certain of the information contained in the Registration Statement, and reference is hereby made to the Registration Statement and to the exhibits relating thereto for further information with respect to the Company and the Common Stock. Any statements contained herein concerning the provisions of any documents are not necessarily complete, and reference is made to the copy of such document filed as an exhibit to the Registration Statement or otherwise filed with the Commission. Each such statement is qualified in its entirety by such reference. The information relating to the Company contained in this Prospectus should be read together with the information contained in the Incorporated Documents. 4 THE COMPANY Fred Meyer is a leading regional retailer of a wide range of food, apparel, fine jewelry and products for the home. At August 17, 1996, the Company operated 108 multidepartment stores in Oregon, Washington, Utah, Alaska, Idaho and Montana under the name "Fred Meyer" and 105 specialty stores in 16 states. The Company's multidepartment stores are unique in the Pacific Northwest in combining food with a wide range of nonfood merchandise under one roof. These stores average approximately 144,000 square feet of retail space, contain up to seven departments, which include food, home, apparel, home electronics, fine jewelry, health and beauty aids and pharmacy, and emphasize one-stop-shopping for necessities and items of everyday use. The multidepartment stores accounted for approximately 98.7% and 97.2% of the Company's total sales and operating income, respectively, for the 1995 fiscal year ended February 3, 1996. For the 1995 fiscal year, food and nonfood sales were 41.0% and 59.0% of total sales, respectively. Substantially all of the Company's specialty stores are mall jewelry stores operating under the names "Fred Meyer Jewelers" or "Merksamer Jewelers." The Company's principal business strategy is to operate one-stop-shopping stores that provide convenient shopping for a broad selection of products in one location. Stores are organized into distinct departments that specialize in the sale of particular products. Multidepartment stores that include food are the Company's primary focus. The Company believes that its food departments increase the shopping frequency of area residents, build customer loyalty and enable its nonfood departments to generate higher levels of sales through increased customer traffic. The Company promotes cross-shopping by providing convenient access between departments, by making each department a strong competitor in the market for its products and by facilitating easy customer checkout through a common checkout cash register system that allows customers to purchase merchandise from any department at any checkout location. The strength of the individual departments, with their breadth and depth of product selection, national and private label brands and emphasis on products of everyday use, distinguishes the Company's stores from other retailers and enables the Company to compete with supermarkets, drug stores, discount stores, mass merchandisers, department stores and specialty stores, including category-dominant retailers. During the second half of fiscal 1994, the Company experienced significant labor disputes and related work stoppages in Portland, Oregon and Vancouver, Washington. These work stoppages had a material adverse effect on the Company's results of operations during the third and fourth quarters of fiscal 1994, and the Company believes that the strikes had a continuing adverse effect during most of fiscal 1995. In recent years, the Company has also experienced substantial increased competition from large national category-dominant retailers and national and regional discount retailers. In response to the labor disputes and increased competition, the Company implemented operating initiatives to reestablish its positive community image, regain customer loyalty in affected markets, achieve operating efficiencies and improve profitability. The Company also began to reposition some of its departments to improve its competitive position with respect to discount retailers and category-dominant competitors (particularly in the home improvement and home electronics categories). These repositioning efforts included (1) reducing the space allocated to building materials in those stores affected by category-dominant home improvement centers and utilizing this space for other product categories (such as expanded garden centers); (2) eliminating most computer hardware in a majority of its stores and increasing the selection of certain products, such as computer software, compact discs, video games and cellular telephones, in an effort to focus on higher margin items in home electronics; (3) refining its apparel selection to emphasize basics and casual sportswear; (4) adding additional private label products to its apparel selection and personal care products; (5) adding new product categories (such as pet centers) 5 to certain of its stores; and (6) increasing the amount of space leased to complementary third-party tenants (such as banks, optical centers, gourmet coffee bars, restaurants and video rental stores) that attract high customer traffic. At the same time, the Company remained committed to its growth strategy of opening new multidepartment stores, remodeling existing stores and opening smaller multidepartment stores and stores that emphasize food within its existing market areas. The Company believes that its results for the first half of fiscal 1996 reflect these efforts. For the first half of fiscal 1996, total store sales increased 10.8% and comparable store sales increased 4.1% over the first half of fiscal 1995. The Company opened five new multidepartment stores in 1994 and six in each of 1995 and the first half of 1996, and currently plans to open one additional store in 1996 and five in each of 1997 and 1998. The Company remodeled seven multidepartment stores in 1994, eight in 1995, two in the first half of 1996, and currently plans to remodel two in the second half of 1996 and five in each of 1997 and 1998. The Company's major remodeling programs during the last three years included (1) adding food departments to stores that previously sold only nonfood merchandise; (2) removing walls between departments to facilitate cross-shopping and common checkout for its customers; and (3) adding food service departments, such as deli and bakery, to its stores. As these major remodeling programs near completion, store remodeling costs are expected to decrease over the next several years. During the last three years, the Company made capital expenditures of approximately $166,000,000 to (1) modernize its management information systems ("MIS") to better support its business and (2) expand and improve its distribution operations by updating its existing distribution center and constructing two new distribution facilities. All major aspects of the currently planned MIS improvement program are presently scheduled to be completed in fiscal 1997. The Company believes that its existing distribution centers enable it to meet its expected nonfood and food distribution center needs until at least the year 2000. Capital expenditures (before land sales and excluding real estate financed on leases), which amounted to approximately $236,000,000 in fiscal 1995, are therefore expected to decline to approximately $160,000,000 in 1996 and increase moderately over the next two years. Following completion of the repurchase of shares from the Selling Stockholder, the Company presently intends to use all available cash flow to reinvest in the business of the Company and to reduce debt. The Company was incorporated in Delaware in 1981, as a successor to the business of a company which opened its first store in downtown Portland in 1922 and was incorporated in Oregon in 1923. The Company's principal executive offices are located at 3800 SE 22nd Avenue, Portland, Oregon 97202, and its telephone number is (503) 232-8844. References in this Prospectus to the Company mean Fred Meyer, Inc., including its subsidiaries, unless the context requires otherwise. The Selling Stockholder and the Repurchase Prior to the Offering, approximately 37.8% of the Company's Common Stock was beneficially owned by FMI Associates Limited Partnership ("FMI Associates" or the "Selling Stockholder"), an affiliate of Kohlberg Kravis Roberts & Co., L.P. ("KKR"). Concurrently with the consummation of the Offering, the Company will repurchase (the "Repurchase") a number of outstanding shares of Common Stock from the Selling Stockholder determined by dividing $70,000,000 (the "Repurchase Price") by an amount equal to the initial public offering price in the Offering less the underwriting discount (the "Net Offering Price"). The Company plans to finance the Repurchase Price with borrowings under its credit agreement and the issuance of commercial paper. The Company's recently consummated sale and leaseback transaction, the proceeds of which were used to repay debt, increased available borrowing capacity under the credit agreement. Following completion of the Offering and the Repurchase, it is 6 expected that the Selling Stockholder will beneficially own approximately 18% of the Common Stock (assuming no exercise of the Underwriters' over-allotment option). The FMI Associates limited partnership agreement is, by its terms, to dissolve on December 31, 1996 unless amended by all of the limited partners to extend the term beyond such date. See "The Selling Stockholder." PRICE RANGE OF COMMON STOCK The Company's Common Stock is traded on the New York Stock Exchange (the "NYSE") under the symbol "FMY." The following table sets forth the high and low sales prices for the Company's Common Stock for the calendar periods indicated on the NYSE. For a recent stock price, see the cover page of this Prospectus.
High Low 1994 First Quarter........................................ $42 1/2 $35 5/8 Second Quarter....................................... 38 3/4 35 Third Quarter........................................ 37 3/8 31 1/4 Fourth Quarter....................................... 35 3/4 29 1/4 1995 First Quarter........................................ $33 3/8 $23 1/2 Second Quarter....................................... 29 23 1/2 Third Quarter........................................ 26 7/8 18 5/8 Fourth Quarter....................................... 23 5/8 17 3/8 1996 First Quarter........................................ $29 7/8 $22 1/4 Second Quarter....................................... 32 26 1/8 Third Quarter (through September 3, 1996)............ 30 3/8 28 3/4
DIVIDEND POLICY The Company has not paid dividends since its incorporation in 1981, and, subject to completion of the Repurchase, it is the current policy of the Board of Directors that all available cash flow be used for reinvestment in the business of the Company and for the reduction of debt. It is the intention of the Board of Directors to review this policy periodically in light of the Company's financial condition, capital requirements and expansion opportunities. The Company may also determine to use available cash to repurchase shares of its stock in addition to the Repurchase. However, the Company's credit agreement and other debt agreements prohibit the payment of dividends or the repurchase of Company stock in an amount in excess of 40% of its consolidated net income for the prior fiscal year, except that the Company may, during the two-year period ending June 14, 1997, repurchase up to $70,000,000 of its stock. Accordingly, after the Repurchase the Company will be unable to effect any additional repurchases of its stock until after June 14, 1997 unless this restriction is amended or waived. See "Capitalization" and "Management's Discussion and Analysis of Results of Operations and Financial Condition." 7 CAPITALIZATION The following table sets forth the capitalization of the Company as of August 17, 1996 and on a pro forma basis to reflect the acquisition of shares from the Selling Stockholder in the Repurchase and certain other transactions. The information presented below is unaudited and should be read in conjunction with the Company's consolidated financial statements and the notes thereto, which are incorporated by reference herein, and "Selected Pro Forma Financial Data," "Management's Discussion and Analysis of Results of Operations and Financial Condition" and "The Selling Stockholder" included elsewhere in this Prospectus.
As of August 17, 1996 --------------------- Actual Pro forma(1) --------------- ---------------- (in thousands) Short-term debt: Current portion of long-term debt and lease obligations..................................................$ 1,468 $ 1,468 =============== ================ Long-term obligations: Commercial paper and money market lines(2)(3)......................... 363,494 325,494 Mortgage and other debt obligations................................... 272,975 272,975 Capital lease, lease obligations related to restructuring charge and other long-term obligations................................................ 20,469 20,469 --------------- ---------------- Total.............................................................. 656,938 618,938 --------------- ---------------- Deferred lease transactions.................................................... 39,392 52,571 --------------- ---------------- Stockholders' equity(4)........................................................ 596,173 525,903 --------------- ---------------- Total capitalization...............................................$ 1,292,503 $ 1,197,412 =============== ================ - -------------- (1) Adjusted to give pro forma effect to the following transactions (as if all such transactions had occurred as of August 17, 1996): (a) the consummation of a sale and leaseback transaction (the "September 1996 Sale and Leaseback") in September 1996 in which the Company sold 10 of its stores and received net proceeds therefrom of approximately $108,000,000, which proceeds were applied to repay debt; and (b) the repurchase of $70,000,000 of Common Stock from the Selling Stockholder (estimated to be approximately 2,400,000 shares of Common Stock at current market prices). (2) The Company's commercial paper and money market lines are supported by bank borrowings on a long-term basis pursuant to its credit agreement and are classified as long-term debt. At August 17, 1996, the Company had a total of $136,506,000 available for borrowing under its committed credit facilities ($174,506,000 on a pro forma basis after giving effect to the September 1996 Sale and Leaseback and the Repurchase). See "Management's Discussion and Analysis of Results of Operations and Financial Condition." 8 (3) The Company realized net proceeds of approximately $108,000,000 from the September 1996 Sale and Leaseback, which was structured as an operating lease for financial reporting purposes. The Company has previously engaged in similar transactions to finance store development and provide funds for general corporate purposes. See Note 8 to the Company's consolidated financial statements incorporated herein by reference. (4) At August 17, 1996, 100,000,000 shares of Common Stock, $.01 par value, were authorized, of which 26,730,071 shares were outstanding (estimated to be 24,330,071 shares after giving effect to the Repurchase of an estimated 2,400,000 shares). The actual number of shares to be repurchased will be determined by dividing $70,000,000 by an amount equal to the initial public offering price in the Offering less the underwriting discount. Shares outstanding do not include 4,476,258 shares subject to outstanding stock options. Of the total options, 2,909,817 shares (of which 1,115,361 shares are presently exercisable) are subject to employee and other stock options at a weighted average exercise price of $23.711 per share and 1,566,441 shares are subject to a presently exercisable option held by the Selling Stockholder at an exercise price of approximately $3.24 per share (the "Selling Stockholder's Option"). See "The Selling Stockholder."
9 SELECTED FINANCIAL DATA The following selected consolidated financial data of the Company for each of the five fiscal years in the period ended February 3, 1996 have been derived from the Company's consolidated financial statements, which have been audited by Deloitte & Touche LLP, independent auditors. The selected financial data for the 28 weeks ended August 12, 1995 and August 17, 1996 have been derived from the unaudited financial statements of the Company and include all adjustments necessary for a fair presentation of the results of such periods. The results for interim periods are not indicative of results for the entire fiscal year due to the seasonality of the Company's business. For fiscal years 1991 through 1995, the amounts shown reflect the reclassification of employee discounts to make the reporting consistent with the reporting for the 1995 and 1996 interim periods presented. The data should be read in conjunction with the Company's consolidated financial statements, related notes and other financial information incorporated by reference herein. See "Available Information."
Fiscal Year Ended ------------------------------------------------------------------------------------------ February 1, January 30, January 29, January 28, February 3, 1992 1993 1994 1995 1996 --------------- ------------- --------------- ---------------- ---------------- (53 weeks) (in thousands, except per share data) Income Statement Data Net sales (1)............................ $ 2,700,550 $ 2,849,521 $ 2,973,825 $ 3,122,635 $ 3,422,717 Cost of goods sold....................... 1,892,821 1,996,700 2,088,568(6) 2,261,315 2,449,204 ------------- ------------- ------------- ------------ ------------ Gross margin............................. 807,729 852,821 885,257 861,320 973,513 Operating and administrative expenses(1)........................... 724,446(4) 738,581 747,151 807,924 885,086 Restructuring charge reversal; writedown of California assets (8,289)(5) -- -- 15,978(9) -- ------------- ------------- ------------- ------------ ------------ Income from operations................... 91,572 114,240 138,106 37,418(9) 88,427 Interest expense, net of interest income(2)............................. 20,577 18,070 17,604 25,857 39,578 Provision for income taxes............... 25,768 35,583 49,598(7) 4,393(9) 18,563 ------------- ------------- ------------- ------------ ------------ Net income before cumulative effect of accounting change........... 45,227 60,587 70,904 7,168 30,286 ------------- ------------- ------------- ------------ ------------ Cumulative effect of accounting change..................... -- -- (2,588)(8) -- -- ------------- ------------- ------------- ------------ ------------ Net income............................... $ 45,227 $ 60,587 $ 68,316 $ 7,168(9) $ 30,286 Earnings per common share: Net income before effect of accounting change.................. $ 1.80 $ 2.21 $ 2.50 $ .25(9) $ 1.07 Cumulative effect of accounting change............................. -- -- (.09)(8) -- -- ------------- ------------- ------------- ------------ ------------ Net income............................ $ 1.80 $ 2.21 $ 2.41 $ .25(9) $ 1.07 ============= ============= ============= ============ ============ Weighted average number of common shares outstanding(3).......... 25,182 27,446 28,375 28,625 28,333
(continued) 28 Weeks Ended ------------------------------------- August 12, August 17, 1995 1996 ------------------ ---------------- Income Statement Data Net sales (1)............................ $ 1,710,053 $ 1,893,942 Cost of goods sold....................... 1,224,558 1,336,484 --------------- ------------- Gross margin............................. 485,495 557,458 Operating and administrative expenses(1)........................... 444,137 495,471 Restructuring charge reversal; writedown of California assets -- -- --------------- ------------- Income from operations................... 41,358 61,987 Interest expense, net of interest income(2)............................. 19,171 22,282 Provision for income taxes............... 8,431 15,088 --------------- ------------- Net income before cumulative effect of accounting change........... 13,756 24,617 --------------- ------------- Cumulative effect of accounting change..................... -- -- --------------- ------------- Net income............................... $ 13,756 $ 24,617 Earnings per common share: Net income before effect of accounting change.................. $ .48 $ .86 Cumulative effect of accounting change............................. -- -- --------------- ------------- Net income............................ $ .48 $ .86 =============== ============= Weighted average number of common shares outstanding(3).......... 28,424 28,609
10
August 17, 1996 January 29, January 28, February 3, ----------------------------- 1994 1995 1996 Actual Pro Forma (10) ----------- ----------- ----------- ----------- -------------- (in thousands) Balance Sheet Data (at end of period): Working capital ........................... $ 192,737 $ 249,514 $ 283,082 $ 239,589 $ 239,589 Inventories ............................... 477,468 514,473 520,555 560,790 560,790 Total assets .............................. 1,326,076 1,562,672 1,671,592 1,777,327 1,682,506 Long-term obligations ..................... 341,353 564,058 677,542 656,938 618,938 Deferred lease transactions ............... 48,254 45,655 42,271 39,392 52,571 Stockholders' equity ...................... 527,686 538,620 571,234 596,173 525,903 - --------------- (1) Commencing in fiscal 1996, the Company changed its method of accounting for employee discounts to a reduction of sales. Previously, such discounts were accounted for as operating and administrative expense. Sales and operating and administrative expenses for the years 1991 through 1995 have been reduced in the amounts of $2,171, $4,441, $5,257, $5,797 and $5,947, respectively, to reflect the present method of accounting for such discounts. (2) Interest income was $517, $544, $707, $885, $1,060, $567 and $576, respectively. (3) Based upon shares outstanding during each period and the application of the treasury stock method of computing the effect of outstanding stock options. See "The Selling Stockholder." (4) In 1991, the Company took a charge against expenses for previously capitalized software development costs of $8,748. (5) In 1991, the Company reversed $8,289, a portion of a charge taken in 1989, based on a decision not to close as many stores as previously provided for. (6) Includes a nonrecurring LIFO credit of $6,178. (7) Includes $3,588 from the resolution of an IRS audit, ($2,286) related to the LIFO credit and a 38% tax rate. (8) Effect of adopting Statement of Financial Accounting Standards No. 109 relating to income taxes. (9) In 1994, the Company recorded a pretax charge of $15,978 to write down to their estimated net realizable value one multidepartment store and three land parcels in California. Excluding this writedown, income from operations, provisions for income taxes, net income and earnings per common share would be $53,396, $10,465, $17,074 and $0.60, respectively. (10) Adjusted to give pro forma effect to the following transactions (as if all such transactions had occurred as of August 17, 1996): (a) the consummation of the September 1996 Sale and Leaseback in which the Company sold 10 of its stores and received net proceeds therefrom of approximately $108,000,000, which proceeds were applied to repay debt; and (b) the Repurchase of $70,000,000 of Common Stock from the Selling Stockholder (estimated to be approximately 2,400,000 shares of Common Stock at current market prices). See "Capitalization" and "Selected Pro Forma Financial Data."
11 SELECTED PRO FORMA FINANCIAL DATA The following unaudited pro forma income statement data for the year ended February 3, 1996 and the 28-week periods ended August 12, 1995 and August 17, 1996 have been prepared by the Company's management, are presented for informational purposes only and may not be indicative of the results of operations of the Company in the future. Amounts reflect pro forma adjustments to historical operating results to reflect the following transactions as if they had occurred on January 29, 1995: (a) the consummation of the September 1996 Sale and Leaseback in which the Company sold 10 of its stores and received net proceeds therefrom of approximately $108,000,000, which proceeds were applied to repay debt; and (b) the Repurchase of $70,000,000 of Common Stock from the Selling Stockholder (approximately 2,400,000 shares of Common Stock at current market prices). The following pro forma income statement data should be read in conjunction with the Company's consolidated financial statements and notes thereto which are incorporated by reference herein, "Capitalization," "Selected Financial Data" and "Management's Discussion and Analysis of Results of Operations and Financial Condition," which are included elsewhere in this Prospectus.
28 Weeks Ended Year Ended ------------------------------------ February 3, 1996 August 12, 1995 August 17, 1996 ---------------- --------------- --------------- (in thousands, except per share data) Pro Forma Income Statement Data: Net Sales............................................... $3,422,717 $1,710,053 $1,893,942 Cost of goods sold...................................... 2,449,204 1,224,558 1,336,484 ---------- ---------- ---------- Gross margin............................................ 973,513 485,495 557,458 Operating and administrative expenses (1)......................................... 890,205 446,807 498,141 ----------- ----------- ---------- Income from operations.................................. 83,308 38,688 59,317 Interest expense, net of interest income(1)(2)......................................... 37,193 17,889 21,134 Provision for income taxes(3)........................... 17,524 7,904 14,510 ------------ ----------- ---------- Net income.............................................. $ 28,591 $ 12,895 $ 23,673 ============ =========== ========== Earnings per common share: $ 1.10 $ .50 $ .90 ============ =========== ========== Weighted average number of common shares outstanding (2)........................ 25,933 26,024 26,209 - ------------------------------- (1) The adjustment to reflect the September 1996 Sale and Leaseback increases operating and administrative expenses by $5,119,000, $2,670,000 and $2,670,000 and decreases interest expense by $6,789,000, $3,650,000 and $3,268,000 for the fiscal year ended February 3, 1996 and the 28- week periods ended August 12, 1995 and August 17, 1996, respectively. (2) The adjustment to reflect the Repurchase of $70,000,000 of Common Stock from the Selling Stockholder increases interest expense by $4,404,000, $2,368,000 and $2,120,000 and decreases weighted average number of Common Shares outstanding by an estimated 2,400,000, 2,400,000 and 2,400,000 for the fiscal year ended February 3, 1996 and the 28-week periods ended August 12, 1995 and August 17, 1996, respectively. (3) The effective tax rate for all periods was not affected by the above adjustments and remained at 38%.
12 OTHER FINANCIAL AND STATISTICAL DATA(1)
Fiscal Year Ended ----------------------------------------------------------------------------------------- February 1, January 30, January 29, January 28, February 3, 1992 1993 1994 1995 1996 ------------- -------------- -------------- --------------- --------------- (53 weeks) (square feet and dollars in thousands, except for sales per square foot) Percent of net sales: Nonfood sales........................... 63.7% 63.3% 62.5% 61.7% 59.0% Food sales.............................. 36.3% 36.7% 37.5% 38.3% 41.0% Sales per square foot of selling space (weighted average)............... $283 $304 $312 $304 $316(2) Total stores sales growth................ 9.2% 5.6% 4.4% 5.0% 7.7%(2) Comparable stores sales growth:(3)(4) Total Company........................... 4.0% 3.0% 2.4% (2.0)% 2.1%(5) Food.................................... 4.5% 2.8% 3.4% (3.0)% 6.6%(5) Nonfood................................. 3.8% 3.2% 1.9% (1.4)% (0.9)%(5) Number of stores: Multidepartment stores: At beginning of period............... 94 94 94 97 100 Opened............................... 3 2 5 5 6 Closed............................... 3 2 2 2 4 ------------- -------------- -------------- ------------- ------------- At end of period..................... 94 94 97 100 102 ============= ============== ============== ============= ============= At end of period: Multidepartment stores: With food........................... 68 70 77 86 94 Without food........................ 26 24 20 14 8 Specialty stores..................... 28 29 30 31 34 ------------- -------------- -------------- ------------- ------------- Total stores......................... 122 123 127 131 136 ============= ============== ============== ============= ============= Number of stores remodeled........... 3 5 7 7 8 Total retail square feet: At beginning of period............... 12,213 12,679 12,646 13,423 14,194 Added by new stores opened........... 584 295 811 795 948 Added by remodeling of existing stores.................... 63 39 80 174 96 Less closed stores................... 181 367(6) 114 198 381 ------------- -------------- -------------- ------------- ------------- At end of period..................... 12,679 12,646 13,423 14,194 14,857 ============= ============== ============== ============= ============= Total selling square feet at end of period.......................... 9,657 9,471 9,999 10,490 10,817 Depreciation and amortization............$ 48,139 $ 66,958 $ 70,547 $ 89,474 $ 107,077 Capital expenditures.....................$ 105,881 $ 144,628 $ 253,920 $ 273,357 $ 236,052 Footnotes appear on following page
(continued) 28 Weeks Ended -------------------------------------- August 12, August 17, 1995 1996 --------------- -------------------- Percent of net sales: Nonfood sales............................. 58.1% 57.3% Food sales................................ 41.9% 42.7% Sales per square foot of selling space (weighted average)................. $162 $171 Total stores sales growth.................. 2.6% 10.8% Comparable stores sales growth:(3)(4) Total Company............................. (3.3)% 4.1% Food...................................... (0.5)% 5.9% Nonfood................................... (5.2)% 2.9% Number of stores: Multidepartment stores: At beginning of period................. 100 102 Opened................................. 1 6 Closed................................. -- -- --------------- --------------- At end of period....................... 101 108 =============== =============== At end of period: Multidepartment stores: With food............................. 87 100 Without food.......................... 14 8 Specialty stores....................... 33 105(7) --------------- --------------- Total stores........................... 134 213 =============== =============== Number of stores remodeled............. 5 2 Total retail square feet: At beginning of period................. 14,194 14,857 Added by new stores opened............. 152 846(7) Added by remodeling of existing stores...................... 88 47 Less closed stores..................... -- -- --------------- --------------- At end of period....................... 14,434 15,750 =============== =============== Total selling square feet at end of period............................ 10,632 11,544 Depreciation and amortization..............$ 55,607 $ 62,560 Capital expenditures.......................$ 136,617 $ 93,910 Footnotes appear on following page
13 Footnotes to table from previous page - --------------- (1) Amounts are for all stores unless otherwise indicated. The statistical data in the table (other than the number of specialty stores) would not change significantly if data relating to specialty stores were eliminated. (2) Excludes 53rd week in the fiscal year ended February 3, 1996. (3) Includes only sales of stores operating throughout each of the periods compared. (4) If sales of the 27 multidepartment stores in the Portland, Oregon and Vancouver, Washington metropolitan area directly affected by the labor strikes during 1994 were excluded, comparable store sales growth during the periods when the strike occurred would have been: January 28, 1995 February 3, 1996 ---------------- ---------------- Total Company 1.5% (.6%) Food 1.7% 3.1% Nonfood 1.3% (3.0%) (5) The calculation for comparable store sales for the year ended February 3, 1996, a 53-week year, is computed by adding a 53rd week to 1994's sales base. (6) Includes approximately 73,000 feet of space for 30 restaurants converted to tenant space. (7) Includes 71 mall jewelry stores acquired by the Company during the 28 weeks ended August 17, 1996. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following table sets forth the percentage relationship to net sales of certain Income Statement Data of the Company:
Fiscal Year Ended 28 Weeks Ended ----------------------------------------------- ------------------------- January 29, January 28, February 3, August 12, August 17, 1994 1995 1996 1995 1996 ---- ---- ---- ---- ---- (53 weeks) Net sales............................... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of goods sold...................... 70.2 72.4 71.5 71.6 70.6 ----- ----- ----- ----- ----- Gross margin............................ 29.8 27.6 28.5 28.4 29.4 Operating and administrative expenses Recurring expenses.................... 25.1 25.9 25.9 26.0 26.1 Restructuring charge reversal......... -- 0.5 -- -- -- ------ ------ ------ ----- ----- Income from operations.................. 4.7 1.2 2.6 2.4 3.3 Interest expense (net).................. 0.6 0.8 1.2 1.1 1.2 Provision for income taxes.............. 1.7 0.2 0.5 0.5 0.8 ------ ------ ------ ----- ----- Net income before effect of accounting change..................... 2.4% 0.2% 0.9% 0.8% 1.3% ====== ====== ====== ===== =====
The following discussion summarizes the Company's operating results for the 28 weeks ended August 17, 1996 compared to the 28 weeks ended August 12, 1995; for the fiscal year ended February 3, 1996, a 53-week year ("1995"), compared to the fiscal year ended January 28, 1995 ("1994"); and for 1994 compared to the fiscal year ended January 29, 1994 ("1993"). Also included are discussions of the Company's liquidity and capital resources, effects of LIFO, inflation and seasonality, recent accounting changes and forward-looking statements. This discussion and analysis should be read in conjunction with the Company's consolidated financial statements, which are incorporated by reference herein. Results of Operations--28 weeks ended August 17, 1996 Compared to 28 weeks ended August 12, 1995 Net sales for the first 28 weeks of 1996 increased $183,889,000 or 10.8% over the corresponding period in 1995. This increase reflects openings of six new stores, strong food sales and the acquisition of 71 mall jewelry stores. Comparable store sales increased 4.1% for this 28-week period due in part to particularly strong comparable sales in the Portland area markets. Food comparable store sales increased 5.9%, and nonfood comparable store sales increased 2.9%. The Company's food operations accounted for 42.7% of the overall sales for the first 28 weeks of 1996 compared with 41.9% in the first 28 weeks of 1995. Gross margin as a percent of net sales was 29.4% for the first 28 weeks of 1996, compared with 28.4% for the first 28 weeks of 1995. Gross margins increased due primarily to lower markdowns, improved food margins, lower distribution center and delivery costs as a percent of net sales and the impact on margins of two multistore jewelry acquisitions. 15 Operating and administrative expenses as a percent of net sales were 26.2% for the first 28 weeks of 1996, compared with 26.0% for the first 28 weeks of 1995. Expenses as a percent of net sales increased in 1996's first 28 weeks due to opening costs associated with six new stores in the first 28 weeks of 1996 compared with one in 1995, the impact on expenses of two multistore jewelry acquisitions and higher maintenance costs. Preopening expenses for new stores are expensed in the quarter during which the stores are opened. Net interest expense in the first 28 weeks of 1996 was $22,282,000, an increase of 16.2% from the $19,171,000 reported for 1995. The increase primarily reflects higher interest rates and higher borrowings related to new store construction and remodels and last year's completion of distribution center projects. The effective tax rate for the first 28 weeks of 1996 and 1995 was 38.0%. Net income increased 79.0% to $24,617,000 in the first 28 weeks of 1996 from $13,756,000 in the first 28 weeks of 1995. Earnings per share were $.86 for the first 28 weeks of 1996 based on 28,609,000 shares outstanding, compared with $.48 for the prior year's period based on 28,424,000 shares outstanding. In the first 28 weeks of 1996, the Company acquired 22 mall jewelry stores, located primarily in California, which operated under various names and are now operating under the names "Fred Meyer Jewelers" or "Merksamer Jewelers," as well as 49 mall Merksamer Jewelers stores operating in 11 states, which will continue to operate under that name. Results of Operations--1995 Compared to 1994 Net sales for 1995 (53 weeks) increased $300,082,000 or 9.6% over 1994 (52 weeks). This increase reflects openings of six full-size multidepartment stores, three mall jewelry stores and the addition of food to three previously nonfood stores, offset in part by the closure of four multidepartment stores. Comparable store sales increased 2.1% for 1995. Comparable food sales increased 6.6%, and comparable nonfood sales decreased 0.9%. These sales comparisons were aided by the negative impact of labor strikes on 1994 sales. Excluding store sales during the three-month period in 1994 affected by the strikes, total comparable store sales decreased 0.6% in 1995, with comparable food sales increasing 3.1% and comparable nonfood sales decreasing 3.0%. Comparable sales are measured on a 53 week corresponding period for both years. Food sales as a percent of net sales were 41.0% and 38.3%, respectively, for 1995 and 1994. The increase in food sales as a percent of net sales was primarily due to an increase in the number of the Company's stores that sell food. Gross margin as a percent of net sales was 28.5% in 1995 compared with 27.6% in 1994. Gross margins increased as a percent of sales in 1995 primarily due to the comparison to the reduced 1994 margins, which were affected by factors associated with the labor strikes and increased promotional activities. Gross margins for 1995, however, were negatively affected by slow nonfood sales, a high level of nonfood promotions and a greater portion of sales being in food where margins are typically lower, partially offset by a lower LIFO charge and the impact of increased utilization of new flow-through distribution facilities. 16 Operating and administrative expenses increased 9.6% to $885,086,000 in 1995 from $807,924,000 in 1994, and as a percent of net sales were 25.9% for both years. This comparison does not reflect the Company's 1994 writedown of California assets of $15,978,000, covering one multidepartment store and three land parcels. Net interest expense was $39,578,000 for 1995 and $25,857,000 for 1994, an increase of 53.1%. This increase primarily reflects interest on debt associated with increased capital spending and, to a lesser extent, interest on debt incurred as a result of 1994's labor disputes. The effective tax rate was 38.0% for both 1995 and 1994. Net income was $30,286,000 for 1995 and $7,168,000 for 1994. This increase is primarily the result of the above-mentioned factors. Excluding the writedown of California assets, 1994 net income was $17,074,000. Earnings per share were $1.07 for 1995 based on 28,333,000 shares outstanding, compared with $.25 for 1994 based on 28,625,000 shares outstanding (or $.60 after excluding the effect of the writedown of California assets in 1994). Results of Operations--1994 Compared to 1993 Net sales for 1994 increased $148,810,000 or 5.0% over 1993. This increase reflects openings of five full-size multidepartment stores, three mall jewelry stores, and the addition of food to four previously nonfood stores, offset by the closure of two multidepartment stores and two specialty stores. Comparable store sales decreased 2.0% for 1994, with food comparable stores sales down 3.0% and nonfood comparable store sales decreasing 1.4%. This decrease reflects the effect of an 88-day food industry strike in the greater Portland, Oregon and Vancouver, Washington areas, in which the Company's stores were the only stores picketed, plus strikes at the Company's Portland area distribution center, trucking operations, dairy and corporate office. These labor disputes were all settled early in the fourth quarter of 1994. Excluding the stores affected by the strikes, total comparable store sales increased 1.5%, with food comparable store sales up 1.7% and nonfood comparable store sales up 1.3%. Food sales as a percent of net sales were 38.3% and 37.5%, respectively, for 1994 and 1993. The increase in food sales as a percent of net sales was primarily due to an increase in the number of the Company's stores that sell food. Gross margin as a percent of net sales was 27.6% in 1994, compared with 29.8% in 1993. This decrease is primarily due to the impact of the strikes and high markdowns that were taken during the promotional Christmas period. The Company's 1993 gross margin was favorably affected by a one-time LIFO credit of $6,178,000. Operating and administrative expenses increased 8.1% to $807,924,000 in 1994 from $747,151,000 in 1993 and as a percent of net sales were 25.9% in 1994 compared with 25.1% in 1993. Expenses as a percent of sales increased in the areas of labor and fixed costs due to lower sales volumes in the stores affected by the strikes. The Company recognized a $15,978,000 charge to its 1994 operating results, reflecting its decision to exit the California market except for its jewelry locations. The charge represents a writedown of assets to their estimated realizable value for one multidepartment store and three land parcels. 17 Net interest expense was $25,857,000 for 1994 and $17,604,000 for 1993, an increase of 46.9%. This increase reflects higher interest rates and increased debt due to capital spending for accelerated growth and the strikes. The effective tax rate was 38.0% for 1994 and 41.2% for 1993. The effective tax rate for 1993 was 38.0% when excluding the impact of a tax settlement. Net income was $7,168,000 for 1994 and $68,316,000 for 1993. This decrease is primarily the result of the above-mentioned strikes. Excluding the effect of the writedown of California assets, 1994 net income was $17,074,000. Earnings per share for 1994 were $0.25 based on 28,625,000 shares outstanding, compared with $2.41 for 1993 based on 28,375,000 shares outstanding. Earnings per share for 1994 would have been $.60 after excluding the effect of 1994's writedown of California assets. Liquidity and Capital Resources The Company funded its working capital and capital expenditure needs in 1996 and 1995 primarily through internally generated cash flow and available lease facilities, supplemented by borrowings under committed and uncommitted bank lines of credit, the issuance of unrated commercial paper and the sale of fixed rate five- and seven-year term notes. Cash provided by operating activities was approximately $83,000,000 higher in 1995 than 1994. This improvement was mainly due to an increase in net income, a decrease in income taxes paid and an increase in depreciation. Cash provided by operating activities was $68,000,000 lower in 1994 than 1993 primarily as a result of lower net income due to the 1994 labor disputes. In September 1996 the Company consummated the September 1996 Sale and Leaseback, in which it sold 10 of its stores and generated approximately $108,000,000 in net proceeds. The proceeds were used to pay down its bank lines, which increased the available capacity under those lines. The leases are for an initial term of 21 years, subject to renewal at the option of the Company, and the average annual rent, including amortization of fees and deferred gain, will be approximately $7,700,000 annually. The Company has previously engaged in similar transactions to finance store development and provide funds for general corporate purposes. The Company entered into a new credit facility in 1995 with several domestic and foreign banks for a committed line of credit that provides for borrowings of up to $500,000,000. This agreement continues through June 30, 2000, at which time the agreement terminates and any outstanding amounts must be paid in full. As of August 17, 1996, in addition to this committed credit facility, the Company had $105,000,000 of uncommitted money market lines with several foreign banks and $145,000,000 of uncommitted money market lines with banks that are also in the committed credit facility. The bank lines and unrated commercial paper are used primarily for seasonal inventory requirements, new store construction and financing, existing store remodeling, acquisition of land and major projects such as MIS development. At August 17, 1996 the Company had unrated commercial paper outstanding in the amount of approximately $342,494,000, borrowings under money market lines with committed line banks of $21,000,000 and a total of approximately $136,506,000 available for borrowings that would be supported by its committed credit facilities, prior to giving effect to the Repurchase or the September 1996 Sale and Leaseback. See "Capitalization." 18 Changes in cash flows from investing and financing activities are primarily the result of the timing of borrowing and capital expenditures. During 1995, capital expenditures totaled approximately $236,000,000, before land sales and excluding real estate financed on leases. The Company opened six new multidepartment stores and closed four multidepartment stores. Eight stores underwent major remodels, three of which included the addition of food departments to previously nonfood stores. The Company also completed construction of a new food distribution facility near Seattle, Washington. Other capital projects in 1995 included improvements to the Clackamas, Oregon distribution center, central bakery and dairy plants and further improvement of the Company's MIS. During 1995, the Company also began construction of five multidepartment stores scheduled to open in 1996, four of which have opened and one of which is scheduled to open in the third quarter of 1996. During the first half of 1996, the Company completed the acquisition of 71 mall jewelry stores in 11 states. Acquisition costs, not including remodeling, for these 71 stores totaled approximately $13,200,000. At least four major multidepartment store remodels are planned for completion in 1996 (two of which have been completed), in addition to the opening of two new marketplace stores that emphasize food. The Company believes that a combination of cash flow from operations, proceeds from sale and leasebacks and borrowings under its credit facilities will permit it to finance its capital expenditure requirements for 1996, budgeted at $160,000,000. During the first 28 weeks of 1996, the Company had capital expenditures of approximately $94,000,000 and opened six new stores, including the two marketplace stores acquired in 1996. In 1995, the Company entered into operating lease agreements covering existing leased stores and the construction of new stores, with costs aggregating $160,000,000. Lease payments are based on a spread over LIBOR on the utilized portion of the facility. As of August 17, 1996, $83,144,000 was utilized under the agreements. After the initial five-year noncancelable lease term, the leases may be extended by agreement of the parties or the Company may purchase the properties. Effect of LIFO Each year the Company estimates the LIFO adjustment for the year based on estimates of three factors: (1) inflation rates (calculated by reference to the Department Stores Inventory Price Index published by the Bureau of Labor Statistics for soft goods and jewelry and to internally generated indices based on Company purchases during the year for all other departments), (2) expected inventory levels and (3) expected markup levels (after reflecting permanent markdowns and cash discounts). The Company reviewed these year-to-date indices at the end of the second quarter and adjusted its LIFO reserve on a year-to-date basis to reflect the Company's overall product mix, anticipated year-end inventory levels and the Company's expectations of the indices for the remainder of the year. At year-end the Company makes the final adjustment reflecting the difference between its prior quarterly estimates and actual LIFO amount for the year. Effect of Inflation While management believes that some portion of the increase in sales is due to inflation, it is difficult to segregate and to measure the effects of inflation because of changes in the types of merchandise sold year-to-year and other pricing and competitive influences. By attempting to control costs and efficiently utilize resources, the Company strives to minimize the effects of inflation on its operations. 19 Effect of Seasonality The Company's operations are subject to significant seasonal fluctuations in the shopping patterns of its customers. As with most retailers of nonfood goods, the holiday shopping period (which occurs during the Company's fourth fiscal quarter) is of critical importance to the results of operations for the full year. Accordingly, results for interim periods are not indicative of results for the entire fiscal year. Recent Accounting Changes The Financial Accounting Standards Board has issued Statement of Financial Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and No. 123, Accounting for Stock-based Compensation. Adoption of these standards will not have a significant effect on the Company's financial position or results of operations. Forward-Looking Statements Information set forth in this Prospectus regarding the Company's plans for future operations, including store expansion and remodeling, capital spending and expense reduction efforts, constitutes "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The following factors are among the factors that could cause actual results to differ materially from the forward-looking statements: business and economic conditions generally in the regions in which the Company's stores are located, including the rate of inflation; population and job growth in the Company's markets; competitive factors, such as increased penetration in the Company's markets of large national food and nonfood chains, large category-dominant and large national and regional discount retailers and competitive pricing pressures generally; results of the Company's programs to decrease costs as a percent of sales; relations with the union bargaining units representing the Company's employees; factors that might affect the Company's cost and availability of capital; and unusual weather conditions. Any forward-looking statements should be considered in light of these factors. For additional information regarding competition see "Business--Competition," and for additional information regarding labor relations see "Business--Employees." 20 BUSINESS The Company is a leading regional retailer of a wide range of food, apparel, fine jewelry and products for the home. At August 17, 1996, the Company operated 108 multidepartment stores in Oregon, Washington, Utah, Alaska, Idaho and Montana under the name "Fred Meyer" and 105 specialty stores in 16 states. The Company's multidepartment stores are unique in the Pacific Northwest in combining food with a wide range of nonfood merchandise under one roof. These stores average approximately 144,000 square feet of retail space and emphasize one-stop-shopping for necessities and items of everyday use. These stores contain up to seven departments, which include food, home, apparel, home electronics, fine jewelry, health and beauty aids and pharmacy. The multidepartment stores accounted for approximately 98.7% and 97.2% of the Company's total sales and operating income, respectively, for the Company's 1995 fiscal year ended February 3, 1996. For the 1995 fiscal year, food and nonfood sales were 41.0% and 59.0% of total sales, respectively. One hundred of the Company's specialty stores are mall jewelry stores, operating under the names "Fred Meyer Jewelers" or "Merksamer Jewelers," 71 of which were acquired during the first half of the Company's current fiscal year. The following table indicates the location of the Company's 108 multidepartment stores that were open and operating at August 17, 1996. [Map of Washington (including Seattle - 14 stores), Oregon (including Portland - 23 stores), Montana, Idaho (including Boise - 5 stores), Utah (including Sale Lake City - 7 stores) and Alaska (including Anchorage - 3 stores) depicting by "bullet" and "star" multidepartment stores and distribution centers, respectively] [Table to right above map.] Multidepartment State Stores Oregon 44 Washington 38 Utah 10 Idaho 8 Alaska 7 Montana 1 ---- Total 108 Corporate Headquarters Portland, Oregon Bakery & Dairy Plants Portland, Oregon 21 Operating Initiatives During the last three years the Company has made significant capital investments to (1) expand its operations by opening new multidepartment stores in its existing markets and remodeling existing stores; (2) improve its MIS and (3) expand and improve its distribution infrastructure. More recently, the Company also initiated a remerchandising program to reposition some of its departments to address increasing competition and changing customer preferences and developed smaller store formats for use in certain locations. Store Expansion and Remodeling. During the last three years the Company has aggressively increased store development in its existing markets and the level of remodeling of existing stores. The Company opened five new multidepartment stores in 1994, six in each of 1995 and the first half of 1996, and currently plans to open one additional store in 1996 and five in each of 1997 and 1998. The Company remodeled seven multidepartment stores in 1994, eight in 1995, two in the first half of 1996 and currently plans to remodel two in the second half of 1996 and five in each of 1997 and 1998. The Company's major remodeling programs during the last three years included (1) adding food departments to stores that previously sold only nonfood merchandise; (2) removing walls between departments to facilitate cross-shopping and common checkout for customers; and (3) adding food service departments, such as deli and bakery, to its stores. As a result of these efforts, total square footage for multidepartment stores increased from 12,486,000 square feet at the end of fiscal 1992 to 15,545,000 square feet as of August 17, 1996. As of August 17, 1996, 54% of the Company's multidepartment stores had been built or remodeled within the last five years. The portion of the remodeling program involving the addition of food departments to multidepartment stores has been substantially completed. Management Information Systems. The Company has undertaken a major modernization of its MIS to better support its business. Improvements affect virtually all aspects of the Company's operations, including merchandising, sales promotion and advertising, logistics, in-store systems, human resources and finance. The Company has spent approximately $81,000,000 during the last three years on these MIS improvements. Significant MIS improvements include: (1) installation of a computer network that allows every store to be linked with the Company's main office and distribution centers; (2) initiation of Quick Response Inventory Management through the introduction of automatic replenishment for certain goods, electronic data interchange ("EDI") and a new distribution system; (3) expansion of the Company's EDI system to support data exchange with vendors, including the transmission of sales information to vendors and the receipt of invoices electronically, in paper form or directly into an accounts payable imaging system; (4) improvements to the Company's supply chain capabilities with new systems to support its flow-through general merchandise distribution system and other distribution capacities; and (5) upgrading of in-store communications, check cashing, credit authorization and point-of-sales system. All major aspects of the MIS improvement program have been completed other than the new inventory and merchandise management system for food and nonfood departments and integration of the systems into the financial reporting system, which are presently scheduled to be completed in fiscal 1997. Beginning in 1997 the Company expects that capital expenditures on MIS will decline as the current upgrade of its MIS is completed. The Company believes that the improvements made to its MIS system enable it to manage its business more effectively by allowing it to track each inventory item, to know which items are selling when and at which locations and to improve in-stock positions. These capabilities are designed to improve inventory management, reduce overall inventory levels, increase inventory turnover and improve profitability. 22 Distribution Centers. The Company has made significant capital investments in its distribution centers which, together with the MIS improvements, are designed to improve operations, permit better inventory management and reduce distribution costs. The Company has spent approximately $85,000,000 during the last three years to build and upgrade its distribution centers. The Company opened its flow-through distribution center in Chehalis, Washington in April 1994 to serve as the centralized processing facility for certain apparel, music, seasonal and other nonfood items, opened a new food distribution facility in Puyallup near Seattle, Washington in 1995 to better serve the stores in the Puget Sound region and Alaska and made significant improvements to its existing distribution center in Clackamas, Oregon. The Company believes that its existing distribution centers enable it to meet its expected nonfood and food distribution center needs until at least the year 2000. As the Company opens additional stores, the Company expects to utilize the excess capacity currently available at its existing distribution centers and achieve improved operating efficiencies as distribution center costs are spread over more sales. Remerchandising. The Company continuously reviews its competitive position on a location-by-location basis and analyzes the contributions that each department makes to overall profitability. In 1995, in response to increasing competition from discount retailers and, more recently, from category-dominant competitors (particularly in the home improvement and home electronics categories), the Company began a remerchandising program to reposition some of its departments to improve the overall profitability of the Company's operations. These repositioning efforts have included (1) reducing the space allocated to building materials in those stores affected by category-dominant home improvement centers and utilizing this space for other product categories (such as expanded garden centers); (2) eliminating most computer hardware in a majority of its stores and increasing the selection of certain products, such as computer software, compact discs, video games and cellular telephones, in an effort to focus on higher margin items in home electronics; (3) refining its apparel selection to emphasize basics and casual sportswear; (4) adding additional private label products to its apparel selection and personal care products; (5) adding new product categories (such as pet centers) to certain of its stores and (6) increasing the amount of space leased to complementary third-party tenants (such as banks, optical centers, gourmet coffee bars, restaurants and video rental stores) that attract high customer traffic. Development of Smaller Store Formats. The Company intends to seek opportunities to open smaller stores with different store formats within its market areas. One such store format consists of multidepartment stores on a reduced scale designed for smaller communities and other appropriate areas. In 1996 the Company opened a 127,000-square-foot store in Tillamook, Oregon using this store format. The Company has also developed the marketplace store format, which primarily emphasizes the food portion of the Company's business and includes some supporting nonfood departments. The Company recently acquired and now operates two stores of approximately 70,000 square feet previously operated by food retailers using the marketplace store format. Store Operations The Company's principal business strategy is to operate one-stop-shopping stores that provide convenient shopping for a broad selection of products in one location. Stores are organized into distinct departments and sections within departments that specialize in the sale of particular products. The Company promotes cross-shopping through convenient access between departments, by making each department and section a strong competitor in the market for the products it sells and by facilitating easy customer checkout through its common checkout system that allows customers to purchase merchandise from any department at any checkout location. 23 Multidepartment Stores. The Company's large stores are organized into departments and sections within departments that specialize in the sale of particular products. The Company endeavors to create individual, recognizable identities for each department and section through specialized design, fixtures and decor. Most of the Company's departments and sections are self-service, except in areas where special sales assistance is required, such as service delicatessens, home electronics, fine jewelry and pharmacy. Stores consist of up to seven departments and specialty sections that include full-service food, pharmacy, nutrition, housewares, domestics, paint and home decor items, plumbing and electrical items, hardware and tools, building materials, garden, floral, sporting goods, automotive, home office supplies and stationery, cards and books, toys, basic and fashion apparel for all ages, shoes, home electronics and fine jewelry. Multidepartment stores that include food departments are the Company's primary focus. The Company believes that its food departments increase the shopping frequency of area residents, build customer loyalty and enable its nonfood departments to generate higher levels of sales through increased customer traffic. In more recent years the Company has been adding food to previously nonfood multidepartment stores and replacing some of its older nonfood stores with new full-service stores including food departments. At August 17, 1996, 100 of the Company's 108 multidepartment stores included food departments. The Company expects to add food departments to two additional stores and replace two existing nonfood stores with new multidepartment stores that include food. Breadth and Depth of Selection. In most of its stores, the Company sells over 225,000 items, including a wide selection of food, apparel and products for the home, with an emphasis on necessities and items of everyday use. The Company takes advantage of the high and diverse customer traffic in its stores to sell many categories of goods that are purchased on a discretionary basis, such as fine jewelry, home electronics and fashion apparel. Within many categories of apparel, products for the home, jewelry and home electronics, the Company offers customers the breadth of selection normally afforded by department or specialty stores. Its selection of food and groceries is comparable to that of large supermarkets. The Company emphasizes the sale of popular national brands and its own private label brands. Location and Store Design. New store sites are determined based on a review of information on demographics and the competitive environment for the market area in which a proposed site is located. The Company's expansion focus is in existing areas of operation, primarily in or near well-populated residential areas. The Company determines store size and designs stores with a view toward making each store a very convenient, one-stop-shopping store in the area it serves. The Company is flexible in its store design where land sites require specialized store designs. Promotion and Advertising. The Company aggressively promotes sales for all departments through weekly advertising, primarily in local and area newspapers, radio and television. Advertising often features many high-demand products at competitive prices. The Company emphasizes everyday low prices in its food departments and generally offers promotional sale pricing in its nonfood departments. By opening new stores in its existing market areas and by remodeling and expanding existing stores, the Company leverages its advertising budget. The Company believes that it is known for competitive pricing and its customer-friendly return policy. In 1995, the Company added a monthly coupon book with both food and nonfood offerings. The introduction of the Company's home page on the Internet enables exploration of new marketing opportunities. Store and Regional Management. Each of the Company's stores is managed by a sales director who is responsible for store sales, operations and profitability and departmental cross-merchandising. 24 Departments within multidepartment stores are managed by merchandising managers, who report to sales directors. Each sales director and department manager is supported by a regional supervisor and other senior managers who specialize in the market for products sold in the stores. The Company has regional management teams that work closely with the stores in their region to enhance sales and profit opportunities. As a result of this management structure, the Company believes that each of its stores and departments within each store better serves its customers and is able to respond quickly to market changes. Retail Operations The Company's multidepartment stores contain up to seven main departments. Within certain departments are a variety of merchandise sections operated like specialty businesses. The following table sets forth the number of departments (and lists certain of the sections within the Home and Apparel departments) in the Company's 108 multidepartment stores at August 17, 1996: Food.....................................................................100 Nonfood The Home..............................................................108 Automotive Cards and Books Domestics Garden Home Decor Home Improvement Housewares Sporting Goods Toys Variety and Seasonal Home Electronics......................................................108 Apparel...............................................................108 Apparel Cosmetics Shoes Health and Beauty Aids................................................108 Pharmacy..............................................................107 Fine Jewelry...........................................................98 The Food Department is typically the same size as free-standing super food stores of competitors and carries a wide variety of national brands together with the Company's private label brands of grocery items which are Fred Meyer, President's Choice and FMV (Fred Meyer Value). The average size of the Company's food departments is approximately 37,000 square feet. This square footage does not include space devoted to pharmacies, health and beauty aids, nutrition and all other general merchandise. Beginning in 1992, the Company implemented a program to increase sales of its private label grocery items. As a result, sales of private label grocery items as a percentage of total grocery sales have increased to a current level of over 20% for the first half of fiscal 1996 from 12% in fiscal 1991. Private label items generally are sold at lower prices to the customer and generate higher margins for the Company than national brand products. The Company also carries fresh produce, meat, dairy products, nutritional products, bakery products, candy and tobacco all sold on a self-selection basis. Most food departments contain a nutrition section that includes name brand and generic natural foods, dairy products, juices, 25 vitamins, supplements, sugar-free and fat-free products and meat substitutes. Certain items, such as grains, nuts, fruits and natural snacks, are also displayed in bulk to enable customers to buy any amount and package their own purchases. In many multidepartment stores, the Company operates in-store bakeries and service departments that offer fresh seafood, delicatessen items and meat products. The Company's newer stores include sit-down eating areas near the service delicatessens and take-out departments. The following table sets forth the number of nutrition, in-store bakery and service departments at August 17, 1996: Nutrition........................... 103 Service Delicatessen................ 100 Bakery.............................. 99 Service Fish Market................. 79 Service Meat Market................. 52 The Home Department offers a wide selection of home decor, housewares, small appliances, domestics, furniture, sporting goods, greeting cards, books, floral products, power lawn mowers, garden tools, fertilizers and chemicals, toys, seasonal and holiday merchandise, hardware, tools, paint, building materials, plumbing and electrical fixtures, automotive supplies and related accessories. Some of the national brands featured are Braun, Kitchen-Aid, Coleman, Glidden and Weber. Home improvement, garden and automotive sections feature many items for the do-it-yourself customer. High-quality private label products under the Fred Meyer, Northwest Home, Everyday Living and Kraft King labels complement the Company's national brand offerings. The Apparel Department offers moderately priced national brand and private label apparel, sportswear, cosmetics, accessories and family and active shoes. Major national brands carried by the apparel departments include Levi's, Jockey, Maidenform, Vanity Fair, Carter's, Danskin, Nike, Reebok, Adidas, Gotcha, Eastland, Union Bay, Columbia Sportswear, Capezio, Lee, Bali and Keds. High-quality private label products such as Fred Bear, CurFew, Katherine Bishop and KB & Co. complement the Company's national brand offerings. The Company's private label sales in the Home and Apparel departments represented 12% to 13% of these departments' sales in fiscal 1995, with a long-term goal of approximately 15% to 20%. The strategy employed in nonfood departments is to use private label products for both entry-level price points and better offerings at value prices. In 1995 and 1996, the Company introduced additional private label items in the Home and Apparel departments to bring additional value to its customers and to improve gross margins in these areas. The Home Electronics Department offers a large selection of compact discs, for-sale videos and video games and also offers the latest name-brand merchandise, such as televisions, audio components, cellular phones, computer software and telephones. Some of the national brands featured are SONY, JVC, Pioneer and Magnavox. One-hour photo-finishing has also been added to numerous locations. The Pharmacy Department sells a full line of name-brand and generic prescription drugs dispensed by full-time licensed pharmacists and participates with all major third-party HMO and PPO plans. The Health and Beauty Aids Department offers a wide selection of national and private label brands of health and beauty aid products. It also offers candy and confections and dietary food products. A new line of private label toiletry and personal-care products called Personal Choice was introduced in 1995. 26 The Company entered the fine jewelry business in 1973 with its acquisition of a discount retailer which had existing jewelry operations. Since that time, the Company has expanded its jewelry operations through the establishment of Fine Jewelry Departments within its multidepartment stores and the lease of individual locations, averaging approximately 1,200 square feet, in major regional shopping malls. The Company's Fine Jewelry Departments and mall jewelry stores offer an extensive selection of bridal jewelry and fashion jewelry, including precious and semi-precious stones. In addition, these departments and mall stores offer name-brand watches and an assortment of 14-carat gold chains and earrings. During the first half of the current fiscal year the Company acquired 71 leased jewelry locations in major shopping malls in 11 states. With these acquisitions, as of August 17, 1996, the Company operated 100 mall jewelry stores under the names "Fred Meyer Jewelers" or "Merksamer Jewelers" and had 98 Fine Jewelry Departments in its multidepartment stores. The recent expansion of the Company's jewelry business is expected to improve the Company's ability to purchase inventory on favorable terms and reduce overhead costs on a per unit basis. Most of the Company's multidepartment stores open from 7:00 a.m. to 9:00 a.m. and close between 10:00 p.m. and 11:00 p.m., seven days a week, including all holidays except Christmas. Most of the Company's multidepartment store locations have complementary third-party tenants (such as banks, optical centers, gourmet coffee bars, restaurants and video rental stores) that attract high customer traffic. The Company's specialty store hours vary depending on location. The Company honors most nationally recognized credit cards for sales in all its departments. In addition, the Company has its own credit card program, which is serviced by a national credit card processor. The Company also accepts debit cards that are associated with nationally recognized credit card processors. In 1996, the Company's stores in Utah began accepting debit cards that use personal identification number ("PIN") pads and can process electronic benefits online. It is anticipated that stores in other states will begin to offer this service later in 1996 and in 1997. Store Expansion and Development The Company enlarges, remodels, closes or sells stores in light of their past performance or the Company's assessment of their potential. The Company continually evaluates its position in its various market areas to determine whether it should expand or consolidate its operations in those areas. During the last three years, the Company increased new store development in its existing markets and the level of remodeling of existing stores. The numbers of multidepartment stores opened, closed and remodeled during fiscal 1993, 1994, 1995 and the first half of fiscal 1996 are as follows: 27
Year Opened Closed Remodeled ---- ------ ------ --------- (including replacements) 1993 5 2 7 1994 5 2 7 1995 6 4 8 1996 (through August 17, 1996) 6 0 2
Total retail space, net of closures, increased 663,000 square feet during 1995, representing an increase of approximately 4.7%, and increased 893,000 square feet during the first half of fiscal 1996, representing an increase of approximately 6.0%. New multidepartment store openings during fiscal 1995 and the first half of fiscal 1996 were as follows:
Total Retail Location Square Footage Opened -------- -------------- ------ 1995 Monroe, Washington............................... 149,000 First Quarter Lake City (Seattle), Washington.................. 124,000 Third Quarter Renton (Seattle), Washington..................... 167,000 Third Quarter West Jordon (Salt Lake City), Utah............... 167,000 Third Quarter Salt Lake City, Utah............................. 169,000 Third Quarter Kennewick, Washington............................ 167,000 Third Quarter 1996 Tillamook, Oregon................................ 127,000 First Quarter Hillsboro, Oregon................................ 163,000 Second Quarter Meridian, Idaho.................................. 168,000 Second Quarter Twin Falls, Idaho................................ 168,000 Second Quarter Silverdale, Washington(1)........................ 70,000 Second Quarter Seattle, Washington(1)........................... 62,000 Second Quarter - ----------------- (1) Marketplace stores emphasizing food.
New multidepartment stores planned or scheduled to be opened during the second half of fiscal 1996 and during fiscal 1997 are as follows:
Total Retail Location Square Footage Opening -------- -------------- ------- 1996 Scappoose, Oregon................................ 150,000 Third Quarter 1997 Idaho Falls, Idaho............................... 150,000 First Quarter Covington, Washington............................ 157,000 First Quarter South Hill (Puyallup), Washington................ 163,000 First Quarter Orem, Utah....................................... 150,000 First Quarter Coeur d'Alene, Idaho............................. 149,000 First Quarter
28 The Company has remodeled two multidepartment stores in the first half of fiscal 1996 and plans to remodel two multidepartment stores in the second half of fiscal 1996 and five in fiscal 1997. The Company's present plan is to open five new multidepartment stores and remodel five existing stores in fiscal 1998. As a result of the Company's new store openings and remodeling efforts, total square footage for multidepartment stores increased from 12,486,000 square feet at the end of fiscal 1992 to 14,741,000 square feet at the end of fiscal 1995 and to 15,545,000 square feet as of August 17, 1996. As of August 17, 1996, 54% of the Company's multidepartment stores had been built or remodeled within the last five years. Among the objectives of the remodeling program was to add food departments to multidepartment stores that previously sold only nonfood merchandise where feasible based on store size, location and other factors. This part of the remodeling program has been substantially completed. Management Information Systems In 1991, the Company began a major modernization of its MIS to better support its business. A new computer network was installed, allowing every store to be linked with the Company's main office and distribution centers. In 1992, Quick Response Inventory Management was initiated through the introduction of automatic replenishment for certain goods, EDI and a new distribution system. The Company expanded its EDI system to support data exchange with freight carriers, transmission of sales forecasts to vendors and receipt of invoices directly into an accounts payable imaging system. A new pharmacy system was added in the Company's multidepartment stores. In 1994, the Company's Continuous Replenishment Program was strengthened by the implementation of new jewelry, music and video and item performance systems. In 1995, the Company improved its supply chain capabilities with a flow-through general merchandise distribution system and purchasing and distribution systems for meat, produce and seafood. In addition, in-store communications, check cashing, credit authorization and point-of-sale systems were upgraded. All major aspects of the MIS improvement program have been completed other than the new inventory and merchandise management system for food and nonfood departments and integration of the systems into the financial reporting system, which are presently scheduled to be completed in fiscal 1997. Distribution and Processing The Company operates a 1,528,000-square-foot centralized distribution facility in a complex at Clackamas, Oregon near Portland, a 310,000-square-foot flow-through distribution center in Chehalis, Washington and a 600,000-square-foot food distribution center in Puyallup, Washington near Seattle. Approximately two-thirds of the merchandise the Company sells is currently shipped from these facilities, with the balance shipped directly by vendors to the Company's stores or, in the case of food products for its Utah stores, purchased from a major wholesale supplier. As a result of its recent investment in information systems and distribution facility improvements, the Company has been able to establish EDI and automated replenishment programs with many vendors. These quick response capabilities are designed to improve inventory management and reduce handling of inventory in the distribution process, which the Company believes will result in lower markdowns and lower distribution costs as a percentage of sales. 29 The Company believes that its distribution and related information systems provide several advantages. First, they permit stores to maintain proper inventory levels for more than 190,000 items supplied through its central distribution centers. Second, centralized purchasing and distribution reduces the Company's cost of merchandise and related transportation costs. Third, because distribution can be made to stores frequently, the Company is able to reduce the in-store stockroom space and maximize the square footage available for retail selling. The Company opened its flow-through distribution center in April 1994 in Chehalis, Washington to serve as the centralized processing facility for certain apparel, music, seasonal and other nonfood items. This facility eliminated approximately 370,000 square feet of leased warehouse space, including the Company's 122,000-square-foot Salt Lake City, Utah facility. The Company's Chehalis facility minimizes the required handling and processing of goods received from vendors and distributed to the Company's stores. The Company believes that this flow-through system will enable it to improve inventory management and to further reduce the distribution costs for the goods shipped through this facility. In 1995 the Company opened the 600,000-square-foot centralized food distribution facility in Puyallup near Seattle, Washington to serve stores in the Puget Sound region and Alaska. This facility reduces the cost of transporting goods into the Puget Sound and Alaska markets and affords the Company increased forward-buying opportunities for its food operations. The Company believes that its existing distribution centers enable it to meet its expected nonfood and food distribution center needs until at least the year 2000. As the Company opens additional stores, the Company expects to utilize the excess capacity currently available at its existing distribution centers. The Company operates a large fleet of trucks for distribution of goods to its retail stores and operates a central bakery and dairy. Competition The retail merchandising business is highly competitive. Because of the broad range of merchandise sold by the Company, it competes with many types of retail companies, including national, regional and local supermarkets, discount stores, drug stores, conventional department stores and specialty stores, including category-dominant stores. The Company's competitive position in the retail business varies by type of goods and the communities in which its stores are located. From 1990 to 1995, approximately 475 new competitor stores opened in the Company's markets according to a survey conducted by the Company. These competitors include Wal-Mart, Walgreens, Home Depot, HomeBase, Eagle, Sam's Club, Incredible Universe, Circuit City, Good Guys, Future Shops, Price/Costco, Mervyn's, PayLess, J.C. Penney, Kmart, Target, ShopKo, Toys-R-Us, Food 4 Less, Cub Foods, Safeway, Albertson's, Smith's Foods, Carr's and Quality Food Centers. Many of these companies have substantially greater financial and other resources than the Company. The Company's recent competitors include category-dominant stores, particularly in the home improvement and home electronics categories. The Company has responded to the influx of category-dominant stores and other competitors by reducing some product offerings, including computers and building materials, and expanding other product offerings to improve overall profitability. No assurance can be given that the Company's strategy will be effective and that the Company will be able to effectively compete against the category-dominant stores or other competitors. In addition, while the Company is the only multidepartment store with significant food departments in most of its markets, some retail companies operate stores under this general format in other regions and could enter the Company's existing markets. 30 The Company emphasizes customer satisfaction, large selections of high-quality popular products and competitive pricing. In addition, the Company believes that the convenience, attractiveness and cleanliness of its stores, together with a sales staff knowledgeable in specialty areas, enhances its retail sales efforts and competitive position. Employees The Company employs approximately 28,000 full- and part-time employees. Approximately 50% of the Company's employees are represented by 24 different labor unions or locals. These employees are covered by 111 different collective bargaining agreements, none of which covers more than 2,500 employees. The last work stoppages the Company experienced involved the multiemployer bargaining unit for food clerks, checkers, and meatcutters in Portland, Oregon and Vancouver, Washington in 1994 and lasted 88 days. At the same time, Company union employees at its Clackamas distribution facility, trucking operation, dairy and a small portion of its office employees went on strike. These work stoppages had a material adverse effect on the Company's results of operations during the third and fourth quarters of 1994, and the Company believes that the strikes had a continuing adverse effect during most of 1995. Coos Bay, Oregon nonfood employees went on strike in late 1994 and returned to work on January 14, 1995. There were no work stoppages in fiscal years 1991, 1992, 1993, 1995 or during the first half of 1996. The Company believes that it has satisfactory relations with the many unions representing its employees. In 1995, the Company reached agreement on its contracts covering nonfood and food workers in the Seattle/Tacoma area, among other agreements reached. In 1996 the Company reached agreement on its contracts covering nonfood workers in Portland, Oregon, among other agreements reached. Approximately 10% of the agreements, covering approximately 2% of the labor force, have expired or will expire during the balance of fiscal 1996. Approximately 23% of the agreements, covering approximately 11% of the labor force, will expire during fiscal 1997, including agreements with the food workers in the Portland, Oregon metropolitan area and employees in other large metropolitan and smaller nonmetropolitan areas where the Company operates. While the Company is optimistic about reaching agreements with the employees covered by contracts expiring in the immediate future, no assurance can be given that the parties will be able to reach a final conclusion without the occurrence of a work stoppage and the related disruption of the Company's business or that any agreements reached will be on terms that are favorable to the Company. 31 THE SELLING STOCKHOLDER The table below sets forth certain information regarding the beneficial ownership of the Company's Common Stock by the Selling Stockholder, both before and after giving effect to the Offering and the Repurchase.
Shares Beneficially Shares Beneficially Owned After Offering Owned Before Offering and Repurchase --------------------- --------------------- Number of Shares to be Number of Name Shares Percent Sold in Offering(2) Shares(2) Percent(2) ---- ------ ------- ------------------- --------- ---------- KKR Associates(1)................ 10,700,038 37.8% 3,600,000 4,700,038 18.1% 9 West 57th Street 42nd Floor New York, NY 10019 - -------------- (1) Shares shown as beneficially owned by KKR Associates, an affiliate of KKR, are owned of record by FMI Associates, of which KKR Associates is the sole general partner and as to which it possesses shared voting and investment power. Shares shown as beneficially owned before and after the Offering by KKR Associates include 1,566,441 shares subject to the Selling Stockholder's Option. The FMI Associates limited partnership agreement is, by its terms, to dissolve on December 31, 1996 unless amended by all of the limited partners to extend the term beyond such date. There can be no assurance that KKR Associates will seek such amendments, or, if sought, that they will be approved by the limited partners. In the event of the winding up and dissolution of FMI Associates, KKR Associates will have sole discretion regarding the disposition of such Common Stock, including public or private sales of such Common Stock, the distribution of such Common Stock to the limited partners of FMI Associates or a combination of the foregoing. If shares of Common Stock are distributed to the limited partners of FMI Associates, each limited partner will thereafter have sole discretion with respect to its Common Stock. KKR Associates is a limited partnership of which Michael W. Michelson, Saul A. Fox and Paul E. Raether (directors of the Company) are three of the 12 general partners. The other general partners of KKR Associates are Henry R. Kravis, George R. Roberts, Robert I. MacDonnell, James H. Greene, Jr., Michael T. Tokarz, Edward A. Gilhuly, Perry Golkin, Clifton S. Robbins and Scott M. Stuart. Jerome Kohlberg, Jr., a director of the Company, is a limited partner of KKR Associates. Mr. Kohlberg has advised the Company that he intends to resign as a director of the Company upon completion of the Offering and the Repurchase. The foregoing persons disclaim beneficial ownership of the shares owned by FMI Associates. Not included in the number of shares listed are an additional 11,000, 4,000 and 6,000 shares beneficially owned by Messrs. Raether, Michelson and Fox, respectively. (2) Assumes the Repurchase from the Selling Stockholder of an estimated 2,400,000 outstanding shares of Common Stock and assumes that the Underwriters' over-allotment option is not exercised. Upon completion of the Offering and the Repurchase, and based on the same assumptions regarding the number of shares repurchased, if the Underwriters' over-allotment option is exercised in full the Selling Stockholder will beneficially own 4,300,038 shares, or approximately 16.6%, of the Company's Common Stock.
32 The Repurchase The Company and the Selling Stockholder have entered into an agreement pursuant to which the Company has agreed, concurrently with consummation of the Offering, to repurchase a number of outstanding shares of Common Stock determined by dividing the Repurchase Price of $70,000,000 by an amount equal to the Net Offering Price. The Company plans to finance the Repurchase Price with borrowings under its credit agreement and the issuance of commercial paper. The recently consummated September 1996 Sale and Leaseback transaction, the proceeds of which were used to repay debt, increased the Company's available borrowing capacity under its credit agreement. On June 27, 1996, the Company's Board of Directors ratified the formation of an independent committee (the "Independent Committee") consisting of three independent directors, A.M. Gleason, Roger S. Meier and James J. Curran. The Independent Committee was formed to consider the desirability of the Company's acquiring all or a portion of the shares held by the Selling Stockholder and to negotiate with the Selling Stockholder regarding the terms of the Repurchase. The Independent Committee approved the Repurchase at a meeting held on August 22, 1996. The members of the Independent Committee received no compensation in addition to their normal directors' fees, which include $500 per board or committee meeting attended. Certain Transactions During 1996 the Company and an unaffiliated financial institution agreed with companies affiliated with the Selling Stockholder to terminate leases on seven retail store locations and one closed location in the Portland metropolitan area and to purchase the fee interests in such locations. The purchase price to terminate the leases and purchase the fee interests for the properties aggregates $48.8 million and was determined to be the fair market value of the properties on the basis of discounted rental obligations for the remaining terms of the leases. Three properties were acquired by the Company during the first half of fiscal 1996 for a purchase price of approximately $17.8 million. Prior to December 31, 1996, four properties will be acquired by the unaffiliated financial institution for a purchase price of approximately $30.3 million and leased to the Company. The lease on the closed location will be terminated upon payment by the Company of approximately $700,000, for which the lease obligation was reserved for in a prior year. 33 UNDERWRITING Subject to the terms and conditions of the underwriting agreement (the "Underwriting Agreement"), the Selling Stockholder has agreed to sell to each of the underwriters named below (the "Underwriters"), and each of such Underwriters has severally agreed to purchase from the Selling Stockholder the respective number of shares of Common Stock set forth opposite its name below: Number of Shares Underwriter of Common Stock ----------- --------------- Goldman, Sachs & Co........................................... Lehman Brothers Inc........................................... Salomon Brothers Inc.......................................... William Blair & Company, L.L.C................................ _________ Total................................................ 3,600,000 ========= Under the terms and conditions of the Underwriting Agreement, the Underwriters are committed to take and pay for all the shares offered hereby, if any are taken. The Underwriters propose to offer the shares of Common Stock in part directly to the public at the initial offering price set forth on the cover page of this Prospectus and in part to certain securities dealers at such price less a concession of $___ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $___ per share to certain brokers and dealers. After the shares of Common Stock are released for sale to the public, the offering price and other selling terms may from time to time be varied by the Underwriters. Certain of the Underwriters have provided from time to time, and expect to provide in the future, investment banking services to the Company and its affiliates (including the Selling Stockholder) for which such Underwriters have received and will receive customary fees and commissions. The Selling Stockholder has granted the Underwriters an option exercisable for 30 days after the date of this Prospectus to purchase, at the initial public offering price per share less the underwriting discount as set forth on the cover page of this Prospectus, up to an aggregate of 400,000 additional shares of Common Stock to cover over-allotments, if any. If the Underwriters exercise their over-allotment option, the Underwriters have severally agreed, subject to certain conditions, to purchase approximately the same percentage thereof that the number of shares to be purchased by each of them, as shown in the foregoing table, bears to the 3,600,000 shares of Common Stock offered hereby. The Underwriters may exercise such option only to cover over-allotments in connection with the sale of the 3,600,000 shares of Common Stock offered hereby. The Company, the Selling Stockholder and certain of the Company's executive officers have agreed not to offer, sell, contract to sell or otherwise dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock for a period of 90 days after the date of this Prospectus without the prior written consent of Goldman, Sachs & Co., except for the sales of Common Stock offered in connection with the Offering and certain issuances of Common Stock by the Company pursuant to the exercise of outstanding options. 34 The Company and the Selling Stockholder have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act. 35 LEGAL MATTERS Certain legal matters in connection with the sale of the shares of Common Stock offered hereby will be passed upon for the Company and the Selling Stockholder by Stoel Rives LLP, 900 SW Fifth Avenue, Portland, Oregon 97204 and for the Underwriters by Latham & Watkins, 633 West Fifth Street, Los Angeles, California 90071. A partner of Latham & Watkins has an indirect interest through FMI Associates, in less than 1% of the Common Stock of the Company; however, such partner does not have the power to vote or dispose of such shares. Latham & Watkins renders legal services to KKR and to the Company and related entities on a regular basis, including certain services related to the sale of shares to the Company by the Selling Stockholder in the Repurchase. EXPERTS The financial statements incorporated in this Prospectus by reference from the Company's Annual Report on Form 10-K for the year ended February 3, 1996 have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, which is incorporated herein by reference, and have been so incorporated in reliance upon such report given upon the authority of that firm as experts in accounting and auditing. 36 [ART WORK] [BACK INSIDE COVER] [Photograph of Produce Section and Check Out Area] [Photograph of entry to the Home [Photograph of garden section Electronics Department] of the Home Department] [Photograph of the Fine Jewelry [Photograph of Home Decor Department] section of the Home Department] 37 ================================================================================ - -------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS AT THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. --------------------------- TABLE OF CONTENTS Page Available Information............................ 3 Incorporation of Certain Documents by Reference................................... 3 The Company...................................... 5 Price Range of Common Stock...................... 7 Dividend Policy.................................. 7 Capitalization................................... 8 Selected Financial Data.......................... 10 Selected Pro Forma Financial Data................ 12 Other Financial and Statistical Data............. 13 Management's Discussion and Analysis of Results of Operations and Financial Condition........................ 15 Business......................................... 21 The Selling Stockholder.......................... 32 Underwriting..................................... 34 Legal Matters.................................... 36 Experts.......................................... 36 - -------------------------------------------------------------------------------- ================================================================================ ================================================================================ - -------------------------------------------------------------------------------- 3,600,000 Shares [COMPANY LOGO] Common Stock (par value, $.01 per share) --------------------------- PROSPECTUS --------------------------- Goldman, Sachs & Co. Lehman Brothers Salomon Brothers Inc William Blair & Company - -------------------------------------------------------------------------------- ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 14. Other Expenses of Issuance and Distribution All expenses in connection with the issuance and distribution of the securities being registered, other than underwriting discounts and commissions, will be paid by the Company. Such expenses are estimated as follows: Registration fee........................... $ 40,949 NASD fees.................................. $ 12,375 Blue Sky fees and expenses................. $ 7,500 Legal fees and expenses.................... $ 85,000 Accounting fees and expenses............... $ 35,000 Printing and engraving..................... $ 55,000 Miscellaneous.............................. $ 34,176 -------- Total................................. $270,000 - -------- Item 15. Indemnification of Officers and Directors Section 145 of the General Corporation Law of the State of Delaware (the "Delaware GCL") grants each corporation the power to indemnify officers and directors under certain circumstances. Article V of the Company's Amended and Restated Bylaws (the "Bylaws") provides for indemnification to the fullest extent permitted by Section 145. Reference is made to the Bylaws of the Company, which are incorporated by reference as Exhibit 4B hereto. As authorized by Section 102 of the Delaware GCL, the Company has included in its Certificate of Incorporation a provision eliminating the liability of a director to the Company or its stockholders for monetary damages for breaches of a director's fiduciary duty to the Company. Liability may not be and has not been limited for breaches of the duty of loyalty, intentional misconduct, distributions made in contravention of Section 174 of the Delaware GCL or for any transaction in which a director derives an improper personal benefit. Reference is made to the Restated Certificate of Incorporation of the Company incorporated by reference as Exhibit 4A hereto. The Company has a directors and officers liability insurance policy, under certain circumstances, insures its directors and officers against the costs of defense, settlement or payment of a judgment. II-1 The rights of indemnification described above are not exclusive of any other rights of indemnification to which the persons indemnified may be entitled under any agreement, vote of stockholders or directors or otherwise. Item 16. Exhibits 1A. Form of Underwriting Agreement. 4A. Restated Certificate of Incorporation of the Company. Incorporated by reference to Exhibit 3A to the Company's Registration Statement on Form S-1, Reg. No. 33-08574. 4B. Amended and Restated Bylaws of the Company. Incorporated by reference to Exhibit 4B to the Company's Registration Statement on Form S-8, Reg. No. 33-49638. 4C. Specimen Stock Certificate. Incorporated by reference to Exhibit 4C to the Company's Registration Statement on Form S-3, Reg. No. 33-67670. 4D. Credit Agreement dated as of June 30, 1994 among the Company, various banks named therein and Bank of America as Agent. Incorporated by reference to Exhibit 4B to the Company's Annual Report on Form 10-K for the year ended January 28, 1995. 4E. Term Promissory Notes in an original aggregate principal amount of $70,000,000, including the Intercreditor Agreement dated June 29, 1993 among the Company and various banks and financial institutions named therein. Incorporated by reference to Exhibit 4E to the Company's Registration Statement on Form S-3, Reg. No. 33-67670. 4F. Note agreement dated as of June 1, 1994 in an original aggregate principal amount of $57,500,000, among the Company and various life insurance companies. Incorporated by reference to Exhibit 4D to the Company's Annual Report on Form 10-K for the year ended January 28, 1995. 4G. Credit Agreement dated as of March 6, 1995 among the Company, various financial institutions named therein, and The Bank of Nova Scotia as Agent. Incorporated by reference to Exhibit 4E to the Company's Annual Report on Form 10-K for the year ended January 28, 1995. 4H. Amended and Restated Credit Agreement dated as of October 30, 1995 among the Company, various financial institutions, Bank of America National Trust & Savings Association as Agent and the Bank of Nova Scotia as co-Agent; arranged by BA Securities, Inc. Incorporated by reference to Exhibit 4F to the Company's Quarterly Report on Form 10-Q for the quarter ended November 4, 1995 (File No. 0-15023). 4I. Note Agreement dated April 25, 1995 in an original aggregate principal amount of $50,000,000 among the Company, The Prudential Insurance Company of America and Pruco Life Insurance Company. Incorporated by reference to Exhibit 4G to the Company's Quarterly Report on Form 10-Q for the quarter ended August 12, 1995 (File No. 0-15023). II-2 5. Opinion of Counsel. 23A. Consent of Deloitte & Touche LLP. 23B. Consent of Counsel (included in Exhibit 5). 24. Powers of Attorney. 99. Stock Repurchase Agreement dated as of September 4, 1996, between the Company and FMI Associates Limited Partnership. - ------------- Item 17. Undertakings (a) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (c) The undersigned registrant hereby undertakes that: (1) For the purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of the registration statement as of the time it was declared effective. (2) For the purposes of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Portland, State of Oregon, on September 4, 1996. FRED MEYER, INC. By KENNETH THRASHER ----------------------------------------- Kenneth Thrasher Senior Vice President--Finance and Chief Financial Officer Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons on September 4, 1996 in the capacities indicated. Signature Title --------- ----- * ROBERT G. MILLER Chief Executive Officer and - ------------------------------------ Chairman of the Board Robert G. Miller (Principal Executive Officer) KENNETH THRASHER Senior Vice President--Finance and - ------------------------------------ Chief Financial Officer Kenneth Thrasher (Principal Financial Officer) *THOMAS R. HUGHES Vice President and Corporate - ------------------------------------ Controller (Principal Accounting Thomas R. Hughes Officer) *JAMES J. CURRAN Director - ------------------------------------ James J. Curran *SAUL A. FOX Director - ------------------------------------ Saul A. Fox *A.M. GLEASON Director - ------------------------------------ A.M. Gleason *ROGER S. MEIER Director - ------------------------------------ Roger S. Meier *MICHAEL W. MICHELSON Director - ------------------------------------ Michael W. Michelson II-4 *PAUL E. RAETHER Director - ------------------------------------ Paul E. Raether *By KENNETH THRASHER - ------------------------------------ Kenneth Thrasher As Attorney-in-Fact II-5 EXHIBIT INDEX Exhibit Page No. Description No. - --- ----------- --- 1A. Form of Underwriting Agreement. 4A. Restated Certificate of Incorporation of the Company. Incorporated by reference to Exhibit 3A to the Company's Registration Statement on Form S-1, Reg. No. 33-08574. 4B. Amended and Restated Bylaws of the Company. Incorporated by reference to Exhibit 4B to the Company's Registration Statement on Form S-8, Reg. No. 33-49638. 4C. Specimen Stock Certificate. Incorporated by reference to Exhibit 4C to the Company's Registration Statement on Form S-3, Reg. No. 33-67670. 4D. Credit Agreement dated as of June 30, 1994 among the Company, various banks named therein and Bank of America as Agent. Incorporated by reference to Exhibit 4B to the Company's Annual Report on Form 10-K for the year ended January 28, 1995. 4E. Term Promissory Notes in an original aggregate principal amount of $70,000,000, including the Intercreditor Agreement dated June 29, 1993 among the Company and various banks and financial institutions named therein. Incorporated by reference to Exhibit 4E to the Company's Registration Statement on Form S-3, Reg. No. 33-67670. 4F. Note agreement dated as of June 1, 1994 in an original aggregate principal amount of $57,500,000, among the Company and various life insurance companies. Incorporated by reference to Exhibit 4D to the Company's Annual Report on Form 10-K for the year ended January 28, 1995. 4G. Credit Agreement dated as of March 6, 1995 among the Company, various financial institutions named therein, and The Bank of Nova Scotia as Agent. Incorporated by reference to 4E to the Company's Annual Report on Form 10-K for the year ended January 28, 1995. 4H. Amended and Restated Credit Agreement dated as of October 30, 1995 among the Company, various financial institutions, Bank of America National Trust & Savings Association as Agent and the Bank of Nova Scotia as co-Agent; arranged by BA Securities, Inc. Incorporated by reference to Exhibit 4F to the Company's Quarterly Report on Form 10-Q for the quarter ended November 4, 1995 (File No. 0-15023). Exhibit Page No. Description No. - --- ----------- --- 4I. Note Agreement dated April 25, 1995 in an original aggregate principal amount of $50,000,000 among the Company, The Prudential Insurance Company of America and Pruco Life Insurance Company. Incorporated by reference to Exhibit 4G to the Company's Quarterly Report on Form 10-Q for the quarter ended August 12, 1995 (File No. 0-15023). 5. Opinion of Counsel. 23A. Consent of Deloitte & Touche LLP. 23B. Consent of Counsel (included in Exhibit 5). 24. Powers of Attorney. 99. Stock Repurchase Agreement dated as of September 4, 1996, between the Company and FMI Associates Limited Partnership. EX-1.A 2 UNDERWRITING AGREEMENT FRED MEYER, INC. COMMON STOCK (PAR VALUE $.01 PER SHARE) ----------------- UNDERWRITING AGREEMENT ----------------- September ___, 1996 Goldman, Sachs & Co. Lehman Brothers Inc. Salomon Brothers Inc William Blair & Company, L.L.C. c/o Goldman, Sachs & Co. 85 Broad Street New York, New York 10004 Ladies and Gentlemen: The stockholder named in Schedule II hereto (the "Selling Stockholder") of Fred Meyer, Inc., a Delaware corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to sell to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of 3,600,000 shares (the "Firm Shares") and, at the election of the Underwriters, up to an aggregate of 400,000 additional shares (the "Optional Shares") of common stock, par value $.01 per share ("Stock"), of the Company. The Firm Shares and the Optional Shares are herein collectively called the "Shares." 1. (a) The Company represents and warrants to, and agrees with, each of the Underwriters that: (i) A registration statement on Form S-3 (File No. 333-______________) (the "Initial Registration Statement") in respect of the Shares has been filed with the Securities and Exchange Commission (the "Commission"); such Initial Registration Statement and any post-effective amendment thereto, each in the form heretofore delivered to you, and, excluding exhibits thereto but including all documents incorporated by reference in the prospectus contained therein, delivered to you for each of the other Underwriters, have been declared effective by the Commission in such form; other than a registration statement, if any, increasing the size of the offering (a "Rule 462(b) Registration Statement"), filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the "Act"), which became effective upon filing, no other document with respect to the Initial Registration Statement or document incorporated by reference therein has heretofore been filed with the Commission; and no stop order suspending the effectiveness of the Initial Registration Statement, any post-effective amendment thereto or the Rule 462(b) Registration Statement, if any, has been issued and no proceeding for that purpose has been initiated or threatened by the Commission (any preliminary 1 prospectus included in the Initial Registration Statement or filed with the Commission pursuant to Rule 424(a) of the rules and regulations of the Commission under the Act, being hereinafter called a "Preliminary Prospectus"; the various parts of the Initial Registration Statement and the Rule 462(b) Registration Statement, if any, including all exhibits thereto and including (i) the information contained in the form of final prospectus filed with the Commission pursuant to Rule 424(b) under the Act in accordance with Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to be part of the Initial Registration Statement at the time it was declared effective or such part of the Rule 462(b) Registration Statement, if any, became or hereafter becomes effective, and (ii) the documents incorporated by reference in the prospectus contained in the registration statement at the time such part of the registration statement became effective, each as amended at the time such part of the registration statement became effective, being hereinafter called the "Registration Statement"; such final prospectus, in the form first filed pursuant to Rule 424(b) under the Act, being hereinafter called the "Prospectus"; any reference herein to any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Act, as of the date of such Preliminary Prospectus or Prospectus, as the case may be; any reference to any amendment or supplement to any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include any documents filed after the date of such Preliminary Prospectus or Prospectus, as the case may be, under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and incorporated by reference in such Preliminary Prospectus or Prospectus, as the case may be; and any reference to any amendment to the Registration Statement shall be deemed to refer to and include any annual report of the Company filed pursuant to Section 13(a) or 15(d) of the Exchange Act after the effective date of the Initial Registration Statement that is incorporated by reference in the Registration Statement); (ii) No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through you expressly for use therein or by the Selling Stockholder expressly for use in the preparation of the answers therein to Item 7 of Form S-3; (iii) The documents incorporated by reference in the Prospectus, when they became effective or were filed with the Commission, as the case may be, conformed in all material respects to the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder, and none of such documents contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and any further documents so filed and incorporated by reference in the Prospectus or any further amendment or supplement thereto, when such documents become effective or are filed with the Commission, as the case may be, will conform in all material respects to the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the 2 statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through you expressly for use therein; (iv) The Registration Statement conforms, and the Prospectus and any further amendments or supplements to the Registration Statement or the Prospectus will conform, in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and do not and will not, as of the applicable effective date as to the Registration Statement and any amendment thereto and as of the applicable filing date as to the Prospectus and any amendment or supplement thereto, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through you expressly for use therein or by the Selling Stockholder expressly for use in the preparation of the answers therein to Item 7 of Form S-3; (v) Neither the Company nor any of its subsidiaries (as defined in Section 15 hereof) has sustained since the date of the latest audited financial statements included or incorporated by reference in the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus which loss or interference is material to the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries taken as a whole; and, since the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been any change in the capital stock of the Company (other than due to (i) the exercise of options under the Company's employee stock option or bonus plans as in effect on the date hereof or (ii) the sale of Stock to executive officers of the Company pursuant to the terms of their employment contracts or arrangements) or any of its subsidiaries or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries taken as a whole, otherwise than as set forth or contemplated in the Prospectus; (vi) All real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material to the Company and its subsidiaries taken as a whole and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries; and the Company and its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are not material and do not interfere with the use made and proposed to be made of such property by the Company and its subsidiaries; (vii) The Company and each of its subsidiaries have been duly incorporated and are validly existing as corporations in good standing under the laws of their respective jurisdictions of incorporation, with power and authority (corporate and other) to own their respective properties and conduct their respective businesses as described in the 3 Prospectus, and have been duly qualified as a foreign corporation for the transaction of business and are in good standing under the laws of each other jurisdiction in which they own or lease properties, or conduct any business, so as to require such qualification, except where the failure to so qualify would not have a material adverse effect upon the Company and its subsidiaries taken as a whole; (viii) The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and conform to the description of the Stock contained or incorporated by reference in the Prospectus; the pro forma capitalization of the Company included in the Prospectus have been prepared on the basis consistent with the Company's historical financial statements and give effect to assumptions made on a reasonable basis and present fairly the Repurchase (as hereinafter defined), the September 1996 sale and leaseback transaction described therein and the other transactions contemplated by the Prospectus and this Agreement; and all of the issued shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and (except for Fred Meyer (HK) Limited, which is 80% owned by the Company) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims; (ix) Neither the Company nor any of its subsidiaries is in violation of its corporate charter or by-laws or in default under any agreement, indenture or instrument, the effect of which violation or default would be material to the Company and its subsidiaries taken as a whole; the Company has all power and authority (corporate and other) necessary to execute this Agreement and the Stock Repurchase Agreement, dated as of September 4, 1996, by and between the Company and the Selling Stockholder (the "Repurchase Agreement") and to perform its obligations under such agreements; this Agreement and the Repurchase Agreement have been duly authorized, executed and delivered by the Company; the Repurchase Agreement constitutes a valid and legally binding obligation of the Company enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and to general principles of equity; the execution, delivery and performance of this Agreement and the Repurchase Agreement and the consummation of the transactions contemplated hereby and thereby (including, without limitation, the repurchase by the Company of ________ shares of Stock (the "Repurchase Shares") from the Selling Stockholder (the "Repurchase")) will not conflict with, result in the creation or imposition of any lien, charge or encumbrance upon any of the assets of the Company or any of its subsidiaries pursuant to the terms of, or constitute a default under, any material agreement, indenture or instrument to which the Company or any of its subsidiaries is bound or subject, or result in a violation of the corporate charter or by-laws of the Company or any of its subsidiaries or any statute or any order, rule or regulation of any court or governmental agency having jurisdiction over the Company, any of its subsidiaries or their property; and, except as required by the Act and applicable state securities laws, no consent, authorization or order of, or filing or registration with, any court or governmental agency is required for the issue and sale of the Shares, the consummation of the Repurchase or the execution, delivery and performance of this Agreement or the Repurchase Agreement; (x) Deloitte & Touche LLP, who have certified the financial statements of the Company and its subsidiaries, are independent public accountants as required by the Act and the rules and regulations of the Commission thereunder; 4 (xi) The shares of Stock being sold by the Selling Stockholder hereunder are validly authorized, issued and outstanding, fully paid and non-assessable with no personal liability attaching to the ownership thereof; none of such shares of Stock, when delivered to the Underwriters, will be subject to any preemptive rights; the Stock to be sold by the Selling Stockholder will conform to the description thereof contained in the Prospectus; and no person or entity has any registration rights (demand, piggy-back or other) with respect to the Stock or the Registration Statement except for (i) the rights of the Selling Stockholder being satisfied by the Registration Statement and (ii) such registration rights as have been waived; (xii) Except as described in the Prospectus, there is no material litigation or governmental proceeding pending or, to the knowledge of the Company, threatened or contemplated against the Company or any of its subsidiaries which, if decided adverse to the Company or such subsidiary, would result in any material adverse change in the business, properties, financial condition, results of operations or prospects of the Company and its subsidiaries taken as a whole or which is required to be disclosed in the Prospectus; (xiii) The financial statements included in or incorporated by reference in any Preliminary Prospectus or the Prospectus present fairly the financial condition and results of operations of the entities purported to be shown thereby, at the dates and for the periods indicated, and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved, except as otherwise specifically indicated therein; the selected pro forma financial data included in the Preliminary Prospectus or the Prospectus has been prepared on the basis consistent with the historical results of operations information and gives effect to assumptions made on a reasonable basis and present fairly the Repurchase, the sale and leaseback transaction described therein and the other transactions contemplated by the Prospectus and this Agreement; (xiv) There are no contracts or other documents which are required to be filed as exhibits to the Registration Statement by the Act or by the rules and regulations of the Commission thereunder which have not been filed as exhibits to the Registration Statement or incorporated therein by reference as required or otherwise permitted by such rules and regulations; (xv) As of the date hereof the Company is not, and as of each Time of Delivery (as defined in Section 4) will not be, a "United States real property holding corporation" as such term is used in the Internal Revenue Code of 1986, as amended; and (b) The Selling Stockholder represents and warrants to, and agrees with, each of the Underwriters and the Company that: (i) Such Selling Stockholder has all power and authority (partnership and other) necessary to execute and deliver this Agreement and the Repurchase Agreement and to perform its obligations under such agreements; this Agreement and the Repurchase Agreement have been duly authorized, executed and delivered by such Selling Stockholder; the Repurchase Agreement constitutes a valid and legally binding obligation of the Selling Stockholder enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and to general principles of equity; the execution, delivery and performance of this 5 Agreement and the Repurchase Agreement by such Selling Stockholder will not conflict with, result in the creation or imposition of any lien, charge or encumbrance upon any shares of Stock to be sold by such Selling Stockholder pursuant to the terms of, or constitute a default under, any material agreement, indenture or instrument pursuant to the terms of, or constitute a default under, any material agreement, indenture or instrument, or result in a violation of the partnership agreement of the Selling Stockholder or any statute or any order, rule or regulation of any court or governmental agency having jurisdiction over such Selling Stockholder or its property; except as required by the Act and applicable state securities laws, no consent, authorization or order of, or filing or registration with, any court or governmental agency is required (or, if required, has been obtained) for the execution, delivery and performance by such Selling Stockholder of this Agreement and the Repurchase Agreement; (ii) Such Selling Stockholder has good title to the Shares set forth opposite such Selling Stockholder's name in Schedule II hereto; upon the delivery of and payment for such Shares as contemplated herein, the Underwriters will receive good title to the Shares purchased by them from such Selling Stockholder, free and clear of any and all liens, charges, encumbrances, preemptive rights and any other claim of any third party; (iii) Such Selling Stockholder and any affiliates of such Selling Stockholder will not, directly or indirectly, offer, sell, contract to sell or otherwise dispose of any shares of Stock, or any securities convertible into, or exercisable or exchangeable for, shares of Stock, or make any public announcement in respect of any of the foregoing, within 90 days after the date of the Prospectus without the prior written consent of Goldman, Sachs & Co., except for sales to the Underwriters pursuant to this Agreement; (iv) The information (other than the percent of shares owned, as to which such Selling Stockholder makes no representation) pertaining to such Selling Stockholder under the caption "The Selling Stockholder" in the Prospectus is complete and accurate in all material respects; and, the information pertaining to the Selling Stockholder and to Kohlberg Kravis Roberts & Co., L.P. ("KKR") and KKR's affiliates under the caption "Certain Transactions" incorporated by reference into the Prospectus from the Company's Proxy Statement dated May 3, 1996 fairly presents the information required to be set forth therein and contains no material misstatement or omission. In order to document the Underwriters' compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982 with respect to the transactions herein contemplated, the Selling Stockholder agrees to deliver to you prior to or at the First Time of Delivery (as hereinafter defined) a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof). 2. Subject to the terms and conditions herein set forth, (a) the Selling Stockholder agrees to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Selling Stockholder, at a purchase price per Share of $______, the number of Firm Shares, as the case may be (to be adjusted by you so as to eliminate fractional shares), determined by multiplying the aggregate number of Firm Shares by a fraction, the numerator of which is the aggregate number of Firm Shares to be purchased by such Underwriter as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the aggregate number of Firm Shares to be purchased by all the Underwriters hereunder and (b) in the event and to the extent that the Underwriters shall exercise the election to purchase Optional Shares as provided below, the Selling Stockholder agrees to sell to each of the Underwriters, and 6 each of the Underwriters agrees, severally and not jointly, to purchase from the Selling Stockholder, at the purchase price per Share as set forth in clause (a) of this Section 2, that portion of the number of Optional Shares as to which such election shall have been exercised (to be adjusted by you so as to eliminate fractional shares) determined by multiplying such number of Optional Shares by a fraction the numerator of which is the maximum number of Optional Shares which such Underwriter is entitled to purchase as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the maximum number of the Optional Shares which all of the Underwriters are entitled to purchase hereunder. The Selling Stockholder hereby grants to the Underwriters the right to purchase at their election up to 400,000 Optional Shares at the price per Share set forth in the paragraph above, for the sole purpose of covering overallotments in the sale of the Firm Shares. Any such election to purchase Optional Shares may be exercised only by written notice from you to the Selling Stockholder, given within the period of 30 calendar days after the date of this Agreement and setting forth the aggregate number of Optional Shares to be purchased and the date on which such Optional Shares are to be delivered, as determined by you but in no event earlier than the First Time of Delivery (as defined in Section 4 hereof) or, unless you and the Selling Stockholder otherwise agree in writing, earlier than two or later than ten business days after the date of such notice. 3. Upon the authorization by you of the release of the Firm Shares, the several Underwriters propose to offer the Firm Shares for sale upon the terms and conditions set forth in the Prospectus. 4. Certificates in definitive form for the Firm Shares to be purchased by each Underwriter hereunder, and in such denominations and registered in such names as Goldman, Sachs & Co. may request upon at least twenty-four hours' prior notice to the Selling Stockholder, shall be delivered by or on behalf of the Selling Stockholder to you for the account of such Underwriter, against payment by such Underwriter or on its behalf of the purchase price therefor by wire transfer of immediately available funds payable to an account designated by the Selling Stockholder. The time and date of such delivery and payment shall be, with respect to the Firm Shares, 10:00 a.m., New York City time, on September __, 1996, or such other time and date as you and the Selling Stockholder may agree upon in writing, and, with respect to the Optional Shares, 10:00 a.m., New York City time, on the date specified by you in the written notice given by you of the Underwriters' election to purchase such Optional Shares, or such other time and date as you and the Selling Stockholder may agree upon in writing. Such time and date for delivery of the Firm Shares is herein called the "First Time of Delivery," such time and date for delivery of the Optional Shares, if not the First Time of Delivery, is herein called the "Second Time of Delivery," and each such time and date of delivery is herein called a "Time of Delivery." Such certificates will be made available for checking and packaging at least twenty-four hours prior to each Time of Delivery at the office of Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004 (the "Designated Office"). The documents to be delivered at each Time of Delivery by or on behalf of the parties hereto pursuant to Section 7 hereof will be delivered at the offices of Stoel Rives LLP, Suite 2300, Standard Insurance Center, 900 SW Fifth Avenue, Portland, Oregon 97204 (the "Closing Location"), and the Shares will be delivered at the Designated Office, all at each Time of Delivery. A meeting will be held at the Closing Location at 10:00 a.m., New York City time, on the New York Business Day next preceding each Time of Delivery, at which meeting the final drafts of the documents to be delivered pursuant to the preceding sentence will be available for review by the parties hereto. "New York Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday 7 which is not a day on which banking institutions in New York are generally authorized or obligated by law or executive order to close. 5. The Company agrees with each of the Underwriters: (a) To prepare the Prospectus in a form approved by you and to file such Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's close of business on the second business day following the execution and delivery of this Agreement, or, if applicable, such earlier time as may be required by Rule 430A(a)(3) under the Act; to make no further amendment or any supplement to the Registration Statement or Prospectus prior to the last Time of Delivery which shall be disapproved by you promptly after reasonable notice thereof; to advise you, promptly after it receives notice thereof, of the time when the Registration Statement, or any amendment thereto, has been filed or becomes effective or any supplement to the Prospectus or any amended Prospectus has been filed and to furnish you copies thereof; to file promptly all reports and any definitive proxy or information statements required to be filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of the Prospectus and for so long as the delivery of a prospectus is required in connection with the offering or sale of the Shares; to advise you, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or prospectus, of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or prospectus or suspending any such qualification, to use promptly its best efforts to obtain its withdrawal; (b) Promptly from time to time to take such action as you may reasonably request to qualify the Shares for offering and sale under the securities laws of such jurisdictions as you may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Shares, provided that in connection therewith the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction; (c) Prior to 10:00 a.m., New York City time, on the New York Business Day next succeeding the date of this Agreement and from time to time, to furnish the Underwriters with copies of the Prospectus in New York City in such quantities as you may reasonably request, and, if the delivery of a prospectus is required at any time prior to the expiration of nine months after the time of issue of the Prospectus in connection with the offering or sale of the Shares and if at such time any events shall have occurred as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, when such Prospectus is delivered, not misleading, or, if for any reason it shall be necessary during such same period to amend or supplement the Prospectus or to file under the Exchange Act any document incorporated by reference in the Prospectus in order to comply with the Act or the Exchange Act, to notify you and upon your request to file such document and to prepare and furnish without charge to each Underwriter and to any dealer in securities as many copies as you may from time to time reasonably request of an amended Prospectus or a supplement to the Prospectus which will correct such statement or omission or effect such compliance, and in case any Underwriter is 8 required to deliver a prospectus in connection with sales of any of the Shares at any time nine months or more after the time of issue of the Prospectus, upon your request but at the expense of such Underwriter, to prepare and deliver to such Underwriter as many copies as you may request of an amended or supplemented Prospectus complying with Section 10(a)(3) of the Act; (d) To make generally available to its securityholders as soon as practicable, but in any event not later than eighteen months after the effective date of the Registration Statement (as defined in Rule 158(c)), an earnings statement of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the Act and the rules and regulations of the Commission thereunder (including at the option of the Company Rule 158); (e) Not to, directly or indirectly, offer, sell, contract to sell or otherwise dispose of any shares of Stock, or any securities convertible into, or exercisable or exchangeable for, shares of Stock, or make any public announcement in respect of any of the foregoing, within 90 days after the date of the Prospectus without the prior written consent of Goldman, Sachs & Co., except for issuances of Stock pursuant to employee stock option or bonus plans or other stock option agreements, in each case as outstanding on the date of this Agreement; (f) For a period of five years from the effective date of the Registration Statement, to furnish to its stockholders as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income, stockholders' equity and cash flow of the Company and its consolidated subsidiaries certified by independent public accountants) and, as soon as practicable after the end of each of the first three quarters of each fiscal year (beginning with the fiscal quarter ending after the effective date of the Registration Statement), consolidated summary financial information of the Company and its subsidiaries for such quarter in reasonable detail; (g) During a period of three years from the effective date of the Registration Statement, to furnish to you copies of all reports or other communications (financial or other) furnished to stockholders, and deliver to you (i) as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange on which any class of securities of the Company is listed; and (ii) such additional information concerning the business and financial condition of the Company as you may from time to time reasonably request (such financial statements to be on a consolidated basis to the extent the accounts of the Company and its subsidiaries are consolidated in reports furnished to its stockholders generally or to the Commission); (h) To use its best efforts to cause the Shares to be listed on the New York Stock Exchange; and (i) If the Company elects to rely upon Rule 462(b), the Company shall file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement, and the Company shall at the time of filing either pay to the Commission the filing fee for the Rule 462(b) Registration Statement or give irrevocable instructions for the payment of such fee pursuant to Rule 111(b) under the Act. 6. The Company covenants and agrees with the several Underwriters that the Company will pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Company's counsel and accountants in connection with the registration of the Shares under the Act and all other expenses in connection with the preparation, printing and filing of the Registration Statement, 9 any Preliminary Prospectus and the Prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriters and dealers; (ii) the cost of printing or producing any Agreement among Underwriters, this Agreement,the Blue Sky Memorandum and any other documents in connection with the offering, purchase, sale and delivery of the Shares; (iii) all expenses in connection with the qualification of the Shares for offering and sale under state securities laws as provided in Section 5(b) hereof, including the fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky Memorandum; (iv) the filing fees incident to securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the Shares; (v) the cost of preparing stock certificates; (vi) the cost and charges of any transfer agent or registrar; and (vii) all other costs and expenses incident to the performance of its obligation hereunder which are not otherwise specifically provided for in this Section. Goldman, Sachs & Co. agrees to pay New York State stock transfer tax incurred in connection with the sale of Shares by the Selling Stockholder pursuant hereto, and the Selling Stockholder agrees to reimburse Goldman, Sachs & Co. for associated carrying costs if such tax payment is not rebated on the day of payment and for any portion of such tax payment not rebated. It is understood, however, that, except as provided in this Section, Section 8 and Section 11 hereof, the Underwriters will pay all of their own costs and expenses, including the fees of their counsel, stock transfer taxes on resale of any of the Shares by them, and any advertising expenses connected with any offers they may make. 7. The obligations of the Underwriters hereunder, as to the Shares to be delivered at each Time of Delivery, shall be subject, in their discretion, to the condition that all representations and warranties and other statements of the Company and of the Selling Stockholder herein are, at and as of such Time of Delivery, true and correct, the condition that the Company and the Selling Stockholder shall have performed all of its and their obligations hereunder theretofore to be performed, and to the following additional conditions: (a) The Prospectus shall have been filed with the Commission pursuant to Rule 424(b) within the applicable time period prescribed for such filing by the rules and regulations under the Act and in accordance with Section 5(a) hereof; if the Company has elected to rely upon Rule 462(b), the Rule 462(b) Registration Statement shall be become effective by 10:00 P.M., Washington, D.C. time, on the date of this Agreement; no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission; and all requests for additional information on the part of the Commission shall have been complied with to your reasonable satisfaction; (b) Latham & Watkins, counsel for the Underwriters, shall have furnished to you such opinion or opinions, dated such Time of Delivery, with respect to the incorporation of the Company, the validity of the Shares being delivered at such Time of Delivery, the Registration Statement, the Prospectus, and other related matters as you may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; (c) Stoel Rives LLP, counsel for the Company, shall have furnished to you their written opinion (a draft of such opinion is attached as Annex II(a) hereto), dated such Time of Delivery, in form and substance satisfactory to you, to the effect that: (i) The Company is duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and each of Roundup Co., ______________ and Fred Meyer of Alaska, Inc. (the "Principal Subsidiaries") have been duly incorporated and are 10 validly existing under the laws of their respective jurisdictions of incorporation; the Company and each of the Principal Subsidiaries is duly qualified to do business and in good standing as a foreign corporation in all jurisdictions in which its ownership of property or the conduct of its business requires such qualification (except where the failure to so qualify would not have a material adverse effect upon the Company and its subsidiaries taken as a whole), and has all corporate power and corporate authority necessary to own its properties and conduct the businesses in which it is engaged as described in the Prospectus; and all outstanding shares of capital stock of the Principal Subsidiaries are owned of record and, to the best of such counsel's knowledge, beneficially, by the Company directly, or indirectly through wholly-owned subsidiaries, free and clear of any lien, pledge and encumbrance or any claim of any third party known to such counsel; (ii) The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable, with no personal liability attaching to the ownership thereof; the Stock conforms to the description of the Company's common stock, par value $.01 per share, contained or incorporated by reference in the Prospectus; (iii) There are no preemptive or other rights to subscribe for or to purchase, nor any restriction upon the transfer of, any of the Shares, or any restriction upon the voting of the Shares, pursuant to the Company's Certificate of Incorporation or By-laws or any agreement or other outstanding instrument known to such counsel; and, to the best of such counsel's knowledge, no person or entity has any registration rights (demand, piggyback or other) with respect to the Stock or the Registration Statement except for (i) the rights of the Selling Stockholder being satisfied by the Registration Statement and (ii) such registration rights as have been waived; (iv) The leases between the Company and Real Estate Properties Limited Partnership ("Properties") are valid and subsisting leases, enforceable against Properties in accordance with their respective terms with such exceptions as are not material and do not interfere with the use made of the properties leased thereby, except as such enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforceability of the rights of creditors' generally; (v) Such counsel does not know of any litigation or any governmental proceeding pending or threatened against the Company or any of its subsidiaries which is required to be disclosed in the Prospectus which is not disclosed or which questions or challenges the validity or seeks to enjoin the transactions contemplated by this Agreement or the Repurchase Agreement; (vi) Such counsel does not know of any contracts or other documents which are required to be filed as exhibits to the Registration Statement or incorporated by reference into the Prospectus by the Act or by the rules and regulations of the Commission thereunder which have not been filed as exhibits to the Registration Statement or incorporated therein or in the Prospectus by reference as required or otherwise permitted by such rules and regulations; (vii) To the best of such counsel's knowledge, neither the Company nor any of its subsidiaries is in violation of its corporate charter or by-laws; 11 (viii) The execution, delivery and performance of this Agreement and the Repurchase Agreement by the Company (including, without limitation, the purchase by the Company of the Repurchase Shares in the Repurchase) will not conflict with, or result in the creation or imposition of any lien, charge or encumbrance upon any of the assets of the Company or any of its subsidiaries pursuant to the terms of, or constitute a default under, any material agreement, indenture or instrument known to such counsel, or result in a violation of the corporate charter or by-laws of the Company or any of its subsidiaries or any statute or any order, rule or regulation of any court or governmental agency, known to such counsel, having jurisdiction over the Company, any of its subsidiaries or their property; and no consent, authorization or order of, or filing or registration with, any court or governmental agency is required for the execution, delivery and performance of this Agreement or the Repurchase Agreement by the Company, except such as may be required by the Act or state securities laws; (ix) The Registration Statement is effective under the Act and, to the knowledge of such counsel, no stop order suspending its effectiveness has been issued and no proceeding for that purpose is pending or threatened by the Commission; (x) The Company has all power and authority (corporate and other) necessary to execute this Agreement and the Repurchase Agreement and to perform its obligations under such agreements; and this Agreement has been duly authorized, executed and delivered by the Company; (xi) The Repurchase Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and legally binding obligation of the Company enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and to generally principles of equity; (xii) The description of the Company's capital stock contained or incorporated by reference in the Prospectus, insofar as such description and statements constitute a summary of the legal documents or other legal matters referred to therein, fairly and accurately present the information called for by the Act with respect to such documents and other matters; (xiii) The documents incorporated by reference in the Prospectus or any further amendment or supplement thereto made by the Company prior to such Time of Delivery (other than the financial statements, schedules and other financial data contained therein, as to which such counsel need express no opinion), when they became effective or were filed with the Commission, as the case may be, complied as to form in all material respects with the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder; and (ix) The Registration Statement and the Prospectus and any further amendments and supplements thereto made by the Company prior to such Time of Delivery (except that no opinion need be expressed as to the financial statements, schedules and other financial data contained therein) comply as to form in all material respects with the requirements of the Act and the rules and regulations of the Commission thereunder. In addition to the matters set forth above, such opinion shall also include a statement to the effect that (x) such counsel has acted as corporate counsel to the Company on a regular 12 basis and has acted as counsel to the Company in connection with the preparation of the Registration Statement and Prospectus; and (y) although such counsel does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus, except for those covered by their opinion in subsection (xi) of this Section 7(c), based on the foregoing, no facts have come to the attention of such counsel which lead them to believe that either the Registration Statement, at the time such Registration Statement became effective, and any supplements thereto made by the Company prior to such Time of Delivery, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus, or any further amendment or supplement thereto made by the Company prior to such Time of Delivery, contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading except that such counsel need express no belief with respect to the financial statements, schedules and other financial data included in the Registration Statement or Prospectus. (d) Stoel Rives LLP, counsel for the Selling Stockholder, shall have furnished to you their written opinion (a draft of such opinion is attached as Annex II(b) hereto), dated such Time of Delivery, in form and substance satisfactory to you, to the effect that: (i) The Selling Stockholder has all power and authority (partnership and other) necessary to execute and deliver this Agreement and the Repurchase Agreement and to perform its obligations under this Agreement and the Repurchase Agreement; this Agreement and the Repurchase Agreement have been duly authorized, executed and delivered by the Selling Stockholder; the Repurchase Agreement constitutes a valid and legally binding obligation of the Selling Stockholder enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and to generally principles of equity; the execution, delivery and performance of this Agreement and the Repurchase Agreement by the Selling Stockholder will not conflict with, result in the creation or imposition of any lien, charge or encumbrance upon any shares of the Stock to be sold by the Selling Stockholder pursuant to the terms of, or constitute a default under, any material agreement, indenture or instrument known to such counsel, or result in a violation of the partnership agreement of the Selling Stockholder or any statute or any order, rule or regulation of any court or governmental agency known to such counsel having jurisdiction over the Selling Stockholder or its property; except as required by the Act and applicable state securities laws, no consent, authorization or order of, or filing or registration with, any court or governmental agency is required (or, if required, has been obtained) for the execution, delivery and performance by the Selling Stockholder of this Agreement or the Repurchase Agreement; and the Selling Stockholder has complied with all provisions of the Repurchase Agreement to sell the Repurchase Shares to the Company in the Repurchase; (ii) Upon delivery by the Selling Stockholder pursuant to this Agreement of certificates for the Shares set forth opposite to the Selling Stockholder's named on Schedule II to this Agreement, and, assuming the Underwriters are acquiring such Shares in good faith without notice of any adverse claim, the Underwriters will have acquired from the Selling Stockholder good title to such Shares, free and clear of any and all liens, charges, encumbrances and any other claims of any third party (other than those arising as a result of action by the Underwriters); and 13 (iii) Nothing has come to our attention which causes us to believe that the information pertaining to the Selling Stockholder under the caption "The Selling Stockholder" in the Prospectus does not fairly and accurately present the information set forth therein, or causes us to believe that such information contains a material misstatement or omission. (e) At 10:00 a.m., New York City time, on the effective date of the Registration Statement and the effective date of the most recently filed post-effective amendment to the Registration Statement and also at the Time of Delivery, Deloitte & Touche LLP shall have furnished to you a letter or letters, dated the respective date of delivery thereof, in form and substance satisfactory to you, to the effect set forth in Annex I hereto (the executed copy of the letter delivered prior to the execution of this Agreement is attached as Annex I(a) hereto and a draft of the form of letter to be delivered on the effective date of any post-effective amendment to the Registration Statement and as of each Time of Delivery is attached as Annex I(b) hereto); (f) (i) Neither the Company nor any of its subsidiaries shall have sustained since the date of the latest audited financial statements included or incorporated by reference in the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus, and (ii) since the respective dates as of which information is given in the Prospectus there shall not have been any change in the capital stock or long-term debt of the Company or any of its subsidiaries or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the effect of which, in any such case described in Clause (i) or (ii), is in your judgment so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Prospectus; (g) On or after the date hereof there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the New York Stock Exchange; (ii) a general moratorium on commercial banking activities in New York or California declared by either Federal or New York or California State authorities; (iii) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war, if the effect of any such event specified in this clause (iii) in your reasonable judgment makes it impractical or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Prospectus; or (iv) the occurrence of any material adverse change in the existing financial, political or economic conditions in the United States or elsewhere which, in your reasonable judgment, would materially and adversely affect the financial markets or the market for the Shares; (h) The Shares to be sold by the Selling Stockholder at such Time of Delivery shall have been duly listed, subject to notice of issuance, on the New York Stock Exchange; (i) The Company and the Selling Stockholder shall have furnished or caused to be furnished to you at such Time of Delivery certificates of officers of the Company and of the Selling Stockholder, respectively, satisfactory to you, as to the accuracy of the representations and warranties of the Company and the Selling Stockholder, respectively, herein at and as of such Time of Delivery, as to the performance by the Company and the Selling Stockholder of all of their respective obligations hereunder to be performed at or prior to such Time of 14 Delivery, and as to such other matters as you may reasonably request, and the Company shall have furnished or caused to be furnished certificates as to the matters set forth in subsections (a) and (f) of this Section, and as to such other matters as you may reasonably request; (j) Each of the Company, the Selling Stockholder, Robert G. Miller, Curt A. Lerew, III and Kenneth Thrasher shall have executed and delivered to the Underwriters an agreement, in form and substance satisfactory to you, providing that such entity or person will not, directly or indirectly, offer, sell, contract to sell or otherwise dispose of any shares of Stock, or any securities convertible into, or exercisable or exchangeable for, shares of Stock, or make any public announcement in respect of any of the foregoing, within 90 days after the date of the Prospectus without the prior written consent of Goldman, Sachs & Co.; provided, however, that the Company may make issuances of Stock pursuant to employee stock option or bonus plans or other stock option agreements, in each case as outstanding on the date of this Agreement; (k) Simultaneous with the purchase of the Firm Shares pursuant to this Agreement, the Repurchase shall be consummated; and (l) The Company shall have complied with the provisions of Section 5(c) hereof with respect to the furnishing of prospectuses on the New York Business Day next succeeding the date of this Agreement. 8. (a) The Company will indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by any Underwriter through you expressly for use therein; and provided, further, that as to any Preliminary Prospectus this indemnity agreement shall not inure to the benefit of any Underwriter on account of any loss, claim, damage, liability or action arising from the sale of Shares to any person by that Underwriter if that Underwriter failed to send or give a copy of the Prospectus, as the same may be amended or supplemented, to that person within the time required by the Act, and the untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact in such Preliminary Prospectus was corrected in the Prospectus, unless such failure resulted from non compliance by the Company with Section 5(c) hereof. The Company reaffirms its indemnification of the Selling Stockholder pursuant to that certain Registration Rights Agreement entered into by the Company and the Selling Stockholder, dated as of December 11, 1981. (b) The Selling Stockholder (subject to the limitation on indemnity contained in the penultimate sentence of this Section 8(b)) will indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions 15 in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission (i) was made in reliance upon and in conformity with written information furnished to the Company by such Selling Stockholder specifically for inclusion therein or (ii) relates to information concerning the Selling Stockholder, KKR and KKR's affiliates set forth under the caption "The Selling Stockholder" in any Preliminary Prospectus and the Prospectus and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that the Selling Stockholder shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by any Underwriter through you expressly for use therein; and provided, further, that as to any Preliminary Prospectus this indemnity agreement shall not inure to the benefit of any Underwriter on account of any loss, claim, damage, liability or action arising from the sale of Stock to any person by that Underwriter if that Underwriter failed to send or give a copy of the Prospectus, as the same may be amended or supplemented, to that person within the time required by the Act, and the untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact in such Preliminary Prospectus was corrected in the Prospectus, unless such failure resulted from non-compliance by the Company with Section 5(c) hereof. The aggregate liability of the Selling Stockholder to indemnify the Underwriters pursuant to the foregoing indemnity agreement shall not exceed the proceeds received by such Selling Stockholder from the Shares sold by it pursuant to this Agreement. The Selling Stockholder reaffirms its indemnification of the Company pursuant to that certain Registration Rights Agreement entered into by the Selling Stockholder and the Company, dated as of December 11, 1981. (c) Each Underwriter will indemnify and hold harmless the Company and the Selling Stockholder against any losses, claims, damages or liabilities to which the Company or such Selling Stockholder may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Underwriter through you expressly for use therein; and will reimburse the Company and the Selling Stockholder for any legal or other expenses reasonably incurred by the Company or such Selling Stockholder in connection with investigating or defending any such action or claim as such expenses are incurred. (d) Promptly after receipt by an indemnified party under subsection (a), (b) or (c) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party 16 shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (which shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. (e) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a), (b) or (c) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Stockholder on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under subjection (d) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and the Selling Stockholder on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholder on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering of the Shares purchased under this Agreement (before deducting expenses) received by the Selling Stockholder bears to the total underwriting discounts and commissions received by the Underwriters with respect to the Shares purchased under this Agreement, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling Stockholder on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Selling Stockholder and the Underwriters agree that it would not be just and equitable if contributions pursuant to this subsection (e) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (e). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (e) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (e), (i) no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission and (ii) the Selling Stockholder shall not be required to contribute any amount in excess of the amount by which proceeds received by such Selling Stockholder from the Shares 17 sold by it pursuant to this Agreement exceeds that amount of any damages which such Selling Stockholder has otherwise paid or become liable to pay by reason of any untrue statement or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (e) to contribute are several in proportion to their respective underwriting obligations and not joint. (f) The obligations of the Company and the Selling Stockholder under this Section 8 shall be in addition to any liability which the Company and the Selling Stockholder may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters under this Section 8 shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company and Selling Stockholder and to each person, if any, who controls the Company or the Selling Stockholder within the meaning of the Act. (g) In addition to any obligations otherwise provided for in this Section 8, the Company hereby agrees to hold harmless and indemnify each Underwriter for any United States income taxes which such Underwriter becomes obligated to pay by virtue of the Company being deemed to be a "United States real property holding corporation" under the Internal Revenue Code of 1986, as amended. 9. (a) If any Underwriter shall default in its obligation to purchase the Shares which it has agreed to purchase hereunder at a Time of Delivery, you may in your discretion arrange for you or another party or other parties to purchase such Shares on the terms contained herein. If within thirty-six hours after such default by any Underwriter you do not arrange for the purchase of such Shares, then the Selling Stockholder shall be entitled to a further period of thirty-six hours within which to procure another party or other parties satisfactory to you to purchase such Shares on such terms. In the event that, within the respective prescribed periods, you notify the Selling Stockholder that you have so arranged for the purchase of such Shares, or the Selling Stockholder notifies you that it has so arranged for the purchase of such Shares, you or the Selling Stockholder shall have the right to postpone such Time of Delivery for a period of not more than seven days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and the Company agrees to file promptly any amendments to the Registration Statement or the Prospectus which in your opinion may thereby be made necessary. The term "Underwriter" as used in this Agreement shall include any person substituted under this Section with like effect as if such person had originally been a party to this Agreement with respect to such Shares. (b) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Selling Stockholder as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased does not exceed one-eleventh of the aggregate number of all the Shares to be purchased at such Time of Delivery, then the Selling Stockholder shall have the right to require each non-defaulting Underwriter to purchase the number of Shares which such Underwriter agreed to purchase hereunder at such Time of Delivery and, in addition, to require each non-defaulting Underwriter to purchase its pro rata share (based on the number of Shares which such Underwriter agreed to purchase hereunder) of the Shares of such defaulting Underwriter or Underwriters for which such arrangements have not been made; but nothing herein shall relieve a defaulting Underwriter from liability for its default. 18 (c) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Selling Stockholder as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased exceeds one-eleventh of the aggregate number of all the Shares to be purchased at such Time of Delivery, or if the Selling Stockholder shall not exercise the right described in subsection (b) above to require non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement (or, with respect to the Second Time of Delivery, the obligations of the Underwriters to purchase and of the Selling Stockholder to sell the Optional Shares) shall thereupon terminate, without liability on the part of any non-defaulting Underwriter or the Company or the Selling Stockholder, except for the expenses to be borne by the Company, the Selling Stockholder and the Underwriters as provided in Section 6 hereof and the indemnity and contribution agreements in Section 8 hereof; but nothing herein shall relieve a defaulting Underwriter from liability for its default. 10. The respective indemnities, agreements, representations, warranties and other statements of the Company, the Selling Stockholder and the several Underwriters, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any Underwriter or any controlling person of any Underwriter, or the Company, or the Selling Stockholder, or any officer or director or controlling person of the Company, or any controlling person of the Selling Stockholder, and shall survive delivery of and payment for the Shares. 11. If this Agreement shall be terminated pursuant to Section 9 hereof, neither the Company nor the Selling Stockholder shall then be under any liability to any Underwriter except as provided in Section 6 and Section 8 hereof; but, if for any other reason any Shares are not delivered by or on behalf of the Selling Stockholder or the Company as provided herein, the Company will reimburse the Underwriters through you for all out-of-pocket expenses approved in writing by you, including fees and disbursements of counsel, reasonably incurred by the Underwriters in making preparations for the purchase, sale and delivery of the Shares not so delivered, but the Company and the Selling Stockholder shall then be under no further liability to any Underwriter in respect of the Shares not so delivered, except as provided in Section 6 and Section 8 hereof. 12. In all dealings hereunder, you shall act on behalf of each of the Underwriters, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of any Underwriter made or given by you jointly or by Goldman, Sachs & Co. on behalf of you; and in all dealings with the Selling Stockholder hereunder, you and the Company shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of such Selling Stockholder made or given by any or all attorneys-in-fact for such Selling Stockholder, if any. All statements, requests, notices and agreements hereunder shall be in writing, and if to the Underwriters shall be delivered or sent by mail to you in care of Goldman, Sachs & Co., at 85 Broad Street, New York, New York 10004, Attention: Registration Department; if to the Selling Stockholder shall be delivered or sent by mail, telex or facsimile transmission to counsel for such Selling Stockholder at its address set forth in Schedule II hereto; and if to the Company shall be delivered or sent by mail, telex or facsimile transmission to the address of the Company set forth in the Registration Statement, Attention: Secretary; provided, however, that any notice to an Underwriter pursuant to Section 8(d) hereof shall be delivered or sent by mail, telex or facsimile transmission to such Underwriter at its address set forth in its Underwriters' Questionnaire or telex constituting such Questionnaire, which address will be supplied to the Company or the Selling Stockholder by you upon request. Any such statements, requests, notices or agreements shall take effect upon receipt thereof. 19 13. This Agreement shall be binding upon, and enure solely to the benefit of, the Underwriters, the Company and the Selling Stockholder and, to the extent provided in Sections 8 and 10 hereof, the officers and directors of the Company and each person who controls the Company, the Selling Stockholder or any Underwriter, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Shares from any Underwriter shall be deemed a successor assign by reason merely of such purchase. 14. No partner of the Selling Stockholder or any successor general partner of the Selling Stockholder shall have any personal liability for the performance of any of the Selling Stockholder's obligations hereunder, and any liability or obligation of the Selling Stockholder arising hereunder shall be limited to and satisfied only out of the property of the Selling Stockholder. 15. Time shall be of the essence of this Agreement. As used herein, (a) the term "business day" shall mean any day when the Commission's office in Washington, D.C. is open for business and (b) the term "subsidiary" shall have the meaning provided by Rule 405 under the Act. 16. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 17. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. (Signature Page Follows) 20 If the foregoing is in accordance with your understanding, please sign and return to us ten counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Underwriters, this letter and such acceptance hereof shall constitute a binding agreement among each of the Underwriters, the Company and the Selling Stockholder. It is understood that your acceptance of this letter on behalf of each of the Underwriters is pursuant to the authority set forth in a form of Agreement among Underwriters the form of which shall be submitted to the Company and the Selling Stockholder for examination, upon request, but without warranty on your part as to the authority of the signers thereof. Very truly yours, FRED MEYER, INC. By:______________________________ Roger A. Cooke Senior Vice President "SELLING STOCKHOLDER" FMI ASSOCIATES LIMITED PARTNERSHIP By: KKR Associates, General Partner By:_______________________________ Michael W. Michelson General Partner Accepted as of the date hereof at New York, New York. GOLDMAN, SACHS & CO. LEHMAN BROTHERS INC. SALOMON BROTHERS INC WILLIAM BLAIR & COMPANY, L.L.C. By: ........................... (Goldman, Sachs & Co.) On behalf of each of the Underwriters 21 SCHEDULE I Total Number of Firm Shares Total of Stock Number of to be Optional Shares Underwriter Purchased to be Purchased ----------- --------- --------------- Goldman, Sachs & Co. Lehman Brothers Inc. Salomon Brothers Inc William Blair & Company, L.L.C. 22 SCHEDULE II Total Number of Total Firm Shares Number of of Stock Optional Shares Selling Stockholder to be Sold to be Sold ------------------- ---------- ---------- FMI Associates Limited Partnership(a) - --------------- (a) The Selling Stockholder is represented by Stoel Rives LLP, 900 S.W. Fifth Street, Suite 2300, Portland, Oregon 97204. 23 ANNEX I Pursuant to Section 7(e) of the Underwriting Agreement, Deloitte & Touche LLP shall furnish letters to the Underwriters to the effect that: (i) They are independent certified public accountants with respect to the Company and its subsidiaries within the meaning of the Act and the applicable published rules and regulations thereunder; (ii) In their opinion, the consolidated financial statements audited by them and included or incorporated by reference in the Registration Statement or the Prospectus comply as to form in all material respects with the applicable accounting requirements of the Act or the Exchange Act, as applicable, and, in each case, the related published rules and regulations thereunder; (iii) The selected financial information with respect to the consolidated results of operations and financial position of the Company for the five most recent fiscal years included in the Prospectus agrees with the corresponding amounts in the audited consolidated financial statements for such five fiscal years which were included or incorporated by reference in the Company's Annual Report on Form 10-K for such fiscal year or otherwise incorporated by reference in the Prospectus; (iv) On the basis of limited procedures, not constituting an audit in accordance with generally accepted auditing standards, consisting of a reading of the latest available interim consolidated financial statements of the Company and its subsidiaries, inspection of the minute books of the Company since the date of the latest audited financial statements included or incorporated by reference in the Prospectus, inquiries of officials of the Company and its subsidiaries responsible for financial and accounting matters and such other inquiries and procedures as may be specified in such letter, nothing came to their attention that caused them to believe that: (A) as of the date of the latest available unaudited interim condensed consolidated financial statements of the Company for any period subsequent to the date of the latest consolidated financial statements included or incorporated by reference in the Prospectus, if any, there has been any change in the consolidated capital stock (other than due to issuances of capital stock upon exercise of options and warrants, in each case as were outstanding on the date of the latest audited financial statements included or incorporated by reference in the Prospectus), any increase in the consolidated long-term debt of the Company and its subsidiaries or any decrease in consolidated working capital, net assets or stockholders' equity, and for the period from the date of the latest audited consolidated financial statements included or incorporated by reference in the Prospectus, there has been any decrease in consolidated net sales, gross margin, income from operations or net income as compared with the comparable period of the preceding year, except in each case for changes, decreases or increases which the Prospectus discloses have occurred or may occur or which are described in such letter; (B) as of a specified date not more than five days prior to the date of such letter, there has been any change in the consolidated capital stock (other than issuances of capital stock upon exercise of options and warrants, in each case as were outstanding on the date of the latest audited financial statements included or incorporated by A-1 reference in the Prospectus) or any increase in the consolidated long-term debt of the Company and its subsidiaries or decrease in consolidated working capital, net assets or stockholders' equity, or any increases or decreases in any other items specified by the representatives, in each case as compared with amounts showing in the latest consolidated balance sheet included or incorporated by reference in the Prospectus, except in each case for changes, increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (C) for the period from the date of the latest consolidated financial statements included or incorporated by reference in the Prospectus to the specified date referred to in Clause (B) there was any decrease in consolidated net sales, gross margin, income from operations or net income, or any increases or decreases in any other items specified by the representatives, in each case as compared with the comparable period of the preceding year and any other period of corresponding length specified by the representatives, except in each case for decreases or increases which the Prospectus discloses have occurred or may occur or which are described in such letter. (v) In addition to the audits referred to in their report included or incorporated by reference in the Prospectus and the inspection of minute books, inquiries and other procedures referred to in paragraphs (iii) and (iv) above, they have carried out certain specified procedures, not constituting an audit in accordance with generally accepted auditing standards, with respect to the Company and its subsidiaries, which appear or are incorporated by reference in the Prospectus, or in Part II of, or in exhibits and schedules to, the Registration Statement specified by the representatives, or in documents incorporated by reference in the Prospectus specified by the representatives, which procedures consist principally of comparing such amounts, percentages and financial information with the corresponding amounts, percentages and financial information included in or derived from the accounting records of the Company and its subsidiaries and the accountant's shall have found such amounts, percentages and financial information to be in agreement. A-2 ANNEX I(A) Form of Letter of Deloitte & Touche LLP Delivered Prior to Execution of Agreement A-3 ANNEX I(B) Form of Letter of Deloitte & Touche LLP Delivered at each Time of Delivery A-4 ANNEX II(A) Form of Opinion of Stoel Rives LLP, Counsel to the Company A-5 ANNEX II(B) Form of Opinion of Stoel Rives LLP, Counsel to the Selling Stockholder A-6 EX-5 3 OPINION OF COUNSEL STOEL RIVES LLP --------------- ATTORNEYS Standard Insurance Center 900 SW Fifth Avenue, Suite 2300 Portland, Oregon 97204-1268 Telephone (503) 224-3380 Fax (503) 220-2480 TDD (503) 221-1045 EXHIBIT (5)(23B) September 4, 1996 Fred Meyer, Inc. 3800 SE 22nd Avenue Portland, OR 97202 We have acted as counsel for Fred Meyer, Inc. (the "Company") in connection with the filing of a Registration Statement on Form S-3 (the "Registration Statement"), under the Securities Act of 1933, as amended, covering 4,000,000 shares of Common Stock, $.01 par value, of the Company (the "Shares") to be offered for the account of a selling stockholder of the Company (the "Selling Stockholder"). Of the 4,000,000 shares being offered, 400,000 shares will be subject to an option to be granted to the underwriters named in the Registration Statement (the "Underwriters") to cover over allotments. We have reviewed the corporate action of the Company in connection with this matter and have examined the documents, corporate records and other instruments we deemed necessary for the purpose of this opinion. Based upon the foregoing, it is our opinion that: (i) The Company is a corporation duly organized and validly existing under the laws of the State of Delaware. (ii) The Shares are duly authorized shares of Common Stock of the Company. (iii) The 3,600,000 shares to be offered for the account of the Selling Stockholder and the 400,000 shares subject to the over-allotment option to be granted to the Underwriters by the Selling Stockholder are legally issued, fully paid and nonassessable. We hereby consent to the use of our name in the Registration Statement and in the Prospectus filed as part thereof and to the filing of this opinion as an exhibit to the Registration Statement. Very truly yours, STOEL RIVES LLP EX-23.A 4 COUNSEL OF DELOITTE & TOUCHE DELOITTE & TOUCHE LLP ---------------------------------------------------------------- Suite 3900 Telephone: (503) 222-1341 111 S.W. Fifth Avenue Facsimile: (503) 224-2172 Portland, Oregon 97204-3698 EXHIBIT 23A INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement on Form S-3, of our report dated March 11, 1996 (which expresses an unqualified opinion and includes an explanatory paragraph relating to a change in the method of accounting for income taxes in the fiscal year ended January 29, 1994), appearing in the Annual Report on Form 10-K of Fred Meyer, Inc. for the year ended February 3, 1996 and to the reference to us under the heading "Experts" in the Prospectus, which is part of this Registration Statement. DELOITTE & TOUCHE LLP Portland, Oregon September 4, 1996 - -------------- DELOITTE TOUCHE TOHMATSU INTERNATIONAL - -------------- EX-24 5 POWERS OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Robert G. Miller, Kenneth Thrasher and Roger A. Cooke, and each of them, his true and lawful attorneys and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign one or more Form S-3 Registration Statements under the Securities Act of 1933, prepared in connection with the issuance and/or sale of shares of Common Stock of Fred Meyer, Inc., and any and all amendments (including post-effective amendments) thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: August 21, 1996. KENNETH THRASHER --------------------------------------- Kenneth Thrasher EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Robert G. Miller, Kenneth Thrasher and Roger A. Cooke, and each of them, his true and lawful attorneys and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign one or more Form S-3 Registration Statements under the Securities Act of 1933, prepared in connection with the issuance and/or sale of shares of Common Stock of Fred Meyer, Inc., and any and all amendments (including post-effective amendments) thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: August 19, 1996. ROBERT G. MILLER --------------------------------------- Robert G. Miller EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Robert G. Miller, Kenneth Thrasher and Roger A. Cooke, and each of them, his true and lawful attorneys and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign one or more Form S-3 Registration Statements under the Securities Act of 1933, prepared in connection with the issuance and/or sale of shares of Common Stock of Fred Meyer, Inc., and any and all amendments (including post-effective amendments) thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: August 21, 1996. THOMAS R. HUGHES --------------------------------------- Thomas R. Hughes EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Robert G. Miller, Kenneth Thrasher and Roger A. Cooke, and each of them, his true and lawful attorneys and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign one or more Form S-3 Registration Statements under the Securities Act of 1933, prepared in connection with the issuance and/or sale of shares of Common Stock of Fred Meyer, Inc., and any and all amendments (including post-effective amendments) thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: August 30, 1996. JAMES J. CURRAN --------------------------------------- James J. Curran EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Robert G. Miller, Kenneth Thrasher and Roger A. Cooke, and each of them, his true and lawful attorneys and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign one or more Form S-3 Registration Statements under the Securities Act of 1933, prepared in connection with the issuance and/or sale of shares of Common Stock of Fred Meyer, Inc., and any and all amendments (including post-effective amendments) thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: August 30, 1996. SAUL A. FOX --------------------------------------- Saul A. Fox EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Robert G. Miller, Kenneth Thrasher and Roger A. Cooke, and each of them, his true and lawful attorneys and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign one or more Form S-3 Registration Statements under the Securities Act of 1933, prepared in connection with the issuance and/or sale of shares of Common Stock of Fred Meyer, Inc., and any and all amendments (including post-effective amendments) thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: August 21, 1996. A.M. GLEASON --------------------------------------- A.M. Gleason EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Robert G. Miller, Kenneth Thrasher and Roger A. Cooke, and each of them, his true and lawful attorneys and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign one or more Form S-3 Registration Statements under the Securities Act of 1933, prepared in connection with the issuance and/or sale of shares of Common Stock of Fred Meyer, Inc., and any and all amendments (including post-effective amendments) thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: August 19, 1996. ROGER S. MEIER --------------------------------------- Roger S. Meier EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Robert G. Miller, Kenneth Thrasher and Roger A. Cooke, and each of them, his true and lawful attorneys and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign one or more Form S-3 Registration Statements under the Securities Act of 1933, prepared in connection with the issuance and/or sale of shares of Common Stock of Fred Meyer, Inc., and any and all amendments (including post-effective amendments) thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: August 19, 1996. MICHAEL W. MICHELSON --------------------------------------- Michael W. Michelson EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints Robert G. Miller, Kenneth Thrasher and Roger A. Cooke, and each of them, his true and lawful attorneys and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign one or more Form S-3 Registration Statements under the Securities Act of 1933, prepared in connection with the issuance and/or sale of shares of Common Stock of Fred Meyer, Inc., and any and all amendments (including post-effective amendments) thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys and agents or any of them or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: August 30, 1996. PAUL E. RAETHER --------------------------------------- Paul E. Raether EX-99 6 STOCK REPURCHASE STOCK REPURCHASE AGREEMENT This Stock Repurchase Agreement, dated as of September 4, 1996 (the "Agreement"), is made and entered into by Fred Meyer, Inc., a Delaware corporation (the "Company"), and FMI Associates Limited Partnership, a Delaware limited partnership ("FMA"). RECITALS 1. FMA owns 9,133,597 shares (the "Shares") of the Common Stock of the Company and holds options (the "Options") to acquire 1,566,441 shares (the "Option Shares") of the Common Stock of the Company. 2. FMA wishes (i) to sell a portion of the Shares to the Company and (ii) to sell a portion of the remaining Shares to selected underwriters for the purpose of the resale of such Shares (the "Public Sale Shares") to the public in an underwritten public offering. 3. The Company wishes to repurchase the maximum number of Shares permitted to be purchased by it under this Agreement so long as the aggregate purchase price for such Shares does not exceed $70,000,000. 4. Pursuant to the Registration Rights Agreement between the Parties, the Company has undertaken to file a Registration Statement with the Securities and Exchange Commission (the "SEC") for the underwritten public offering of the Public Sale Shares at the Company's expense. AGREEMENT The Parties hereto agree as follows: 1. Registration and Sale of Shares to Public; Public Sale Shares. The Company will register 4,000,000 of its shares of Common Stock with the SEC for sale to the public by FMA in an underwritten public offering (the "Public Offering"). 2. Repurchase by the Company; Purchase Price. At the Closing of the Public Offering, the Company will repurchase from FMA (the "Repurchase") the number of Shares determined by dividing $70,000,000 by the price per share at which the Public Sale Shares have been purchased by the several underwriters pursuant to the Underwriting Agreement entered into with respect thereto, rounded down to the nearest one thousand shares (the "Repurchase Shares"). The Company will pay to FMA for the Repurchased Shares an amount per share equal to the price per share at which the Public Sale Shares have been purchased by the several underwriters pursuant to the Underwriting Agreement (the "Purchase Price"). (The Purchase Price is also equal to the Initial Public Offering Price of 1 the Public Sale Shares less Underwriting Discount as set forth in the final prospectus for the Public Sale Shares.) The Purchase Price shall be paid in immediately available funds by wire transfer to an account of FMA designated by FMA not less than two business days prior to the Closing. 3. Closing. The closing (the "Closing") of the Repurchase shall occur on the same date and at the same time and place as the closing of the sale of the Public Sale Shares. 4. Conditions. The obligation of the Company to complete the Repurchase is subject to the following conditions: (a) Sale of Public Sale Shares. The closing of the sale of the Public Sale Shares shall have occurred. (b) Completion of Sale Leaseback Transaction. The pending sale and leaseback transaction by the Company of ten of its stores shall have been completed. 5. FMA Representations and Warranties. (a) Organization. FMA is duly organized and validly existing under the laws of the State of Delaware. FMA has all requisite partnership power and authority to carry on its business as now conducted. (b) Authorization. FMA has taken all action necessary for the authorization, execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby. This Agreement constitutes FMA's valid and legally binding obligation, enforceable in accordance with its terms, subject to bankruptcy and other laws of general application affecting the rights and remedies of creditors and the availability of equitable remedies, including specific performance. (c) Ownership of the Shares. FMA has, and at the time of the Closing will have good title to the Repurchase Shares; has, and at the Closing will have, full, complete and unrestricted legal right, power and authority to assign, transfer and deliver the Repurchase Shares pursuant to this Agreement; and upon the delivery of and payment for the Repurchase Shares pursuant to the provisions of this Agreement the Company will receive good title thereto, free and clear of all liens, claims, encumbrances, rights and restrictions of every kind. 6. Company's Representations and Warranties. (a) Organization. The Company is a corporation duly organized and validly existing under the laws of the State of Delaware. The Company has all requisite corporate power and authority to carry on its business as now conducted and to purchase the Repurchase Shares pursuant to this Agreement. 2 (b) Authorization. The Company has taken all corporate or other action necessary for the authorization, execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby. This Agreement constitutes the Company's valid and legally binding obligation, enforceable in accordance with its terms, subject to bankruptcy and other laws of general application affecting the rights and remedies of creditors and the availability of equitable remedies, including specific performance. 7. Miscellaneous Matters. (a) Succession. This Agreement shall be binding upon and shall inure to the benefit of the parties, their heirs, personal representatives, successors and assigns. (b) Severability. If any provision of this Agreement is found to be unenforceable, the remaining provisions shall nevertheless be enforceable and shall be construed as if the unenforceable provisions were deleted. (c) Attorneys' Fees. If suit or action is filed by any party to enforce the provisions of this Agreement or otherwise with respect to the subject matter of the Agreement, the prevailing party shall be entitled to recover reasonable attorneys' fees as fixed by the trial court and, if any appeal is taken from any decision of the trial court, reasonable attorneys' fees as fixed by the appellate court. (d) Integrated Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject thereof, and there are no agreements, understandings, restrictions, warranties or representations between the parties with respect to the subject hereof other than those set forth herein or herein provided for. (e) Law of Agreement. This Agreement shall be interpreted under and enforced in accordance with the laws of the State of Oregon. (f) Further Assurances. Each party hereto agrees to perform any further acts and to execute and deliver any further documents which may be reasonably necessary to carry out the provisions of this Agreement. (g) Counterparts. This Agreement may be executed in two or more counterparts and shall be effective when each party has executed at least one of the counterparts notwithstanding that all parties have not executed the same counterpart. (h) Waivers. Any of the terms and conditions of this Agreement may be waived at any time by the party entitled to the benefit thereof; but a waiver in one instance shall not be deemed to constitute a waiver in any other instance. (i) Expenses. The Company will pay the expenses of FMA incurred by it with respect to the Repurchase up to a maximum of $8,500. 3 (j) Limited Recourse. No partner of FMA or of the general partner of FMA shall have any personal liability for the performance of any of FMA's obligations hereunder and any liability or obligation of FMA arising hereunder shall be limited to and satisfied only out of the property of FMA. FRED MEYER, INC. By KENNETH THRASHER ------------------------------------- FMI ASSOCIATES LIMITED PARTNERSHIP By KKR Associates, General Partner By MICHAEL W. MICHELSON ------------------------------------- 4 -----END PRIVACY-ENHANCED MESSAGE-----