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. / /
<TABLE>
<CAPTION>
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
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value........ 4,000,000 $ 29.6875 $ 118,750,000 $ 40,949
====================================================================================================================================
<FN>
(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.
</FN>
</TABLE>
-------------------
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.
================================================================================
<PAGE>
- --------------------------------------------------------------------------------
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.
-------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) STOCKHOLDER(2)
-------------- ----------- --------------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total(3)............................................. $ $ $
<FN>
(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."
</FN>
</TABLE>
-------------------
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
<PAGE>
[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]
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
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
</TABLE>
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 $70,000,000 of its stock.
Accordingly, after the Repurchase the Company will be unable to effect any
additional repurchases of its stock until after June 14, 1997 unless this
restriction is amended or waived. See "Capitalization" and "Management's
Discussion and Analysis of Results of Operations and Financial Condition."
7
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company
as of August 17, 1996 and on a pro forma basis to reflect the acquisition
of shares from the Selling Stockholder in the Repurchase and certain other
transactions. The information presented below is unaudited and should be
read in conjunction with the Company's consolidated financial statements
and the notes thereto, which are incorporated by reference herein, and
"Selected Pro Forma Financial Data," "Management's Discussion and Analysis
of Results of Operations and Financial Condition" and "The Selling
Stockholder" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
As of August 17, 1996
---------------------
Actual Pro forma(1)
--------------- ----------------
(in thousands)
<S> <C> <C>
Short-term debt:
Current portion of long-term debt and lease
obligations..................................................$ 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
=============== ================
- --------------
<FN>
(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
<PAGE>
(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."
</FN>
</TABLE>
9
<PAGE>
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."
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
(continued)
28 Weeks Ended
-------------------------------------
August 12, August 17,
1995 1996
------------------ ----------------
<S> <C> <C>
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
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
August 17, 1996
January 29, January 28, February 3, -----------------------------
1994 1995 1996 Actual Pro Forma (10)
----------- ----------- ----------- ----------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C>
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
- ---------------
<FN>
(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."
</FN>
</TABLE>
11
<PAGE>
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.
<TABLE>
<CAPTION>
28 Weeks Ended
Year Ended ------------------------------------
February 3, 1996 August 12, 1995 August 17, 1996
---------------- --------------- ---------------
(in thousands, except per share data)
<S> <C> <C> <C>
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
- -------------------------------
<FN>
(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%.
</FN>
</TABLE>
12
<PAGE>
OTHER FINANCIAL AND STATISTICAL DATA(1)
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
(continued)
28 Weeks Ended
--------------------------------------
August 12, August 17,
1995 1996
--------------- --------------------
<S> <C> <C>
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
</TABLE>
13
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Fiscal Year Ended 28 Weeks Ended
----------------------------------------------- -------------------------
January 29, January 28, February 3, August 12, August 17,
1994 1995 1996 1995 1996
---- ---- ---- ---- ----
(53 weeks)
<S> <C> <C> <C> <C> <C>
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%
====== ====== ====== ===== =====
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
<TABLE>
<CAPTION>
Year Opened Closed Remodeled
---- ------ ------ ---------
(including replacements)
<S> <C> <C> <C>
1993 5 2 7
1994 5 2 7
1995 6 4 8
1996 (through August 17, 1996) 6 0 2
</TABLE>
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:
<TABLE>
<CAPTION>
Total Retail
Location Square Footage Opened
-------- -------------- ------
<S> <C> <C>
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
- -----------------
<FN>
(1) Marketplace stores emphasizing food.
</FN>
</TABLE>
New multidepartment stores planned or scheduled to be opened
during the second half of fiscal 1996 and during fiscal 1997 are as
follows:
<TABLE>
<CAPTION>
Total Retail
Location Square Footage Opening
-------- -------------- -------
<S> <C> <C>
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
</TABLE>
28
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
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)
---- ------ ------- ------------------- --------- ----------
<S> <C> <C> <C> <C> <C>
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
- --------------
<FN>
(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.
</FN>
</TABLE>
32
<PAGE>
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
<PAGE>
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
<PAGE>
The Company and the Selling Stockholder have agreed to indemnify
the several Underwriters against certain liabilities, including liabilities
under the Securities Act.
35
<PAGE>
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
<PAGE>
[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
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
================================================================================
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
*PAUL E. RAETHER Director
- ------------------------------------
Paul E. Raether
*By KENNETH THRASHER
- ------------------------------------
Kenneth Thrasher
As Attorney-in-Fact
II-5
<PAGE>
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).
<PAGE>
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.
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
<PAGE>
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
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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
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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;
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(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
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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
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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
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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
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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,
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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
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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;
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(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
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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
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(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
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<PAGE>
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
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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
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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
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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.
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(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
ANNEX I(A)
Form of Letter of Deloitte & Touche LLP Delivered
Prior to Execution of Agreement
A-3
<PAGE>
ANNEX I(B)
Form of Letter of Deloitte & Touche LLP Delivered
at each Time of Delivery
A-4
<PAGE>
ANNEX II(A)
Form of Opinion of Stoel Rives LLP, Counsel to the Company
A-5
<PAGE>
ANNEX II(B)
Form of Opinion of Stoel Rives LLP, Counsel to the Selling Stockholder
A-6
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
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
- --------------
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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
<PAGE>
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
<PAGE>
(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
<PAGE>
(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
