SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended
February 3, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-15023
FRED MEYER, INC.
(Exact name of registrant as specified in its charter)
Delaware 93-0798201
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3800 SE 22nd Avenue
Portland, Oregon 97202
(Address of principal executive offices) (Zip Code)
(503) 232-8844
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of class on which registered
-------------- ---------------------
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes / X / No / /
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. / X /
Aggregate market value of Common Stock held by nonaffiliates of the
Registrant at March 1, 1996: $413,383,974
Number of shares of Common Stock outstanding at March 1, 1996:
26,704,555
Documents Incorporated by Reference
Part of Form 10-K into
Document which incorporated
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Portions of Proxy Statement for Part III
1996 Annual Meeting of Shareholders
<PAGE>
TABLE OF CONTENTS
Item of Form 10-K.........................................................Page
PART I
Item 1 - Business................................................. 1
Item 2 - Properties...............................................10
Item 3 - Legal Proceedings........................................10
Item 4 - Submission of Matters to a
Vote of Security Holders.................................11
Item 4(a) - Executive Officers of
the Registrant...........................................11
PART II
Item 5 - Market for the Registrant's Common Stock
and Related Stockholder Matters..........................13
Item 6 - Selected Financial Data..................................13
Item 7 - Management's Discussion and Analysis
of Financial Condition and Results
of Operations............................................13
Item 8 - Financial Statements and Supplementary Data..............13
Item 9 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...................13
PART III
Item 10 - Directors and Executive Officers
of the Registrant........................................13
Item 11 - Executive Compensation...................................13
Item 12 - Security Ownership of Certain Beneficial
Owners and Management....................................13
Item 13 - Certain Relationships and Related Transactions...........14
PART IV
Item 14 - Exhibits, Financial Statement Schedules,
and Reports on Form 8-K..................................14
SIGNATURES..................................................................20
FINANCIAL INFORMATION............................................... F-1- F-17
<PAGE>
PART I
Item 1. Business.
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General
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Fred Meyer, Inc. (the "Company") is a leading regional retailer
of a wide range of food, apparel, fine jewelry, and general merchandise
products for the home. At February 3, 1996, the Company operated 136 stores
in Oregon, Washington, Utah, Alaska, Idaho, Northern California, and
Montana under the name "Fred Meyer." Of these stores, 102 are
free-standing, multidepartment stores, averaging 144,500 square feet of
retail space, that emphasize one-stop-shopping for necessities and items
of everyday use. Of the 102 multidepartment stores, 94 contain food and
nonfood departments, and 8 contain nonfood departments only. The
multidepartment stores with food average 148,200 square feet. The Company's
multidepartment stores accounted for approximately 98.7 percent and 97.2
percent of the Company's total sales and operating income, respectively,
for the Company's 1995 fiscal year ended February 3, 1996. Of the 34
specialty stores, 29 are jewelry stores located in regional malls. The
Company announced in January 1996 that it is acquiring up to 23 mall
jewelry stores in California and Washington. The Company's multidepartment
stores contain up to seven departments which include food, the home,
apparel, home electronics, fine jewelry, health and beauty aids, and
pharmacy. The Company's multidepartment stores are unique in the Pacific
Northwest in combining food with a wide range of nonfood merchandise under
one roof. For the 1995 fiscal year, food and nonfood sales were 41.0
percent and 59.0 percent of total sales, respectively.
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. The Company believes
that its business strategy has generated high per-store sales volume and
frequent shopping by area residents, and that its departments achieve such
sales volume because they are located within one-stop-shopping stores. 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 successfully with
supermarkets, drugstores, discount stores, mass merchandisers, department
stores, and specialty stores. The Company promotes cross-shopping by
providing convenient access between departments, making each department a
strong competitor in the market for its products and by facilitating easy
customer checkout through a cash register system that allows customers to
purchase merchandise from any department at any checkout location ("common
checkout").
During the past several years, the Company has committed
substantial capital and management resources to improve its
one-stop-shopping strategy, allowing it to better serve its customers and
respond to the many new competitors entering its markets. In the past five
years, 474 new competitor stores have opened in the Company's markets. They
include Wal-Mart, Walgreens, Home Depot, HomeBase, Eagle, Sam's Club,
Incredible Universe, Circuit City, Good Guys, Future Shops, Ernst,
Price/Costco, Mervyn's, PayLess, Penneys, Kmart, Target, ShopKo, Toys-R-Us,
Food 4 Less, Cub Foods, Safeway, Albertson's, Smiths Foods, Carrs, and
Quality Food Centers.
Total store sales for 1995 increased 9.6 percent, and comparable
store sales increased 2.1 percent over the prior year. Sales growth in the
last half of 1994, and continuing into 1995, was negatively affected by a
strike which started on August 18, 1994 involving a multiemployer group of
unionized food stores in the greater Portland, Oregon area, including 26 of
<PAGE>
the Company's stores. At approximately the same time, a series of strikes
also began at the Company's Portland area distribution center, dairy plant,
trucking operations, and corporate office. These strikes were settled
during the period from September 23, 1994 to November 13, 1994. For
additional information regarding the strikes, see "Employees" below and
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations."
During the past five years, the Company remodeled 30
multidepartment stores, added food departments in 10 stores, and redesigned
and remodeled many food departments to include in-store bakeries,
delicatessens, and service fish markets to respond to customer shopping
preferences. Beginning in 1987, the Company implemented an everyday low
pricing strategy in its food operations. In 1989, the Company reorganized
its operating management structure and for each store designated a store
director responsible for store operations and profitability and
departmental cross-merchandising. In 1992, the Company augmented its store
management structure by establishing a regional management structure of six
regional management teams closely aligned with the stores in the regions.
Beginning in 1995, the Company began repositioning some of its
departments to be more productive in the competitive environment it is
facing. These changes included (1) reducing the space allocated to building
materials in its stores and utilizing this space for other product
categories, (2) eliminating computer hardware in most of its stores in an
effort to improve other product selections in home electronics, and (3)
refining its apparel selection to be more responsive to changes in how
consumers shop for clothing.
The Company's capital expenditure budget for its 1996 fiscal
year is $118,000,000, net of estimated real estate financed on leases,
compared with capital expenditures of $236,000,000 in 1995, net of real
estate financed on leases. From 1993 through 1995, the Company increased
new store development in its existing markets and increased the level of
remodeling of existing stores from levels that existed for the period 1990
through 1992. In 1995, the Company opened six full-size stores and completed
eight major remodels. In 1995, the Company made a determination to reduce
its new and remodeled store activities from previously projected levels. As
a result, the Company plans to open five new multidepartment stores
and remodel four existing stores in 1996. Total retail space increased by
approximately 4.7 percent in 1995 and 5.7 percent in 1994, after netting
out the closures of old stores that were replaced by the new ones. No
closures are scheduled for 1996. It is anticipated that total retail space
will increase by an estimated 5.1 percent in 1996. The Company constructed
a new flow-through retail service center in Chehalis, Washington in 1994 to
distribute apparel, general merchandise, and music products, and opened a
food distribution facility near Seattle, Washington in 1995. In addition,
the Company is continuing its program to replace and upgrade its old MIS
system with new architecture and application programs. The Company's new
distribution facilities and new MIS system are designed to improve
operations, permit better inventory management, and reduce distribution
costs.
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 Form 10-K to the Company mean Fred Meyer, Inc., including its
subsidiaries, unless the context requires otherwise.
2
<PAGE>
The following table sets forth certain statistical information
with respect to the Company's operations for the periods indicated:
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------------------------------
February 3, January 28, January 29, January 30, February 1,
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Percent of net sales:
Nonfood sales 59.0% 61.7% 62.5% 63.3% 63.7%
Food sales 41.0% 38.3% 37.5% 36.7% 36.3%
Sales per square foot of
selling space (weighted average) $316 $304 $312 $304 $283
Total stores sales growth 9.6% 5.0%/4 4.4% 5.6% 9.2%
Comparable store sales
percentage increase:/2
Total Company 2.1%/1 (2.0%)/4 2.4% 3.0% 4.0%
Food 6.6%/1 (3.0%)/4 3.4% 2.8% 4.5%
Nonfood (0.9%)/1 (1.4%)/4 1.9% 3.2% 3.8%
Number of multidepartment stores:
Operated at end of period 102 100 97 94 94
Opened 6 5 5 2 3
Closed 4 2 2 2 3
Remodeled 8 7 7 5 3
Number of specialty stores:
Operated at end of period 34 31 30 29 28
Opened 3 3 2 4 --
Closed -- 2 1 3 --
Total number of stores:
Operated at end of period 136 131 127 123 122
Opened 9 8 7 6 3
Closed 4 4 3 5 3
Remodeled 8 7 7 5 3
Total retail square feet:
At beginning of period 14,194,000 13,423,000 12,646,000 12,679,000 12,213,000
Added by new stores opened 948,000 795,000 811,000 295,000 584,000
Added by remodeling
of existing stores 96,000 174,000 80,000 39,000 63,000
Less closed stores 381,000 198,000 114,000 367,000/3 181,000
At end of period 14,857,000 14,194,000 13,423,000 12,646,000 12,679,000
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<FN>
/1 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.
/2 Includes only sales of stores operating throughout each of the periods compared.
/3 Includes square footage for 30 restaurants that were converted to tenant space.
/4 Affected by a series of labor disputes in the greater Portland, Oregon area in 1994.
</TABLE>
Business Strategy
-----------------
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 providing easy
customer checkout through its common checkout system that allows customers
to purchase merchandise from any department at any checkout location.
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 stores' high and
diverse customer traffic to sell many categories of goods which are
purchased on a discretionary basis, such as fine jewelry, home electronics,
and fashion apparel. Within many categories of apparel, products for the
jewelry, and home electronics, the Company offers customers the breadth of
selection
3
<PAGE>
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 brands and its own private-label brands.
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. In most stores, common checkout areas allow
the checkout of items from the Company's many departments at any cash
register and facilitates convenient shopping. Most of the Company's
departments and sections are self-service, except in areas where special
assistance is required, such as service delicatessens, home electronics,
fine jewelry, and pharmacy. Stores consist of a variety of 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 best
represent the Company's strategy. 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.
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. 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. In 1992, the Company augmented its
store management structure by establishing regional management teams that
work closely with the stores in their region to enhance sales and profit
opportunities. As a result of its specialized management structure, the
Company believes that each store and each department within the store
better serves its customers and is able to respond quickly to market
changes.
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 the 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's standard
store design in the future will be approximately 150,000 square feet. In
1996, the Company opened a 130,000 square-foot store in Tillamook, Oregon.
This design will facilitate entry into smaller markets. The Company
anticipates using a given prototype depending on the market to be served
and the size of the site being developed. The Company is flexible in its
store design where land sites require specialized 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. Sale items are usually items
regularly sold in the departments. The Company emphasizes everyday low
prices in its food departments, and generally offers promotional sale
pricing in its nonfood departments. 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.
Information Services. In 1991, the Company began a program to
modernize its systems to better support its business. A new computer
network was installed, allowing every store to be linked with the main
office and distribution centers. In 1992, Quick Response inventory
management was initiated through the introduction of automatic
replenishment for certain goods and electronic data interchange ("EDI")
with vendors. A new pharmacy
4
<PAGE>
system was added in the Company's multidepartment stores. In 1993, the
Company continued expanding its Quick Response capabilities by installing a
new distribution system and by beginning the implementation of new
inventory and merchandise management systems. 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. The Company expanded EDI systems to
support data exchange with freight carriers, transmission of sales
forecasts to vendors, and receipt of invoices directly into an accounts
payable imaging system. In addition, in-store communications, check
cashing, credit authorization, and point-of-sale systems were upgraded. In
1996, the Company plans to complete the rollout of its merchandising
systems for its nonfood departments, followed by its food department in
1997. Also planned is the implementation of Electronic Benefits Transfer
(EBT), debit card authorization, completion of direct store delivery
systems, implementation of a new accounts payable system, and integration
of all new systems into a new financial reporting system. The introduction
of the Company's home page "http://www.fredmeyer.com" on the Internet
enables exploration of new marketing opportunities.
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 102 multidepartment stores
at February 3, 1996:
Food...................................................94
Nonfood
The Home..........................................102
Automotive
Cards and Books
Domestics
Garden
Home Decor
Home Improvement
Housewares
Sporting Goods
Toys
Variety and Seasonal
Home Electronics..................................102
Apparel...........................................102
Apparel
Cosmetics
Shoes
Pharmacy..........................................101
Health and Beauty Aids............................102
Fine Jewelry.......................................93
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).
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 percent from 12 percent in 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
5
<PAGE>
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, 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 February 3, 1996:
Nutrition............................................97
Bakery...............................................92
Service Delicatessen.................................93
Service Fish Market..................................72
Service Meat Market..................................41
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
our Fred Meyer, Northwest Home, Everyday Living, and Kraft King labels
complement our national-brand offering.
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, Nike, Reebok, Adidas,
Gotcha, Eastland, Union Bay, Columbia Sportswear, Capezio, Lee, Bali, and
Keds. High-quality private-label products such as Fred Bear, Katherine
Bishop, and KB & Co. labels complement our national-brand offering.
The Company's private-label sales in the Home and Apparel
categories represents 12 to 13 percent of these categories' sales, with a
goal of approximately 15 to 20 percent. The strategy employed in nonfood
departments is to use private-label products for entry-level price points.
The Home Electronics Department offers the latest name-brand
high-technology merchandise, such as televisions, audio components,
cellular phones, computer software, telephones, and a large selection of
video games. Some of the national brands featured are SONY, JVC, Pioneer,
and Magnavox. It also offers a large selection of compact discs, and
for-sale video, and includes a photo-finishing section. 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 Health Maintenance of Oregon and
Preferred Provider Organization 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.
The Fine Jewelry Department offers an extensive selection of
bridal jewelry and diamond fashion jewelry, including precious and
semi-precious stones. It also offers name-brand watches and an assortment
of 14-carat gold chains and earrings.
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<PAGE>
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 multi-
department store locations have unaffiliated tenants which offer goods and
services complementing those offered by the Company, such as banks, optical
centers, coffee shops, restaurants, self-service laundries, insurance
agencies, and beauty and barber shops. The Company's specialty store hours
vary depending on location.
The Company honors most nationally recognized credit cards for
sales in all of 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 come online for such 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.
In 1991 and 1992, new store openings, development, and remodeling
activity declined to a two-year total of five new multidepartment stores
and eight remodels while the Company focused on reducing expenses and
improving profitability. For the period 1993 through 1995, the Company
increased new store development in its existing markets and increased the
level of remodeling of existing stores. The numbers of multidepartment
stores opened, closed, and remodeled during 1993, 1994, and 1995 are as
follows:
<TABLE>
<CAPTION>
Including Replacement
---------------------
Year Opened Closed Replaced Remodeled
---- ------ ------ -------- ---------
<S> <C> <C> <C> <C>
1993 5 2 1 7
1994 5 2 0 7
1995 6 4 1 8
</TABLE>
Generally, the Company plans to open at least four new
multidepartment stores and remodel at least four existing stores in each of
the five years beginning in 1996.
Total retail space, net of closures, increased 663,000 square
feet during 1995, representing an increase of approximately 4.7 percent.
New multidepartment store openings during 1995 were as follows:
<TABLE>
<CAPTION>
Total
Retail Space
Location Square Footage Opened
-------- -------------- ---------------
<S> <C> <C>
Monroe, Washington................... 149,000 May, 1995
Lake City (Seattle), Washington...... 124,000 September, 1995
Renton (Seattle), Washington......... 167,000 September, 1995
West Jordan (Salt Lake City), Utah... 167,000 September, 1995
Salt Lake City, Utah................. 169,000 September, 1995
Kennewick, Washington................ 167,000 November, 1995
</TABLE>
7
<PAGE>
Planned new multidepartment store openings during 1996 are as follows:
<TABLE>
<CAPTION>
Total Location Planned
Location Square Footage* Opening
-------- -------------- ---------------
<S> <C> <C>
Tillamook, Oregon 130,000 March, 1996
Hillsboro, Oregon 168,000 May, 1996
Meridian, Idaho 177,000 June, 1996
Twin Falls, Idaho 181,000 June, 1996
Scappoose, Oregon 160,000 September, 1996
*Includes tenant space.
</TABLE>
Distribution and Processing
---------------------------
The Company operates a centralized distribution facility in a complex
at Clackamas, Oregon, near Portland, containing 1,528,000 square feet, a
310,000 square-foot flow-through retail service center in Chehalis,
Washington, and a 600,000 square-foot food distribution center in Puyallup,
Washington. 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 Idaho and 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.
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. Fourth, the
Company is able to lower its total level of inventory investment and
related financing costs.
The Company opened its flow-through retail service 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
facility. It also allows the Company to meet its nonfood distribution
center needs past the year 2000. 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, Washington, near Seattle, 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 operates a large fleet of trucks for distribution of goods
to its retail stores and operates a central bakery and dairy.
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<PAGE>
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
super-markets, discount stores, drug stores, conventional department stores,
and specialty stores. The Company's competitive position in the retail
business varies by type of goods and the communities in which its stores
are located. In the past five years, 474 new competitor stores have opened
in the Company's markets. They include Wal-Mart, Walgreens, Home Depot,
HomeBase, Eagle, Sam's Club, Incredible Universe, Circuit City, Good Guys,
Future Shops, Ernst, Price/Costco, Mervyn's, PayLess, Penneys, Kmart,
Target, ShopKo, Toys-R-Us, Food 4 Less, Cub Foods, Safeway, Albertson's,
Smiths Foods, Carrs, and Quality Food Centers.
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.
Employees
---------
The Company employs approximately 27,000 full- and part-time
employees. Approximately 50 percent of the Company's employees are
represented by 32 different labor unions or locals. These employees are
covered by 110 different collective bargaining agreements, none of which
covers more than 2,600 employees. Approximately 24 percent of the
agreements, covering 12 percent of the labor force, will expire during 1996,
including agreements covering employees in both large metropolitan and
smaller nonmetropolitan areas where the Company operates. 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, which lasted 88 days. At the same time,
Company union employees at its Clackamas distribution facilities, trucking
operation, dairy and a small portion of its office employees went on
strike. 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 1991,
1992, 1993, or 1995. The Company believes that it has good 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. While the Company is optimistic about reaching agreements on
expiring labor agreements in the future, no assurance can be given that the
parties will be able to reach a final conclusion without the occurrence of
a work stoppage.
Forward-looking Statements
--------------------------
Information set forth in this Annual Report on Form 10-K regarding the
Company's plans for future operations, including store expansion and
remodeling, capital spending, and expense reduction efforts, constitute
forward-looking statements that involve a number of risks and
uncertainties. In addition, from time to time the Company may issue other
forward-looking statements. 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 and large, single-category
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.
9
<PAGE>
Item 2. Properties.
- ------ ----------
As a part of the leveraged buyout transaction in which the Company was
incorporated in 1981, Real Estate Properties Limited Partnership
("Properties"), acquired the real estate assets of the corporation that was
the predecessor to the Company.
In 1986, the Company amended and restated 76 leases relating to 71
stores, its Clackamas distribution center, and four other facilities. The
leases provide, among other things: (1) fixed rent expense in the aggregate
for accounting purposes over the initial term of the leases at levels below
rent expense under the prior leases for the fiscal year ended January 30,
1988; (2) initial lease terms generally averaging 20 years; (3) future rent
from certain unrelated subtenants to be paid to the Company; and (4) seven
five-year renewal options under leases for the 36 leased properties owned
by Metropolitan Life Insurance Company (the "Institutional Investor") at
rents for the first five option periods below the average rents during the
initial term, and an option for the Company to purchase any of the leased
properties at the end of the initial term and at the end of each option
period. Properties sold to the Institutional Investor its interest in 36 of
the 76 properties which were leased to the Company in 1986. The
Institutional Investor is also an investor in Properties and FMI
Associates. At March 1, 1996, FMI Associates beneficially owned
approximately 38.0 percent of the Company's common stock. (See Items 12 and
13 under Part III.)
Twenty-nine store locations and four other facilities are owned by the
Company and its subsidiaries. The balance of the Company's locations are
leased from the Institutional Investor, Properties or third parties. All of
the Company's stores and its distribution and processing facilities are in
good condition. Of the Company's 102 multidepartment stores, 88 percent
have either been built or received a major remodel in the last ten years.
The Company also owns three parcels of land, all of which are being held
for development of future stores. Additionally, it owns one store and three
parcels of land in California, two parcels of land in Washington, and one
parcel of land in Utah which are being held for sale.
The following table as of February 3, 1996, summarizes the remaining
lease years, assuming the exercise of all options, for store locations and
the Company's distribution facilities, warehouses, and plants.
<TABLE>
<CAPTION>
Distribution Facilities
Store Locations Warehouses & Plants
--------------------------- ----------------------------
Remaining Number Square Ft. of % of Total Square Ft. of % of Total
of Lease Years Retail Space Square Ft. Facility Space Square Ft.
- ------------------- ------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Less than 5 years 341,377 2.3% 125,104 4.1%
5 through 15 years 463,936 3.1% 0 0.0%
16 through 25 years 3,029,591 20.4% 0 0.0%
Over 25 years 7,094,118 47.7% 1,527,875 50.2%
---------- ------ --------- ------
Total Leased 10,929,022 73.6% 1,652,979 54.3%
---------- ------ --------- ------
Owned Properties 3,928,403 26.4% 1,390,414 45.7%
---------- ------ --------- -----
Total 14,857,425 100.0% 3,043,393 100.0%
========== ===== ========= =====
</TABLE>
The Company has no obligation to exercise any options beyond the primary
lease terms.
Item 3. Legal Proceedings.
- ------ -----------------
The Company and its subsidiaries are parties to various legal
claims, actions, and complaints which have arisen in the ordinary course of
business. Although the Company is unable to predict with certainty whether
it will ultimately be successful in these legal proceedings or, if not,
what the impact might be, management presently believes that disposition of
these matters will not have a material adverse effect on the Company's
consolidated financial position or consolidated results of operations.
10
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
- ------ ---------------------------------------------------
Not applicable.
Item 4(a). Executive Officers of the Registrant.
- --------- ------------------------------------
As of March 1, 1996, the executive officers of the Company were
as set forth below.
<TABLE>
<CAPTION>
Original
Date of
Name Age Position Employment
---- --- -------- ----------
<S> <C> <C> <C>
Robert G. Miller 51 Chairman of the Board and 1991
Chief Executive Officer
Curt A. Lerew, III 48 Executive Vice President, 1991
Sales and Operations
Wayne W. Abbott 47 Senior Vice President, Home Group 1970
R. Eric Baltzell 55 Senior Vice President, Store Sales 1962
Roger A. Cooke 47 Senior Vice President, General Counsel 1992
and Secretary
Edward A. Dayoob 56 Senior Vice President, Jewelry Group 1973
Michael H. Don 40 Senior Vice President, 1987
Strategic Planning and Logistics
Sammy K. Duncan 44 Senior Vice President, Food Group 1992
Keith W. Lovett 52 Senior Vice President, 1992
Human Resources
Ronald J. McEvoy 48 Senior Vice President, 1991
Chief Information Officer
Norman O. Myhr 48 Senior Vice President, 1978
Sales Promotion and Marketing
Cheryl D. Perrin 57 Senior Vice President, Public Affairs 1976
Mary F. Sammons 49 Senior Vice President,
Apparel and Home Electronics Group 1973
Kenneth Thrasher 46 Senior Vice President, Finance and 1982
Chief Financial Officer
Scott L. Wippel 42 Senior Vice President, 1992
Corporate Facilities
</TABLE>
The executive officers of the Company are elected annually for one
year and hold office until their successors are elected and qualified.
There are no family relationships among the executive officers of the
Company.
Mr. Miller became Chairman of the Board and Chief Executive Officer
of the Company in August of 1991. Prior to that time he was employed by
Albertson's, where his most recent positions were Executive Vice President
of Retail Operations from 1989 to 1991, and Senior Vice President and
Regional Manager from 1985 to 1989. Mr. Miller has more than 30 years of
experience in the retail food industry.
Mr. Lerew became Senior Vice President, Food Group in October 1991
and was elected Executive Vice President, Sales and Operations in February
1996. Prior to that time he was employed by Albertson's, where his most
recent positions were Senior Vice President and Regional Manager in 1991,
Senior Vice President of Corporate Merchandising from 1990 to 1991, and
Vice President,
11
<PAGE>
Western Washington Division, from 1987 to 1990. Mr. Lerew has more than 30
years of experience in the retail food industry.
Mr. Abbott became Senior Vice President, Home Group in February
1996. Prior to that time, he served as Vice President, Home Group from
September 1994 through February 1996, and Vice President, Food Group from
1989 through August 1994.
Mr. Baltzell served as Vice President, Food Operations of the
Company from 1982 until his election as Senior Vice President, Store Sales
and Operations Division in June 1989. In 1996, his title was changed to
Senior Vice President, Store Sales.
Mr. Cooke became Vice President, General Counsel and Secretary of
the Company in August 1992. He was elected Senior Vice President in April
1993. From 1982 to 1992, he was an officer of Pan American World Airways,
Inc., serving as Senior Vice President and General Counsel from 1990 to
1992. From 1973 to 1980, he was associated with the law firm Simpson
Thacher and Bartlett.
Mr. Dayoob served as Vice President, Jewelry Division of the Company
from 1979 until his election as Senior Vice President, Photo Electronics and
Jewelry Division in June 1989. This Division was renamed the Home Electronics
and Jewelry Group in 1990. The Home Electronics Division was merged into the
General Group in 1993. Mr. Dayoob was named Senior Vice President, Jewelry
Division in 1993.
Mr. Don became Vice President, Corporate Treasurer in October 1987
and was elected Senior Vice President, Strategic Planning and Asset
Management in June 1995. Beginning in February 1996, Mr. Don also assumed
responsibilities for the Company's logistics, transportation, and traffic
departments. Before joining the Company in 1987, he was controller and
treasurer for two real estate development and management companies.
Mr. Duncan became Senior Vice President, Food Group in February
1996. Prior to that time, he served as Food Group Division Vice President
from 1994 to February 1996, and Vice President Grocery Merchandiser from
1992 to 1994. During 1991 and prior to joining the Company in 1992, he was
Director of Operations for Albertson's.
Mr. Lovett became Senior Vice President, Human Resources of the
Company in February 1992. Prior to that time he was employed by Eagle Food
Centers, where he was Senior Vice President of Human Resources and Vice
President of Industrial Relations.
Mr. McEvoy became Senior Vice President, Chief Information Officer
in charge of the Company's Information Services in July 1991. For the year
prior to that, he worked for IBM United States as a business advisor in the
retail industry. From 1987 to 1990, he was Senior Vice President for
Management Information Systems (MIS) for J.B. Ivey. He held the same
position from 1983 to 1987 with John Wanamaker. He also held various MIS
and financial positions with Hecht's from 1969 to 1983.
Mr. Myhr served as Vice President, Sales Promotion of the Company from
1982 until his election as Senior Vice President, Strategic Marketing in June
1989. He now serves as Senior Vice President, Sales Promotion and Marketing.
Ms. Perrin served as Vice President, Government Affairs from 1985
until her election as Vice President, Public Affairs in 1988. She was elected
Senior Vice President, Public Affairs in April 1992.
Ms. Sammons served as Vice President within the Soft Goods Division
of the Company from 1980 until her election as Senior Vice President, Soft
Goods Division in January 1986. In June 1989, she was elected Senior Vice
President, General Merchandise Division. This Division was renamed the
General Group in 1990. In 1995, she was named Senior Vice President,
Apparel and Home Electronics Group.
12
<PAGE>
Mr. Thrasher served as Vice President, Corporate Treasurer of the
Company from 1982 until his election as Vice President - Finance, Chief
Financial Officer, and Secretary in June 1987. He was elected Senior Vice
President, Finance and Chief Financial Officer effective March 1989.
Mr. Wippel became Vice President, Corporate Facilities in June
1992. He was elected Senior Vice President in April 1993. Prior to that, he
was employed by Albertson's, where his most recent positions were Vice
President of Real Estate from 1990 to 1992 and Director of Real Estate from
1988 to 1990.
PART II
Item 5. Market for the Registrant's Common Stock and Related
- ------ Stockholder Matters.
----------------------------------------------------
The information required by this item is included under "Common
Stock Information" on page F-5 of this Annual Report on Form 10-K.
Item 6. Selected Financial Data.
- ------ -----------------------
The information required by this item is included under
"Selected Financial Data" on pages F-1 and F-2 of this Annual Report on
Form 10-K.
Item 7. Management's Discussion and Analysis of Financial
- ------ Condition and Results of Operations.
-------------------------------------------------
The information required by this item is included under
"Management's Discussion and Analysis" on pages F-3 through F-5 of this
Annual Report on Form 10-K.
Item 8. Financial Statements and Supplementary Data.
- ------ -------------------------------------------
The information required by this item is listed in Item 14 of
Part IV of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants
- ------ on Accounting and Financial Disclosure.
---------------------------------------------
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
- ------- --------------------------------------------------
Information with respect to directors of the Company is
included under "Election of Directors" in the Company's Proxy Statement for
its 1996 Annual Meeting of Shareholders and is incorporated herein by
reference. Information with respect to executive officers of the Company is
included under Item 4(a) of Part I of this Report.
Item 11. Executive Compensation.
- ------- ----------------------
Information with respect to executive compensation is included
under "Executive Compensation" in the Company's Proxy Statement for its
1996 Annual Meeting of Shareholders and is incorporated herein by
reference, except for items appearing under the subheadings "Compensation
Committee Report on Executive Compensation" and "Comparison of Five Year
Cumulative Total Return" which are not incorporated herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- ------- --------------------------------------------------------------
As of March 1, 1996 the only person who or entity which, to
the knowledge of the Board of Directors, beneficially owned more than 5
percent of the Common Stock of the Company was KKR Associates, 9 West 57th
Street, New York, New York 10019. On such date, KKR Associates beneficially
owned 10,700,038 shares of Common Stock of the Company, representing
approximately 38 percent of the outstanding shares.
13
<PAGE>
KKR Associates is a limited partnership of which Paul E.
Raether, Michael W. Michelson, and Saul A. Fox, directors of the Company,
are three of twelve general partners. Jerome Kohlberg, Jr., a director of
the Company, is a limited partner of KKR Associates. The shares described
as beneficially owned by KKR Associates are owned of record by FMI
Associates Limited Partnership ("FMI Associates"), of which KKR Associates
is the sole general partner and as to which it possesses 100 percent of the
voting power and investment power. Shares described as beneficially owned
by KKR Associates include 1,566,441 shares which FMI Associates has the
right to acquire pursuant to a presently exercisable 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.
Additional information with respect to security ownership of
certain beneficial owners and management is included under "Voting
Securities and Principal Shareholders" and "Election of Directors" in the
Company's Proxy Statement for its 1996 Annual Meeting of Shareholders and
is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
- ------- ----------------------------------------------
Information required by this item is included under "Certain
Transactions" in the Company's Proxy Statement for its 1996 Annual Meeting
of Shareholders and is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- ------- ----------------------------------------------------------------
(a)(1) Financial Statements.
--------------------
The following documents are included in this Annual Report on
Form 10-K at the pages indicated:
Page in this
Annual Report
-------------
Fred Meyer, Inc. and Subsidiaries:
Statements of Consolidated Operations - F-6
Years Ended February 3, 1996, January 28, 1995,
and January 29, 1994
Consolidated Balance Sheets -
February 3, 1996 and January 28, 1995 F-7 and F-8
Statements of Consolidated Cash Flows -
Years Ended February 3, 1996, January 28, 1995,
and January 29, 1994 F-9
Statements of Changes in Consolidated
Stockholders' Equity -
Years Ended January 29, 1994,
January 28, 1995, and February 3, 1996 F-10
Notes to Consolidated Financial Statements F-11 through F-16
Management's Report on Responsibility
for Financial Statements F-17
Independent Auditors' Report F-17
14
<PAGE>
(a)(2) Financial Statement Schedules.
-----------------------------
All schedules are omitted as the required information is inapplicable
or is presented in the financial statements or related notes thereto.
(a)(3) Exhibits.
--------
3A Restated Certificate of Incorporation of Fred Meyer,
Inc. Incorporated by reference to Exhibit 3A to the
Company's Registration Statement on Form S-1,
Registration No. 33-8574.
3B Amended and Restated Bylaws of Fred Meyer, Inc.
Incorporated by reference to Exhibit 4B to the Company's
Registration Statement on Form S-8, Registration
No. 33-49638.
4A Specimen Stock Certificate. Incorporated by reference
to Exhibit 4C to the Company's Registration Statement on
Form S-3, Registration No. 33-67670.
4B Credit Agreement dated as of June 30, 1994,
among Fred Meyer, Inc., 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.
4C 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, Registration No. 33-67670.
4D Note agreement dated as of June 1, 1994, in
an original aggregate principal amount of
$57,500,000, among Fred Meyer, Inc., 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.
4E Credit Agreement dated as of March 6, 1995,
among Fred Meyer, Inc., 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.
4F Amended and Restated Credit Agreement dated as of
October 30, 1995 among Fred Meyer, Inc., 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).
4G Note Agreement, dated April 25, 1995, in an
original aggregate principal amount of $50,000,000,
among Fred Meyer, Inc., and 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).
15
<PAGE>
*10A-1 Fred Meyer, Inc. 1983 Stock Option Plan, as amended.
Incorporated by reference to Exhibit 10D to the
Company's Annual Report on Form 10-K for the year ended
January 28, 1989 (File No. 0-15023).
*10A-2 Amended Fred Meyer, Inc. 1990 Stock Incentive Plan.
Incorporated by reference to Exhibit 22 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
August 12, 1995 (File No. 0-15023).
*10B Fred Meyer, Inc. Bonus Plan Description, as amended.
10C Assumption Agreement and Unconditional Guaranty of
Certain Obligations, dated December 11, 1981, among Fred
Meyer, Inc., The Predecessor Company, DTC Acquisition
Corporation, and Real Estate Properties Limited
Partnership (formerly Fred Meyer Real Estate Properties,
Ltd.). Incorporated by reference to Exhibit 10FF to the
Company's Registration Statement on Form S-1,
Registration No. 2-87139.
*10D Non-Employee Directors Stock Compensation Plan, adopted
November 17, 1992. Incorporated by reference to Exhibit
10F to the Company's Annual Report on Form 10-K for the
year ended January 30, 1993.
*10E Form of contract for Senior Executive Long-Term
Disability Program. Incorporated by reference to
Exhibit 10G to the Company's Annual Report on Form 10-K
for the year ended January 30, 1993.
*10F Fred Meyer Supplemental Income Plan dated
January 1, 1994. Incorporated by reference to Exhibit
10H to the Company's Annual Report on Form 10-K for
the year ended January 29, 1994.
*10G Employment Agreement between Fred Meyer, Inc. and Robert
G. Miller, as amended by Amendment No. 1. Incorporated
by reference to Exhibit 10G to the Company's Annual
Report on Form 10-K for the year ended January 28, 1995.
*10H Indemnity Agreement. Incorporated by reference to
Exhibit 10I to the Company's Registration Statement on
Form S-1, Registration No. 33-8574.
10I Form of Lease Agreement for substantially identical
leases covering 36 stores and other locations leased by
Fred Meyer, Inc. (or a wholly owned subsidiary) from
Real Estate Properties Limited Partnership (formerly
Fred Meyer Real Estate Properties, Ltd.) including form
of Assignment of Master Lease wherein Fred Meyer Real
Estate Properties, Ltd. (now Real Estate Properties
Limited Partnership) assigned its interest to
Metropolitan Life Insurance Company and a First
Amendment to Lease Agreement, dated November 25, 1986,
with appendices containing certain nonstandard
provisions of the Lease Agreement and the First
Amendment; Collateral Matters Agreement and
Indemnification Agreement, each dated November 25, 1986,
between Fred Meyer, Inc. and Metropolitan Life Insurance
Company. Incorporated by reference to Exhibit 10I to
the Company's Annual Report on Form 10-K for the year
ended January 31, 1987 (File No. 0-15023). Memorandum
of First Amendment to Lease Agreement, dated March 6,
1987, between Metropolitan Life Insurance Company
("Metropolitan"), Landlord and Fred Meyer, Inc., Tenant;
16
<PAGE>
and Assignment of Master Lease, dated March 6, 1987,
between Real Estate Properties Limited Partnership
(formerly Fred Meyer Real Estate Properties, Ltd.)
(Assignor) and Metropolitan (Assignee) for Nampa,
Idaho. Incorporated by reference to Exhibit 10I to
the Company's Annual Report on Form 10-K for the year
ended January 30, 1988 (File No. 0-15023).
10J Form of Lease Agreement for substantially identical
leases covering 27 stores and other locations subleased
by Fred Meyer, Inc. (or a wholly owned subsidiary) from
Real Estate Properties Limited Partnership (formerly
Fred Meyer Real Estate Properties, Ltd.) with appendices
containing certain nonstandard provisions contained in
the Lease Agreement. Incorporated by reference to
Exhibit 10J to the Company's Annual Report on Form 10-K
for the year ended January 31, 1987 (File No. 0-15023).
Appendices containing certain additional nonstandard
provisions. Incorporated by reference to Exhibit 10J to
the Company's Annual Reports on Form 10-K for the years
ended January 28, 1989, February 3, 1990, and February 2,
1991 (File No. 0-15023). Certain lease modifications
for Burien, Washington facility. Incorporated by
reference to Exhibit 10K to the Company's Annual Report
on Form 10-K for the year ended January 30, 1993.
Second Lease Modification Agreement for Cornelius store,
dated as of August 16, 1994; and Second Lease
Modification Agreement for Fairbanks store, dated as of
March 18, 1994. Incorporated by reference to Exhibit
10J to the Company's Annual Report on Form 10-K for the
year ended January 28, 1995.
10K Form of Sublease, dated May 1, 1984, Fred Meyer Real
Estate Properties, Ltd. (now Real Estate Properties
Limited Partnership), Lessor to Fred Meyer, Inc., Lessee
for the Stadium Parking Lot. Incorporated by reference
to Exhibit 10J(6) to the Company's Registration
Statement on Form S-1, Registration No. 33-8574.
10L Form of Sublease, dated May 1, 1984, Fred Meyer Real
Estate Properties, Ltd. (now Real Estate Properties
Limited Partnership), Lessor to Roundup Co., Lessee for
Photo Plant Parking Lot. Incorporated by reference to
Exhibit 10J(7) to the Company's Registration Statement
on Form S-1, Registration No. 33-8574.
10M Lease Agreement, dated October 22, 1986, including
Amendment, dated April 30, 1987, between Fred Meyer Real
Estate Properties, Ltd. (now Real Estate Properties
Limited Partnership), and Roundup Co. for Midway store.
Incorporated by reference to Exhibit 10N to the
Company's Annual Report on Form 10-K for the year ended
January 31, 1987 (File No. 0-15023).
10N Lease Agreement, dated February 1, 1990,
relating to additional property adjacent to Oak Grove
store location between REC Resolution Co. as
successor in interest to Vanoak Corporation, Lessor,
and Fred Meyer, Inc., Lessee. Incorporated by
reference to Exhibit 10P to the Company's Annual
Report on Form 10-K for the year ended February 2,
1991 (File No. 0-15023).
10O Lease Agreement, dated February 19, 1987, including
Addendum, dated September 16, 1987, between Fred Meyer,
Inc., as Lessee, and REC Resolution Co. as successor in
interest to Duane Company, as Lessor, for the Gateway
store. Incorporated by reference to Exhibit 10Q to the
17
<PAGE>
Company's Annual Report on Form 10-K for the year ended
January 30, 1988 (File No. 0-15023). Addendum No. 2 to
Lease Agreement. Incorporated by reference to Exhibit
10Q to the Company's Annual Report on Form 10-K for the
year ended February 2, 1991 (File No. 0-15023).
10P Lease Agreement, dated December 12, 1988, between Fred
Meyer, Inc., as Lessee, and REC Resolution Co. as
successor in interest to Fifth Avenue Corporation, as
Lessor, for the Burlingame store. Incorporated by
reference to Exhibit 10S to the Company's Annual Report
on Form 10-K for the year ended January 28, 1989 (File
No. 0-15023).
10Q Lease Cancellation Agreement between the
Company and Real Estate Properties Limited
Partnership, regarding termination of the lease of
the photo plant facility, dated as of January 17,
1995. Incorporated by reference to Exhibit 10Q to the
Company's Annual Report on Form 10-K for the year
ended January 28, 1995.
10R Lease for Swan Island Parking Lot between the
Company as lessee and Real Estate Properties Limited
Partnership as lessor, dated November 16, 1994.
Incorporated by reference to Exhibit 10R to the
Company's Annual Report on Form 10-K for the year
ended January 28, 1995. Rider to Lease dated as of
November 1, 1994.
10S Lease Assignment Agreement between Real Estate
Properties Limited Partnership (REPL) as assignor, and
the Company as assignee, dated as of March 14, 1995,
pursuant to which the Company has agreed to purchase the
leasehold interest of REPL in the Hawthorne, Hazel Dell
and Raleigh Hills stores; and a related Real Estate
Purchase and Sale Agreement between REC Resolution Co.
as seller and the Company as purchaser, dated as of
March 14, 1995, pursuant to which the Company has agreed
to purchase the fee interest of REC Resolution Co., (an
affiliate of REPL) in the Hawthorne, Hazel Dell and
Raleigh Hills stores. Incorporated by reference to
Exhibit 10S to the Company's Annual Report on Form 10-K
for the year ended January 28, 1995.
10T Fred Meyer Excess Deferral and Benefit Equalization
Plan. 1994 Restatement dated as of January 1, 1994.
Incorporated by reference to Exhibit 10T to the
Company's Quarterly Report on Form 10-Q for the quarter
ended November 4, 1995 (File No. 0-15023).
10U Lease Agreement Tax Retention Operating Lease dated
May 5, 1995 between First Security Bank of Utah, N.A.
not individually but solely as Owner Trustee under FM
Trust 1995-1, as Lessor and Fred Meyer, Inc., as Lessee,
Appendix A to Participation Agreement and Lease
Supplements nos. 1, 2, and 3 dated as of May 3, 1995
between First Security Bank of Utah, N.A. lessor, and
Fred Meyer, Inc., lessee. Incorporated by reference to
Exhibit 10U to the Company's Quarterly Report on Form
10-Q for the quarter ended November 4, 1995 (File No. 0-
15023).
10V Lease Agreement Tax Retention Operating Lease
dated as of December 1, 1995 between First Security
Bank of Utah, N.A., not individually, but solely as
Owner Trustee under the FM Trust 1995-2, as Lessor
and Fred Meyer, Inc. as Lessee, and Appendix A to
Participation Agreement.
18
<PAGE>
10W Settlement Agreement and Mutual Release dated as of
August 10, 1995 between REPL, REC Resolution Co., and
the Company and certain of its subsidiaries and restated
Second Lease Modification Agreement dated October 12,
1995 between the Company and REPL, with respect to the
Gresham, Oregon store, and Second Lease Modification
Agreement dated October 12, 1995 between the Company and
REPL with respect to the Clackamas, Oregon store.
11 Computation of Earnings per Common Share.
21 List of Subsidiaries.
23 Consent of Deloitte & Touche LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
- ---------------
* This exhibit constitutes a management contract or compensatory plan or
arrangement.
(b) Reports on Form 8-K.
-------------------
No reports on Form 8-K were filed by the Company during the
last quarter of the year ended February 3, 1996.
19
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
FRED MEYER, INC.
Date: March 20, 1996 By KENNETH THRASHER
------------------------------
Kenneth Thrasher,
Chief Financial Officer,
Senior Vice President - Finance
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities indicated on March 20, 1996.
Signature Title
--------- -----
(1) Principal Executive Officer
ROBERT G. MILLER Chairman of the Board
- ------------------------------ and Chief Executive Officer
Robert G. Miller
(2) Principal Financial Officer
KENNETH THRASHER Chief Financial Officer,
- ------------------------------ Senior Vice President - Finance
Kenneth Thrasher
(3) Principal Accounting Officer
THOMAS R. HUGHES Vice President and Controller
- ------------------------------
Thomas R. Hughes
(4) Directors
* JEROME KOHLBERG, JR. Director
- ------------------------------
Jerome Kohlberg, Jr.
20
<PAGE>
* PAUL E. RAETHER Director
- ------------------------------
Paul E. Raether
* SAUL A. FOX Director
- ------------------------------
Saul A. Fox
* MICHAEL W. MICHELSON Director
- ------------------------------
Michael W. Michelson
* ROGER S. MEIER Director
- ------------------------------
Roger S. Meier
* A.M. GLEASON Director
- ------------------------------
A.M. Gleason
* By KENNETH THRASHER
-------------------------
Kenneth Thrasher
As Attorney in Fact
21
<PAGE>
SELECTED FINANCIAL DATA (Page 1 of 3)
(1993-1996)
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------------
February 3, January 28, January 29, January 30,
(In thousands, except per-share data and statistical information) 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales................................................................... $3,428,664 $3,128,432 $2,979,082 $2,853,962
Gross margin................................................................ 979,460 867,117 890,514/5 857,262
Operating and administrative expenses....................................... 891,033 813,721 752,408 743,022
Writedown of California assets/restructuring charge (reversal).............. -- 15,978/4 -- --
Income from operations ..................................................... 88,427 37,418/4 138,106/5 114,240
Interest expense, net of interest income/1.................................. 39,578 25,857 17,604 18,070
Income (loss) before income taxes........................................... 48,849 11,561/4 120,502 96,170
Provision for (benefit from) income taxes................................... 18,563 4,393/4 49,598/6 35,583
Net income (loss) before cumulative effect of accounting change
or extraordinary item.................................................... 30,286 7,168/4 70,904/5,6 60,587
Cumulative effect of accounting change...................................... -- -- (2,588)7 --
Extraordinary item.......................................................... -- -- -- --
-------------------------------------------------------
Net income (loss)........................................................... $ 30,286 $ 7,168/4 $ 68,316/5,6,7 $60,587
-------------------------------------------------------
Earnings (loss) per common share:
Net income (loss) before cumulative effect of accounting change
or extraordinary item.................................................. $1.07 $.25/4 $2.50/5,6 $2.21
Cumulative effect of accounting change................................... -- -- (.09)/7 --
Extraordinary item....................................................... -- -- -- --
-------------------------------------------------------
Net income (loss)........................................................ $1.07 $.25/4 $2.41/5,6,7 $2.21
-------------------------------------------------------
BALANCE SHEET DATA
Total assets................................................................ $1,671,592 $1,562,672 $1,326,076 $1,081,627
Capitalization:
Long-term debt .......................................................... $ 656,260 $ 540,166 $ 321,398 $ 195,837
Lease obligations........................................................ 58,318 63,229 65,955 70,313
Stockholders' equity..................................................... 571,234 538,620 527,686 450,128
-------------------------------------------------------
Total.................................................................. $1,285,812 $1,142,015 $ 915,039 $ 716,278
-------------------------------------------------------
STATISTICAL INFORMATION
Percent of net sales:
Nonfood sales............................................................ 59.0% 61.7% 62.5% 63.3%
Food sales .............................................................. 41.0% 38.3% 37.5% 36.7%
Total stores sales growth................................................... 9.6% 5.0% 4.4% 5.6%
Comparable stores sales percentage increase (decrease)...................... 2.1%/2,3 (2.0)%/3 2.4%/3 3.0%/3
Long-term debt as a percent of total capitalization......................... 55.6% 52.8% 42.3% 37.2%
Net income (loss) as a percent of net sales................................. .9% .2%/4 2.3%/5,6,7 2.1%
Number of multidepartment and specialty stores opened during year........... 9 8 7 6
Number of multidepartment and specialty stores closed during year........... 4 4 3 5
Number of multidepartment and specialty stores operated at end of year...... 136 131 127 123
Total retail square feet at end of year..................................... 14,857,000 14,194,000 13,423,000 12,646,000
Selling square feet at end of year.......................................... 10,817,000 10,490,000 9,999,000 9,471,000
Sales per selling square foot (weighted average)............................ $316 $304 $312 $304
Common shares outstanding (weighted average)................................ 28,333,000 28,625,000 28,375,000 27,446,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-1
<PAGE>
SELECTED FINANCIAL DATA (Page 2 of 3)
(1989-1992)
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------------
February 1, February 2, February 3, January 28,
(In thousands, except per-share data and statistical information) 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales................................................................... $2,702,721 $2,476,055 $2,284,535 $2,073,544
Gross margin................................................................ 809,900 741,720 671,044 610,415
Operating and administrative expenses....................................... 726,617 674,212 620,953 544,225
Writedown of California assets/restructuring charge (reversal).............. (8,289)/8 -- 49,277/8 --
Income from operations ..................................................... 91,572/9 67,508 814/11 66,190
Interest expense, net of interest income1................................... 20,577 15,974 13,947 9,291
Income (loss) before income taxes........................................... 70,995/8,9 51,534 (13,133)/11 56,899
Provision for (benefit from) income taxes................................... 25,768 17,951 (6,285)/11 20,238
Net income (loss) before cumulative effect of accounting change
or extraordinary item..................................................... 45,227/8,9 33,583 (6,848)/11 36,661
Cumulative effect of accounting change...................................... -- -- -- --
Extraordinary item.......................................................... -- -- -- --
-------------------------------------------------------
Net income (loss)........................................................... $ 45,227/8,9 $ 33,583 $ (6,848)/11 $ 36,661
-------------------------------------------------------
Earnings (loss) per common share:
Net income (loss) before cumulative effect of accounting change
or extraordinary item.................................................. $1.80/8,9 $1.37 $(.28)/11 $1.50
Cumulative effect of accounting change................................... -- -- -- --
Extraordinary item....................................................... -- -- -- --
-------------------------------------------------------
Net income (loss)........................................................ $1.80/8,9 $1.37 $(.28)/11 $1.50
-------------------------------------------------------
BALANCE SHEET DATA
Total assets................................................................ $ 974,780 $ 905,756 $ 796,894 $ 686,806
Capitalization:
Long-term debt .......................................................... $ 240,968 $ 232,881 $ 188,441 $ 92,180
Lease obligations........................................................ 67,387 67,664 66,393 50,774
Stockholders' equity..................................................... 335,154 285,299 251,546 258,188
-------------------------------------------------------
Total.................................................................. $ 643,509 $ 585,844 $ 506,380 $ 401,142
-------------------------------------------------------
STATISTICAL INFORMATION
Percent of net sales:
Nonfood sales............................................................ 63.7% 64.3% 66.8% 68.2%
Food sales .............................................................. 36.3% 35.7% 33.2% 31.8%
Total stores sales growth................................................... 9.2% 11.6%/10 8.4%/10 12.2%
Comparable stores sales percentage increase (decrease)...................... 4.0%/3 3.6%/3,10 4.5%/3,10 7.9%/3
Long-term debt as a percent of total capitalization......................... 47.9% 51.3% 50.3% 35.6%
Net income (loss) as a percent of net sales................................. 1.7% 1.4% (.3)%/11 1.8%
Number of multidepartment and specialty stores opened during year........... 3 5 15 14
Number of multidepartment and specialty stores closed during year........... 3 8 2 1
Number of multidepartment and specialty stores operated at end of year...... 122 122 125 112
Total retail square feet at end of year..................................... 12,679,000 12,213,000 11,743,000 10,925,000
Selling square feet at end of year.......................................... 9,657,000 9,361,000 9,056,000 8,388,000
Sales per selling square foot (weighted average)............................ $283 $269 $261/10 $253
Common shares outstanding (weighted average)................................ 25,182,000 24,500,000 24,801,000 24,470,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SELECTED FINANCIAL DATA (Page 3 of 3)
(1986-1988)
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------
January 30, January 31, February 1,
(In thousands, except per-share data and statistical information) 1988 1987 1986
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME STATEMENT DATA
Net sales................................................................... $1,847,843 $1,688,208 $1,583,796
Gross margin................................................................ 547,157 487,829 447,960
Operating and administrative expenses....................................... 485,822 430,469 397,841
Writedown of California assets/restructuring charge (reversal).............. -- -- --
Income from operations ..................................................... 61,335 57,360 50,119
Interest expense, net of interest income1................................... 7,449 11,945 17,652
Income (loss) before income taxes........................................... 53,886 45,415 32,467
Provision for (benefit from) income taxes................................... 21,850 21,350 13,000
Net income (loss) before cumulative effect of accounting change
or extraordinary item..................................................... 32,036 24,065 19,467
Cumulative effect of accounting change...................................... -- -- --
Extraordinary item.......................................................... -- (1,530)/12 --
---------------------------------------
Net income (loss)........................................................... $ 32,036 $ 22,535 $ 19,467
---------------------------------------
Earnings (loss) per common share:
Net income (loss) before cumulative effect of accounting change
or extraordinary item.................................................. $1.31 $1.15 $1.06
Cumulative effect of accounting change................................... -- -- --
Extraordinary item....................................................... -- (.07)/12 --
---------------------------------------
Net income (loss)........................................................ $1.31 $1.08 $1.06
---------------------------------------
BALANCE SHEET DATA
Total assets................................................................ $ 626,522 $ 533,986 $ 568,531
Capitalization:
Long-term debt .......................................................... $ 87,730 $ 76,874 $ 130,940
Lease obligations........................................................ 46,904 36,093 89,236
Stockholders' equity..................................................... 221,056 186,692 98,395
---------------------------------------
Total.................................................................. $ 355,690 $ 299,659 $ 318,571
---------------------------------------
STATISTICAL INFORMATION
Percent of net sales:
Nonfood sales............................................................ 67.6% 66.1% 65.6%
Food sales .............................................................. 32.4% 33.9% 34.4%
Total stores sales growth................................................... 9.5% 6.6% 11.2%/13
Comparable stores sales percentage increase (decrease)...................... 6.6%/3 4.3%/3 4.1%/3,13
Long-term debt as a percent of total capitalization......................... 37.9% 37.7% 69.1%
Net income (loss) as a percent of net sales................................. 1.7% 1.3% 1.2%
Number of multidepartment and specialty stores opened during year........... 8 1 4
Number of multidepartment and specialty stores closed during year........... 2 1 1
Number of multidepartment and specialty stores operated at end of year...... 99 93 93
Total retail square feet at end of year..................................... 10,494,000 9,738,000 9,536,000
Selling square feet at end of year.......................................... 8,064,000 7,497,000 7,309,000
Sales per selling square foot (weighted average)............................ $239 $228 $228
Common shares outstanding (weighted average)................................ 24,403,000 20,870,000 18,355,000
- ---------------------------------------------------------------------------------------------------------------------
<FN>
/1 Interest income was $1,060, $885, $707, $544, $517, $467, $482, $336,
$350, $1,679, and $2,983, respectively. Excludes interest expense related
to occupancy.
/2 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.
/3 Includes only sales of stores operating throughout each of the periods
compared.
/4 In 1994, the Company recorded a pretax charge of $15,978 to writedown to
their estimated net realizable value one multidepartment store and three
land parcels in California. Excluding this writedown, income from
operations, income before income taxes, provision for income taxes, net
income and earnings per common share would be $53,396; $27,539; $10,465;
$17,074; and $.60, respectively; and net income as a percent of net sales
would be .6%.
/5 Includes a nonrecurring LIFO credit of $6,178.
/6 Includes $3,588 from the resolution of an IRS audit, ($2,286) related to
the LIFO credit, and a 38% tax rate.
/7 Effect of adopting Statement of Financial Accounting Standards No. 109
relating to income taxes.
/8 In 1989, the Company took a pretax charge of $49,277 related to closing
some of its stores and for conversion of its management information systems
from Honeywell to IBM. In 1991, the Company reversed $8,289 of this charge
based on a decision not to close as many stores as previously provided for.
/9 Excluding the benefit from the restructuring charge reversal of $8,289
and a charge against expenses for previously capitalized software
development costs of $8,748, income from operations, net income, and
earnings per common share would be $92,031; $45,516; and $1.81,
respectively.
/10 Excludes 53rd week in the fiscal year ended February 3, 1990.
/11 Excluding the restructuring charge of $49,277, income from operations,
income before income taxes, provision for income taxes, net income,
earnings per common share, and net income as a percent of net sales
would be $50,091; $36,144; $11,947; $24,197; $.98; and 1.1%, respectively.
/12 Prepayment costs of $1,530 ($.07 per share) from early extinguishment of
17% Senior and Subordinated Notes, net of taxes.
/13 Excludes 53rd week in the fiscal year ended February 2, 1985.
</TABLE>
F-2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion summarizes Fred Meyer, Inc.'s (the "Company")
operating results for the fiscal year ended February 3, 1996 ("1995")
compared with the fiscal year ended January 28, 1995 ("1994") and for 1994
compared with the fiscal year ended January 29, 1994 ("1993"). Also
included are discussions of the Company's liquidity, capital resources,
effect of LIFO, effect of inflation, recent accounting changes, stock data,
and dividend policy. This discussion and analysis should be read in
conjunction with the Company's consolidated financial statements.
RESULTS OF OPERATIONS--
1995 COMPARED WITH 1994
Net sales for 1995 (53 weeks) increased $300,232,000, or 9.6%, over 1994
(52 weeks). This increase reflects openings of six full-size
multidepartment stores, three jewelry stores in malls, 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 .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 .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 28.6% in 1995 compared with
27.7% in 1994. Gross margins increased as a percent of sales in 1995's
fourth quarter primarily due to the comparison to the reduced 1994 fourth
quarter 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.
Operating and administrative expenses increased 9.5% to $891,033,000 in
1995 from $813,721,000 in 1994, and as a percent of net sales were 26.0%
for both years. This comparison was prior to reflecting 1994's writedown of
California assets of $15,978,000, covering one 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.
RESULTS OF OPERATIONS--
1994 COMPARED WITH 1993
Net sales for 1994 increased $149,350,000 or 5.0% over 1993. This increase
reflects openings of five full-size multidepartment stores, three jewelry
stores in malls, 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 store 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
area, 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. 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.
F-3
<PAGE>
Gross margin as a percent of net sales was 27.7% in 1994, compared with
29.9% in 1993. This decrease is primarily due to the impact of the strikes
and high markdowns that were taken during the promotional Christmas period.
1993's gross margin was favorably affected by a one-time LIFO credit of
$6,178,000.
Operating and administrative expenses increased 8.1% to $813,721,000 in
1994 from $752,408,000 in 1993, and as a percent of net sales were 26.0% in
1994 compared with 25.3% 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.
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company funded its working capital and capital expenditure needs in
1995 through internally generated cash flow, supplemented by borrowings
under committed and uncommitted bank lines of credit and unrated commercial
paper.
Cash provided by operating activities was approximately $80,000,000 higher
in 1995 than 1994. This 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.
Changes in cash flows from investing and financing activities are primarily
the result of the timing of borrowing and capital expenditures.
On April 25, 1995, the Company issued an unsecured senior note in the
amount of $50,000,000 to a life insurance company. The note matures on
April 25, 2002 and bears interest at 7.770%. On May 17, 1995, the Company
issued a $20,000,000 unsecured note due May 17, 2000, which bears interest
at 6.775%.
The Company entered into a new credit facility in 1995 with several
domestic and foreign banks for a committed line of credit which 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. In addition to this committed credit
facility, the Company had $100,000,000 of uncommitted money market lines
with several foreign banks and $92,000,000 of uncommitted money market
lines with banks which 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 the
development of management information systems ("MIS"). At February 3, 1996
the Company had unrated commercial paper outstanding in the amount of
$283,344,000, borrowings under uncommitted borrowing facilities of
$123,500,000, and a total of approximately $93,156,000 available for
borrowings that would be supported by its committed credit facilities.
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 February 3, 1996,
$57,176,000 was utilized under the agreement. 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.
In 1992, the Company's Board of Directors adopted a derivative policy
recognizing derivative financial instruments as an integral part of its
risk management system. Management periodically reviews the use of derivative
transactions and market positions, including assessments of compliance with
the policy.
F-4
<PAGE>
The Company has entered into interest rate swap and cap agreements to
reduce the impact of changes in interest rates on its floating rate
long-term debt. At February 3, 1996, the Company had outstanding six
interest rate contracts with commercial banks, having a total notional
principal amount of $100,000,000. The three swap agreements effectively fix
the Company's interest rate on unrated commercial paper, floating rate
facilities, and uncommitted lines of credit at rates between 4.625% and
7.595% on a notional principal amount of $50,000,000. These contracts
expire through 1998. The three cap agreements effectively limit the maximum
interest rate the Company will pay at rates between 5.0% and 9.0% on
notional principal amounts totaling $50,000,000. These contracts expire
through 1999. The Company is exposed to credit loss in the event of
nonperformance by the counterparties to the interest rate swap and cap
agreements. The Company requires an A or better rating of the
counterparties and, accordingly, does not anticipate nonperformance by the
counterparties.
During 1995, capital expenditures totaled $236,052,000, net of 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
food distribution center near Seattle, Washington. Other capital projects
in 1995 included improvements to the main distribution center, central
bakery, and dairy plants, and continuation of the Company's MIS improvement
program. During 1995, the Company also began construction of five
multidepartment stores scheduled to open in 1996. At least four major
remodels are planned for completion in 1996, in addition to the acquisition
of 23 jewelry stores. The Company believes that a combination of cash flow
from operations, proceeds from sale-leasebacks, and borrowings under its
credit facilities will permit it to finance its capital expenditure
requirements for 1996, budgeted at $118,000,000, net of estimated real
estate financed on leases.
EFFECT OF LIFO
During each year, the Company estimates the LIFO adjustment for the year
based on estimates of three factors: 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), expected inventory levels, and expected markup levels (after
reflecting permanent markdowns and cash discounts). At year-end, the
Company makes the final adjustment reflecting the difference between the
Company's 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.
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.
COMMON STOCK INFORMATION
The Company's common stock is traded on the New York Stock Exchange (NYSE)
under the symbol "FMY." At February 3, 1996, the Company had 1,400
shareholders of record.
The Company has not paid dividends since its incorporation in 1981, and
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.
<TABLE>
<CAPTION>
PRICE RANGES OF COMMON STOCK
----------------------------------------------------
1995 1994 1993
---------------- ----------------- -----------------
Fiscal Quarter High Low High Low High Low
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First......................$33 3/8 $23 1/2 $42 1/2 $35 5/8 $33 7/8 $27 7/8
Second..................... 29 23 1/2 38 3/4 35 35 5/8 29 1/4
Third ..................... 26 7/8 18 5/8 37 3/8 31 1/4 37 31
Fourth..................... 23 5/8 17 3/8 35 3/4 29 1/4 38 1/2 34 1/2
- -------------------------------------------------------------------------------
</TABLE>
F-5
<PAGE>
STATEMENTS OF CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------
February 3, January 28, January 29,
(In thousands, except per-share data) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales....................................................................... $3,428,664 $3,128,432 $2,979,082
------------------------------------------
Cost of Goods Sold:
General......................................................................... 2,443,558 2,255,669 2,082,989
Related party lease (Note 3).................................................... 5,646 5,646 5,579
------------------------------------------
Total cost of goods sold........................................................ 2,449,204 2,261,315 2,088,568
------------------------------------------
Gross Margin.................................................................... 979,460 867,117 890,514
Operating and Administrative Expenses:
General......................................................................... 835,432 756,685 694,466
Related party leases (Notes 3 and 8)............................................ 55,601 57,036 57,942
------------------------------------------
Total operating and administrative expenses..................................... 891,033 813,721 752,408
------------------------------------------
Writedown of California Assets (Note 4)......................................... -- 15,978 --
------------------------------------------
Income From Operations.......................................................... 88,427 37,418 138,106
Interest Expense, net of interest income of $1,060, $885, and $707.............. 39,578 25,857 17,604
------------------------------------------
Income Before Income Taxes ..................................................... 48,849 11,561 120,502
Provision For Income Taxes (Note 6)............................................. 18,563 4,393 49,598
------------------------------------------
Net Income Before Cumulative Effect of Accounting Change........................ 30,286 7,168 70,904
Cumulative Effect of Accounting Change (Note 6)................................. -- -- (2,588)
------------------------------------------
Net Income...................................................................... $ 30,286 $ 7,168 $ 68,316
------------------------------------------
Earnings Per Common Share:
Net income before cumulative effect of accounting change........................ $1.07 $.25 $2.50
Cumulative effect of accounting change.......................................... -- -- (.09)
------------------------------------------
Net Income...................................................................... $1.07 $.25 $2.41
------------------------------------------
Weighted Average Number of Common Shares Outstanding ........................... 28,333 28,625 28,375
- --------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
F-6
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS February 3, January 28,
(In thousands) 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents....................................................... $ 41,849 $ 34,868
Receivables..................................................................... 24,683 20,025
Inventories..................................................................... 520,555 514,473
Prepaid expenses and other...................................................... 23,680 42,092
Income taxes receivable......................................................... -- 15,021
Current portion of deferred taxes (Note 6)...................................... 22,046 15,116
----------------------------
Total current assets............................................................ 632,813 641,595
----------------------------
Property and Equipment:
Buildings, fixtures and equipment............................................... 1,366,511 1,164,953
Property held under capital leases (Note 8)..................................... 17,523 18,209
Land............................................................................ 160,657 159,393
----------------------------
Total property and equipment ................................................... 1,544,691 1,342,555
Less accumulated depreciation and amortization ................................. 530,543 446,116
----------------------------
Property and equipment--net .................................................... 1,014,148 896,439
----------------------------
Other Assets:
Goodwill--net................................................................... 4,907 5,215
Other........................................................................... 19,724 19,423
----------------------------
Total other assets.............................................................. 24,631 24,638
----------------------------
Total assets.................................................................... $1,671,592 $1,562,672
- ------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
F-7
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY February 3, January 28,
(In thousands) 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Liabilities:
Outstanding checks.............................................................. $ 63,177 $ 81,341
Accounts payable................................................................ 193,896 230,703
Current portion of long-term debt and lease obligations (Notes 5 and 8)......... 1,468 1,623
Income taxes payable............................................................ 4,857 --
Accrued expenses:
Compensation................................................................. 48,743 43,119
Insurance and other.......................................................... 37,590 35,295
----------------------------
Total current liabilities....................................................... 349,731 392,081
----------------------------
Long-term Debt (Note 5)......................................................... 656,260 540,166
----------------------------
Capital Lease Obligations (Note 8).............................................. 13,298 13,823
----------------------------
Deferred Lease Transactions (Note 8)............................................ 42,271 45,655
----------------------------
Deferred Income Taxes (Note 6).................................................. 30,814 22,258
----------------------------
Other Long-term Liabilities (Notes 8 and 10).................................... 7,984 10,069
----------------------------
Commitments and Contingencies (Notes 8 and 12)..................................
----------------------------
Stockholders' Equity (Note 7):
Preferred stock, $.01 par value (authorized, 5,000 shares; outstanding, none)... -- --
Common stock, $.01 par value (authorized, 100,000 shares; issued,
1995--26,995 shares, and 1994--26,858 shares; outstanding,
1995--26,705 shares, and 1994--26,568 shares)................................ 270 268
Additional paid-in capital...................................................... 199,363 197,087
Treasury stock--290 shares; and other........................................... (3,976) (4,026)
Retained earnings............................................................... 375,577 345,291
----------------------------
Total stockholders' equity...................................................... 571,234 538,620
----------------------------
Total liabilities and stockholders' equity...................................... $1,671,592 $1,562,672
- ------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
F-8
<PAGE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------
February 3, January 28, January 29,
(In thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income ..................................................................... $ 30,286 $ 7,168 $ 68,316
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of property and equipment...................... 107,077 89,474 70,547
Writedown of California assets............................................... -- 15,978 --
Deferred lease transactions.................................................. (3,384) (2,599) 3,469
Deferred income taxes........................................................ 1,626 (3,526) (5,708)
Other liabilities............................................................ (2,085) (347) 721
Inventories.................................................................. (6,082) (37,358) (51,490)
Other current assets......................................................... 13,705 1,552 71
Accounts payable and accrued expenses........................................ (28,890) 11,613 37,124
Income taxes................................................................. 19,878 (33,681) 3,242
Other........................................................................ 921 1,766 (8,164)
----------------------------------------
Net cash provided by operating activities....................................... 133,052 50,040 118,128
----------------------------------------
Cash Flows from Financing Activities:
Issuance of common stock - net.................................................. 2,278 3,369 8,647
Collection of notes receivable.................................................. 515 364 264
Increase in notes receivable ................................................... (2,391) (213) (1,402)
(Decrease)/increase in outstanding checks....................................... (18,162) 8,968 1,962
Long-term financing:
Borrowings................................................................... 158,529 258,871 126,310
Repayments................................................................... (42,681) (40,093) (1,015)
----------------------------------------
Net cash provided by financing activities....................................... 98,088 231,266 134,766
----------------------------------------
Cash Flows from Investing Activities:
Net sales (purchases) of investment securities.................................. 1,110 (935) (1,745)
Purchases of property and equipment............................................. (236,052) (284,193) (253,920)
Proceeds from sale of property and equipment.................................... 10,783 4,636 4,941
----------------------------------------
Net cash used for investing activities.......................................... (224,159) (280,492) (250,724)
----------------------------------------
Net Increase in Cash and Cash Equivalents for the Year.......................... 6,981 814 2,170
Cash and Cash Equivalents, Beginning of Year.................................... 34,868 34,054 31,884
----------------------------------------
Cash and Cash Equivalents, End of Year.......................................... $ 41,849 $ 34,868 $ 34,054
----------------------------------------
Supplemental Disclosure of Cash Flow Information
Cash paid (refunded) during the year for:
Interest (including interest capitalized of $3,629, $2,520, and $1,689)...... $ 45,228 $ 31,022 $ 17,984
Income taxes................................................................. (3,256) 40,757 53,197
- ------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
F-9
<PAGE>
STATEMENTS OF CHANGES
IN CONSOLIDATED STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
------------------
Additional Treasury
Number of Paid-in Stock Retained
(In thousands) Shares Amount Capital and Other Earnings Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1993.................................. 25,572 $259 $185,080 $(5,018) $269,807 $450,128
Issuance of common stock:
Stock options exercised ................................ 843 8 7,185 -- -- 7,193
Tax benefits from stock options......................... -- -- 1,454 -- -- 1,454
Amortization of unearned compensation................... -- -- -- 595 -- 595
Net income................................................. -- -- -- -- 68,316 68,316
----------------------------------------------------------------
Balance, January 29, 1994.................................. 26,415 267 193,719 (4,423) 338,123 527,686
Issuance of common stock:
Stock options exercised ................................ 153 1 2,611 -- -- 2,612
Tax benefits from stock options......................... -- -- 757 -- -- 757
Amortization of unearned compensation................... -- -- -- 397 -- 397
Net income................................................. -- -- -- -- 7,168 7,168
----------------------------------------------------------------
Balance, January 28, 1995.................................. 26,568 268 197,087 (4,026) 345,291 538,620
Issuance of common stock:
Stock options exercised ................................ 137 2 2,016 -- -- 2,018
Tax benefits from stock options......................... -- -- 260 -- -- 260
Amortization of unearned compensation................... -- -- -- 50 -- 50
Net income................................................. -- -- -- -- 30,286 30,286
----------------------------------------------------------------
Balance, February 3, 1996.................................. 26,705 $270 $199,363 $(3,976) $375,577 $571,234
- ---------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
Fred Meyer, Inc., a Delaware corporation, and its subsidiaries (the
"Company") operate a chain of 136 retail stores offering a wide range of
food, products for the home, apparel, fine jewelry, and home improvement
items, with emphasis on necessities and items of everyday use. The stores
are located in Oregon, Washington, Utah, Alaska, Idaho, northern
California, and Montana, and consist of 102 free-standing, multidepartment
stores (94 with food departments) and 34 specialty stores (including 29
jewelry stores in malls.)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The accompanying financial statements include
the consolidated accounts of the Company and its subsidiaries. All
significant intercompany transactions and balances have been eliminated.
Fiscal Year--The Company's fiscal year ends on the Saturday closest to
January 31. Fiscal years 1995, 1994, and 1993 ended on February 3, 1996,
January 28, 1995, and January 29, 1994, respectively. Fiscal years 1994 and
1993 were 52 weeks, while fiscal year 1995 was 53 weeks.
Unless otherwise stated, references to years in this report relate to
fiscal years rather than to calendar years.
Business Segment--The Company's operations consist of one segment, retail
sales.
Cash and Cash Equivalents--The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to
be cash equivalents.
Receivables--Receivables are reported net of allowances for potential
uncollected accounts of $1,294,000 and $1,255,000 at February 3, 1996 and
January 28, 1995, respectively.
Inventories--Inventories consist principally of items held for sale in its
retail operations and substantially all inventories are stated at the lower
of last-in, first-out (LIFO) cost or market. If the first-in, first-out
method, which approximates replacement cost, had been used in determining
inventory values, they would have been $53,940,000 and $54,876,000 higher
at February 3, 1996 and January 28, 1995, respectively.
Property and Equipment--Property and equipment is stated at cost.
Depreciation on buildings and equipment is provided using the straight-line
method over the estimated useful lives of the related assets of three to 31
years. Amortization of property under capital leases is provided using the
straight-line method over the remaining related lease terms of 16 to 40
years.
Goodwill--Goodwill is being amortized on a straight-line basis over 30
years. Management periodically evaluates the recoverability of goodwill
based upon current and anticipated net income and undiscounted future cash
flows. Accumulated amortization was $4,352,000 and $4,044,000 at February
3, 1996 and January 28, 1995, respectively.
Investment Securities--As of January 28, 1995, the Company adopted SFAS No.
115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. SFAS
No. 115 requires the classification of securities at acquisition into one
of three categories: held to maturity, available for sale, or trading. At
February 3, 1996, the carrying value of all debt and equity securities
approximated their aggregate fair value. Debt securities are classified as
held to maturity and are included in Other Assets. Equity securities are
classified as trading securities and are included in Cash and Cash
Equivalents.
Outstanding Checks--Checks that have not yet cleared the bank and that are
issued against bank accounts with a zero bank balance are included in
current liabilities.
Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements. Actual results could differ from those
estimates.
Pre-opening Costs--All noncapital expenditures incurred in connection with
the opening of new or acquired stores and other facilities or the
remodeling of existing stores are expensed as incurred.
Income Taxes--Deferred income taxes are provided for those items included
in the determination of income or loss in different periods for financial
reporting and income tax purposes. Targeted jobs and other tax credits are
recognized in the year realized.
Effective January 31, 1993, the Company adopted SFAS No. 109, ACCOUNTING
FOR INCOME TAXES. Accordingly, the Company changed its method of accounting
for income taxes from the deferred method used in prior years to the method
prescribed by SFAS No. 109. Under SFAS No. 109, deferred income taxes are
recognized for the tax consequences in future years of differences between
the tax bases of assets and liabilities and their financial reporting
amounts at each year-end based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect
taxable income. Income tax expense is the tax payable for the period and
the change during the period in deferred tax assets and liabilities (see
Note 6).
Earnings Per Common Share--Fully diluted earnings per common share are
computed by dividing net income by the weighted average number of common
and common equivalent shares outstanding. Weighted average shares reflect
the dilutive effect of outstanding stock options using the treasury stock
method.
Reclassifications--Certain prior year amounts have been reclassified to
conform to current year presentation. The reclassifications have no effect
on reported net income.
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.
F-11
<PAGE>
3. RELATED-PARTY TRANSACTIONS
The Company leases or subleases store locations and other properties from
entities which have certain common ownership with the Company. At February
3, 1996, 21 store locations were leased under operating leases, including
one store which was closed in a prior year. Payments under these leases and
those terminated during the year were $18,577,000, $19,734,000, and
$21,290,000 in 1995, 1994, and 1993, respectively. The Company also leases
35 store locations and a distribution center from an institutional
investor, which is a major beneficial shareholder of the Company's stock.
One of these stores was closed in a prior year. Rents paid to this
shareholder on these properties was $46,070,000, in each of the years 1995
and 1994, and $39,573,000 in 1993.
Total rents included in operating and administrative expenses for
locations leased or subleased from related parties were based on the
average rental paid during the primary term of the leases. Rents associated
with the Company's main distribution center and central bakery are
included in cost of goods sold.
In 1995, the Company offered interest-free loans of up to $100,000 each
to 19 executives for the purpose of acquiring common stock of the Company.
Repayment of these loans is required by June 1998 or upon termination of
employment or sale of stock. At February 3, 1996, loans under this program
amounted to $1,839,000.
4. WRITEDOWN OF CALIFORNIA ASSETS
During 1994, the Company incurred a charge of $15,978,000 ($9,906,000 after
a deferred tax benefit of $6,072,000) related to the writedown of certain
assets and other costs associated with the Company's decision to exit the
northern California market except for mall jewelry locations.
5. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial paper with maturities through July 1996,
classified as long-term, interest rates of 5.44%
to 6.11% at February 3, 1996............................... $283,344 $324,921
Uncommitted bank borrowings, due February 5, 1996,
through March 1, 1996, classified as long-term,
interest rates of 5.40% to 5.55% at February 3,
1996....................................................... 123,500 35,000
Long-term notes secured by trust deeds, due through
2011, fixed interest rates from 9.00% to 9.52%............. 42,536 43,298
Long-term notes, unsecured:
Due 1997 through 1998, interest rate is periodically
reset, 6.07% at February 3,1996, paid quarterly.......... 70,000 70,000
Due 1996, fixed interest rate of 7.74%, paid quarterly..... 10,000 10,000
Due 2000, fixed interest rate of 6.775%, paid quarterly.... 20,000 --
Senior notes, unsecured, due 1999 through 2007, fixed
interest rates from 7.25% to 7.98%......................... 107,500 57,500
Other......................................................... 159 197
----------------------------
Total......................................................... 657,039 540,916
Less current portion.......................................... (779) (750)
----------------------------
Total......................................................... $656,260 $540,166
- ------------------------------------------------------------------------------------------
</TABLE>
The Company has the ability to support commercial paper, uncommitted
bank borrowings, and other debt on a long-term basis through its Credit
Agreement and therefore, based upon management's intent, has classified
these borrowings, which total $416,844,000 at February 3, 1996, as
long-term debt.
On October 30, 1995, the Company entered into a new expanded Credit
Agreement with Bank of America as agent and Bank of Nova Scotia as
co-agent, which provides for, among other things: (1) a revolving credit
commitment of $500,000,000 with payment of the unpaid balance at June 30,
2000; (2) interest at a spread over LIBOR on such borrowings or various
other pricing options; and (3) a facility fee of .15% of the amount of the
commitment. The Agreement requires the maintenance of specified ratios and
restricts the amounts of cash dividends paid. At February 3, 1996,
$12,100,000 of retained earnings was available for payment of dividends or
repurchase of Company stock in the following year, based on 40% of net
income for the year ended February 3, 1996 or the cumulative amount of
$70,000,000 for stock repurchases made during the two-year period from June
15, 1995 through and including June 14, 1997.
The Company has established uncommitted lines of credit with foreign
banks for $100,000,000 and has uncommitted bid lines of credit with certain
banks within its committed bank group for $92,000,000. These lines, which
generally have terms of one year, allow the Company to borrow from the
banks at mutually agreed upon rates, usually below the rates offered under
the 1995 Credit Agreement. The Company has unrated commercial paper
programs with maturities ranging up to 270 days in amounts up to a maximum
of $455,000,000. The Company also has available letters of credit lines for
$32,500,000, of which $12,166,000 had been issued at February 3, 1996.
The Company has entered into interest rate swap and cap agreements to
reduce the impact of changes in interest rates on its floating rate
long-term debt. At February 3, 1996, the Company had outstanding six
interest rate contracts with commercial banks, having a total notional
principal amount of $100,000,000. The three swap agreements effectively fix
the Company's interest rate on unrated commercial paper, floating rate
facilities, and uncommitted lines of credit at rates between 4.625% and
7.595% on a notional principal amount of $50,000,000. These contracts
expire through 1998. The cap agreements effectively limit the maximum
interest rate the Company will pay at rates between 5.0% and 9.0% on
notional principal amounts totaling $50,000,000. These contracts expire
through 1999. Gains and losses on these swaps and caps are amortized over
the life of the instruments. The Company is exposed to credit loss in the
event of nonperformance by the other parties to the interest rate swap and
cap agreements. The Company requires an A or better rating of the
counterparties and accordingly does not anticipate nonperformance by the
counterparties.
Annual estimated long-term debt maturities for the five fiscal years
subsequent to February 3, 1996 are: 1996, $779,000; 1997, $11,312,000;
1998, $60,440,000; 1999, $8,528,000; 2000, $438,059,000; and thereafter,
$137,921,000.
F-12
<PAGE>
6. INCOME TAXES
The provision for income taxes includes the following (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Current................................... $16,937 $7,919 $57,894
Deferred.................................. 1,626 (3,526) (8,296)
-----------------------------
Total..................................... $18,563 $4,393 $49,598
- -------------------------------------------------------------------------
</TABLE>
A reconciliation between the statutory federal income tax rate to the
provision for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes at the statutory rate........... $17,097 $4,046 $42,176
Settlement of certain IRS audits..................... -- -- 3,588
Deferred income taxes increase in statutory rate..... -- -- 219
State income taxes .................................. 1,466 347 3,615
-------------------------------
Provision for income taxes........................... $18,563 $4,393 $49,598
- --------------------------------------------------------------------------------------
</TABLE>
As a result of the adoption of SFAS 109, 1993 consolidated net income
was decreased by $2,588,000 (see Note 2).
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
February 3, 1996 and January 28, 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Capitalized inventory costs.................. $ 7,150 $ 6,851
Accrued expenses............................. 20,369 19,328
Restructuring related charges................ 5,124 9,481
Deferred lease transactions.................. 16,063 17,349
AMT credit................................... 1,201 5,110
Other........................................ 8,857 7,864
---------------------
Total deferred tax assets................... 58,764 65,983
---------------------
Deferred tax liabilities:
Accumulated depreciation..................... 54,170 50,502
Prepaid expenses............................. 5,918 12,212
LIFO inventory............................... 7,444 10,411
---------------------
Total deferred tax liabilities.............. 67,532 73,125
---------------------
Net deferred income taxes...................... $ 8,768 $ 7,142
Current deferred income taxes--asset ...........$(22,046) $(15,116)
Noncurrent deferred income taxes--liability..... 30,814 22,258
--------------------
Net deferred income taxes...................... $ 8,768 $ 7,142
- --------------------------------------------------------------------
</TABLE>
7. STOCKHOLDERS' EQUITY
Stock Incentive Plans--At February 3, 1996, 4,236,327 shares of common
stock were reserved for issuance to employees, including officers and
directors, and nonemployee agents, consultants, and advisors, under stock
incentive plans. These plans provide for the granting of incentive stock
options, nonqualified stock options, stock bonuses, stock appreciation
rights, cash bonus rights, and performance units.
Under the terms of the plans, the option price is determined by the
Board of Directors at the time the option is granted. The option price for
incentive stock options cannot be less than the fair value of the Company's
stock on the day prior to the date of grant. Nonqualified stock options may
not be granted at less than 50% of the fair value on the day prior to the
date of grant.
Stock Options--Activity under the plans was as follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
Option Price
(Market Price at Date of Grant)
- -----------------------------------------------------------------------------
Shares Per Share Total
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Shares under option:
Balance, January 29, 1994........... 2,153 $12.125-36.750 50,651
Options granted .................. 404 29.625-41.250 14,629
Options exercised................. (153) 12.125-32.750 (2,612)
Options cancelled................. (46) 14.250-41.250 (1,611)
- -----------------------------------------------------------------------------
Balance, January 28, 1995........... 2,358 12.125-41.250 61,057
Options granted .................. 457 21.500-26.000 11,181
Options exercised................. (137) 12.125-24.750 (2,018)
Options cancelled................. (121) 12.125-41.250 (3,929)
- -----------------------------------------------------------------------------
Balance, February 3, 1996........... 2,557 12.125-41.250 $66,291
- -----------------------------------------------------------------------------
Shares exercisable, February 3, 1996... 1,261 12.125-41.250
Shares available for option:
January 28, 1995.................... 15
February 3, 1996.................... 1,679
- -----------------------------------------------------------------------------
The Company issued a replacement grant election program in 1996 that allows
stock option holders with options granted at more than $26.00 per share to
reset the price at $26.00, on up to 984,000 options that were previously
granted at prices ranging from $27.25 to $41.25. For those electing to
reset their option price to $26.00, the vesting period will start over.
Other Option--The Company's principal stockholder, FMI Associates, holds an
option, which expires in 1996, for the purchase of 1,566,441 shares with an
aggregate value of $5,080,349.
Management Bonus--In 1992, the Company awarded a stock bonus to a corporate
officer for 5,000 shares totaling $124,000. Shares vest annually over five
years.
Nonemployee Directors Stock Compensation Plan--In 1992, the Company
purchased 4,016 shares of its common stock at market prices for the benefit
of two of its nonemployee directors in lieu of a portion of current and
future board of director fee payments. The shares total $125,000 and vest
annually over five years.
F-13
<PAGE>
8. LEASES
The Company leases or subleases a substantial portion of the real property
used in its operations.
In 1986, the leases and subleases for a distribution center, 71 store
locations, and certain other properties were amended and restated to
provide, among other things, an initial lease term of 20 years for 36
locations (with cash rents of $38,476,000 for the first seven years and
$46,070,000 for the remaining 13 years). The average rent over the primary
lease term is charged to rent expense.
As a result of the above transaction: (1) five previously capitalized
leases qualified as operating leases, resulting in a decrease in property
held under capital leases and capital lease obligations of $53,678,000 and
$72,160,000 respectively, with the resulting $18,482,000 gain deferred and
amortized over the 20-year lease period; and (2) the difference between the
amount of the cash rent paid and the expense charged to operations on the
36 locations described above is included in deferred lease transactions.
In 1992, the Company amended leases for nine store locations, with cash
rent escalating over the term of the leases. The difference between cash
rent paid and the expense charged to operations is included in deferred
lease transactions. The average rent over the primary lease term, which is
lower than the prior rents paid, is charged to rent expense.
At February 3, 1996, deferred lease transactions consisted of $9,932,000
unamortized gain on capital leases, $31,566,000 of excess of rent expense
over cash rents for the aforementioned leases, and unamortized deferred
gain on a sale-leaseback transaction of $773,000.
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 February 3, 1996,
$57,867,000 was utilized under the agreement. 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.
The lease terms of certain operating leases require the payment of
executory costs such as property taxes, utilities, insurance, and
maintenance. Certain leases provide for percentage rents. Portions of the
properties are subleased to others for periods of from one to 20 years.
At February 3, 1996, minimum rentals under noncancelable leases for
future fiscal years were (in thousands):
</TABLE>
<TABLE>
<CAPTION>
Operating Capitalized Less Net
Fiscal Year Leases Leases Subleases Rentals
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996........................ $ 80,070 $ 1,563 $ 9,485 $ 72,148
1997........................ 80,212 1,603 8,550 73,265
1998........................ 79,286 1,725 7,532 73,479
1999........................ 78,011 1,725 6,503 73,233
2000........................ 76,093 1,725 5,014 72,804
2001 and thereafter......... 554,669 26,560 18,462 562,767
--------------------------------------------
Total....................... $948,341 $34,901 $55,546 $927,696
--------------------------------------------
Less imputed interest....... (23,943)
--------
Present value of minimum
rental payments.......... 10,958
Less current portion........ (90)
--------
Capitalized lease obligations $10,868
- --------------------------------------------------------------------------
</TABLE>
As of February 3, 1996, the leases for seven store locations and certain
equipment were accounted for as capital leases. The amounts representing
interest expense on these capital lease obligations were included in oper-
ating and administrative expenses and were $1,701,000, $1,848,000, and
$2,112,000 in 1995, 1994, and 1993, respectively.
Accumulated amortization of property under capital leases was $6,556,000
and $6,098,000, at February 3, 1996 and January 28, 1995, respectively.
Rent expense under operating leases including executory costs, and
payments under capital leases were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Gross rent expense..................... $100,986 $101,163 $104,892
Rent income from subleases............. (13,941) (12,803) (11,582)
----------------------------------
Net rent expense....................... 87,045 88,360 93,310
Payments under capital leases ......... 1,807 1,947 2,178
----------------------------------
Total.................................. $ 88,852 $ 90,307 $ 95,488
- ---------------------------------------------------------------------------
</TABLE>
Included in gross rent expense for 1995, 1994, and 1993 were contingent
rents of $1,264,000, $1,421,000, and $1,650,000, respectively.
In 1989, the Company incurred a restructuring charge in connection with
management's decision to replace or close certain stores and to convert the
Company's MIS hardware from Honeywell to IBM. The decision to close certain
stores was subsequently reassessed by management, and in 1991 revisions
were made to the amounts accrued. At February 3, 1996, included in other
long-term liabilities, were future net rentals under noncancelable leases
for closed stores as follows (in thousands):
<TABLE>
<CAPTION>
Less
Estimated Estimated
Subleases/ Net
Fiscal Year Leases Discounts Rentals
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
1996.................................. $ 1,325 $ 726 $ 599
1997.................................. 1,248 768 480
1998.................................. 1,251 831 420
1999.................................. 1,254 835 419
2000.................................. 1,257 809 448
2001 and thereafter................... 8,664 6,824 1,840
----------------------------------
Total................................. $14,999 $10,793 $ 4,206
- ----------------------------------------------------------------------------
</TABLE>
9. EMPLOYEE BENEFIT PLANS
Employees' Profit-sharing Plan--Profit-sharing contributions under this
Plan, which covers the Company's nonunion employees, are made to a trust
fund held by a third-party trustee. Contributions are based on the
Company's pretax income, as defined, at rates determined by the Board of
Directors and are not to exceed amounts deductible under applicable
provisions of the Internal Revenue Code. In 1994, the Company added a 1%
basic contribution to all eligible employees' accounts each year subject to
normal plan vesting. The Company expensed $6,438,000, $5,891,000, and
$3,944,000 in 1995, 1994, and 1993, respectively for these contributions.
F-14
<PAGE>
Multiemployer Pension Plan--The Company contributes to multiemployer
pension plan trusts at specified rates in accordance with collective
bargaining agreements. Contributions to the trusts were $9,938,000,
$8,498,000, and $9,667,000 in 1995, 1994, and 1993, respectively. The
Company's relative positions in these plans with respect to the actuarial
present value of the accumulated benefit obligation and the projected
benefit obligation, net assets available for benefits, and the assumed
rates of return used by the plans are not determinable.
Employee Stock Purchase Plan--The Company has a noncontributory employee
stock purchase plan. The plan allows employees to purchase stock in the
Company via payroll deductions. The Company pays all brokerage fees
associated with the purchase of the stock. The plan is available to all
employees over age 18 who have completed six months of continuous
employment with the Company.
Supplemental Retirement Program--The Company has a supplemental retirement
program for senior management, selected vice presidents, and selected key
individuals. Program provisions are as follows:
SENIOR MANAGEMENT--The plan is funded with life insurance contracts on
the lives of the participants. The Company is the owner of the contracts
and makes annual contributions of $25,000 per participant. Total
contributions were $350,000 in 1995, and $325,000 in each of 1994 and 1993.
Retirement age under the plan is normally 62 with an alternative age of 65,
at which point the Company will make 15 annual benefit payments to the
executive.
SELECTED VICE PRESIDENTS AND SELECTED KEY INDIVIDUALS--The Company will
contribute annually a percentage of each participant's gross salary. The
plan is funded with life insurance contracts on participants age 54 and
younger and variable annuity contracts for participants age 55 and older.
Each participant is the owner of his/her respective contract.
10. OTHER POSTRETIREMENT BENEFITS
For employees who qualified prior to January 1, 1994, the Company sponsored
a retiree health plan for postretirement health care coverage with
eligibility requirements and benefits varying by region of the Company.
Under this plan, the Company contributes 100% of the premiums of the
basic plan for retired salaried employees qualifying under eligibility
requirements which specify minimum age and years of continuous service at
age 60 with 25 years of service, age 62 with 20 years of service, and age
65 with 15 years of service.
For retired salaried and hourly employees between the ages of 62 to 65
years and having completed minimum continuous service of 15 years, the
retiree pays premiums at current employee rates.
As of January 1, 1994, the Company changed the eligibility requirements
and benefits available under the retiree health plan. For all salaried and
non-union hourly employees in all regions who retire after January 1, 1994,
eligibility requirements changed to a minimum of 60 years of age with 10
years of continuous service. Under the revised plan, the retiree pays
premiums at current employee rates.
The following table sets forth the plan's funded status, reconciled with
the amount shown in the Company's balance sheet:
<TABLE>
<CAPTION>
February 3, 1996 January 28, 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Current retirees............................... $ 1,326,363 $ 1,231,478
Fully eligible plan participants............... 912,301 656,973
Other active plan participants................. 3,312,008 2,331,405
--------------------------------
Accumulated postretirement benefit obligation
in excess of plan assets....................... 5,550,672 4,219,856
Unrecognized transition obligation,
transition date 1/31/93 and 2/1/92............. (1,336,565) (1,420,100)
Unrecognized prior service cost................... (324,484) (366,138)
Unrecognized net gain/(loss)...................... (211,209) 657,774
--------------------------------
Accrued postretirement benefit cost............ $ 3,678,414 $ 3,091,392
--------------------------------
Weighted average discount rate ................... 7.5% 8.0%
--------------------------------
Net periodic postretirement benefit cost
included the following components:
Service cost--benefits attributed to service
during the period ......................... $ 283,651 $ 353,305
Interest cost on accumulated postretirement
benefit obligation......................... 332,045 372,483
Amortization of transition obligation
over 20 years.............................. 125,189 125,189
Amortization of unrecognized (gain) loss (19,092) 27,897
--------------------------------
Net periodic postretirement benefit cost $ 721,793 $ 878,874
- ---------------------------------------------------------------------------------------
</TABLE>
The assumed health care cost trend rates used in measuring the
accumulated postretirement benefit obligation were as follows:
UNDER MEDICARE RETIREMENT AGE--6% for two years, then grading down to
4.5% by the year 2000, and
MEDICARE RETIREMENT AGE AND OVER--5% for two years, then grading down to
4.5% in 1998.
The health care cost trend rate assumption has a significant effect on
the amounts reported. To illustrate, increasing the assumed health care
cost trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of February 3, 1996 and
January 28, 1995 and the aggregate of the service and interest cost
components of the net periodic postretirement benefit cost for 1995 and
1994 as follows:
<TABLE>
<CAPTION>
1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C>
Increase in accumulated postretirement benefit obligation..... $989,563 $707,931
Increase in service and interest costs........................ 121,270 154,060
- -------------------------------------------------------------------------------------
</TABLE>
F-15
<PAGE>
11. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by
the Company using available market information and valuation methodologies
as shown below. The use of different assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could actually realize.
Management is not aware of any factors that would significantly change
the estimated fair value amounts shown below. A comprehensive revaluation
for purposes of these financial statements has not been performed since
February 3, 1996, and current estimates of fair value may differ from the
amounts presented herein. The Company is not subjected to a concentration
of credit risk.
The estimated fair values of the Company's financial instruments are
as follows (in thousands):
<TABLE>
<CAPTION>
February 3, 1996
-----------------------
Carrying Estimated
Amount Fair Value
- --------------------------------------------------------------------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents..................... $ 41,849 $ 41,849
Receivables................................... 24,683 24,683
Prepaid expenses and other.................... 23,680 23,680
Other long-term assets........................ 19,724 19,900
Financial liabilities:
Outstanding checks............................ 63,177 63,177
Accounts payable.............................. 193,896 193,896
Long-term debt and interest rate agreements... 656,260 674,804
- --------------------------------------------------------------------------
</TABLE>
Cash and Cash Equivalents, Receivables, Prepaid Expenses and Other--The
carrying amounts of these items are a reasonable estimate of their fair
value.
Other Long-term Assets--The fair value of debt and equity investments
(primarily municipal securities) is estimated using quoted market prices.
Outstanding Checks and Accounts Payable--The carrying amounts of these
items are a reasonable estimate of their fair value.
Long-term Debt and Interest Rate Agreements--The fair value of notes,
mortgages, and real estate assessments payable is estimated by discounting
expected future cash flows. The discount rate used is the rate currently
available to the Company for issuance of debt with similar terms and
remaining maturities. For commercial paper and bid lines of credit under
the revolving credit agreement (see Note 5), the carrying amounts are a
reasonable estimate of their fair value.
The fair value of interest rate swap and cap agreements is the estimated
amount at which they could be settled. At February 3, 1996, the Company
could settle the swap agreements at a loss of $1,037,900, and cap agreements
at a gain of $311,700.
12. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are parties to various legal claims,
actions, and complaints, certain of which involve material amounts.
Although the Company is unable to predict with certainty whether or not it
will ultimately be successful in these legal proceedings or, if not, what
the impact might be, management presently believes that disposition of
these matters will not have a material adverse effect on the Company's
consolidated financial position or consolidated results of operations.
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1995 Fiscal Quarters 1994 Fiscal Quarters
---------------------------------------- ---------------------------------------
(In thousands, except per-share data) Fourth Third Second First Fourth Third Second First
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales......................................... $966,134 $750,042 $775,809 $936,679 $831,997 $626,804 $737,284 $932,347
Gross margin...................................... 282,712/1 208,818 221,890 266,040 220,793/2 152,643 222,018 271,663
Income (loss) from operations..................... 41,676/1 5,393 25,233 16,125 21,037/2 (52,197)/3 36,386 32,192
Net income (loss)................................. 18,839/1 (2,309) 10,673 3,083 8,568/2 (36,579)/3 19,193 15,986
Earnings (loss) per common share.................. $.67/1 $(.08) $.37 $.11 $.30/2 $(1.28)/3 $.67 $.56
Weighted average number of shares outstanding..... 28,199 28,254 28,369 28,465 28,510 28,556 28,676 28,725
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
/1 The LIFO adjustment in the fourth quarter of 1995 increased gross margin
and income from operations by $6,737; net income by $4,177; and earnings
per common share by $.15.
/2 The LIFO adjustment in the fourth quarter of 1994 increased gross margin
and income from operations by $2,549; net income by $1,580; and earnings
per common share by $.06.
/3 The writedown of California assets in the third quarter of 1994 decreased
income from operations by $15,978; net income by $9,906; and earnings per
common share by $.35.
</TABLE>
F-16
<PAGE>
MANAGEMENT'S REPORT ON
RESPONSIBILITY FOR FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The management of Fred Meyer, Inc. has the responsibility for preparing
the accompanying financial statements and for their integrity and
objectivity. The statements were prepared in accordance with generally
accepted accounting principles. The financial statements include amounts
that are based on management's best estimates and judgments. Management
also prepared other information in the annual report and is responsible for
its accuracy and consistency with the financial statements.
The Company's financial statements have been audited by Deloitte &
Touche LLP, independent auditors. Management has made available to Deloitte
& Touche LLP all the Company's financial records and related data, as well
as the minutes of shareholders' and directors' meetings.
Management has established and maintains an internal control structure
that provides reasonable assurance as to the integrity and reliability of
the financial statements, the protection of assets from unauthorized use or
disposition and the prevention and detection of fraudulent financial
reporting. The internal control structure provides for the appropriate
division of responsibility, which is monitored for compliance.
The Company maintains an internal auditing program that assesses the
effectiveness of the internal control structure and recommends
improvements.
Deloitte & Touche LLP also considered the internal control structure in
connection with its audit. Management has considered the internal
auditors' and Deloitte & Touche LLP's recommendations concerning the
Company's internal control structure and has taken the appropriate actions
to respond to these recommendations.
The Company's principles of business conduct address, among other
things, potential conflicts of interests and compliance with laws,
including those relating to financial disclosure and the confidentiality of
proprietary information.
The Board of Directors pursues its responsibility for the quality of the
Company's financial reporting primarily through its Audit Committee,
which is comprised of outside directors. The Audit Committee meets
approximately three times a year with management, the corporate internal
audit manager, and the independent auditors to ensure that each is meeting
its responsibilities and to discuss matters concerning internal controls
and accounting and financial reporting. The corporate internal audit
manager and independent auditors have unrestricted access to the Audit
Committee.
KENNETH THRASHER
Kenneth Thrasher
Senior Vice President, Finance and Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of Fred Meyer, Inc.:
We have audited the accompanying consolidated balance sheets of
Fred Meyer, Inc. and subsidiaries as of February 3, 1996 and January 28,
1995, and the related statements of consolidated operations, changes in
consolidated stockholders' equity, and consolidated cash flows for each of
the three fiscal years in the period ended February 3, 1996. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Fred Meyer, Inc. and
subsidiaries at February 3, 1996 and January 28, 1995, and the results of
their operations and their cash flows for each of the three fiscal years in
the period ended February 3, 1996, in conformity with generally accepted
accounting principles.
As discussed in Note 6 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in the fiscal
year ended January 29, 1994.
DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Portland, Oregon
March 11, 1996
F-17
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit Page
Number Number
- ------- ----------
3A Restated Certificate of Incorporation of Fred Meyer,
Inc. Incorporated by reference to Exhibit 3A to the
Company's Registration Statement on Form S-1,
Registration No. 33-8574.
3B Amended and Restated Bylaws of Fred Meyer, Inc.
Incorporated by reference to Exhibit 4B to the Company's
Registration Statement on Form S-8, Registration No. 33-
49638.
4A Specimen Stock Certificate. Incorporated by reference
to Exhibit 4C to the Company's Registration Statement on
Form S-3, Registration No. 33-67670.
4B Credit Agreement dated as of June 30, 1994, among Fred
Meyer, Inc., 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.
4C 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, Registration
No. 33-67670.
4D Note agreement dated as of June 1, 1994, in an original
aggregate principal amount of $57,500,000, among Fred
Meyer, Inc., 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.
4E Credit Agreement dated as of March 6, 1995, among Fred
Meyer, Inc., 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.
4F Amended and Restated Credit Agreement dated as of
October 30, 1995 among Fred Meyer, Inc., 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).
4G Note Agreement, dated April 25, 1995, in an original
aggregate principal amount of $50,000,000, among Fred
Meyer, Inc., and 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).
<PAGE>
*10A-1 Fred Meyer, Inc. 1983 Stock Option Plan, as amended.
Incorporated by reference to Exhibit 10D to the
Company's Annual Report on Form 10-K for the year ended
January 28, 1989 (File No. 0-15023).
*10A-2 Amended Fred Meyer, Inc. 1990 Stock Incentive Plan.
Incorporated by reference to Exhibit 22 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
August 12, 1995 (File No. 0-15023).
*10B Fred Meyer, Inc. Bonus Plan Description, as amended.
10C Assumption Agreement and Unconditional Guaranty of
Certain Obligations, dated December 11, 1981, among Fred
Meyer, Inc., The Predecessor Company, DTC Acquisition
Corporation, and Real Estate Properties Limited
Partnership (formerly Fred Meyer Real Estate Properties,
Ltd.). Incorporated by reference to Exhibit 10FF to the
Company's Registration Statement on Form S-1,
Registration No. 2-87139.
*10D Non-Employee Directors Stock Compensation Plan, adopted
November 17, 1992. Incorporated by reference to Exhibit
10F to the Company's Annual Report on Form 10-K for the
year ended January 30, 1993.
*10E Form of contract for Senior Executive Long-Term
Disability Program. Incorporated by reference to
Exhibit 10G to the Company's Annual Report on Form 10-K
for the year ended January 30, 1993.
*10F Fred Meyer Supplemental Income Plan dated January 1,
1994. Incorporated by reference to Exhibit 10H to the
Company's Annual Report on Form 10-K for the year ended
January 29, 1994.
*10G Employment Agreement between Fred Meyer, Inc. and Robert
G. Miller, as amended by Amendment No. 1. Incorporated
by reference to Exhibit 10G to the Company's Annual
Report on Form 10-K for the year ended January 28, 1995.
*10H Indemnity Agreement. Incorporated by reference to
Exhibit 10I to the Company's Registration Statement on
Form S-1, Registration No. 33-8574.
10I Form of Lease Agreement for substantially identical
leases covering 36 stores and other locations leased by
Fred Meyer, Inc. (or a wholly owned subsidiary) from
Real Estate Properties Limited Partnership (formerly
Fred Meyer Real Estate Properties, Ltd.) including form
of Assignment of Master Lease wherein Fred Meyer Real
Estate Properties, Ltd. (now Real Estate Properties
Limited Partnership) assigned its interest to
Metropolitan Life Insurance Company and a First
Amendment to Lease Agreement, dated November 25, 1986,
with appendices containing certain nonstandard
provisions of the Lease Agreement and the First
Amendment; Collateral Matters Agreement and
Indemnification Agreement, each dated November 25, 1986,
between Fred Meyer, Inc. and Metropolitan Life Insurance
Company. Incorporated by reference to Exhibit 10I to
the Company's Annual Report on Form 10-K for the year
ended January 31, 1987 (File No. 0-15023). Memorandum
of First Amendment to Lease Agreement, dated March 6,
1987, between Metropolitan Life Insurance Company
("Metropolitan"), Landlord and Fred Meyer, Inc., Tenant;
<PAGE>
and Assignment of Master Lease, dated March 6, 1987,
between Real Estate Properties Limited Partnership
(formerly Fred Meyer Real Estate Properties, Ltd.)
(Assignor) and Metropolitan (Assignee) for Nampa, Idaho.
Incorporated by reference to Exhibit 10I to the
Company's Annual Report on Form 10-K for the year ended
January 30, 1988 (File No. 0-15023).
10J Form of Lease Agreement for substantially identical
leases covering 27 stores and other locations subleased
by Fred Meyer, Inc. (or a wholly owned subsidiary) from
Real Estate Properties Limited Partnership (formerly
Fred Meyer Real Estate Properties, Ltd.) with appendices
containing certain nonstandard provisions contained in
the Lease Agreement. Incorporated by reference to
Exhibit 10J to the Company's Annual Report on Form 10-K
for the year ended January 31, 1987 (File No. 0-15023).
Appendices containing certain additional nonstandard
provisions. Incorporated by reference to Exhibit 10J to
the Company's Annual Reports on Form 10-K for the years
ended January 28, 1989, February 3, 1990, and February
2, 1991 (File No. 0-15023). Certain lease modifications
for Burien, Washington facility. Incorporated by
reference to Exhibit 10K to the Company's Annual Report
on Form 10-K for the year ended January 30, 1993.
Second Lease Modification Agreement for Cornelius store,
dated as of August 16, 1994; and Second Lease
Modification Agreement for Fairbanks store, dated as of
March 18, 1994. Incorporated by reference to Exhibit
10J to the Company's Annual Report on Form 10-K for the
year ended January 28, 1995.
10K Form of Sublease, dated May 1, 1984, Fred Meyer Real
Estate Properties, Ltd. (now Real Estate Properties
Limited Partnership), Lessor to Fred Meyer, Inc.,
Lesseefor the Stadium Parking Lot. Incorporated by
reference to Exhibit 10J(6) to the Company's
Registration Statement on Form S-1, Registration No. 33-
8574.
10L Form of Sublease, dated May 1, 1984, Fred Meyer Real
Estate Properties, Ltd. (now Real Estate Properties
Limited Partnership), Lessor to Roundup Co., Lessee for
Photo Plant Parking Lot. Incorporated by reference to
Exhibit 10J(7) to the Company's Registration Statement
on Form S-1, Registration No. 33-8574.
10M Lease Agreement, dated October 22, 1986, including
Amendment, dated April 30, 1987, between Fred Meyer Real
Estate Properties, Ltd. (now Real Estate Properties
Limited Partnership), and Roundup Co. for Midway store.
Incorporated by reference to Exhibit 10N to the
Company's Annual Report on Form 10-K for the year ended
January 31, 1987 (File No. 0-15023).
10N Lease Agreement, dated February 1, 1990, relating to
additional property adjacent to Oak Grove store location
between REC Resolution Co. as successor in interest to
Vanoak Corporation, Lessor, and Fred Meyer, Inc.,
Lessee. Incorporated by reference to Exhibit 10P to the
Company's Annual Report on Form 10-K for the year ended
February 2, 1991 (File No. 0-15023).
10O Lease Agreement, dated February 19, 1987, including
Addendum, dated September 16, 1987, between Fred Meyer,
Inc., as Lessee, and REC Resolution Co. as successor in
interest to Duane Company, as Lessor, for the Gateway
store. Incorporated by reference to Exhibit 10Q to the
<PAGE>
Company's Annual Report on Form 10-K for the year ended
January 30, 1988 (File No. 0-15023). Addendum No. 2 to
Lease Agreement. Incorporated by reference to Exhibit
10Q to the Company's Annual Report on Form 10-K for the
year ended February 2, 1991 (File No. 0-15023).
10P Lease Agreement, dated December 12, 1988, between Fred
Meyer, Inc., as Lessee, and REC Resolution Co. as
successor in interest to Fifth Avenue Corporation, as
Lessor, for the Burlingame store. Incorporated by
reference to Exhibit 10S to the Company's Annual Report
on Form 10-K for the year ended January 28, 1989 (File
No. 0-15023).
10Q Lease Cancellation Agreement between the Company and
Real Estate Properties Limited Partnership, regarding
termination of the lease of the photo plant facility,
dated as of January 17, 1995. Incorporated by reference
to Exhibit 10Q to the Company's Annual Report on Form
10-K for the year ended January 28, 1995.
10R Lease for Swan Island Parking Lot between the Company as
lessee and Real Estate Properties Limited Partnership as
lessor, dated November 16, 1994. Incorporated by
reference to Exhibit 10R to the Company's Annual Report
on Form 10-K for the year ended January 28, 1995. Rider
to Lease dated as of November 1, 1994.
10S Lease Assignment Agreement between Real Estate
Properties Limited Partnership (REPL) as assignor, and
the Company as assignee, dated as of March 14, 1995,
pursuant to which the Company has agreed to purchase the
leasehold interest of REPL in the Hawthorne, Hazel Dell
and Raleigh Hills stores; and a related Real Estate
Purchase and Sale Agreement between REC Resolution Co.
as seller and the Company as purchaser, dated as of
March 14, 1995, pursuant to which the Company has agreed
to purchase the fee interest of REC Resolution Co., (an
affiliate of REPL) in the Hawthorne, Hazel Dell and
Raleigh Hills stores. Incorporated by reference to
Exhibit 10S to the Company's Annual Report on Form 10-K
for the year ended January 28, 1995.
10T Fred Meyer Excess Deferral and Benefit Equalization
Plan. 1994 Restatement dated as of January 1, 1994.
Incorporated by reference to Exhibit 10T to the
Company's Quarterly Report on Form 10-Q for the quarter
ended November 4, 1995 (File No. 0-15023).
10U Lease Agreement Tax Retention Operating Lease dated
May 5, 1995 between First Security Bank of Utah, N.A.
not individually but solely as Owner Trustee under FM
Trust 1995-1, as Lessor and Fred Meyer, Inc., as Lessee,
Appendix A to Participation Agreement and Lease
Supplements nos. 1, 2, and 3 dated as of May 3, 1995
between First Security Bank of Utah, N.A. lessor, and
Fred Meyer, Inc., lessee. Incorporated by reference to
Exhibit 10U to the Company's Quarterly Report on Form
10-Q for the quarter ended November 4, 1995
(File No. 0-15023).
10V Lease Agreement Tax Retention Operating Lease dated as
of December 1, 1995 between First Security Bank of Utah,
N.A., not individually, but solely as Owner Trustee
under the FM Trust 1995-2, as Lessor and Fred Meyer,
Inc. as Lessee, and Appendix A to Participation
Agreement.
<PAGE>
10W Settlement Agreement and Mutual Release dated as of
August 10, 1995 between REPL, REC Resolution Co., and
the Company and certain of its subsidiaries and restated
Second Lease Modification Agreement dated October 12,
1995 between the Company and REPL, with respect to the
Gresham, Oregon store, and Second Lease Modification
Agreement dated October 12, 1995 between the Company and
REPL with respect to the Clackamas, Oregon store.
11 Computation of Earnings per Common Share.
21 List of Subsidiaries.
23 Consent of Deloitte & Touche LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
EXHIBIT 10B
FRED MEYER, INC. BONUS PLAN DESCRIPTION
AS AMENDED TO FEBRUARY 3, 1996
INTRODUCTION:
The Fred Meyer, Inc. Bonus Plan for 1995 compensates selected
employees based on goals and objectives determined periodically by the
Company. Under the Bonus Plan, bonuses are allocated based on programs
prescribed for each of two categories of participants: (1) Regional and
Store bonusable participants, and (2) all other bonusable participants.
REGIONAL AND STORE BONUSABLE PARTICIPANTS PROGRAM:
Awards for regional and store bonusable participants are based
upon predetermined and preapproved objectives for store contribution
income, corporate net inventory control (inventory less payables), and
corporate pretax income. Each quarter and year the Company sets objectives
for sales, contribution income, net inventory, and pretax income based upon
the Company's projections, each region/store manager's projections and
historical results. These objectives are reviewed and approved by the
Company's Compensation Committee. The actual bonus awarded each quarter and
for the year is based on a predefined percentage of the participant's
regular salary for the year, as adjusted for actual versus budgeted
results. Budgeted results give rise to a target bonus, while greater than
budgeted results give rise to a larger bonus (up to 237.5 percent of target
bonus), and lower than budgeted results will result in a smaller bonus (as
low as 0 percent of target bonus). A portion of each participant's bonus is
generally calculated on how well the participant's area of responsibility
does, and a smaller portion is based on how well the Company does. The
Company portion is capped at 200 percent and the store/region portion is
capped at 250 percent.
ALL OTHER BONUSABLE PARTICIPANTS PROGRAM:
The program applicable to all other management/supervisory and
other bonusable participants not included in the regional and store program
is based on the following formula: The bonus paid is based on the Company's
<PAGE>
objectives for sales, pretax income, net inventory, and various
departmental budgets as prepared by the department's management, and
approved by the Compensation Committee. The bonus amount paid is determined
as a percentage of each participant's salary (target bonus), adjusted
upward or downward based on performance. Participants can achieve a maximum
of 200 percent of their target bonus for exceeding their performance goals
or a minimum of 0 percent of target bonus for lower than predefined
results. A portion of a participant's bonus is generally based on his/her
department's results, with the larger portion based on the Company's pretax
income results. Both the department and Company portion is capped at 200
percent. Twenty percent of the target bonus of the Chairman, the President
and all Senior Vice Presidents is deferred into the Company's Capital Bonus
Plan. The Capital Bonus Plan measures the return on assets invested in new
stores and major remodels to determine the actual payment of the deferred
portion of the participant's bonus. Payments are made after the second and
third full years' results under that Plan.
YEAR-END REVIEW AND PAYMENT:
Bonuses are generally paid in April following the year in
which performance goals are measured. The Compensation Committee approves
the final amount of total bonuses to be paid and the amount paid to
executive officers prior to such payment. The Compensation Committee of the
Board of Directors can approve discretionary amounts resulting from unusual
circumstances affecting the Company.
SUPERIOR PERFORMANCE BONUS PLAN:
Vice Presidents, Senior Vice Presidents, the Chief Operating
Officer and Chief Executive Officer are eligible to receive stock bonuses
based on the Company achieving superior performance levels as approved in
advance by the Compensation Committee of the Board of Directors. The number
of shares paid as a bonus, which vest one-third per year over a three-year
period, is based on the ratio of shareholder value added as a percent of
total assets.
<PAGE>1
FRED MEYER - WAREHOUSE LEASE
3205 N. WEBSTER
NORTH BASIN - SWAN ISLAND, PORTLAND
RIDER TO LEASE
DATED: As of November 1, 1994
BETWEEN: REAL ESTATE PROPERTIES LIMITED PARTNERSHIP "Landlord"
AND: FRED MEYER, INC. "Tenant"
This Rider to Lease ("Rider") hereby amends and supplements and is
incorporated into and made part of that certain Lease dated AS OF NOVEMBER 16,
1994 between the parties (the "Lease") with respect to approximately 3,490
square feet of WAREHOUSE space AND CERTAIN ADJOINING LAND AREA SHOWN ON THE SITE
PLAN ATTACHED HERETO AS EXHIBIT A (the "Premises") located at 3205 N. WEBSTER,
NORTH BASIN - SWAN ISLAND, PORTLAND, OREGON (the "Facility") as more
particularly described in the Lease. Capitalized terms not otherwise defined in
this Addendum shall have the meanings ascribed in the other provisions of this
Lease. In the event of any inconsistency or ambiguity between the terms of this
Rider and the other terms of this Lease, the terms of this Rider shall prevail.
The Lease is hereby supplemented and amended as follows:
RIDER - TERM; DELIVERY OF POSSESSION. The Lease term will
----------------------------
commence DECEMBER 21, 1994 and end on DECEMBER 31, 1995, SUBJECT TO THREE
SUCCESSIVE OPTIONS FOR TENANT TO EXTEND SUCH TERM FOR ADDITIONAL 12-MONTH
PERIODS BY WRITTEN NOTICE TO LANDLORD NOT LATER THAN 90 DAYS PRIOR TO THE END OF
THE THEN CURRENT TERM.
THE PREMISES IS CURRENTLY VACANT AND LANDLORD IS PRESENTLY ABLE TO
EFFECT DELIVERY OF POSSESSION.
RIDER 1 - USE. The permitted use by Tenant UNDER SECTION 1(A)
---
will include WAREHOUSE, RELATED OFFICE (IF ANY), PARKING AND any OTHER lawful
uses permitted by zoning and other governmental regulations affecting the
Premises.
RIDER 1(B) TENANT'S LIABILITY FOR INCREASED FIRE INSURANCE
----------------------------------------------
PREMIUMS, OTHER MATTERS. Landlord will promptly notify Tenant
- -----------------------
if Landlord's insurance carrier or underwriter or other person claims an
increase in premiums attributable to Tenant's use of the Premises or that
Tenant's activities on or about the Premises may invalidate such coverage or do
not comply with applicable requirements, and will cooperate with Tenant, at
Tenant's reasonable expense, to resolve such matter. Landlord represents to
Tenant that (to the best of Landlord's knowledge) the uses of the Premises
allowed Tenant under this Lease comply
<PAGE>2
with and do not violate any provision of any insurance Landlord may now or
hereafter obtain affecting the Premises or Facility. Landlord shall promptly
provide Tenant with complete copies of all such policies which Tenant is
required to comply (UNDER SECTION 2(B)).
LANDLORD HAS DISCLOSED TO TENANT THAT LANDLORD HAS DISCOVERED A FILL
PIPE AND A VENT PIPE ON OR NEAR THE PROPERTY (APPROXIMATELY 8 FEET OUT FROM THE
BUILDING), AND THAT THERE MAY BE AN UNDERGROUND OIL STORAGE TANK OR OTHER TANK
ON OR NEAR THE PROPERTY. LANDLORD WILL HAVE THE RIGHT AND OBLIGATION TO
DETERMINE WHETHER SUCH TANK EXISTS AND TO TAKE SUCH STEPS AS ARE REQUIRED BY LAW
TO DECOMMISSION AND REMOVE THE TANK AND PIPING AND ANY CONTAMINATED SOIL AROUND
THEM AND OTHERWISE COMPLY WITH APPLICABLE LEGAL REQUIREMENTS RELATED THERETO.
LANDLORD WILL KEEP TENANT REASONABLY INFORMED ABOUT THE STATUS OF SUCH
WORK AND WILL INDEMNIFY TENANT (AND ITS SUBTENANT) AGAINST ANY CLAIM, LOSS OR
REASONABLE OUT-OF-POCKET EXPENSE (INCLUDING REASONABLE ATTORNEY FEES) RELATED TO
THE PRESENCE AND REMOVAL OF SUCH TANK, PIPES AND ANY CONTAMINATED SOIL. LANDLORD
WILL PROVIDE TENANT, ON REQUEST, WITH COPIES OF ANY STUDIES, REPORTS OR NOTICES
RECEIVED BY LANDLORD IN CONNECTION THEREWITH AN ANY NOTICES OR FILINGS BY
LANDLORD IN CONNECTION WITH SUCH MATTERS.
TENANT WILL REASONABLY COOPERATE (AT NO OUT-OF-POCKET COST TO TENANT)
IN CONNECTION WITH LANDLORD'S WORK RELATED TO SUCH TANK, PIPES AND ANY
CONTAMINATED SOIL AND WILL GIVE (OR REQUIRE ITS SUBTENANT TO GIVE) LANDLORD
ACCESS TO PERFORM SUCH WORK. TENANT (AND ITS SUBTENANT) ARE NOT ASSUMING ANY
OBLIGATION
---
RELATED TO SUCH TANK, PIPES AND ANY CONTAMINATED SOIL.
RIDER 1(B) INSTALLATION. Tenant will not be required to
------------
obtain Landlord's prior approval (UNDER SECTION 2(C)) of the use of power tools
and other machinery and equipment typically used in the conduct of Tenant's
permitted use and that do not pose a risk of any building overload.
RIDER 1(D) SURRENDER. The "ADDITIONS" to be surrendered (UNDER
---------
SECTION 2(D)) will not include Tenant's furniture, fixtures and equipment
("FF&E") or personal property.
RIDER 2 SECURITY DEPOSIT. The requirement of a security
----------------
deposit (UNDER SECTION 2) is waived.
RIDER 3(B) MAINTENANCE. NOTWITHSTANDING THE PROVISIONS OF
-----------
SECTION 3(B) OF THE LEASE, DURING THE INITIAL 12 MONTHS OF THE LEASE TERM,
LANDLORD WILL BE RESPONSIBLE FOR PERFORMING ANY WORK REQUIRED TO THE ITEMS
LISTED IN THE THIRD SENTENCE OF SECTION 3(B) OF THE LEASE.
RIDER 4 TAXES; OPERATING COSTS. Notwithstanding SECTION 4 OR
----------------------
any OTHER provision of the Lease, Tenant's obligations to pay taxes and
assessments ("Taxes") and operating costs are subject to the following:
<PAGE>3
(a) Landlord estimates that the initial payments under
this paragraph will be $210 per month. Any adjustments by
---
Landlord to the estimated monthly payment and Landlord's annual summary of
the actual Taxes and operating costs will include reasonable detail
concerning the Taxes and operating costs paid or to be paid.
(b) For purposes of SECTION 4 AND OTHER provisions of the Lease
computing Tenant's share of costs based on the rentable area ("FLOOR
AREA"), Tenant's share of costs will be determined based on the floor area
of the Premises divided by the leasable floor area of the Facility (whether
or not leased, occupied or open for business).
(c) The Taxes which Tenant may be required to pay or
share under the Lease shall not include any excise, income,
---
franchise, corporate, capital levy, capital stock, gross receipts, excess
profits, transfer, revenue, estate, inheritance, gift or devolution or
succession tax payable by Landlord, or any other tax, assessment, charge or
levy upon, or measured in whole or in part by, the rent payable hereunder
by Tenant.
(d) As to any Taxes which are payable in installments or any
assessment which is capable of being bonded, only the installment payment
or bonded installment amount may be included in the amounts required to be
paid by Tenant (whether or not Landlord actually elects to pay Taxes in
installments or bond the assessment).
(e) The periodic computation of actual costs compared to estimated
payments and adjustment between the parties will occur not less frequently
than annually, when the actual costs are determinable.
(f) Operating costs are subject to Tenant's standard
exclusions on the Schedule attached hereto.
(g) Landlord will maintain and make available to Tenant for its review
and audit or examination of Landlord's books and records pertaining to
expenses under this Section, and of any other expenses chargeable to Tenant
under this Lease. Any adjustment to the required monthly installment or
payment or estimate shall be made after thirty (30) days advance notice
containing the amount of the adjustment, how it was calculated and
allocated, and such information about the costs actually incurred by
Landlord as Tenant may reasonably require. No adjustments will be made
retroactively for any period or expense incurred more than eighteen (18)
months prior to the date of the adjustment.
(h) Tenant, at Tenant's sole cost and expense, and after giving
Landlord reasonable advance notice, may cause an examination or audit to be
made of Landlord's books and records relating to expenses charged to Tenant
(but not in any event more frequently than once every year). If it
discloses (and the parties agree that) an error in calculation of the
billings to Tenant, Tenant shall promptly pay the underpayment or Landlord
shall promptly pay to Tenant the overpayment, whichever the case may be,
and if there has been an overpayment of more than five percent
<PAGE>4
(5%), Landlord shall reimburse Tenant for the reasonable
cost of the examination or audit.
RIDER 5 PARKING. THE EXCLUSIVE PARKING AREA IS MARKED ON
-------
EXHIBIT A.
RIDER 6(B) TENANT'S INSURANCE. Notwithstanding anything to the
------------------
contrary in this Lease, Tenant shall, so long as it has a net worth of at least
$50,000,000, have the right to self insure all or any portion of the risks for
which Tenant is required to carry insurance under this Lease, in lieu of
carrying the policies described in this Lease.
By execution of this Lease, Landlord acknowledges that it has approved
(for purposes of the Lease) Tenant's insurance coverages, companies and
deductibles and self-insurance arrangements, as set forth in information
previously provided to Landlord in connection with this Lease.
RIDER 7(A) TERMINATION BY LANDLORD ON PARTIAL DESTRUCTION OR
-------------------------------------------------
CONDEMNATION. Landlord will not exercise its right to terminate
- ------------
Tenant's Lease on a selective basis, unless Landlord is also terminating the
leases of similarly affected tenants generally at the Facility. If a casualty or
condemnation event occurs that would give Landlord an election whether or not to
terminate the Lease, Landlord will notify Tenant within 60 days after the event
occurs as to whether Landlord has decided to terminate the Lease or is willing
to restore the Facility. If Landlord is willing to restore, Landlord's notice
will contain reasonable detail on the plan and schedule for restoration
("Restoration Plan"). Tenant will have 15 days after receipt of any notice of a
Restoration Plan to either approve the plan or terminate the Lease (if Tenant is
not satisfied with the plan).
RIDER 9 TRANSFERS. Notwithstanding any other provisions of the
---------
Lease (INCLUDING SECTION 9), the Lease will not restrict or
---
require Landlord's consent for any sublease or concession
arrangement by Tenant and will not restrict or apply to any sale
---
or transfer of stock of Tenant.
Notwithstanding any other provision of this Lease, the provisions of
SECTION 9 OF the Lease shall not apply to or restrict: (1) a transfer or
assignment of this Lease to any corporation that is controlled by, controlling
of, or under common control with, Tenant, where "control" means ownership of the
interests constituting 50 percent or more of the voting power of a corporation
or partnership (an "Affiliate Transfer"); or (2) an assignment or transfer of
this Lease in connection with a sale of all or substantially all of the assets
of Tenant or in connection with a merger, consolidation, acquisition of a
controlling interest in Tenant's stock, or other significant corporate
transaction ("Transaction Transfer"). No Affiliate Transfer shall constitute a
release of Tenant unless Landlord agrees otherwise in writing. Tenant shall
promptly notify Landlord of any Affiliate Transfer or Transaction Transfer.
<PAGE>5
Where Landlord's consent is required for a transfer by Tenant,
Landlord will give (or reasonably deny) its consent in writing within 20 days
after receipt of a written request, including the name of the Transferee and
such other information as Landlord may reasonably require.
RIDER 9(A) REASON FOR ANY DISAPPROVAL PROVIDED. Landlord will
-----------------------------------
not take action to terminate this Lease because of an unapproved transfer or
take other action against Tenant without first giving Tenant a written statement
specifying the particular reasons why the proposed transfer and transferee were
not reasonable acceptable to Landlord and any steps required to be taken by
Tenant (if applicable) to obtain Landlord's consent, and at least twenty (20)
days for Tenant to comply with such requirements or take other appropriate
action with respect to Landlord's refusal to grant consent.
RIDER 10(A) EVENTS OF DEFAULT. Landlord will not have the
-----------------
right to terminate this Lease or dispossess Tenant or other action on account of
default UNDER SECTION 10 OF THE LEASE without giving Tenant notice and a
reasonable opportunity to cure the alleged event of default (minimum of at least
five days after receipt of written notice of the event Landlord considers a
default with respect to payments and not less than 30 days after receipt of
written notice as to other performance obligations, or to commence correction
within such 30 days AS PROVIDED IN THE LAST SENTENCE OF SECTION 10(A)). Tenant
will not be in default for any bankruptcy or insolvency event of default (FOR
MATTERS LISTED IN SECTION 10(B)) unless Tenant is unable to obtain a dismissal
or stay of proceeding within 45 days after becoming aware of the event.
RIDER 11 REMEDIES FOR DEFAULT. Each party will use reasonable
--------------------
efforts to mitigate damages for any default by the other party.
THE DISCOUNT RATE UNDER SECTION 11(C) WILL BE NINE PERCENT (9%)
PER ANNUM.
RIDER 11(A) AND (D) NOTICE. Landlord will not terminate the
------
Lease or make a payment or perform an obligation on Tenant's behalf without
Tenant having received five days' written notice of Landlord's intent to do so
(which notice may be given in or separately from the notices under SECTION 10 OF
THE LEASE).
RIDER 17 INTEREST AND LATE CHARGES. The grace period for
-------------------------
interest and late charges IN BOTH SENTENCES OF SECTION 17 is
modified to be: "five days after receipt of written notice of
nonpayment when due."
RIDER 18(C) ENTRY. Any entry by Landlord will be made after
-----
reasonable advance notice (minimum ten (10) days' notice, except for emergency
repairs). Such ten (10) days' written notice shall not be required with respect
to emergency repairs required to protect persons, property or other safety of
tenants, but in the event of such emergency repairs, Landlord will attempt to
contact Tenant as soon as possible and keep Tenant advised as to the action
being taken. The reasonable costs of work performed to correct a default shall
be promptly
<PAGE>6
reimbursed by Tenant after submission to it of invoice(s) and information on the
work performed and costs incurred by Landlord as Tenant may reasonably require.
If such reimbursement is not made within twenty (20) days after receipt of such
invoice(s) and information, the costs incurred by Landlord will bear interest as
provided in the Lease.
RIDER 20 GENERAL PROVISIONS. The following General Provisions
------------------
are added to the Lease:
20.1 DECISION MAKING BY PARTIES. Wherever a party's consent,
--------------------------
approval, decision or determination is required under this Lease, such consent
or approval shall be given or decision or determination shall be made in writing
and in a commercially reasonable manner. No change in rent, the rights of the
paries or the economic terms of this Lease shall be required as a condition to
granting of consent. Any denial of consent will include in reasonable detail the
reason for denial or aspect of the request that was not acceptable.
20.2 NOTICES. Notices may be given by utilization of the
-------
method(s) referenced in the Lease or by facsimile or other telecommunication
device capable of transmitting or creating a written record or personally. Each
party shall give notice to the other of its address for notice by written notice
to the other. Unless Tenant designates another address for notice by notice
given pursuant to this Section, notices to Tenant should be sent to the
following address:
Fred Meyer, Inc.
3800 S.E. 22nd Avenue
P.O. Box 42121
Portland, Oregon 97204-0121
Attn: Senior Vice President, Corporate Facilities
Facsimile No.: (503) 797-3539
with a copy to:
Fred Meyer, Inc.
3800 S.E. 22nd Avenue
P.O. Box 42121
Portland, Oregon 97242-0121
Attn: Corporate Legal Department
Facsimile No.: (503) 797-7138
For the purpose of this Lease, the term "receipt" shall mean the earlier of any
of the following: (i) the date of delivery of the notice or other document to
the address specified pursuant to this Section as shown on the return receipt or
by the records of the courier, (ii) the date of actual receipt of the notice or
other document by the office of the person or entity specified pursuant to this
Section, or (iii) in the case of refusal to accept delivery or inability to
deliver the notice or other document, the earlier of (A) the date of the
attempted delivery or refusal to accept delivery, (B) the date of the postmark
on the return receipt, or (C) the date of receipt of notice of refusal or notice
of nondelivery by the sending party.
<PAGE>7
Notices are not to be delivered to the Premises and are not
---
effective if delivered there (except that any notice required by law to be
posted at or delivered to the Premises will be effective for purposes of
satisfying the requirement of the law).
20.3 EXCULPATION; INDEMNITY. No exculpation of Landlord or
----------------------
indemnity by Tenant will be construed to make Tenant responsible for claims
arising from the gross negligence or willful misconduct of Landlord, its agents,
independent contractors or employees. Landlord shall indemnify Tenant from any
loss, liability, claim of liability cost and expense (including reasonable
attorneys' fees and litigation expenses), arising out of or related to any
violation of law or gross negligence or willful misconduct of Landlord, its
agents, independent contractors or employees.
20.4 PRIOR AGREEMENTS. This Lease (including all exhibits,
----------------
schedules and other attachments hereto, incorporated herein by reference)
contains all of the agreements of the parties hereto with respect to any such
matters which shall be effective for any purpose. No provisions of this Lease
may be amended or added to except by an agreement in writing signed by the
parties hereto or their respective successors in interest. This Lease shall not
be effective or binding on any party until fully executed by both parties
hereto.
20.5 AUTHORITY. If Landlord or Tenant is a corporation or other
---------
entity, each individual executing this Lease on behalf of such corporation or
entity represents and warrants that he is duly authorized to execute and deliver
this Lease on behalf of such corporation or entity, in accordance with its
bylaws or organizational documents, and that this Lease is binding upon such
corporation or entity.
IN WITNESS WHEREOF, the parties have executed this Rider to Lease as
of the date first above written.
LANDLORD: REAL ESTATE PROPERTIES LIMITED
PARTNERSHIP
By DAVID W. ROM
----------------------------
TENANT: FRED MEYER, INC.
By SCOTT L. WIPPEL
----------------------------
<PAGE>8
SCHEDULE #1
STANDARD EXCLUSIONS
Notwithstanding anything contained in this Lease, no expenses incurred for the
following shall be included in any common area or operating expenses or other
expenses chargeable to Tenant under this Lease:
1. Rent on any ground lease;
2. Leasing commissions, attorneys' fees, costs and disbursements, and
other expenses (including advertising) incurred in connection with
leasing, renovating, or improving space for tenants or other occupants
or prospective tenants or occupants of the Shopping Center;
3. Costs (including permit, license, and inspection fees)
incurred in renovating or otherwise improving or
decorating, painting or redecorating space for tenants
or other occupants or vacant space;
4. Landlord's costs of any services sold to tenants or other occupants
for which Landlord is entitled to be reimbursed by such tenants or
other occupants as an additional charge or rental over and above the
basic rent and escalations payable under the lease with such tenant or
other occupant, and costs associating with valet parking (including
wages and other expenses);
5. Costs incurred in connection with the original construction or
expansion of the Shopping Center, including any interest or payments
on any financing, or the cost of correcting defects in the initial
design or construction of the Shopping Center or expansion;
6. Any depreciation and amortization of the Building of
which the Premises are a part or other buildings and
improvements within the Shopping Center;
7. Expenses in connection with services or other benefits
of a type not available to Tenant but which are
provided to other tenant or occupant;
8. Damages recovered by any tenant due to violation by
Landlord of any of the terms and conditions of any
lease or any other agreement relating to the Shopping
Center, or any fine or penalty relating to any
violation of law or contract by Landlord or any other
tenant or occupant of the Shopping Center, or
Landlord's expenses incurred in connection with
responding to or contesting the same;
9. Interest on debt or amortization payments on any
mortgages or deeds of trust or any other debt for
borrowed or advanced money, except as expressly
permitted herein;
<PAGE>9
10. Any compensation paid to clerks, attendants, or other
persons in commercial concessions operated by Landlord;
11. Any cost related to the operation of Landlord as an entity rather than
the operating of the Shopping Center, including the cost and formation
of the entity, internal accounting, legal matters, preparation of tax
returns, etc.;
12. Repairs occasioned by fires, windstorm, or other casualty, to the
extent such repairs are covered by insurance or would have been
covered by a standard "all risk" form of casualty insurance policy;
13. Repairs and maintenance of any pylon or other sign
maintained for tenants which does not include any of
Tenant's signage;
14. All costs for which Landlord has received reimbursement or is entitled
to receive reimbursement pursuant to any law or agreement other than
this Section (including, without limitation insurance and condemnation
proceeds), except by way of basic rents or escalation rents;
15. Manager's or agent's fees in excess of FIVE PERCENT (5%) of the other
amounts included in the common area costs in which Tenant is required
to share (not including any cost of insurance, any taxes or assessment
on real or personal property or major capital expenditures);
16. Costs allocable to properties other than the Shopping
Center;
17. Legal fees in connection with the sale or lease of all
or any portion of the Shopping Center, or any interest
therein, or any financing or refinancing related to the
Shopping Center, or in connection with any dispute with
any other tenant(s) or occupant(s) of the Shopping
Center or third parties claiming an interest adverse
to Landlord in the Shopping Center or any portion
thereof, and legal fees and auditing fees, other than
legal and auditing fees reasonably incurred in
connection with the maintenance and operation of all
or any portion of the Shopping Center or in connection
with the preparation of the statements required
pursuant to additional rent or lease escalation
provisions contained in leases of space in the Shopping
Center;
18. Executives' salaries above the grade of building
manager; and
19. Common area or operating expenses (such as parking lot
repaving) properly chargeable to capital accounts shall
be amortized over the useful life of the applicable
item(s) in accordance with GAAP. In no event shall
Tenant's share of expenses during each succeeding year
of the Lease term, increase more than five percent (5%)
per year over the amount charged by Landlord during
the previous year.
As used herein, the term "Shopping Center" is replaced by the
term "Facility."
- -------------------------------------------------------------------------------
LEASE AGREEMENT
(Tax Retention Operating Lease)
Dated as of December 1, 1995
between
FIRST SECURITY BANK OF UTAH, N.A.,
not individually,
but solely as Owner Trustee
under the FM Trust 1995-2,
as Lessor,
and
FRED MEYER, INC.,
as Lessee
- -------------------------------------------------------------------------------
This Lease Agreement is subject to a security interest in favor of
NationsBank of Texas, N.A., as Administrative Agent (the "Agent"), under a
Credit Agreement dated as of December 1, 1995, among First Security Bank of
Utah, N.A., not individually except as expressly stated therein, but solely
as Owner Trustee under the FM Trust 1995-2, the Lenders and the Agent, as
amended, modified, supplemented, restated and/or replaced from time to
time. This Lease Agreement has been executed in several counterparts. To
the extent, if any, that this Lease Agreement constitutes chattel paper (as
such term is defined in the Uniform Commercial Code as in effect in any
applicable jurisdiction), the counterpart of this Lease Agreement
containing the receipt therefor executed by the Agent on the signature page
hereof shall be deemed the only original counterpart hereof.
<PAGE>i
TABLE OF CONTENTS
ARTICLE I.................................................................. 1
1.1 Definitions.................................................. 1
1.2 Interpretation............................................... 1
ARTICLE II................................................................. 2
2.1 Property..................................................... 2
2.2 Lease Term................................................... 2
2.3 Title........................................................ 2
2.4 Lease Supplements............................................ 2
ARTICLE III................................................................ 2
3.1 Rent......................................................... 2
3.2 Payment of Basic Rent........................................ 3
3.3 Supplemental Rent............................................ 3
3.4 Performance on a Non-Business Day............................ 3
3.5 Rent Payment Provisions...................................... 4
ARTICLE IV................................................................. 4
4.1 Utility Charges.............................................. 4
ARTICLE V.................................................................. 4
5.1 Quiet Enjoyment.............................................. 4
5.2 Transfers by Lessor; Lessor Liens............................ 4
ARTICLE VI................................................................. 5
6.1 Net Lease.................................................... 5
6.2 No Termination or Abatement.................................. 5
ARTICLE VII................................................................ 6
7.1 Ownership of the Property.................................... 6
ARTICLE VIII............................................................... 7
8.1 Condition of the Property.................................... 7
8.2 Possession and Use of the Property........................... 7
ARTICLE IX................................................................. 8
9.1 Compliance With Legal Requirements and Insurance
Requirements................................................. 8
ARTICLE X.................................................................. 9
10.1 Maintenance and Repair; Return............................... 9
10.2 Environmental Inspection.................................... 10
ARTICLE XI................................................................ 11
11.1 Modifications, Substitutions and Replacements............... 11
ARTICLE XII............................................................... 11
12.1 Warranty of Title........................................... 11
ARTICLE XIII.............................................................. 12
13.1 Permitted Contests Other Than in Respect of
Indemnities................................................. 12
<PAGE>ii
ARTICLE XIV............................................................... 13
14.1 Public Liability and Workers' Compensation
Insurance................................................... 13
14.2 Hazard and Other Insurance.................................. 13
14.3 Coverage.................................................... 14
ARTICLE XV................................................................ 15
15.1 Casualty and Condemnation................................... 15
15.2 Environmental Matters....................................... 17
15.3 Notice of Environmental Matters............................. 17
ARTICLE XVI............................................................... 18
16.1 Termination Upon Certain Events............................. 18
16.2 Procedures.................................................. 18
ARTICLE XVII.............................................................. 19
17.1 Lease Events of Default..................................... 19
17.2 Surrender of Possession..................................... 22
17.3 Reletting................................................... 22
17.4 Damages..................................................... 22
17.5 Power of Sale............................................... 23
17.6 Final Liquidated Damages.................................... 23
17.7 Lessee's Purchase Option During Default..................... 24
17.8 Waiver of Certain Rights.................................... 24
17.9 Assignment of Rights Under Contracts........................ 24
17.10 Remedies Cumulative......................................... 25
ARTICLE XVIII............................................................. 25
18.1 Lessor's Right to Cure Lessee's Lease Defaults.............. 25
ARTICLE XIX............................................................... 25
19.1 Provisions Relating to Lessee's Exercise of its
Purchase Option............................................. 25
19.2 No Termination With Respect to Less than All of
a Property.................................................. 26
ARTICLE XX................................................................ 26
20.1 Purchase Options............................................ 26
20.2 Expiration Date Purchase or Sale Option..................... 27
20.3 Lessor's Transfer Option.................................... 27
ARTICLE XXI............................................................... 28
21.1 Renewal..................................................... 28
ARTICLE XXII.............................................................. 28
22.1 Sale Procedure.............................................. 28
22.2 Application of Proceeds of Sale............................. 30
22.3 (intentionally omitted)..................................... 31
22.4 (intentionally omitted)..................................... 31
22.5 Certain Obligations Continue................................ 31
22.6 Sale of Undeveloped Pads.................................... 31
ARTICLE XXIII............................................................. 31
23.1 Holding Over................................................ 31
<PAGE>iii
ARTICLE XXIV.............................................................. 32
24.1 Risk of Loss................................................ 32
ARTICLE XXV............................................................... 32
25.1 Assignment.................................................. 32
25.2 Subleases................................................... 32
ARTICLE XXVI.............................................................. 33
26.1 No Waiver................................................... 33
ARTICLE XXVII............................................................. 33
27.1 Acceptance of Surrender..................................... 33
27.2 No Merger of Title.......................................... 34
ARTICLE XXVIII............................................................ 34
28.1 Incorporation of Covenants.................................. 34
ARTICLE XXIX.............................................................. 34
29.1 Notices..................................................... 34
ARTICLE XXX............................................................... 36
30.1 Miscellaneous............................................... 36
30.2 Amendments and Modifications................................ 36
30.3 Successors and Assigns...................................... 36
30.4 Headings and Table of Contents.............................. 36
30.5 Counterparts................................................ 36
30.6 GOVERNING LAW............................................... 36
30.7 Calculation of Rent......................................... 36
30.8 Memoranda of Lease and Lease Supplements.................... 36
30.9 Allocations between the Lenders and the Holders............. 37
30.10 Limitations on Recourse..................................... 37
30.11 Estoppel Certificates....................................... 37
30.12 Decision Making by Parties.................................. 37
30.13 Limited Power of Attorney................................... 37
30.14 Submission To Jurisdiction; Waivers......................... 38
30.15 WAIVERS OF JURY TRIAL....................................... 39
EXHIBITS
EXHIBIT A - Lease Supplement No. ___
EXHIBIT B-1 - Memorandum of Lease and Lease Supplement
EXHIBIT B-2 - Memorandum of Lease
<PAGE>
LEASE AGREEMENT
---------------
(Tax Retention Operating Lease Agreement)
THIS LEASE AGREEMENT (Tax Retention Operating Lease) (this "Lease"),
dated as of December 1, 1995, is between FIRST SECURITY BANK OF UTAH, N.A.,
a national banking association, having its principal office at 79 South
Main Street, Salt Lake City, Utah 84111, not individually, but solely as
Owner Trustee under the FM Trust 1995-2, as lessor (the "Lessor"), and FRED
MEYER, INC., a Delaware corporation, having its principal place of business
at 3800 S.E. 22nd Avenue, Portland, Oregon 97202, as lessee (the "Lessee").
W I T N E S S E T H:
- - - - - - - - - -
A. WHEREAS, subject to the terms and conditions of the Agency
Agreement, Lessor will (i) purchase or ground lease various parcels of real
property, some of which will have existing Improvements thereon, from one
or more third parties designated by Lessee and (ii) fund the development,
refurbishment and construction by the Construction Agent of Improvements on
such real property; and
B. WHEREAS, the Basic Term shall commence with respect to
each Property on the Basic Term Commencement Date described in
Section 2.2 hereof; and
C. WHEREAS, Lessor desires to lease to Lessee, and Lessee
desires to lease from Lessor, each Property;
NOW, THEREFORE, in consideration of the foregoing, and of other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
1.1 Definitions. Capitalized terms used but not otherwise defined in
this Lease have the respective meanings specified in Appendix A to the
Participation Agreement of even date herewith (as such may be amended,
modified, supplemented, restated and/or replaced from time to time, the
"Participation Agreement") among the Lessee, the Construction Agent, First
Security Bank of Utah, N.A., not individually, except as expressly stated
therein, as Owner Trustee under the FM Trust 1995-2, the Holders, the
Lenders and the Agent.
1.2 Interpretation. The rules of usage set forth in Appendix A to the
Participation Agreement shall apply to this Lease.
<PAGE>2
ARTICLE II
2.1 Property. Subject to the terms and conditions hereinafter set
forth and contained in the respective Lease Supplement relating to each
Property, Lessor hereby leases to Lessee and Lessee hereby leases from
Lessor, each Property.
2.2 Lease Term. The term of this Lease with respect to each Property
(the "Basic Term") shall begin upon the earliest to occur of (i) the
Completion Date for such Property, (ii) with respect to Improved Property,
the Property Closing Date with respect to such Improved Property or (iii)
if such Property is a Construction Period Property as of the date of any
Agency Agreement Event of Default, the date of such Agency Agreement Event
of Default (in each case the "Basic Term Commencement Date") and shall end
on December 8, 2000 (the "Basic Term Expiration Date"), unless the Term is
extended or earlier terminated in accordance with the provisions of this
Lease.
2.3 Title. Each Property is leased to Lessee without any
representation or warranty, express or implied, by Lessor and subject to
the rights of parties in possession, the existing state of title
(including, without limitation, the Permitted Exceptions) and all
applicable Legal Requirements. Lessee shall in no event have any recourse
against Lessor for any defect in title to any Property.
2.4 Lease Supplements. On or prior to the Completion Date with
respect to the Improvements to be constructed on Unimproved Property and on
or prior to the Property Closing Date with respect to each acquisition of
Improved Property, Lessee covenants and agrees with Lessor that it will
execute and deliver to Lessor a Lease Supplement for the Property to be
leased effective as of the Basic Term Commencement Date for such Property
(such Lease Supplement to be in substantially the form of Exhibit A
hereto), and thereafter such Property shall be subject to the terms of this
Lease.
ARTICLE III
3.1 Rent.
(a) Lessee shall pay Basic Rent in arrears, on each Payment
Date, and on any date on which this Lease shall terminate with
respect to any or all Properties during the Term; provided, however,
with respect to each individual Property Lessee shall have no
obligation to pay Basic Rent with respect to such Property until the
Basic Term has commenced with respect to such Property.
(b) Basic Rent shall be due and payable in lawful money of the
United States and shall be paid by wire transfer (including Automated
Clearing House transfer) of immediately available funds on the due
date therefor to such
<PAGE>3
account or accounts at such bank or banks as Lessor shall from time
to time direct.
(c) Lessee's inability or failure to take possession of all or
any portion of any Property when delivered by Lessor, whether or not
attributable to any act or omission of Lessee or any act or omission
of Lessor (other than an act or omission that constitutes gross
negligence or wilful misconduct of Lessor), or for any other reason
whatsoever, shall not delay or otherwise affect Lessee's obligation
to pay Rent for such Property in accordance with the terms of this
Lease.
3.2 Payment of Basic Rent. Basic Rent shall be paid absolutely net to
Lessor or its designee, so that this Lease shall yield to Lessor the full
amount thereof, without setoff, deduction or reduction.
3.3 Supplemental Rent. Lessee shall pay to Lessor or its designee or
to the Person entitled thereto any and all Supplemental Rent promptly as
the same shall become due and payable, and if Lessee fails to pay any
Supplemental Rent, Lessor shall have all rights, powers and remedies
provided for herein or by law or equity or otherwise in the case of
nonpayment of Basic Rent. Lessee shall pay to Lessor, as Supplemental Rent,
among other things, on demand, to the extent permitted by applicable Legal
Requirements, (a) any and all unpaid fees, charges, payments and other
obligations (other than the obligations of Lessor to pay the principal
amount of the Loans and the Holder Amounts) due and owing by Lessor under
the Credit Agreement, under the Trust Agreement and/or under any other
Operative Agreement (including specifically without limitation any amounts
owing to the Lenders under Section 2.10 or Section 2.11 of the Credit
Agreement and any amounts owing to the Holders under Section 3.8 or Section
3.9 of the Trust Agreement) and (b) interest at the applicable Overdue Rate
on any installment of Basic Rent not paid when due for the period for which
the same shall be overdue and on any payment of Supplemental Rent not paid
when due or demanded by Lessor for the period from the due date or the date
of any such demand, as the case may be, until the same shall be paid. The
expiration or other termination of Lessee's obligations to pay Basic Rent
hereunder shall not limit or modify the obligations of Lessee with respect
to Supplemental Rent. Unless expressly provided otherwise in this Lease, in
the event of any failure on the part of Lessee to pay and discharge any
Supplemental Rent as and when due, Lessee shall also promptly pay and
discharge any fine, penalty, interest or cost which may be assessed or
added for nonpayment or late payment of such Supplemental Rent, all of
which shall also constitute Supplemental Rent.
3.4 Performance on a Non-Business Day. If any payment is required
hereunder on a day that is not a Business Day, then such payment shall be
due on the next succeeding Business Day.
<PAGE>4
3.5 Rent Payment Provisions. Lessee shall make payment of all Basic
Rent and Supplemental Rent when due regardless of whether any of the
Operative Agreements pursuant to which same is calculated and is owing
shall have been rejected, avoided or disavowed in any bankruptcy or
insolvency proceeding involving any of the parties to any of the Operative
Agreements. Such provisions of such Operative Agreements and their related
definitions are incorporated herein by reference and shall survive any
termination, amendment or rejection of any such Operative Agreements.
ARTICLE IV
4.1 Utility Charges. Lessee shall pay or cause to be paid all charges
for electricity, power, gas, oil, water, telephone, sanitary sewer service
and all other rents and utilities used in or on a Property and related real
property during the Term. Lessee shall be entitled to receive any credit or
refund with respect to any utility charge paid by Lessee. The amount of any
credit or refund received by Lessor on account of any utility charges paid
by Lessee, net of the reasonable costs and expenses incurred by Lessor in
obtaining such credit or refund, if any, shall be promptly paid over to
Lessee. All charges for utilities imposed with respect to a Property for a
billing period during which this Lease expires or terminates shall be
adjusted and prorated on a daily basis between Lessor and Lessee, and each
party shall pay or reimburse the other for such party's pro rata share
thereof.
ARTICLE V
5.1 Quiet Enjoyment. Subject to the rights of Lessor contained in
Sections 17.2, 17.3 and 20.3 and the other terms of this Lease and so long
as no Lease Event of Default shall have occurred and be continuing, Lessee
shall peaceably and quietly have, hold and enjoy each Property for the
applicable Term, free of any claim or other action by Lessor or anyone
rightfully claiming by, through or under Lessor (other than Lessee) with
respect to any matters arising from and after the applicable Basic Term
Commencement Date.
5.2 Transfers by Lessor; Lessor Liens. So long as no Lease Event of
Default shall have occurred and be continuing, Lessor shall not assign or
convey any of its right, title or interest in and to this Lease or the
Properties, except for the Liens specifically contemplated under the
Operative Agreements or as otherwise required by Law. In addition to the
foregoing, Lessor agrees that it will, in its individual capacity and at
its own cost and expense (and without any right of indemnity under the
Operative Agreements) promptly take such action as may be necessary to duly
discharge and satisfy in full any Lessor Liens in a manner consistent with
the requirements of Section 10.2(a) of the Participation Agreement.
<PAGE>5
ARTICLE VI
6.1 Net Lease. This Lease shall constitute a net lease. Any present
or future law to the contrary notwithstanding, this Lease shall not
terminate, nor shall Lessee be entitled to any abatement, suspension,
deferment, reduction, setoff, counterclaim, or defense with respect to the
Rent, nor shall the obligations of Lessee hereunder be affected (except as
expressly herein permitted and by performance of the obligations in
connection therewith) by reason of: (i) any damage to or destruction of any
Property or any part thereof; (ii) any taking of any Property or any part
thereof or interest therein by Condemnation or otherwise; (iii) any
prohibition, limitation, restriction or prevention of Lessee's use,
occupancy or enjoyment of any Property or any part thereof, or any
interference with such use, occupancy or enjoyment by any Person or for any
other reason; (iv) any title defect, Lien or any matter affecting title to
any Property; (v) any eviction by paramount title or otherwise; (vi) any
default by Lessor hereunder; (vii) any action for bankruptcy, insolvency,
reorganization, liquidation, dissolution or other proceeding relating to or
affecting Lessor or any Governmental Authority; (viii) the impossibility or
illegality of performance by Lessor, Lessee or both; (ix) any action of any
Governmental Authority; (x) Lessee's acquisition of ownership of all or
part of any Property; (xi) breach of any warranty or representation with
respect to any Property or any Operative Agreement; (xii) any defect in the
condition, quality or fitness for use of any Property or any part thereof;
or (xiii) any other cause or circumstance whether similar or dissimilar to
the foregoing and whether or not Lessee shall have notice or knowledge of
any of the foregoing. The parties intend that the obligations of Lessee
hereunder shall be covenants, agreements and obligations that are separate
and independent from any obligations of Lessor hereunder and shall continue
unaffected unless such covenants, agreements and obligations shall have
been modified or terminated in accordance with an express provision of this
Lease. Lessor and Lessee acknowledge and agree that the provisions of this
Section 6.1 have been specifically reviewed and subject to negotiation.
6.2 No Termination or Abatement. Lessee shall remain obligated under
this Lease in accordance with its terms and shall not take any action to
terminate, rescind or avoid this Lease, notwithstanding any action for
bankruptcy, insolvency, reorganization, liquidation, dissolution, or other
proceeding affecting Lessor or any Governmental Authority, or any action
with respect to this Lease or any Operative Agreement which may be taken by
any trustee, receiver or liquidator of Lessor or any Governmental Authority
or by any court with respect to Lessor or any Governmental Authority.
Lessee hereby waives all right (i) to terminate or surrender this Lease or
(ii) to avail itself of any abatement, suspension, deferment, reduction,
setoff, counterclaim or defense with respect to any Rent. Lessee shall
remain obligated under this Lease in accordance with its terms and Lessee
hereby waives any and all rights now or hereafter
<PAGE>6
conferred by statute or otherwise to modify or to avoid strict compliance
with its obligations under this Lease. Notwithstanding any such statute or
otherwise, Lessee shall be bound by all of the terms and conditions
contained in this Lease.
ARTICLE VII
7.1 Ownership of the Property.
(a) Lessor and Lessee intend that (i) for financial accounting
purposes with respect to Lessee (A) this Lease will be treated as an
"operating lease" pursuant to Statement of Financial Accounting
Standards No. 13, as amended, (B) Lessor will be treated as the owner
and lessor of each Property and (C) Lessee will be treated as the
lessee of each Property, but (ii) for federal and all state and local
income tax purposes, bankruptcy and commercial law and real estate
purposes and all other purposes (A) this Lease will be treated as a
financing arrangement, and (B) Lessee will be treated as the owner of
the Properties and will be entitled to all tax benefits ordinarily
available to owners of property similar to the Properties for such
tax purposes.
(b) To the extent this Lease is hereafter deemed to constitute
a finance lease and not a true lease, then and only in such event,
Lessor and Lessee intend and agree that, for the purpose of securing
Lessee's obligations hereunder, (i) this Lease shall be deemed to be
a security agreement and financing statement within the meaning of
Article 9 of the Uniform Commercial Code respecting each of the
Properties to the extent such is personal property and an irrevocable
grant and conveyance of a lien and mortgage on each of the Properties
to the extent such is real property; (ii) the conveyance provided for
in Article II shall be deemed to be a grant by Lessee to Lessor of,
and Lessee hereby grants to Lessor, a lien on and security interest,
mortgage and deed of trust in all of Lessee's right, title and
interest in and to the Property and all proceeds (including without
limitation insurance proceeds) of the conversion, voluntary or
involuntary, of the foregoing into cash, investments, securities or
other property, whether in the form of cash, investments, securities
or other property, and an assignment of all rents, profits and income
produced by the Property; and (iii) notifications to Persons holding
such property, and acknowledgements, receipts or confirmations from
financial intermediaries, bankers or agents (as applicable) of Lessee
shall be deemed to have been given for the purpose of perfecting such
security interest, mortgage, deed of trust or lien under applicable
law. Lessor and Lessee shall, to the extent consistent with this
Lease, take such actions as may be necessary (including without
limitation the filing of Uniform Commercial Code Financing
Statements, Uniform Commercial Code Fixture
<PAGE>7
Filings and memoranda of this Lease and the various Lease
Supplements) to ensure that, if this Lease were deemed to create a
lien, mortgage, deed of trust or security interest in the Property in
accordance with this Section, such lien, mortgage, deed of trust or
security interest would be deemed to be perfected and to have a first
priority position under applicable law and will be maintained as such
throughout the Term.
ARTICLE VIII
8.1 Condition of the Property. EXCEPT FOR THE COVENANTS OF LESSOR SET
FORTH IN ARTICLE V HEREOF, LESSEE ACKNOWLEDGES AND AGREES THAT IT IS
LEASING EACH PROPERTY "AS IS" WITHOUT REPRESENTATION, WARRANTY OR COVENANT
(EXPRESS OR IMPLIED) BY LESSOR AND IN EACH CASE SUBJECT TO (A) THE EXISTING
STATE OF TITLE, (B) THE RIGHTS OF ANY PARTIES IN POSSESSION THEREOF, (C)
ANY STATE OF FACTS WHICH AN ACCURATE SURVEY OR PHYSICAL INSPECTION MIGHT
SHOW, (D) ALL APPLICABLE LEGAL REQUIREMENTS AND (D) VIOLATIONS OF LEGAL
REQUIREMENTS WHICH MAY EXIST ON THE DATE HEREOF. NEITHER LESSOR NOR THE
AGENT NOR ANY LENDER NOR ANY HOLDER HAS MADE OR SHALL BE DEEMED TO HAVE
MADE ANY REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) OR SHALL
BE DEEMED TO HAVE ANY LIABILITY WHATSOEVER AS TO THE TITLE, VALUE,
HABITABILITY, USE, CONDITION, DESIGN, OPERATION, MERCHANTABILITY OR FITNESS
FOR USE OF ANY PROPERTY (OR ANY PART THEREOF), OR ANY OTHER REPRESENTATION,
WARRANTY OR COVENANT WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO ANY
PROPERTY (OR ANY PART THEREOF), AND NEITHER LESSOR NOR THE AGENT NOR ANY
LENDER NOR ANY HOLDER SHALL BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT
DEFECT THEREIN OR THE FAILURE OF ANY PROPERTY, OR ANY PART THEREOF, TO
COMPLY WITH ANY LEGAL REQUIREMENT. THE LESSEE HAS OR WILL HAVE BEEN
AFFORDED FULL OPPORTUNITY TO INSPECT THE PROPERTY AND THE IMPROVEMENTS
THEREIN, IS OR WILL BE (INSOFAR AS THE LESSOR, THE AGENT, EACH LENDER AND
EACH HOLDER ARE CONCERNED) SATISFIED WITH THE RESULTS OF ITS INSPECTIONS
AND IS ENTERING INTO THIS LEASE SOLELY ON THE BASIS OF THE RESULTS OF ITS
OWN INSPECTIONS, AND ALL RISKS INCIDENT TO THE MATTERS DESCRIBED IN THE
PRECEDING SENTENCE, AS BETWEEN THE LESSOR, THE AGENT, THE LENDERS AND THE
HOLDERS, ON THE ONE HAND, AND THE LESSEE, ON THE OTHER HAND, ARE TO BE
BORNE BY LESSEE.
8.2 Possession and Use of the Property.
(a) At all times during the Term with respect to each Property,
such Property shall not be used by Lessee for any unlawful purpose.
Lessee shall pay, or cause to be paid, all charges and costs required
in connection with the use of the Properties as contemplated by this
Lease. During the Term, Lessee may cease operations at Properties
having a Maximum Property Cost not to exceed fifty percent (50%) of
the Maximum Property Cost of all Properties as of the Construction
Period Termination Date; provided, during such
<PAGE>8
period of ceased operations Lessee shall comply with its obligations
under the Operative Agreements.
(b) The address of Lessee set forth in Section 29.1 herein or
otherwise disclosed to Lessor by Lessee pursuant to written notice
hereunder no less than 30 days prior to the effective date of such
changed location is the chief place of business and chief executive
office of Lessee (as such terms are used in Section 9-103(3) of the
Uniform Commercial Code of any applicable jurisdiction). Regarding a
particular Property, each Lease Supplement correctly identifies the
initial location of the related Equipment and Improvements and
contains an accurate legal description for the related parcel of
Land. Lessee has no other places of business where the Equipment or
Improvements will be located other than those identified on the
applicable Lease Supplement.
(c) Lessee will not attach or incorporate any item of Equipment
to or in any other item of equipment or personal property or to or in
any real property (except the Land identified in the Lease Supplement
in which such Equipment is also described) in a manner that could
give rise to the assertion of any Lien on such item of Equipment by
reason of such attachment or the assertion of a claim that such item
of Equipment has become a fixture and is subject to a Lien in favor
of a third party that is prior to the Liens thereon created by the
Operative Agreements.
(d) With respect to each Property, subject to the terms and
conditions of this Lease and the Participation Agreement, on each
Basic Term Commencement Date Lessor and Lessee shall execute and
deliver a Lease Supplement containing, in regard to such Property, an
Equipment Schedule that has a complete description of each item of
Equipment, an Improvement Schedule that has a complete description of
each Improvement and a legal description of the Land, to be leased
hereunder as of such date. Simultaneously therewith, such Equipment,
Improvements and Land shall be deemed to have been accepted by Lessee
for all purposes of this Lease and to be subject to this Lease.
ARTICLE IX
9.1 Compliance With Legal Requirements and Insurance Requirements.
Subject to the terms of Article XIII relating to permitted contests,
Lessee, at its sole cost and expense, shall (i) comply with all material
Legal Requirements (including without limitation all Environmental Laws)
relating to the Properties, and all Insurance Requirements relating to the
Properties, including the use, development, construction, operation,
maintenance, repair, refurbishment and restoration thereof, whether or not
compliance therewith shall require structural or extraordinary changes in
the Improvements or
<PAGE>9
interfere with the use and enjoyment of the Properties, and (ii) procure,
maintain and comply with all material licenses, permits, orders, approvals,
consents and other authorizations required for the construction, use,
maintenance and operation of the Properties and for the use, development,
construction, operation, maintenance, repair and restoration of the
Improvements.
ARTICLE X
10.1 Maintenance and Repair; Return.
(a) Lessee, at its sole cost and expense, shall maintain each
Property in good condition, repair and working order (ordinary wear
and tear excepted) and make all necessary repairs thereto, of every
kind and nature whatsoever, whether interior or exterior, ordinary or
extraordinary, structural or nonstructural or foreseen or unforeseen,
in each case as required by all Legal Requirements, Insurance
Requirements, and manufacturer's specifications and standards and on
a basis consistent with the operation and maintenance of other
similar properties or equipment of Lessee as of the date hereof
subject, however, to the provisions of Article XV with respect to
Condemnation and Casualty.
(b) Lessee shall not use or locate any component of any
Property outside of any Approved State. Lessee shall not move or
relocate any component of any Property beyond the boundaries of the
Land (comprising part of the Property) described in the applicable
Lease Supplement.
(c) (Intentionally Omitted).
(d) Upon reasonable advance notice, Lessor and its agents shall
have the right to inspect each Property and all maintenance records
with respect thereto at any reasonable time during normal business
hours but shall not, in the absence of a Lease Event of Default,
materially disrupt the business of Lessee.
(e) If, at any time, the aggregate appraised value of
Properties then subject to this Lease and with respect to which
operations have not ceased as described in Section 8.2(a) for which
the Lessor has received an Appraisal pursuant to the terms of Section
5.6 of the Participation Agreement is less than the lesser of
$8,400,000 (provided, in the event of a Commitment Increase for the
Lenders and the Holders, such minimum aggregate value of the
Properties then subject to the terms of the Operative Agreements
shall be increased from $8,400,000 to an amount equal to the sum of
(x) $8,400,000 plus (y) the product of (I) the aggregate Amount of
Commitment Increase multiplied by (II) fourteen percent (14%)) or the
aggregate Property Cost of all Properties then subject to this Lease
and with respect to
<PAGE>10
which operations have not ceased as described in Section 8.2(a) (such
lesser amount being hereafter referred to as the "Base Amount"), then
the Lessee will cause an additional Appraisal or Appraisals to be
immediately delivered to the Lessor in an amount sufficient to cause
such aggregate appraised value to equal or exceed the Base Amount. In
addition, Lessee shall cause to be delivered to Lessor (at Lessee's
sole expense) any additional Appraisals (or reappraisals) as Lessor
may request if any one of Lessor, the Agent, any Lender or any Holder
is required pursuant to any applicable Legal Requirement to obtain
such an Appraisal (or reappraisal). Any such request by Lessor will
identify the Person and the applicable Legal Requirement that
necessitates the additional Appraisal (or reappraisal). Lessee may
cause the additional Appraisal (or reappraisal) to be performed in a
manner that satisfies the minimum requirements of such Legal
Requirement, including, without limitation, if permitted by the Legal
Requirement, providing a supplement or date-down to a previously
provided Appraisal. The parties will cooperate on efforts to minimize
the frequency and costs of such additional Appraisals (or
reappraisals).
(f) Lessor shall under no circumstances be required to build
any improvements on any Property, make any repairs, replacements,
alterations or renewals of any nature or description to any Property,
make any expenditure whatsoever in connection with this Lease or
maintain any Property in any way. Lessor shall not be required to
maintain, repair or rebuild all or any part of any Property, and
Lessee waives the right to (i) require Lessor to maintain, repair, or
rebuild all or any part of any Property, or (ii) make repairs at the
expense of Lessor pursuant to any Legal Requirement, Insurance
Requirement, contract, agreement, covenants, condition or restriction
at any time in effect.
(g) Lessee shall, upon the expiration or earlier termination of
this Lease with respect to a Property, if Lessee shall not have
exercised its Purchase Option or Expiration Date Purchase Option with
respect to such Property, surrender such Property to Lessor, or the
third party purchaser, as the case may be, subject to Lessee's
obligations under this Lease (including without limitation Sections
9.1, 10.1(a)-(f), 10.2, 11.1, 12.1, 22.1 and 23.1).
10.2 Environmental Inspection. If Lessee has not given notice of
exercise of its Expiration Date Purchase Option pursuant to Section 20.2,
then not more than 120 days nor less than 60 days prior to the Expiration
Date, Lessee shall, at its sole cost and expense, provide to Lessor a
report by a reputable environmental consultant selected by Lessee, which
report shall be in form and substance satisfactory to Lessor.
<PAGE>11
ARTICLE XI
11.1 Modifications, Substitutions and Replacements.
(a) Lessee may, either at its sole cost and expense or with the
proceeds of Modification Advances made pursuant to the terms of the
Participation Agreement during the Construction Period, at any time
and from time to time without the consent of Lessor make alterations,
renovations, improvements and additions to the Property or any part
thereof and substitutions and replacements therefor (collectively,
"Modifications"); provided, that: (i) except for any Modification
required to be made pursuant to a Legal Requirement, no Modification
shall materially impair the value, utility or useful life of the
Property from that which existed immediately prior to such
Modification; (ii) the Modification shall be done expeditiously and
in a good and workmanlike manner; (iii) Lessee shall comply with all
Legal Requirements (including all Environmental Laws) and Insurance
Requirements applicable to the Modification, including the obtaining
of all permits and certificates of occupancy, and the structural
integrity of the Property shall not be adversely affected; (iv) to
the extent required by Section 14.2(a), Lessee shall maintain
builders' risk insurance at all times when a Modification is in
progress; (v) subject to the terms of Article XIII relating to
permitted contests, Lessee shall pay all costs and expenses and
discharge any liens arising with respect to the Modification; and
(vi) such Modification shall comply with the requirements of this
Lease (including without limitation Sections 8.2 and 10.1). All
Modifications financed by Lessor shall become the property of, and
title thereto shall immediately and without further action vest in,
the Lessor, when installed (and the Ground Lease shall expressly
provide). All other Modifications shall become the property of, and
title thereto shall immediately and without further action vest in,
Lessor, on surrender of the Property, the earlier termination of this
Lease or the occurrence of a Lease Default or Lease Event of Default
under Section 17.1(j) of this Lease.
(b) The construction process provided for in the Agency
Agreement is acknowledged by Lessor and the Agent to be consistent
with and in compliance with the terms and provisions of this Article
XI.
ARTICLE XII
12.1 Warranty of Title.
(a) Lessee agrees that, except as otherwise provided herein and
subject to the terms of Article XIII relating to permitted contests,
Lessee shall not directly or indirectly create or allow to remain,
and shall promptly discharge at
<PAGE>12
its sole cost and expense, any Lien, defect, attachment, levy, title
retention agreement or claim upon any Property or any Modifications
or any Lien, attachment, levy or claim with respect to the Rent or
with respect to any amounts held by the Agent pursuant to the Credit
Agreement, other than Permitted Liens and Lessor Liens. Lessee shall
promptly notify Lessor in the event it receives actual knowledge that
a Lien other than a Permitted Lien or Lessor Lien has occurred with
respect to a Property, and Lessee represents and warrants to, and
covenants with, Lessor that the Liens in favor of the Lessor created
by the Operative Agreements are first priority perfected liens
subject only to Permitted Liens.
(b) Nothing contained in this Lease shall be construed as
constituting the consent or request of Lessor, expressed or implied,
to or for the performance by any contractor, mechanic, laborer,
materialman, supplier or vendor of any labor or services or for the
furnishing of any materials for any construction, alteration,
addition, repair or demolition of or to any Property or any part
thereof. NOTICE IS HEREBY GIVEN THAT LESSOR IS NOT AND SHALL NOT BE
LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE
FURNISHED TO LESSEE, OR TO ANYONE HOLDING A PROPERTY OR ANY PART
THEREOF THROUGH OR UNDER LESSEE, AND THAT NO MECHANIC'S OR OTHER
LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR
AFFECT THE INTEREST OF LESSOR IN AND TO ANY PROPERTY.
ARTICLE XIII
13.1 Permitted Contests Other Than in Respect of Indemnities. Except
to the extent otherwise provided for in Section 13 of the Participation
Agreement, Lessee, on its own or on Lessor's behalf but at Lessee's sole
cost and expense, may contest, by appropriate administrative or judicial
proceedings conducted in good faith and with due diligence, the amount,
validity or application, in whole or in part, of any Legal Requirement, or
utility charges payable pursuant to Section 4.1 or any Lien, attachment,
levy, encumbrance or encroachment, and Lessor agrees not to pay, settle or
otherwise compromise any such item, provided that (a) Lessee provides to
Lessor such security or other assurances reasonably acceptable to Lessor
that Lessee can and will satisfy the Lien and comply with the Legal
Requirements in sufficient time to prevent any sale, forfeiture or loss by
reason of such non-payment or noncompliance, (b) at no time during the
permitted contest shall there be a risk of the imposition of criminal
liability or material civil liability (in the case of a civil liability,
unless Lessee provides to Lessor such security or other assurances
reasonably acceptable to Lessor that Lessee can and will satisfy such
liability) on Lessor, any Holder, the Agent or any Lender for failure to
comply therewith; and (c) in the event that, at any time, there shall be a
material risk of extending the application of such item beyond the end of
the Term, then Lessee shall deliver to Lessor an Officer's
<PAGE>13
Certificate certifying as to the matters set forth in clauses (a) and (b)
of this Section 13.1. Lessor, at Lessee's sole cost and expense, shall
execute and deliver to Lessee such authorizations and other documents as
may reasonably be required in connection with any such contest and, if
reasonably requested by Lessee, shall join as a party therein at Lessee's
sole cost and expense.
ARTICLE XIV
14.1 Public Liability and Workers' Compensation Insurance. During the
Term of each Property, Lessee shall procure and carry, at Lessee's sole
cost and expense, commercial general liability insurance for claims for
injuries or death sustained by persons or damage to property while on the
Properties or the premises where the Equipment is located and such other
public liability coverages as are ordinarily procured by Persons who own or
operate similar properties or equipment in similar businesses. Such
insurance shall be on terms and in amounts that are no less favorable than
insurance maintained by Lessee with respect to similar properties and
equipment that it owns and that are in accordance with normal industry
practice. The policies shall be endorsed to name Lessor, the Holders, the
Agent and the Lenders as additional insureds. The policies shall also
specifically provide that such policies shall be considered primary
insurance which shall apply to any loss or claim before any contribution by
any insurance which Lessor, the Holders, the Agent or the Lenders may have
in force. Lessee shall, in the operation of the Properties, comply with the
applicable workers' compensation laws and protect Lessor, the Holders, the
Agent and the Lenders against any liability under such laws.
14.2 Hazard and Other Insurance.
(a) During the Term for each Property, Lessee shall keep, or
cause to be kept, such Property insured against loss or damage by
fire and other risks and shall maintain builders' risk insurance
during construction of any Improvements or Modifications on terms and
in amounts that are no less favorable than insurance covering other
similar properties owned by Lessee and that are in accordance with
normal industry practice. The policies shall be endorsed to name
Lessor, the Holders, the Agent and the Lenders, to the extent of
their respective interests, as additional loss payees; provided, so
long as no Lease Event of Default exists, any loss payable under the
insurance policies required by this Section will be paid to Lessee
and Lessee will have the sole authority to settle any such insurance
claim without the need for prior approval by any such additional loss
payee.
(b) During the Term with respect to a Property the area in
which such Property is located is designated a "flood-prone" area
pursuant to the Flood Disaster Protection Act of 1973, or any
amendments or supplements thereto, then
<PAGE>14
Lessee shall comply with the National Flood Insurance Program as set
forth in the Flood Disaster Protection Act of 1973. In addition,
Lessee will fully comply with the requirements of the National Flood
Insurance Act of 1968 and the Flood Disaster Protection Act of 1973,
as each may be amended from time to time, and with any other Legal
Requirement, concerning flood insurance to the extent that it apply
to any such Property.
14.3 Coverage.
(a) As of the date of this Lease and annually thereafter,
Lessee shall furnish Lessor and the Agent with certificates showing
the insurance required under Sections 14.1 and 14.2 to be in effect,
naming Lessor, the Holders, the Agent and the Lenders as additional
insureds and loss payees and evidencing the other requirements of
this Article XIV. All such insurance shall be at the cost and expense
of Lessee. Such certificates shall include a provision for thirty
(30) days' advance written notice by the insurer to Lessor and the
Agent in the event of cancellation or material alteration of such
insurance. If a Lease Event of Default has occurred and is continuing
and Lessor so requests, Lessee shall deliver to Lessor copies of all
insurance policies required by Sections 14.1 and 14.2.
(b) Lessee agrees that the insurance policy or policies
required by Sections 14.1, 14.2(a) and 14.2(b) shall include an
appropriate clause pursuant to which any such policy shall provide
that it will not be invalidated by any act or omission of Lessee or
to the extent Lessee waives, at any time, any or all rights of
recovery against any party for losses covered by such policy. Lessee
hereby waives any and all such rights against the Lessor, the
Holders, the Agent and the Lenders to the extent of payments made to
any such Person under any such policy.
(c) Neither Lessor nor Lessee shall carry separate insurance
concurrent in kind or form or contributing in the event of loss with
any insurance required under this Article XIV, except that Lessor may
carry separate liability insurance at Lessor's sole cost so long as
(i) Lessee's insurance is designated as primary and in no event
excess or contributory to any insurance Lessor may have in force
which would apply to a loss covered under Lessee's policy and (ii)
each such insurance policy will not cause Lessee's insurance required
under this Article XIV to be subject to a coinsurance exception of
any kind.
(d) Lessee shall pay as they become due all premiums for the
insurance required by Section 14.1 and Section 14.2, shall renew or
replace each policy prior to the expiration date thereof or otherwise
maintain the coverage required by such Sections without any lapse in
coverage.
<PAGE>15
(e) Any insurance required to be carried hereunder may contain
such deductibles and/or self insurance consistent with industry
standards and the then current practice of Lessee with respect to its
other properties similar to the Properties. Any liability insurance
required under Section 14.1 may be met through "blanket" policies of
insurance.
ARTICLE XV
15.1 Casualty and Condemnation.
(a) Subject to the provisions of this Article XV and Article
XVI (in the event Lessee delivers, or is obligated to deliver, a
Termination Notice), and prior to the occurrence and continuation of
a Lease Default or Lease Event of Default, Lessee shall be entitled
to receive (and Lessor hereby irrevocably assigns to Lessee all of
Lessor's right, title and interest in) any award, compensation or
insurance proceeds under Sections 14.2(a) or (b) hereof to which
Lessee or Lessor may become entitled by reason of their respective
interests in a Property (i) if all or a portion of such Property is
damaged or destroyed in whole or in part by a Casualty or (ii) if the
use, access, occupancy, easement rights or title to such Property or
any part thereof is the subject of a Condemnation; provided, however,
if a Lease Default or Lease Event of Default shall have occurred and
be continuing such award, compensation or insurance proceeds shall be
paid directly to Lessor or, if received by Lessee, shall be held in
trust for Lessor, and shall be paid over by Lessee to Lessor and held
in accordance with the terms of this paragraph (a). All amounts held
by Lessor hereunder on account of any award, compensation or
insurance proceeds either paid directly to Lessor or turned over to
Lessor shall be held as security for the performance of Lessee's
obligations hereunder for the duration of any applicable cure period.
(b) Lessee may appear in any proceeding or action to negotiate,
prosecute, adjust or appeal any claim for any award, compensation or
insurance payment on account of any such Casualty or Condemnation and
shall pay all expenses thereof. At Lessee's reasonable request, and
at Lessee's sole cost and expense, Lessor and the Agent shall
participate in any such proceeding, action, negotiation, prosecution
or adjustment. Lessor and Lessee agree that this Lease shall control
the rights of Lessor and Lessee in and to any such award,
compensation or insurance payment.
(c) If Lessee shall receive notice of a Casualty or a possible
Condemnation of a Property or any interest therein where damage to
the affected Property is estimated to equal or exceed ten percent
(10%) of the Property Cost of such
<PAGE>16
Property, Lessee shall give notice thereof to the Lessor and to the
Agent promptly after the receipt of such notice.
(d) In the event of a Casualty or a Condemnation (regardless of
whether notice thereof must be given pursuant to paragraph (c)), this
Lease shall terminate with respect to the applicable Property in
accordance with Section 16.1 if Lessee, within sixty (60) days after
such occurrence, delivers to Lessor and the Agent a notice to such
effect.
(e) If pursuant to this Section 15.1 this Lease shall continue
in full force and effect following a Casualty or Condemnation with
respect to the affected Property, Lessee shall, at its sole cost and
expense and using, if available, the proceeds of any award,
compensation or insurance with respect to such Casualty or
Condemnation (including, without limitation, any such award,
compensation or insurance which has been received by the Agent and
which should be turned over to Lessee pursuant to the terms of the
Operative Agreements), promptly and diligently repair any damage to
the applicable Property caused by such Casualty or Condemnation in
conformity with the requirements of Sections 10.1 and 11.1, so as to
restore the applicable Property to substantially the same condition,
operation, function and value as existed immediately prior to such
Casualty or Condemnation. In such event, title to the applicable
Property shall remain with Lessor.
(f) In no event shall a Casualty or Condemnation with respect
to which this Lease remains in full force and effect under this
Section 15.1 affect Lessee's obligations to pay Rent pursuant to
Section 3.1.
(g) Notwithstanding anything to the contrary set forth in
Section 15.1(a) or Section 15.1(e), if during the Term with respect
to a Property a Casualty occurs with respect to such Property or
Lessee receives notice of a Condemnation with respect to such
Property, and following such Casualty or Condemnation, Lessee is
unable to use the remaining applicable Property in substantially the
same manner as the Property was used prior to such Casualty or
Condemnation and the applicable Property cannot reasonably be
restored, repaired or replaced in a manner consistent with the
requirements of this Lease by the earlier to occur of the Expiration
Date or the date nine (9) months after the occurrence of such
Casualty or Condemnation (if such Casualty or Condemnation occurs
during the Term), to permit such use, then Lessee shall be required
to exercise its Purchase Option with respect to the applicable
Property on the next Payment Date (notwithstanding the limits on such
exercise contained in Section 20.1), and pay Lessor the Purchase
Option Price and any and all Rent then due and owing and all other
amounts then due and owing (including without limitation amounts
described in clause FIRST of Section 22.2); provided, if any Lease
Default or Lease Event
<PAGE>17
of Default has occurred and is continuing, Lessee shall also promptly
(and in any event within three (3) Business Days) pay Lessor any
award, compensation or insurance proceeds received on account of any
Casualty or Condemnation with respect to any Property. Provided that
no Lease Default or Lease Event of Default has occurred and is
continuing, any Excess Proceeds shall be paid to Lessee. If a Lease
Default has occurred and is continuing and any Loans, Holder Advances
or other amounts are owing with respect thereto, then any Excess
Proceeds (to the extent of any such Loans, Holder Advances or other
amounts owing with respect thereto) shall be paid to the Lessor.
15.2 Environmental Matters. Promptly upon Lessee's actual knowledge
of the presence of Hazardous Substances in any portion of any Property or
Properties in concentrations and conditions that constitute an
Environmental Violation and which, in the reasonable opinion of Lessee, the
cost to undertake any legally required response, clean up, remedial or
other action will or might result in a cost to Lessee of more than
$100,000, Lessee shall notify Lessor in writing of such condition. In the
event of any Environmental Violation (regardless of whether notice thereof
must be given), Lessee shall, not later than thirty (30) days after Lessee
has actual knowledge of such Environmental Violation, either deliver to
Lessor a Termination Notice with respect to the applicable Property or
Properties pursuant to Section 16.1, if applicable, or, at Lessee's sole
cost and expense, promptly and diligently commence any response, clean up,
remedial or other action (including the pursuit by Lessee of appropriate
action against any off-site or third party source for contamination, as
appropriate) necessary to remove, cleanup or remediate the Environmental
Violation in accordance with all Environmental Laws. If Lessee does not
deliver a Termination Notice with respect to such Property pursuant to
Section 16.1, Lessee shall, upon completion of remedial action by Lessee,
cause to be prepared by a reputable environmental consultant acceptable to
Lessor a report describing the Environmental Violation and the actions
taken by Lessee (or its agents) in response to such Environmental
Violation, and a statement by the consultant that the Environmental
Violation has been remedied in full compliance with applicable
Environmental Law. Not less than sixty (60) days prior to any time that
Lessee elects to cease operations with respect to any Property in excess of
that permitted by Section 8.2(a) hereof or to remarket any Property
pursuant to Section 20.2 hereof or any other provision of any Operative
Agreement, Lessee shall deliver a Phase I environmental survey respecting
such Property satisfactory in form and substance to the Lessor.
15.3 Notice of Environmental Matters. Promptly, but in any event
within five (5) Business Days from the date Lessee has actual knowledge
thereof, Lessee shall provide to Lessor written notice of any material
pending or threatened claim, action or proceeding involving any
Environmental Law or any Release on or in connection with any Property or
Properties. All such notices shall describe in reasonable detail the nature
of the claim,
<PAGE>18
action or proceeding and Lessee's proposed response thereto. In addition,
Lessee shall provide to Lessor, within ten (10) Business Days of receipt,
copies of all material written communications with any Governmental
Authority relating to any Environmental Law in connection with any
Property. Lessee shall also promptly provide such detailed reports of any
such material environmental claims as may reasonably be requested by
Lessor.
ARTICLE XVI
16.1 Termination Upon Certain Events. If any of the following occur:
(i) Lessee has delivered a notice pursuant to Section 15.1(d) that
following the applicable Casualty or Condemnation this Lease shall
terminate with respect to the affected Property, or (ii) Lessee has
delivered notice pursuant to the second sentence of Section 15.2 that, due
to the occurrence of an Environmental Violation, this Lease shall terminate
with respect to the affected Property, then Lessee shall be obligated to
deliver, within thirty (30) days of its receipt of notice of the applicable
Condemnation or the occurrence of the applicable Casualty or Environmental
Violation, a written notice to the Lessor in the form described in Section
16.2(a) (a "Termination Notice") of the termination of this Lease with
respect to the applicable Property.
16.2 Procedures.
(a) A Termination Notice shall contain: (i) notice of
termination of this Lease with respect to the affected Property on a
Payment Date not more than sixty (60) days after Lessor's receipt of
such Termination Notice (the "Termination Date"); and (ii) a binding
and irrevocable agreement of Lessee to pay the Termination Value for
the applicable Property, any and all Rent then due and owing and all
other amounts then due and owing (including without limitation
amounts described in clause FIRST of Section 22.2) and purchase such
Property on such Termination Date.
(b) On each Termination Date, Lessee shall pay to Lessor the
Termination Value for the applicable Property, any and all Rent then
due and owing and all other amounts then due and owing (including
without limitation amounts described in clause FIRST of Section 22.2)
theretofore accruing, and Lessor shall convey such Property or the
remaining portion thereof, if any, to Lessee (or Lessee's designee),
all in accordance with Section 19.1, as well as any Net Proceeds with
respect to the Casualty or Condemnation giving rise to the
termination of this Lease with respect to such Property theretofore
received by Lessor; provided, that if a Lease Event of Default shall
have occurred and be continuing and any Loans or Holder Advances are
owing with respect thereto or under this Lease, then any Excess
Proceeds shall be paid to Lessor.
<PAGE>19
ARTICLE XVII
17.1 Lease Events of Default. If any one or more of the
following events (each a "Lease Event of Default") shall occur:
(a) Lessee shall fail to make payment of (i) any Basic Rent
(except as set forth in clause (ii)) within five (5) days after the
same has become due and payable or (ii) any Purchase Option Price or
Termination Value, on the date any such payment is due, or any
payment of Basic Rent or Supplemental Rent due on the due date of any
such payment of Purchase Option Price or Termination Value, or any
amount due on the Expiration Date;
(b) Lessee shall fail to make payment of any Supplemental Rent
(other than Supplemental Rent referred to in Section 17.1(a)(ii)) due
and payable within ten (10) Business Days after receipt of notice
thereof;
(c) Lessee shall fail to maintain insurance as required by
Article XIV of this Lease and such failure shall remain uncured for a
period of thirty (30) days after receipt of written notice thereof;
(d) Lessee shall fail to observe or perform any term, covenant
or condition of Lessee under this Lease or any other Operative
Agreement to which Lessee is a party other than those set forth in
Sections 17.1(a), (b), (c) or (g) hereof, or any representation or
warranty made by Lessee set forth in this Lease or in any other
Operative Agreement or in any document entered into in connection
herewith or therewith or in any document, certificate or financial or
other statement delivered in connection herewith or therewith shall
be false or inaccurate in any material way, and if such failure or
misrepresentation or breach of warranty is capable of being cured, it
shall remain uncured for a period of thirty (30) days after receipt
of written notice from Lessor thereof; provided, if such failure or
misrepresentation or breach of warranty is capable of being cured but
cannot be cured within such thirty-day period, so long as Lessee is
diligently pursuing such cure, Lessee shall have an additional
period, not exceeding 60 days, within which to effect such cure;
(e) an Agency Agreement Event of Default shall have
occurred and be continuing;
(f) a failure by Lessee to pay any Imposition, in whole or in
part, or to observe any Legal Requirement, regarding any Property
imposed by any governmental entity or agency thereunder, subject to
Lessee's rights relating to permitted contests under Section 13.1 and
if such failure is capable of being cured, it remains uncured for a
period of thirty (30) days after receipt of written notice from
Lessor thereof; provided, if such a failure is capable of being
<PAGE>20
cured but cannot be cured within such thirty-day period, so long as
Lessee is diligently pursuing such cure, Lessee shall have an
additional period, not exceeding 60 days, within which to effect such
cure;
(g) Lessee shall fail to observe or perform any term, covenant
or condition incorporated by reference herein pursuant to Article
XXVIII hereof and such failure shall remain uncured for a period of
thirty (30) days (or such shorter or longer cure period subsequently
available under the 1995 Credit Agreement with respect to an event of
default thereunder regarding the Incorporated Covenants) after
receipt of written notice from Lessor thereof;
(h) Any default shall occur under the terms applicable to any
Debt of Lessee or any Subsidiary of Lessee in an aggregate amount
(for all Debt so affected) exceeding $5,000,000 and such default
shall (a) consist of the failure to pay such Debt when due (subject
to any applicable grace period), whether by acceleration or
otherwise, or (b) accelerate the maturity of such Debt or permit the
holder or holders thereof, or any trustee or agent for such holder or
holders, to cause such Debt to become due and payable prior to its
expressed maturity;
(i) Any default shall occur in the payment when due of any
obligation of $5,000,000 or more of Lessee or any Subsidiary of
Lessee with respect to any material purchase or lease of goods or
services (except only to the extent that the existence of any such
default is being contested by Lessee or such Subsidiary in good faith
and by appropriate proceedings and appropriate reserves have been
made in respect of such default), and continuance of such default for
30 days after notice thereof from the Lessor;
(j) Lessee or any Material Subsidiary becomes insolvent or
generally fails to pay, or admits in writing its inability or refusal
to pay, debts as they become due; or Lessee or any Material
Subsidiary applies for, consents to, or acquiesces in the appointment
of a trustee, receiver or other custodian for Lessee or such Material
Subsidiary or any property thereof, or makes a general assignment for
the benefit of creditors; or, in the absence of such application,
consent or acquiescence, a trustee, receiver or other custodian is
appointed for Lessee or any Material Subsidiary or for a substantial
part of any property of Lessee or any Material Subsidiary and is not
discharged within 60 days; or any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under any bankruptcy or
insolvency law, or any dissolution or liquidation proceeding, is
commenced in respect of Lessee or any Material Subsidiary, and if
such case or proceeding is not commenced by Lessee or such Material
Subsidiary, it is consented to or acquiesced in by Lessee or such
Material Subsidiary, or remains for 60 days undismissed; or Lessee or
<PAGE>21
any Material Subsidiary takes any corporate action to
authorize, or in furtherance of, any of the foregoing;
(k) ____ (i) Institution of any steps by Lessee or any other
Person to terminate a Pension Plan if as a result of such termination
Lessee could be required to make a contribution to such Pension Plan,
or could incur a liability or obligation to such Pension Plan, in
excess of $5,000,000, or (ii) a contribution failure occurs with
respect to any Pension Plan sufficient to give rise to a Lien under
Section 302(f) of ERISA;
(l) Lessee or any ERISA Affiliate shall make a complete or
partial withdrawal from a Multiemployer Plan and the plan sponsor or
such Multiemployer Plan shall notify such withdrawing employer that
such employer has incurred a withdrawal liability in an annual amount
exceeding $5,000,000, unless and only for as long as such liability
shall be contested in good faith and such reserve or other
appropriate provision, if any, as shall be required by GAAP shall
have been made therefor;
(m) Any money judgment, writ or warrant or attachment or
similar process involving in any case a final judgment in an amount
in excess of $5,000,000 shall be entered or filed against Lessee or
any Material Subsidiary or any of their respective assets and shall
remain unsatisfied, undischarged, unvacated, unbonded or unstayed for
a period of 60 days or in any event later than five days prior to the
date of any proposed sale thereunder;
(n) Any Change in Control shall occur; or
(o) Any Operative Agreement to which Lessee or the Construction
Agent is a party shall cease to be enforceable (other than in
accordance with its terms) against such party or such party shall
claim in writing that such is the case.
then, in any such event, (i) all Construction Period Properties shall
automatically become Properties that are subject to the terms of this Lease
as more specifically provided in Section 2.2 and thereafter all references
hereunder to "Property" or "Properties" and all obligations of the Lessee
with respect to the Properties (including specifically without limitation
the obligations of the Lessee contained in this Article XVII) shall be
deemed to include such Construction Period Properties, and (ii) Lessor may,
in addition to the other rights and remedies provided for in this Article
XVII and in Section 18.1, terminate this Lease by giving Lessee five (5)
days notice of such termination (provided that such Event of Default is
continuing at the end of such five-day period), and this Lease shall
terminate, and all rights of Lessee under this Lease shall cease. Lessee
shall, to the fullest extent permitted by law, pay as Supplemental Rent all
costs and expenses incurred by or on behalf of Lessor, including without
limitation reasonable fees and
<PAGE>22
expenses of counsel, as a result of any Lease Event of Default hereunder.
As used in this Lease, a "notice" of a Lease Default or a Lease Event of
Default shall mean a written notice to Lessee pursuant to Section 29.1,
which specifies (i) the Lease Default or the Lease Event of Default and
(ii) that it is intended as a notice of a Lease Default or a Lease Event of
Default.
17.2 Surrender of Possession. If a Lease Event of Default shall have
occurred and be continuing, and whether or not this Lease shall have been
terminated pursuant to Section 17.1, Lessee shall, upon thirty (30) days
written notice, surrender to Lessor possession of the Properties. Lessor
may enter upon and repossess the Properties by such means as are available
at law or in equity, and may remove Lessee and all other Persons and any
and all personal property and Lessee's equipment and personalty and
severable Modifications from the Properties. Lessor shall have no liability
by reason of any such entry, repossession or removal performed in
accordance with applicable law. Upon the written demand of Lessor, Lessee
shall return the Properties promptly to Lessor, in the manner and condition
required by, and otherwise in accordance with the provisions of, Section
22.1(c) hereof.
17.3 Reletting. If a Lease Event of Default shall have occurred and
be continuing, and whether or not this Lease shall have been terminated
pursuant to Section 17.1, Lessor may, but shall be under no obligation to,
relet any or all of the Properties, for the account of Lessee or otherwise,
for such term or terms (which may be greater or less than the period which
would otherwise have constituted the balance of the Term) and on such
conditions (which may include concessions or free rent) and for such
purposes as Lessor may determine, and Lessor may collect, receive and
retain the rents resulting from such reletting. Lessor shall not be liable
to Lessee for any failure to relet any Property or for any failure to
collect any rent due upon such reletting.
17.4 Damages. Neither (a) the termination of this Lease as to all or
any of the Properties pursuant to Section 17.1; (b) the repossession of all
or any of the Properties; nor (c) the failure of Lessor to relet all or any
of the Properties, the reletting of all or any portion thereof, nor the
failure of Lessor to collect or receive any rentals due upon any such
reletting, shall relieve Lessee of its liabilities and obligations
hereunder, all of which shall survive any such termination, repossession or
reletting. If any Lease Event of Default shall have occurred and be
continuing and notwithstanding any termination of this Lease pursuant to
Section 17.1, Lessee shall forthwith pay to Lessor all Rent and other sums
due and payable hereunder to and including the date of such termination.
Thereafter, on the days on which the Basic Rent or Supplemental Rent, as
applicable, are payable under this Lease or would have been payable under
this Lease if the same had not been terminated pursuant to Section 17.1 and
until the end of the Term hereof or what would have been the Term in the
absence of such termination, Lessee shall pay
<PAGE>23
Lessor, as current liquidated damages (it being agreed that it would be
impossible accurately to determine actual damages) an amount equal to the
Basic Rent and Supplemental Rent that are payable under this Lease or would
have been payable by Lessee hereunder if this Lease had not been terminated
pursuant to Section 17.1, less the net proceeds, if any, which are actually
received by Lessor with respect to the period in question of any reletting
of any Property or any portion thereof; provided, that Lessee's obligation
to make payments of Basic Rent and Supplemental Rent under this Section
17.4 shall continue only so long as Lessor shall not have received the
amounts specified in Section 17.6. In calculating the amount of such net
proceeds from reletting, there shall be deducted all of Lessor's, any
Holder's, the Agent's and any Lender's reasonable expenses in connection
therewith, including repossession costs, brokerage or sales commissions,
fees and expenses for counsel and any necessary repair or alteration costs
and expenses incurred in preparation for such reletting. To the extent
Lessor receives any damages pursuant to this Section 17.4, such amounts
shall be regarded as amounts paid on account of Rent.
17.5 Power of Sale. Without limiting any other remedies set forth in
this Lease, in the event that a court of competent jurisdiction rules that
this Lease constitutes a mortgage, deed of trust or other secured financing
as is the intent of the parties, then the Lessor and the Lessee agree that
the Lessee has granted, pursuant to Section 7.1(b) hereof and each Lease
Supplement, a Lien against the Properties WITH POWER OF SALE, and that,
upon the occurrence and during the continuance of any Lease Event of
Default, the Lessor shall have the power and authority, to the extent
provided by law, after prior notice and lapse of such time as may be
required by law, to foreclose its interest (or cause such interest to be
foreclosed) in all or any part of the Properties.
17.6 Final Liquidated Damages. If a Lease Event of Default shall have
occurred and be continuing, whether or not this Lease shall have been
terminated pursuant to Section 17.1 and whether or not Lessor shall have
collected any current liquidated damages pursuant to Section 17.4, Lessor
shall have the right to recover, by demand to Lessee and at Lessor's
election, and Lessee shall pay to Lessor, as and for final liquidated
damages, but exclusive of the indemnities payable under Section 13 of the
Participation Agreement, and in lieu of all current liquidated damages
beyond the date of such demand (it being agreed that it would be impossible
accurately to determine actual damages) the sum of (a) the Termination
Value for all Properties remaining under this Lease, plus (b) all other
amounts owing in respect of Rent and Supplemental Rent theretofore accruing
under this Lease. Upon payment of the amount specified pursuant to the
first sentence of this Section 17.6, Lessee shall be entitled to receive
from Lessor, either at Lessee's request or upon Lessor's election, in
either case at Lessee's cost, a transfer and assignment of Lessor's entire
right, title and interest in and to the Properties, the Improvements,
Fixtures, Modifications and
<PAGE>24
Equipment. To effect such transfer and assignment, Lessor shall execute,
acknowledge (where required) and deliver to Lessee each of the following:
(i) a special or limited warranty Deed conveying the Property (to the
extent it is real property) to Lessee free and clear of the Lien of this
Lease, the Lien of the Credit Documents and any Lessor Liens; (ii) a Bill
of Sale conveying the Property (to the extent it is personal property) to
Lessee free and clear of the Lien of this Lease, the Lien of the Credit
Documents and any Lessor Liens; (iii) any real estate tax affidavit or
other document required by law to be executed and filed in order to record
the Deed; and (iv) a FIRPTA affidavit. Subject to the foregoing, the
Properties shall be conveyed to Lessee (or Lessee's designee) "AS IS" and
in their then present physical condition. If any statute or rule of law
shall limit the amount of such final liquidated damages to less than the
amount agreed upon, Lessor shall be entitled to the maximum amount
allowable under such statute or rule of law; provided, however, Lessee
shall not be entitled to receive an assignment of Lessor's interest in the
Properties, the Improvements, Fixtures, Modifications or Equipment or
documents unless Lessee shall have paid in full the Termination Value and
all other amounts due and owing hereunder and under the other Operative
Agreements.
17.7 Lessee's Purchase Option During Default. If Lessee exercises its
Purchase Option in accordance with Section 20.1 with respect to a Property
while a Lease Default or Lease Event of Default is continuing, the exercise
of such Purchase Option shall be deemed to have cured such Lease Default or
Lease Event of Default to the extent such Lease Default or Lease Event of
Default is no longer continuing with respect to any other Property
remaining subject to this Lease after the exercise of the Purchase Option.
17.8 Waiver of Certain Rights. If this Lease shall be terminated
pursuant to Section 17.1, Lessee waives, to the fullest extent permitted by
law, (a) any notice of re-entry or the institution of legal proceedings to
obtain re-entry or possession; (b) any right of redemption, re-entry or
possession; (c) the benefit of any laws now or hereafter in force exempting
property from liability for rent or for debt; and (d) any other rights
which might otherwise limit or modify any of Lessor's rights or remedies
under this Article XVII.
17.9 Assignment of Rights Under Contracts. If a Lease Event of
Default shall have occurred and be continuing, and whether or not this
Lease shall have been terminated pursuant to Section 17.1, Lessee shall
upon Lessor's demand immediately assign, transfer and set over to Lessor
all of Lessee's right, title and interest in and to each agreement executed
by Lessee in connection with the purchase, construction, development, use
or operation of the Properties (including, without limitation, all right,
title and interest of Lessee with respect to all warranty, performance,
service and indemnity provisions), as and to the extent that the same
relate to the purchase, construction, use and operation of the Properties.
<PAGE>25
17.10 Remedies Cumulative. The remedies herein provided shall be
cumulative and in addition to (and not in limitation of) any other remedies
available at law, equity or otherwise, including, without limitation, any
mortgage foreclosure remedies.
ARTICLE XVIII
18.1 Lessor's Right to Cure Lessee's Lease Defaults. Lessor, without
waiving or releasing any obligation or Lease Event of Default, may (but
shall be under no obligation to) remedy any Lease Event of Default for the
account and at the sole cost and expense of Lessee, including the failure
by Lessee to maintain the insurance required by Article XIV, and may, to
the fullest extent permitted by law, and notwithstanding any right of quiet
enjoyment in favor of Lessee, enter upon any Property, or real property
owned or leased by Lessee and take all such action thereon as may be
necessary or appropriate therefor. No such entry shall be deemed an
eviction of any lessee. All reasonable out-of-pocket costs and expenses so
incurred (including without limitation reasonable fees and expenses of
counsel), together with interest thereon at the Overdue Rate from the date
on which such sums or expenses are paid by Lessor, shall be paid by Lessee
to Lessor on demand.
ARTICLE XIX
19.1 Provisions Relating to Lessee's Exercise of its Purchase Option.
Subject to Section 19.2, in connection with any termination of this Lease
with respect to any Property pursuant to the terms of Section 16.2, or in
connection with Lessee's exercise of its Purchase Option or Expiration Date
Purchase Option, upon the date on which this Lease is to terminate with
respect to the applicable Property or upon the Expiration Date with respect
to the applicable Property, and upon tender by Lessee of the amounts set
forth in Sections 16.2(b), 20.1 or 20.2, as applicable, Lessor shall
execute and deliver to Lessee (or to Lessee's designee) at Lessee's cost
and expense an assignment and transfer of Lessor's entire interest in the
applicable Property (which shall include an assignment of all of Lessor's
right, title and interest in and to any Net Proceeds not previously
received by Lessor). To effect such transfer and assignment, Lessor shall
execute, acknowledge (where required) and deliver to Lessee each of the
following: (i) a special or limited warranty Deed conveying the Property
(to the extent it is real property) to Lessee free and clear of the Lien of
this Lease, the Lien of the Credit Documents and any Lessor Liens; (ii) a
Bill of Sale conveying the Property (to the extent it is personal property)
to Lessee free and clear of the Lien of this Lease, the Lien of the Credit
Documents and any Lessor Liens; (iii) any real estate tax affidavit or
other document required by law to be executed and filed in order to record
the Deed; and (iv) a FIRPTA affidavit. Subject to the foregoing, the
<PAGE>26
applicable Property shall be conveyed to Lessee "AS IS" "WHERE IS" and in
then present physical condition.
19.2 No Termination With Respect to Less than All of a Property.
Lessee shall not be entitled to exercise its Purchase Option separately
with respect to portions of a Property consisting of Land, Equipment and
Improvements but shall be required to exercise its Purchase Option with
respect to such entire Property.
ARTICLE XX
20.1 Purchase Options. Provided that no Lease Default of the types
specified in Sections 17.1(a), (b) or (j) or Lease Event of Default shall
have occurred and be continuing (unless such Lease Event of Default
involves a single Property and can be cured by the exercise of the option
to purchase by Lessee of such Property and such Property is referenced in
the Purchase Notice (referenced below)), and subject to Section 19.2,
Lessee shall have the option (the "Purchase Option"), exercisable by giving
Lessor no less than sixty (60) days irrevocable written notice (the
"Purchase Notice") of Lessee's election to exercise such option as to any
Property, on any anniversary of the Basic Term Commencement Date for such
Property (or if all Properties are to be acquired on any such anniversary),
to purchase all or one or more Properties on such date specified in such
Purchase Notice at a price equal to the Termination Value for such Property
or Properties (which the parties do not intend to be a "bargain" purchase
price), and Lessee at such time shall also pay any and all Rent then due
and owing and all other amounts then due and owing (including without
limitation amounts, if any, described in clause FIRST of Section 22.2)
(such Termination Value, Rent and other amounts being hereafter referred to
as the "Purchase Option Price"); provided, however, that unless the Lessor
otherwise consents or the Purchase Option is exercised after the
Construction Period Termination Date with respect to all of the Properties,
the Purchase Option may not be exercised by the Lessee if, after giving
effect to such exercise, the Maximum Property Cost of the purchased
Properties (together with all other Properties purchased by Lessee pursuant
to this Section 20.1) would be greater than 35% of the greatest Maximum
Property Cost applicable at any time during the Term. If Lessee exercises
its Purchase Option pursuant to this Section 20.1, Lessor shall transfer to
Lessee all of Lessor's right, title and interest in and to such Property as
of the date specified in the Purchase Notice upon receipt of the Purchase
Option Price, amounts, if any, referred to in clause FIRST of Section 22.2
and all Rent and other amounts then due and payable under this Lease and
any other Operative Agreement. To effect any transfer and assignment by
Lessor to Lessee under this Section 20.1, Lessor shall execute, acknowledge
(where required) and deliver to Lessee each of the following: (i) a special
or limited warranty Deed conveying the Property (to the extent it is real
property) to Lessee free and clear of the Lien of this Lease, the Lien of
the Credit Documents
<PAGE>27
and any Lessor Liens; (ii) a Bill of Sale conveying the Property (to the
extent it is personal property) to Lessee free and clear of the Lien of
this Lease, the Lien of the Credit Documents and any Lessor Liens; (iii)
any real estate tax affidavit or other document required by law to be
executed and filed in order to record the Deed; and (iv) a FIRPTA
affidavit. For purposes of this Lease and the other Operative Agreements,
any and all amounts paid by Lessee pursuant to the provisions of Section
10.3(f) of the Participation Agreement shall be deemed to be amounts paid
and received pursuant to this Section 20.1. Lessee may assign its rights
under this Section 20.1 to another Person; provided, Lessee shall remain
liable for all obligations of Lessee hereunder respecting Property
remaining subject to the terms of this Lease subsequent to such assignment
as if such assignment had not occurred.
20.2 Expiration Date Purchase or Sale Option. Not less than 90 days
and no more than 180 days prior to the Expiration Date, Lessee may give
Lessor and Agent written notice (the "Expiration Date Election Notice")
that Lessee is electing to exercise the Expiration Date Purchase Option or
the option of Lessee to remarket and sell the Properties pursuant to
Section 22.1. If Lessee does not give an Expiration Date Election Notice at
least 90 days and not more than 180 days prior to the then current
Expiration Date, then Lessee shall be obligated to repurchase the
Properties pursuant to Section 20.1. If any Property is the subject of
remediation efforts respecting Hazardous Substances at the Expiration Date
which could materially and adversely impact the Fair Market Sales Value of
such Property, then Lessee shall be obligated to repurchase each such
Property pursuant to Section 20.1. Prior to the Expiration Date, Lessee may
rescind its election to remarket the Properties pursuant to Section 22.1
and elect instead the Expiration Date Purchase Option. If Lessee shall
either (i) elect, or be deemed to have elected, to exercise the Expiration
Date Purchase Option or (ii) elect to remarket the Properties pursuant to
Section 22.1 and fail to cause all of the Properties to be sold on the
Expiration Date in accordance with the terms of Sections 20.1 or 22.1,
respectively, then in either case, on the Expiration Date Lessee shall pay
to Lessor an amount equal to the Termination Value for all the Properties
(which the parties do not intend to be a "bargain" purchase) and, upon
receipt of such amount plus all Rent and other amounts then due and payable
under this Lease and under any other Operative Agreement (including without
limitation the amounts described in clause FIRST of Section 22.2), Lessor
shall transfer to Lessee all of Lessor's right, title and interest in and
to the Properties in accordance with Section 19.1.
20.3 Lessor's Transfer Option. If, on the Construction Period
Termination Date, there are fewer than three (3) Properties then subject to
the terms of this Lease, then Lessor shall have the option to give Lessee
irrevocable written notice that Lessor, on a Payment Date that is not less
than thirty (30) days after the date of such written notice, shall transfer
and convey all of its right, title and interest in and to any or all
<PAGE>28
of the Properties to Lessee. On any transfer and conveyance date specified
by Lessor pursuant to this Section 20.3, (i) Lessor shall transfer and
convey all of its right, title and interest in and to any or all of the
Properties previously specified to Lessee, (ii) Lessee shall accept such
transfer and conveyance of right, title and interest in and to the
respective Property or Properties and (iii) Lessee shall pay the
Termination Value for such respective Property or Properties and all Rent
and other amounts then due and payable under this Lease and under any other
Operative Agreement (including without limitation all costs and expenses
referred to in clause FIRST of Section 22.2), in accordance with Section
19.1.
ARTICLE XXI
21.1 Renewal. Provided that no Lease Event of Default shall have
occurred and be continuing and provided that the Lenders agree at such time
to extend the Maturity Date to a date that is identical to the final day of
the Extended Term, at the Basic Term Expiration Date, Lessee may renew this
Lease (the "Renewal Option") for the Extended Term upon not more than 180
days and not less than 90 days prior written notice to Lessor, with respect
to all Property, other than Property which Lessee shall have elected to
purchase pursuant to Section 20.1. Unless otherwise agreed, any such
renewal of this Lease for the Extended Term shall be on the same terms and
conditions as set forth in this Lease for the original Term (which the
parties do not intend to be a "bargain" renewal), subject in any case to
renegotiation of the rental rate applicable during the Extended Term.
ARTICLE XXII
22.1 Sale Procedure.
(a) During the Marketing Period, Lessee, on behalf of any
assignee of Lessee pursuant to Section 25.1 or the Lessor, shall
obtain bids for the cash purchase of all of the Properties in
connection with a sale to one or more purchasers to be consummated on
the Expiration Date for the highest price available (subject to the
proviso in the next sentence), shall notify Lessor promptly of the
name and address of each prospective purchaser and the cash price
which each prospective purchaser shall have offered to pay for any
Property and shall provide Lessor with such additional information
about the bids and the bid solicitation procedure as Lessor may
reasonably request from time to time. Lessor may reject any and all
bids and may assume sole responsibility for obtaining bids by giving
Lessee written notice to that effect; provided, however, that
notwithstanding the foregoing, Lessor may not reject the bids for the
Properties submitted by the Lessee if such bids, in the aggregate,
are greater than or equal to the sum of the Limited Recourse Amount
for all of the Properties,
<PAGE>29
plus all amounts, if any, referred to in clause FIRST of Section 22.2
and represent bona fide offers from one or more third party
purchasers. If the price which a prospective purchaser or purchasers
shall have offered to pay for the Properties is less than the sum of
the Limited Recourse Amount plus all costs and expenses referred to
in clause FIRST of Section 22.2, Lessor may elect to retain all the
Properties by giving Lessee prior written notice of Lessor's election
to retain the Properties, and upon receipt of such notice, Lessee
shall surrender, or cause to be surrendered, the Properties to Lessor
pursuant to Section 10.1. Unless Lessor shall have elected to retain
the Properties pursuant to the preceding sentence, Lessee shall
arrange for Lessor to sell the Properties, for cash on the Expiration
Date to the purchaser or purchasers identified by Lessee or Lessor,
as the case may be. To effect such transfer and assignment, Lessor
shall execute, acknowledge (where required) and deliver to Lessee
each of the following: (i) a special or limited warranty Deed
conveying the Property (to the extent it is real property) to the
purchaser or purchasers free and clear of the Lien of this Lease, the
Lien of the Credit Documents and any Lessor Liens; (ii) a Bill of
Sale conveying the Property (to the extent it is personal property)
to the purchaser or purchasers free and clear of the Lien of this
Lease, the Lien of the Credit Documents and any Lessor Liens; (iii)
any real estate tax affidavit or other document required by law to be
executed and filed in order to record the Deed; and (iv) a FIRPTA
affidavit. Lessee shall surrender, or cause to be surrendered, the
Property so sold or subject to such documents to each purchaser in
the condition specified in Section 10.1. Neither party shall take any
action or fail to take any action (where action is required under the
Operative Agreements) which would have the effect of discouraging
bona fide third party bids for any Property. If all of the Properties
are not either (i) sold on the Expiration Date in accordance with the
terms of this Section 22.1, or (ii) retained by the Lessor pursuant
to an affirmative election made by the Lessor pursuant to the third
sentence of this Section 22.1(a), then the Lessee shall be obligated
to pay the Lessor on the Expiration Date an amount equal to the
Termination Value for all of the Properties (plus all Rent and other
amounts then due and payable under this Lease and any other Operative
Agreements) in accordance with the terms of Section 20.2.
(b) If the Properties are sold on the Expiration Date to one or
more third party purchasers in accordance with the terms of Section
22.1(a) and the aggregate purchase price paid for the Properties
minus the sum of all amounts, if any, referred to in clause FIRST of
Section 22.2 is less than the sum of the aggregate Termination Values
for all of the Properties plus all Rent and other amounts then due
and payable under this Lease and under any other Operative Agreements
(hereinafter such difference shall be referred to
<PAGE>30
as the "Deficiency Balance"), then the Lessee hereby unconditionally
promises to pay to the Lessor on the Expiration Date the lesser of
(i) the Deficiency Balance, or (ii) the Maximum Residual Guarantee
Amount for all of the Properties. If the Properties are retained by
the Lessor pursuant to an affirmative election made by the Lessor
pursuant to the third sentence of Section 22.1(a), then the Lessee
hereby unconditionally promises to pay to the Lessor on the
Expiration Date an amount equal to the aggregate Maximum Residual
Guaranty Amounts for all of the Properties.
(c) In the event the Properties are either sold to a third
party purchaser on the Expiration Date or retained by the Lessor in
connection with an affirmative election by the Lessor pursuant to the
third sentence of Section 22.1(a), then in either case on the
Expiration Date the Lessee shall provide, or cause to be provided,
Lessor or such third party purchaser, with (i) all permits,
certificates of occupancy, governmental licenses and authorizations
(to the extent such licenses or authorizations are transferable)
necessary to use and operate such Property for its intended purposes,
(ii) such easements, licenses, rights-of-way and other rights and
privileges in the nature of an easement as are reasonably necessary
or desirable in connection with the use, repair, access to or
maintenance of such Property for its intended purpose or otherwise as
the Lessor shall reasonably request, and (iii) a services agreement
covering such services as Lessor or such third party purchaser may
request in order to use and operate the Property for its intended
purposes at such rates (not in excess of arm's-length fair market
rates) as shall be acceptable to Lessee and Lessor or such third
party purchaser. All assignments, licenses, easements, agreements and
other deliveries required by clauses (i) and (ii) of this paragraph
(c) shall be in form satisfactory to the Lessor or such third party
purchaser, as applicable, and shall be fully assignable (including
both primary assignments and assignments given in the nature of
security) without payment of any fee, cost or other charge.
22.2 Application of Proceeds of Sale. The Lessor shall apply the
proceeds of sale of any Property in the following order of priority:
(i) FIRST, to pay or to reimburse Lessor for the
payment of all reasonable costs and expenses, if any,
incurred by Lessor in connection with the sale;
(ii) SECOND, so long as the Credit Agreement is in
effect and the Holder Advances or any amount is owing to any Holder
under any Operative Agreement, to the Agent to be applied pursuant to
inter-creditor provisions between the Lenders and the Holders
contained in Section 8 of the Credit Agreement and any other
applicable provisions of the Operative Agreements; and
<PAGE>31
(iii) THIRD, to the Lessee.
22.3 (intentionally omitted).
22.4 (intentionally omitted).
22.5 Certain Obligations Continue. During the Marketing Period, the
obligation of Lessee to pay Rent with respect to the Properties (including
the installment of Basic Rent due on the Expiration Date) shall continue
undiminished until payment in full to Lessor of the sale proceeds, if any,
the Maximum Residual Guarantee Amount and all other amounts due to Lessor
with respect to all Properties. Lessor shall have the right, but shall be
under no duty, to solicit bids, to inquire into the efforts of Lessee to
obtain bids or otherwise to take action in connection with any such sale,
other than as expressly provided in this Article XXII.
22.6 Sale of Undeveloped Pads. Provided that no Lease Default or
Lease Event of Default shall have occurred and be continuing, Lessee shall
have the option, exercisable by giving Lessor no less than fifteen (15)
days written notice of Lessee's election to transfer and convey any
undeveloped Land (excluding any de minimus site improvements) regarding any
Property on the following terms and conditions: (a) the Person to whom the
transfer and conveyance is made shall not be an Affiliate of Lessee; (b)
the purchase price for such Land shall be equal to or greater than the Fair
Market Sales Value thereof and the net proceeds from the sale of such Land
shall be retained by Lessee; (c) the applicable Property, excluding such
Land transferred and conveyed therefrom, shall (on and after the date of
such transfer and conveyance) satisfy all of the terms and conditions of
the Operative Agreements and (d) all Rent and other amounts due and payable
by Lessee under any Operative Agreement shall be paid on or prior to the
date of such transfer and conveyance.
ARTICLE XXIII
23.1 Holding Over. If Lessee shall for any reason remain in
possession of a Property after the expiration or earlier termination of
this Lease as to such Property (unless such Property is conveyed to
Lessee), such possession shall be as a tenancy at sufferance during which
time Lessee shall continue to pay Supplemental Rent that would be payable
by Lessee hereunder were the Lease then in full force and effect with
respect to the Property and Lessee shall continue to pay Basic Rent at 110%
of the Basic Rent that would otherwise be due and payable at such time.
Such Basic Rent shall be payable from time to time upon demand by Lessor
and such additional 10% amount shall be applied by the Lessor to the
payment of the Loans pursuant to the Credit Agreement and the Holder
Advances pursuant to the Trust Agreement pro rata between the Loans and the
Holder Advances. During any period of tenancy at sufferance, Lessee shall,
subject to the second preceding sentence, be obligated to perform and
observe
<PAGE>32
all of the terms, covenants and conditions of this Lease, but shall have no
rights hereunder other than the right, to the extent given by law to
tenants at sufferance, to continue their occupancy and use of such
Property. Nothing contained in this Article XXIII shall constitute the
consent, express or implied, of Lessor to the holding over of Lessee after
the expiration or earlier termination of this Lease as to any Property
(unless such Property is conveyed to Lessee) and nothing contained herein
shall be read or construed as preventing Lessor from maintaining a suit for
possession of such Property or exercising any other remedy available to
Lessor at law or in equity.
ARTICLE XXIV
24.1 Risk of Loss. During the Term, unless Lessee shall not be in
actual possession of the Property in question solely by reason of Lessor's
exercise of its remedies of dispossession under Article XVII, the risk of
loss or decrease in the enjoyment and beneficial use of such Property as a
result of the damage or destruction thereof by fire, the elements,
casualties, thefts, riots, wars or otherwise is assumed by Lessee, and
Lessor shall in no event be answerable or accountable therefor.
ARTICLE XXV
25.1 Assignment.
(a) Without the consent of the Lessor, Lessee may assign,
subject to Section 25.1(b), this Lease and its rights hereunder in
whole or in part to any Person provided the aggregate Property Cost
of all such Properties under assignment, at the time such assignment
becomes effective, does not exceed 25% of the aggregate Property Cost
of all Properties then subject to this Lease. Lessee may not assign
this Lease or its rights hereunder in whole or in part in addition to
that referenced in the preceding sentence without first obtaining the
prior written consent of the Lessor. Each assignment hereunder shall
be made in the normal course of Lessee's business, on commercially
reasonable terms and at market rates.
(b) No such assignment or other relinquishment of possession to
any Property shall in any way discharge or diminish any of the
obligations of Lessee to Lessor hereunder and Lessee shall remain
directly and primarily liable under this Lease as to any assignment
regarding this Lease.
25.2 Subleases.
(a) Without the consent of the Lessor, Lessee may sublet,
subject to Section 25.2(c), any Property or portion thereof to (i)
any wholly-owned Subsidiary of Lessee or (ii)
<PAGE>33
any Person (which is not a wholly-owned Subsidiary of Lessee)
provided the aggregate Property Cost of all such Properties under
sublease to Persons (which are not wholly-owned Subsidiaries of
Lessee), at the time such sublease becomes effective, does not exceed
25% of the aggregate Property Cost of all Properties then subject to
this Lease. Lessee may not sublet any Property or portion thereof in
addition to that referenced in the preceding sentence without first
obtaining the prior written consent of the Lessor. Each sublease
hereunder shall be made in the normal course of Lessee's business, on
commercially reasonable terms and at market rates. Each sublease may
be for a term less than, equal to or greater than the Term, as
extended from time to time.
(b) Promptly following the execution and delivery of any
sublease permitted by this Article XXV, Lessee shall notify Lessor
and the Agent of the execution of such sublease. As of the date of
each Lease Supplement, Lessee shall lease the respective Properties
described in such Lease Supplement from Lessor, and any existing
tenant respecting such Property shall automatically be deemed to be a
subtenant of Lessee and not a tenant of Lessor.
(c) No such sublease or other relinquishment of possession to
any Property shall in any way discharge or diminish any of Lessee's
obligations to Lessor hereunder and Lessee shall remain directly and
primarily liable under this Lease as to the Property, or portion
thereof, so sublet.
ARTICLE XXVI
26.1 No Waiver. No failure by Lessor or Lessee to insist upon the
strict performance of any term hereof or to exercise any right, power or
remedy upon a default hereunder, and no acceptance of full or partial
payment of Rent during the continuance of any such default, shall
constitute a waiver of any such default or of any such term. To the fullest
extent permitted by law, no waiver of any default shall affect or alter
this Lease, and this Lease shall continue in full force and effect with
respect to any other then existing or subsequent default.
ARTICLE XXVII
27.1 Acceptance of Surrender. No surrender to Lessor of this Lease or
of all or any portion of any Property or of any part of any thereof or of
any interest therein shall be valid or effective unless agreed to and
accepted in writing by Lessor and, prior to the payment or performance of
all obligations under the Credit Documents, the Agent, and no act by Lessor
or the Agent or any representative or agent of Lessor or the Agent, other
than a
<PAGE>34
written acceptance, shall constitute an acceptance of any such
surrender.
27.2 No Merger of Title. There shall be no merger of this Lease or of
the leasehold estate created hereby by reason of the fact that the same
Person may acquire, own or hold, directly or indirectly, in whole or in
part, (a) this Lease or the leasehold estate created hereby or any interest
in this Lease or such leasehold estate, (b) any right, title or interest in
any Property, (c) any Notes, or (d) a beneficial interest in Lessor.
ARTICLE XXVIII
28.1 Incorporation of Covenants. Reference is made to that certain
Credit Agreement dated as of October 30, 1995 (the "1995 Credit Agreement")
among the Lessee, Bank of America National Trust and Savings Association,
as Agent, and the other financial institutions party thereto. Further
reference is made to the covenants contained in Section 10 of the 1995
Credit Agreement (hereinafter referred to as the "Incorporated Covenants").
The Lessee agrees with the Lessor that the Incorporated Covenants (and all
other relevant provisions of the Credit Agreement related thereto) are
hereby incorporated by reference into this Lease to the same extent and
with the same effect as if set forth fully herein, without giving effect to
any waiver, amendment, modification or replacement of the 1995 Credit
Agreement or any term or provision of the Incorporated Covenants occurring
subsequent to the date of this Lease, except to the extent otherwise
specifically provided in the following provisions of this paragraph. In the
event a waiver is granted under the 1995 Credit Agreement or an amendment
or modification is executed with respect to the 1995 Credit Agreement, and
such waiver, amendment and/or modification affects the Incorporated
Covenants, then such waiver, amendment or modification shall be effective
with respect to the Incorporated Covenants as incorporated by reference
into this Lease only if consented to in writing by the Lessor and the
Majority Lenders. In the event of any replacement of the 1995 Credit
Agreement with a similar credit facility (the "New Facility") the covenants
contained in the New Facility which correspond to the covenants contained
in Section 10 of the 1995 Credit Agreement shall become the Incorporated
Covenants hereunder only if consented to in writing by the Lessor and the
Majority Lenders and, if such consent is not granted or if the 1995 Credit
Agreement is terminated and not replaced, then the covenants contained in
Section 10 of the 1995 Credit Agreement (together with any modifications or
amendments approved in accordance with this paragraph) shall continue to be
the Incorporated Covenants hereunder.
ARTICLE XXIX
29.1 Notices. All notices required or permitted to be given
under this Lease shall be in writing. Notices may be served by
<PAGE>35
certified or registered mail, postage paid with return receipt requested;
by private courier, prepaid; by telex, facsimile, or other
telecommunication device capable of transmitting or creating a written
record; or personally. Mailed notices shall be deemed delivered five days
after mailing, properly addressed. Couriered notices shall be deemed
delivered when delivered as addressed, or if the addressee refuses
delivery, when presented for delivery notwithstanding such refusal. Telex
or telecommunicated notices shall be deemed delivered when receipt is
either confirmed by confirming transmission equipment or acknowledged by
the addressee or its office. Personal delivery shall be effective when
accomplished. Unless a party changes its address by giving notice to the
other party as provided herein, notices shall be delivered to the parties
at the following addresses:
If to Lessee:
Fred Meyer, Inc.
3800 S.E. 22nd Avenue
P.O. Box 42121
Portland, Oregon 97242
Attention: James C. Aalberg,
Vice President
and Corporate Treasurer
Telephone: (503) 797-5300
Telecopier: (503) 797-5299
If to Lessor:
First Security Bank of Utah, N.A.
79 South Main Street
Salt Lake City, Utah 84111
Attention: Mr. Val T. Orton
Corporate Trust Counsel
Telephone: (801) 246-5300
Telecopy: (801) 246-5053
with a copy to the Agent:
NationsBank of Texas, N.A.
901 Main Street, 13th Floor
P.O. Box 831000
Dallas, Texas 75283-1000
Attention: Ms. Molly Oxford
Assistant Vice President
Telephone: (214) 508-3255
Telecopy: (214) 508-2515
or such additional parties and/or other address as such party may hereafter
designate, and shall be effective upon receipt or refusal thereof.
<PAGE>36
ARTICLE XXX
30.1 Miscellaneous. Anything contained in this Lease to the contrary
notwithstanding, all claims against and liabilities of Lessee or Lessor
arising from events commencing prior to the expiration or earlier
termination of this Lease shall survive such expiration or earlier
termination. If any provision of this Lease shall be held to be
unenforceable in any jurisdiction, such unenforceability shall not affect
the enforceability of any other provision of this Lease and such
jurisdiction or of such provision or of any other provision hereof in any
other jurisdiction.
30.2 Amendments and Modifications. Neither this Lease, any Lease
Supplement nor any provision hereof may be amended, waived, discharged or
terminated except by an instrument in writing in recordable form signed by
Lessor and Lessee.
30.3 Successors and Assigns. All the terms and provisions of this
Lease shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
30.4 Headings and Table of Contents. The headings and table of
contents in this Lease are for convenience of reference only and shall not
limit or otherwise affect the meaning hereof.
30.5 Counterparts. This Lease may be executed in any number of
counterparts, each of which shall be an original, but all of which shall
together constitute one and the same instrument.
30.6 GOVERNING LAW. THIS LEASE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OREGON.
30.7 Calculation of Rent. All calculation of Basic Rent payable
hereunder (to the extent computed with reference to the Eurodollar Rate)
shall be computed based on the actual number of days elapsed over a year of
360 days.
30.8 Memoranda of Lease and Lease Supplements. This Lease shall not
be recorded; provided, Lessor and Lessee shall promptly record (a) a
memorandum of this Lease and the applicable Lease Supplement (in
substantially the form of Exhibit B-1 attached hereto) regarding (i) each
Improved Property promptly after the acquisition thereof in the local
filing office with respect thereto and (ii) each Property which is not an
Improved Property promptly after the commencement of the Basic Term
therefor in the local filing office with respect thereto, and (b) a
memorandum of this Lease (in substantially the form of Exhibit B-2 attached
hereto) regarding each Property which is not an Improved Property promptly
after the acquisition thereof in the local filing office with respect
thereto, in all cases at Lessee's cost and expense, and as required under
applicable law to sufficiently evidence this Lease or any such Lease
Supplement in the applicable real estate filing records.
<PAGE>37
30.9 Allocations between the Lenders and the Holders. Notwithstanding
any other term or provision of this Lease to the contrary, the allocations
of the proceeds of the Properties and any and all other Rent and other
amounts received hereunder shall be subject to the inter-creditor
provisions between the Lenders and the Holders contained in the Operative
Agreement (or as otherwise agreed among the Lenders and the Holders from
time to time).
30.10 Limitations on Recourse. Notwithstanding anything
contained in this Lease to the contrary, Lessee agrees to look solely to
Lessor's estate and interest in the Properties (and in no circumstance to
the Agent, the Lenders, the Holders or otherwise to Lessor) for the
collection of any judgment requiring the payment of money by Lessor in the
event of liability by Lessor, and no other property or assets of Lessor or
any shareholder, owner or partner (direct or indirect) in or of Lessor, or
any director, officer, employee, beneficiary, Affiliate of any of the
foregoing shall be subject to levy, execution or other enforcement
procedure for the satisfaction of the remedies of Lessee under or with
respect to this Lease, the relationship of Lessor and Lessee hereunder or
Lessee's use of the Properties or any other liability of Lessor to Lessee.
Nothing in this Section shall be interpreted so as to limit the terms of
Sections 6.1 or 6.2.
30.11 Estoppel Certificates. Upon twenty (20) days' prior
notice of the request, either party will execute, acknowledge and deliver
to the other party a certificate stating (a) that this Lease is unmodified
and in full force and effect (or, if there have been modifications, that
this Lease is in full force and effect as modified, and setting forth such
modifications), (b) the dates to which Rent and other sums payable
hereunder have been paid, and (c) either that to the knowledge of the party
no default exists under this Lease or specifying each such default of which
the party has knowledge. A party shall not be obligated, except as provided
herein, to update any certificate once delivered.
30.12 Decision Making by Parties. Wherever a party's consent,
approval, decision or determination is required under this Lease, such
consent or approval shall be given or decision or determination shall be
made in writing and in a commercially reasonable manner. No change in Rent,
the rights of the parties or the economic terms of this Lease shall be
required as a condition to granting of consent. Any denial of consent will
include in reasonable detail the reason for denial or aspect of the request
that was not acceptable.
30.13 Limited Power of Attorney. To the extent required by
Lessee, Lessor hereby agrees to provide Lessee with a Limited Power of
Attorney permitting Lessee to act on behalf of Lessor in connection with
(i) consenting to all Subleases referenced in Section 25.2 of this Lease
(respecting up to, but not to exceed, 25% of the aggregate Property Costs
of all Properties then
<PAGE>38
subject to the Lease), (ii) executing all easements, use, restrictive
covenant, assessment or bonding agreements referenced in the first
paragraph of Section 10.5 of the Participation Agreement and (iii) selling
undeveloped Land as is more specifically described in Section 22.6 of this
Lease (provided, all such sales shall be conducted in compliance with the
terms of such Section 22.6, without modification of such provisions
pursuant to the utilization of the Limited Power of Attorney by Lessee);
provided, the Limited Power of Attorney may be utilized only to the extent
(x) no Default or Event of Default shall have occurred or be continuing at
the time of the contemplated exercise of the Limited Power of Attorney and
(y) such Sublease, easement, use, restrictive covenant, assessment or
bonding agreement or document of sale shall be made in the normal course of
the Lessee's business, at market rates, on commercially reasonable terms
and accomplished in a manner so as not to diminish the value of any
Property in any material respect.
To the extent any Event of Default has occurred and is continuing or
the Lessee has received written notice of the occurrence of any Default,
the Limited Power of Attorney shall immediately terminate and be void and
of no further force or effect unless reinstated in writing by the Lessor
and acknowledged and agreed to by the Holders and the Agent. Each action
taken by the Lessee under the Limited Power of Attorney shall
automatically, without further action, be deemed to be a representation and
warranty as of such date that the conditions set forth in the first
sentence of this Section 30.13 are satisfied in full as of such date.
30.14 Submission To Jurisdiction; Waivers. Each of the
parties hereto hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Lease and the other Operative Agreements to
which it is a party, or for recognition and enforcement of any judgement in
respect thereof, to the non-exclusive general jurisdiction of the Courts of
the State of Oregon, the courts of the United States of America for the
District of Oregon, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought
in such courts and waives any objection that it may now or hereafter have
to the venue of any such action or proceeding in any such court or that
such action or proceeding was brought in an inconvenient court and agrees
not to plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail) postage prepaid,
to such party at its address set forth in Section 29.1 or at such other
address of which the parties hereto shall have been notified pursuant
thereto;
<PAGE>39
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or proceeding
referred to in this Section 30.14 any special, exemplary or punitive
damages.
30.15 WAIVERS OF JURY TRIAL. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, THE LESSOR AND THE LESSEE HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS LEASE OR ANY OTHER OPERATIVE AGREEMENT TO WHICH SUCH
ENTITY IS A PARTY AND FOR ANY COUNTERCLAIM THEREIN.
[Signature pages follow]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Lease to be duly
executed and delivered as of the date first above written.
FRED MEYER, INC.
By: JAMES C. AALBERG
---------------------------------------
Name: James C. Aalberg
Title: Vice President and Corporate
Treasurer
FIRST SECURITY BANK OF UTAH, N.A., not
individually, but solely as Owner
Trustee under the FM Trust
1995-2
By: VAL T. ORTON
---------------------------------------
Name: Val T. Orton
-------------------------------------
Title: Vice President
------------------------------------
Receipt of this original
counterpart of the foregoing
Lease is hereby acknowledged
as the date hereof
NationsBank of Texas, N.A.,
as Agent
By:
-----------------------------------
Name: William Guffey
Title: Vice President
<PAGE>
EXHIBIT A TO
THE LEASE
LEASE SUPPLEMENT NO. ___
THIS LEASE SUPPLEMENT NO. ___ (this "Lease Supplement") dated as of
________________ between FIRST SECURITY BANK OF UTAH, N.A., a national
banking association, not individually, but solely as Owner Trustee under
the FM Trust 1995-2, as lessor (the "Lessor"), and FRED MEYER, INC., as
lessee (the "Lessee").
WHEREAS, the Lessor is the owner or will be owner of the Property
described on Schedule I hereto (the "Leased Property") and wishes to lease
the same to Lessee;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
SECTION 1. DEFINITIONS; RULES OF USAGE. For purposes of this Lease
Supplement, capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to them in Appendix A to the Participation
Agreement, dated as of December 1, 1995, among the Lessee, the Lessor, not
individually, except as expressly stated therein, but solely as Owner
Trustee under the FM Trust 1995-2, NationsBank of Texas, N.A., Greenwich
Funding Corporation and Credit Suisse, as the Holders, the various banks
and banking institutions which are parties thereto from time to time and
NationsBank of Texas, N.A., as Agent for the Lenders.
SECTION 2. THE PROPERTIES. Attached hereto as Schedule I is the
description of the Leased Property, with an Equipment Schedule attached
hereto as Schedule I-A, an Improvement Schedule attached hereto as Schedule
I-B and a legal description of the Land for such Project attached hereto as
Schedule I-C. Effective upon the execution and delivery of this Lease
Supplement by the Lessor and the Lessee, the Leased Property shall be
subject to the terms and provisions of the Lease.
SECTION 3. RATIFICATION; INCORPORATION BY REFERENCE. Except as
specifically modified hereby, the terms and provisions of the Lease and the
Operative Agreements are hereby ratified and confirmed and remain in full
force and effect. The Lease is hereby incorporated herein by reference as
though restated herein in its entirety.
SECTION 4. ORIGINAL LEASE SUPPLEMENT. The single executed original of
this Lease Supplement marked "THIS COUNTERPART IS THE ORIGINAL EXECUTED
COUNTERPART" on the signature page thereof and containing the receipt of
the Agent therefor on or following the signature page thereof shall be the
original executed counterpart of this Lease Supplement (the "Original
Executed Counterpart").
<PAGE>
To the extent that this Lease Supplement constitutes chattel paper, as such
term is defined in the Uniform Commercial Code as in effect in any
applicable jurisdiction, no security interest in this Lease Supplement may
be created through the transfer or possession of any counterpart other than
the Original Executed Counterpart.
SECTION 5. GOVERNING LAW. THIS LEASE SUPPLEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE
OF OREGON.
SECTION 6. MORTGAGE; POWER OF SALE. Without limiting any other
remedies set forth in the Lease, in the event that a court of competent
jurisdiction rules that the Lease constitutes a mortgage, deed of trust or
other secured financing as is the intent of the parties, then the Lessor
and the Lessee agree that the Lessee hereby grants a Lien against the
Leased Property WITH POWER OF SALE, and that, upon the occurrence and
during the continuance of any Lease Event of Default, the Lessor shall have
the power and authority, to the extent provided by law, after prior notice
and lapse of such time as may be required by law, to foreclose its interest
(or cause such interest to be foreclosed) in all or any part of the Leased
Property.
SECTION 7. COUNTERPART EXECUTION. This Lease Supplement
may be executed in any number of counterparts and by each of the
parties hereto in separate counterparts, all such counterparts
together constituting but one and the same instrument.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
[IF NECESSARY, MODIFY TO PUT IN RECORDABLE FORM.]
<PAGE>
[CONFORM TO STATE LAW REQUIREMENTS]
STATE OF _______________ )
) ss.
COUNTY OF ______________ )
On this ____ day of ______________, 19___, before me,
_____________________ [NOTARY'S NAME], a Notary Public of the State of
______, duly commissioned and sworn, personally appeared _________________
to me personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person who executed the written instrument as the
_________________ of FIRST SECURITY BANK OF UTAH, N.A., a national banking
association, not individually, but solely as Owner Trustee under the FM
Trust 1995-2, of and on behalf of such national banking association and
acknowledged to me that such national banking association executed the
same.
[NOTARIAL SEAL] _____________________________________
Notary Public for the State of ______
Residing at:_________________________
My commission expires:_______________
STATE OF _______________ )
) ss.
COUNTY OF ______________ )
On this ____ day of ______________, 19___, before me,
_____________________ [NOTARY'S NAME], a Notary Public of the State of
Oregon, duly commissioned and sworn, personally appeared _________________
to me personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person who executed the written instrument as the
_________________ of FRED MEYER, INC., a Delaware corporation, of and on
behalf of such corporation and acknowledged to me that such corporation
executed the same.
[NOTARIAL SEAL] __________________________________
Notary Public for the State of Oregon
Residing at:______________________
My commission expires:____________
<PAGE>
STATE OF _______________ )
) ss.
COUNTY OF ______________ )
On this ____ day of ______________, 19___, before me,
_____________________ [NOTARY'S NAME], a Notary Public of the State of
______, duly commissioned and sworn, personally appeared _________________
to me personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person who executed the written instrument as the
_________________ of NATIONSBANK OF TEXAS, N.A., a national banking
association, as Agent, of and on behalf of such national banking
association and acknowledged to me that such national banking association
executed the same.
[NOTARIAL SEAL] _____________________________________
Notary Public for the State of ______
Residing at:_________________________
My commission expires:_______________
<PAGE>
SCHEDULE I
TO LEASE SUPPLEMENT NO. ____
<PAGE>
SCHEDULE I-A
TO LEASE SUPPLEMENT NO. ____
(Equipment)
<PAGE>
SCHEDULE I-B
TO LEASE SUPPLEMENT NO. ____
(Improvements)
<PAGE>
SCHEDULE I-C
TO LEASE SUPPLEMENT NO. ____
(Land)
<PAGE>
EXHIBIT B-1 TO THE LEASE
Recordation requested by:
Moore & Van Allen, PLLC
After recordation return to:
Moore & Van Allen, PLLC (WMA)
NationsBank Corporate Center
100 North Tryon Street, Floor 47
Charlotte, NC 28202-4003
Space above this line
for Recorder's use
- -------------------------------------------------------------------------------
MEMORANDUM OF LEASE AGREEMENT
(TAX RETENTION OPERATING LEASE) AND
LEASE SUPPLEMENT NO. _____________
THIS MEMORANDUM OF LEASE AGREEMENT (TAX RETENTION OPERATING LEASE)
AND LEASE SUPPLEMENT NO. ____________ ("Memorandum"), dated as of
_____________, 199___, is by and between FIRST SECURITY BANK OF UTAH, N.A.,
a national banking association, not individually, but solely as Owner
Trustee under the FM Trust 1995-2, with an office at 79 South Main Street,
Salt Lake City, Utah 84111 (hereinafter referred to as "Landlord") and FRED
MEYER, INC., a Delaware corporation, with an office at 3800 SE 22nd Avenue,
PO Box 42121, Portland, Oregon 97242-0121 (hereinafter referred to as
"Tenant").
WITNESSETH:
That for value received, Landlord and Tenant do hereby covenant,
promise and agree as follows:
1. DEMISED PREMISES. Landlord has leased to Tenant, and Tenant
has leased from Landlord, for the Term (as hereinafter defined), certain
real property and other property located in ________________, which is
described in the attached Exhibit A (the "Property"), pursuant to the terms
of a Lease Agreement (Tax Retention Operating Lease Agreement), between
Landlord and Tenant dated December 1, 1995 (the "Lease") and a Lease
Supplement No. _____ between Landlord and Tenant dated ______________ (the
"Lease Supplement").
2. TERM. The term of the Lease ("Term") commenced on
_______ and shall end December 8, 2000, unless the Term is
extended or earlier terminated in accordance with the provisions
of the Lease.
<PAGE>
3. MORTGAGE; POWER OF SALE. Without limiting any other remedies
set forth in the Lease, in the event that a court of competent jurisdiction
rules that the Lease constitutes a mortgage, deed of trust or other secured
financing as is the intent of the parties, then the Lessor and the Lessee
agree that the Lessee has granted, pursuant to the terms of the Lease and
the Lease Supplement, a Lien against the Property WITH POWER OF SALE, and
that, upon the occurrence and during the continuance of any Lease Event of
Default, the Lessor shall have the power and authority, to the extent
provided by law, after prior notice and lapse of such time as may be
required by law, to foreclose its interest (or cause such interest to be
foreclosed) in all or any part of the Property.
4. EFFECT OF MEMORANDUM. The purpose of this instrument is to
give notice of the Lease and the Lease Supplement and their respective
terms, covenants and conditions to the same extent as if the Lease and the
Lease Supplement were fully set forth herein. This Memorandum shall not
modify in any manner the terms, conditions or intent of the Lease or the
Lease Supplement and the parties agree that this Memorandum is not intended
nor shall it be used to interpret the Lease or the Lease Supplement or
determine the intent of the parties under the Lease or the Lease
Supplement.
[The remainder of this page has been intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
instrument as of the day and year first written.
LANDLORD: TENANT:
FIRST SECURITY BANK FRED MEYER, INC., a Delaware
OF UTAH, N.A. not individually, corporation
but solely as Owner Trustee
under the FM Trust 1995-2
By:___________________________ By:__________________________
Its:__________________________ Its:_________________________
<PAGE>
[CONFORM TO STATE LAW REQUIREMENTS]
ACKNOWLEDGEMENTS
STATE OF _______________ )
) ss.
COUNTY OF ______________ )
On this ____ day of ______________, 19___, before me,
_____________________ [NOTARY'S NAME], a Notary Public of the State of
______, duly commissioned and sworn, personally appeared _________________
to me personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person who executed the written instrument as the
_________________ of FIRST SECURITY BANK OF UTAH, N.A., a national banking
association, not individually, but solely as Owner Trustee under the FM
Trust 1995-2, of and on behalf of such national banking association and
acknowledged to me that such national banking association executed the
same.
[NOTARIAL SEAL] _____________________________________
Notary Public for the State of ______
Residing at:_________________________
My commission expires:_______________
STATE OF _______________ )
) ss.
COUNTY OF ______________ )
On this ____ day of ______________, 19___, before me,
_____________________ [NOTARY'S NAME], a Notary Public of the State of
Oregon, duly commissioned and sworn, personally appeared _________________
to me personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person who executed the written instrument as the
_________________ of FRED MEYER, INC., a Delaware corporation, of and on
behalf of such corporation and acknowledged to me that such corporation
executed the same.
[NOTARIAL SEAL] __________________________________
Notary Public for the State of Oregon
Residing at:______________________
My commission expires:____________
<PAGE>
EXHIBIT B-2 TO THE LEASE
Recordation requested by:
Moore & Van Allen, PLLC
After recordation return to:
Moore & Van Allen, PLLC (WMA)
NationsBank Corporate Center
100 North Tryon Street, Floor 47
Charlotte, NC 28202-4003
Space above this line
for Recorder's use
- -------------------------------------------------------------------------------
MEMORANDUM OF LEASE AGREEMENT
(TAX RETENTION OPERATING AGREEMENT)
THIS MEMORANDUM OF LEASE AGREEMENT (TAX RETENTION OPERATING
LEASE) ("Memorandum"), dated as of __________________, 199__, is by and
between FIRST SECURITY BANK OF UTAH, N.A., a national banking association,
not individually, but solely as Owner Trustee under the FM Trust 1995-2,
with an office at 79 South Main Street, Salt Lake City, Utah 84111
(hereinafter referred to as "Landlord") and FRED MEYER, INC., a Delaware
corporation, with an office at 3800 SE 22nd Avenue, PO Box 42121, Portland,
Oregon 97242-0121 (hereinafter referred to as "Tenant").
WITNESSETH:
That for value received, Landlord and Tenant do hereby
covenant, promise and agree as follows:
1. DEMISED PREMISES. Landlord hereby agrees to lease to Tenant,
and Tenant hereby agrees to lease from Landlord, for the Term (as
hereinafter defined), certain real property and other property located in
___________________ which is described in the attached Exhibit A (the
"Property"), pursuant to the terms of a Lease Agreement (Tax Retention
Operating Lease Agreement), between Landlord and Tenant dated December 1,
1995 (the "Lease").
2. TERM. The term of the Lease ("Term") shall commence upon the
earlier to occur of (i) the Completion Date (as such term is defined in the
Lease) for the Property or (ii) as of the date of any Agency Agreement
Event of Default (as such term is defined in the Lease) and shall end on
December 8, 2000, unless the Term is extended or earlier terminated in
accordance with the provisions of the Lease.
<PAGE>
3. MORTGAGE; POWER OF SALE. Without limiting any other remedies
set forth in the Lease, in the event that a court of competent jurisdiction
rules that the Lease constitutes a mortgage, deed of trust or other secured
financing as is the intent of the parties, then the Lessor and the Lessee
agree that the Lessee has granted, pursuant to the terms of the Lease, a
Lien against the Property WITH POWER OF SALE, and that, upon the occurrence
and during the continuance of any Lease Event of Default during the Term,
the Lessor shall have the power and authority, to the extent provided by
law, after prior notice and lapse of such time as may be required by law,
to foreclose its interest (or cause such interest to be foreclosed) in all
or any part of the Property.
4. EFFECT OF MEMORANDUM. The purpose of this instrument is to
give notice of the Lease and its terms, covenants and conditions to the
same extent as if the Lease were fully set forth herein. This Memorandum
shall not modify in any manner the terms, conditions or intent of the Lease
and the parties agree that this Memorandum is not intended nor shall it be
used to interpret the Lease or determine the intent of the parties under
the Lease.
[The remainder of this page has been intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
instrument as of the day and year first written.
LANDLORD: TENANT:
FIRST SECURITY BANK FRED MEYER, INC., a Delaware
OF UTAH, N.A. not individually, corporation
but solely as Owner Trustee
under the FM Trust 1995-2
By:___________________________ By:__________________________
Its:__________________________ Its:_________________________
<PAGE>
[CONFORM TO STATE LAW REQUIREMENTS]
ACKNOWLEDGEMENTS
STATE OF _______________ )
) ss.
COUNTY OF ______________ )
On this ____ day of ______________, 19___, before me,
_____________________ [NOTARY'S NAME], a Notary Public of the State of
______, duly commissioned and sworn, personally appeared _________________
to me personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person who executed the written instrument as the
_________________ of FIRST SECURITY BANK OF UTAH, N.A., a national banking
association, not individually, but solely as Owner Trustee under the FM
Trust 1995- 2, of and on behalf of such national banking association and
acknowledged to me that such national banking association executed the
same.
[NOTARIAL SEAL] _____________________________________
Notary Public for the State of ______
Residing at:_________________________
My commission expires:_______________
STATE OF _______________ )
) ss.
COUNTY OF ______________ )
On this ____ day of ______________, 19___, before me,
_____________________ [NOTARY'S NAME], a Notary Public of the State of
Oregon, duly commissioned and sworn, personally appeared _________________
to me personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person who executed the written instrument as the
_________________ of FRED MEYER, INC., a Delaware corporation, of and on
behalf of such corporation and acknowledged to me that such corporation
executed the same.
[NOTARIAL SEAL] __________________________________
Notary Public for the State of Oregon
Residing at:______________________
My commission expires:____________
<PAGE>
- --------------------------------------------------------------------------------
Appendix A
Rules of Usage and Definitions
- --------------------------------------------------------------------------------
I. Rules of Usage
The following rules of usage shall apply to this Appendix A and the
Operative Agreements (and each appendix, schedule, exhibit and annex to the
foregoing) unless otherwise required by the context or unless otherwise
defined therein:
(a) Except as otherwise expressly provided, any definitions set
forth herein or in any other document shall be equally applicable to
the singular and plural forms of the terms defined.
(b) Except as otherwise expressly provided, references in any
document to articles, sections, paragraphs, clauses, annexes,
appendices, schedules or exhibits are references to articles,
sections, paragraphs, clauses, annexes, appendices, schedules or
exhibits in or to such document.
(c) The headings, subheadings and table of contents used in any
document are solely for convenience of reference and shall not
constitute a part of any such document nor shall they affect the
meaning, construction or effect of any provision thereof.
(d) References to any Person shall include such Person, its
successors and permitted assigns and transferees.
(e) Except as otherwise expressly provided, reference to any
agreement means such agreement as amended, modified, extended,
supplemented, restated and/or replaced from time to time in
accordance with the applicable provisions thereof.
(f) Except as otherwise expressly provided, references to any
law includes any amendment or modification to such law and any rules
or regulations issued thereunder or any law enacted in substitution
or replacement therefor.
(g) When used in any document, words such as "hereunder",
"hereto", "hereof" and "herein" and other words of like import shall,
unless the context clearly indicates to the contrary, refer to the
whole of the applicable document and not to any particular article,
section, subsection, paragraph or clause thereof.
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(h) References to "including" means including without limiting
the generality of any description preceding such term and for
purposes hereof the rule of ejusdem generis shall not be applicable
to limit a general statement, followed by or referable to an
enumeration of specific matters, to matters similar to those
specifically mentioned.
(i) References herein to "attorney's fees", "legal fees",
"costs of counsel" or other such references shall be deemed to
include the allocated cost of in-house counsel.
(j) Each of the parties to the Operative Agreements and their
counsel have reviewed and revised, or requested revisions to, the
Operative Agreements, and the usual rule of construction that any
ambiguities are to be resolved against the drafting party shall be
inapplicable in the construing and interpretation of the Operative
Agreements and any amendments or exhibits thereto.
II. Definitions
"ABR" shall have the meaning specified in Section 1.1 of the
Credit Agreement.
"acquire" or "purchase" shall mean, with respect to any Property, the
acquisition, lease or purchase of such Property by the Owner Trustee from
any Person.
"Acquisition Advance" shall mean an advance of funds to pay Property
Acquisition Costs and other amounts related thereto pursuant to Section 5.3
of the Participation Agreement.
"Additional Up-Front Fee" shall have the meaning specified in Section
9.4 of the Participation Agreement.
"Advance" shall mean a Construction Advance or Modification
Advance or an Acquisition Advance.
"Affiliate" shall have the meaning specified in Section 1.1
of the Credit Agreement.
"After Tax Basis" shall mean, with respect to any payment to be
received, the amount of such payment increased so that, after deduction of
the amount of all taxes required to be paid by the recipient calculated at
the then maximum marginal rates generally applicable to Persons of the same
type as the recipients (less any tax savings realized as a result of the
payment of the indemnified amount) with respect to the receipt by the
recipient of such amounts, such increased payment (as so reduced) is equal
to the payment otherwise required to be made.
"Agency Agreement" shall mean the Agency Agreement, dated as of the
Initial Closing Date, between the Construction Agent and the Owner Trustee.
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"Agency Agreement Default" shall mean any event, act or condition
which with notice or lapse of time, or both, would constitute an Agency
Agreement Event of Default.
"Agency Agreement Event of Default" shall mean an "Event of Default"
as defined in Section 5.1 of the Agency Agreement.
"Agent" or "Administrative Agent" shall mean NationsBank of Texas,
N.A., as Administrative Agent for the Lenders pursuant to the Credit
Agreement, or any successor agent appointed in accordance with the terms of
the Credit Agreement.
"Allocated Interest" shall have the meaning specified in Section 1.1
of the Credit Agreement.
"Amount of Commitment Increase" shall mean, (a) in the aggregate for
the Lenders and the Holders, the sum of the amount of the Commitment
Increase of the Lenders plus the amount of the Commitment Increase of the
Holders and (b) as to the Lenders as a group or the Holders as a group, as
the case may be, the amount of the Commitment Increase of the Lenders or
the Commitment Increase of the Holders, as the case may be.
"Applicable Margin" shall have the meaning given such term in Section
1.1 of the Credit Agreement.
"Appraisal" shall mean, with respect to any Property, an appraisal to
be delivered in connection with a Property Closing Date or in accordance
with the terms of Section 10.1(e) of the Lease, in each case prepared by a
reputable appraiser reasonably acceptable to the Agent, which in the
judgment of counsel to the Agent, complies with all of the provisions of
the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as
amended, the rules and regulations adopted pursuant thereto, and all other
applicable Legal Requirements, with such appraisal to be performed by an
appraiser selected by the Agent after consultation with Lessee.
"Approved States" shall mean Washington, Oregon, Utah and Idaho, and
any other state approved in writing by the Lessor and the Agent.
"Appurtenant Rights" shall mean (i) all agreements, easements, rights
of way or use, rights of ingress or egress, privileges, appurtenances,
tenements, hereditaments and other rights and benefits at any time
belonging or pertaining to the Land underlying any Improvements, or the
Improvements, including, without limitation, the use of any streets, ways,
alleys, vaults or strips of land adjoining, abutting, adjacent or
contiguous to the Land and (ii) all permits, licenses and rights, whether
or not of record, appurtenant to such Land.
"Available Commitment" shall have the meaning specified in Section
1.1 of the Credit Agreement.
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"Base Amount" shall have the meaning specified in Section
10.1 of the Lease.
"Basic Rent" shall mean, the sum of (i) the Loan Basic Rent and (ii)
the Lessor Basic Rent, calculated as of the applicable date on which Basic
Rent is due.
"Basic Term" shall have the meaning specified in Section 2.2
of the Lease.
"Basic Term Commencement Date" shall have the meaning specified in
Section 2.2 of the Lease.
"Basic Term Expiration Date" shall have the meaning specified in
Section 2.2 of the Lease.
"Bill of Sale" shall mean a Bill of Sale regarding Equipment in form
and substance satisfactory to the Holders and the Agent.
"Borrowing Date" shall have the meaning specified in
Section 1.1 of the Credit Agreement.
"Business Day" shall mean a day other than a Saturday, Sunday or
other day on which commercial banks in Charlotte, North Carolina, Dallas,
Texas, Los Angeles, California, San Francisco, California, New York, New
York or Portland, Oregon, are authorized or required by law to close;
provided, however, that when used in connection with a Loan bearing
interest based on the Eurodollar Rate, the term "Business Day" shall also
exclude any day on which banks are not open for dealings in dollar deposits
in the London interbank market.
"Capital Lease" means any lease of property (whether real, personal
or mixed) which would, in accordance with GAAP, be required to be
classified and accounted for on the books of the lessee as a capital lease.
"Casualty" shall mean any damage or destruction of all or any portion
of a Property as a result of a fire or other casualty.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, 42 U.S.C. ss.ss. 9601 et seq., as
amended by the Superfund Amendments and Reauthorization Act of 1986.
"Certificate" shall mean a Certificate in favor of each Holder
regarding the Holder Commitment of such Holder issued pursuant to the terms
and conditions of the Trust Agreement in favor of such Holder.
"Change in Control" means the acquisition by any Person, or two or
more Persons acting in concert, of beneficial ownership (within the meaning
of Rule 13d-3 of the SEC under the Securities Exchange Act of 1934, as
amended) of outstanding shares of voting
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stock of Lessee representing in excess of 50% of voting control of Company,
which Person or Persons have beneficial ownership of less than 5% of the
outstanding shares of voting stock of Lessee as of the date of the
Participation Agreement.
"Claims" shall mean any and all obligations, liabilities, losses,
actions, suits, penalties, claims, demands, costs and expenses (including,
without limitation, reasonable attorney's fees and expenses) of any nature
whatsoever.
"Closing Date" shall mean the Initial Closing Date and each
Property Closing Date.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute hereto.
"Collateral" shall have the meaning specified in Section 1.1
of the Credit Agreement.
"Commitment" shall have the meaning specified in Section 1.1
of the Credit Agreement.
"Commitment Fee Payment Date" shall mean each Specified Interest
Payment Date and the last day of the Commitment Period, or such earlier
date as the Commitments shall terminate as provided in the Credit
Agreement.
"Commitment Fee Rate" shall mean, with respect to the Commitments, a
rate equal to 15 basis points (0.15%) per annum for the Commitment Period.
"Commitment Increase" shall mean an increase in the Commitments of
the Lenders pursuant to Section 9.8(d) of the Credit Agreement and a
concurrent increase in the Holder Commitments of the Holders pursuant to
Section 3.1(d) of the Trust Agreement.
"Commitment Period" shall mean the period from the Initial Closing
Date to and including the Construction Period Termination Date, or such
earlier date as the Commitments shall terminate as provided in the Credit
Agreement.
"Company" shall have the meaning specified in Section 7.3 of
the Participation Agreement.
"Completion" shall mean, with respect to a Property, such time as
final completion of the Improvements on such Property has been achieved in
accordance with the Plans and Specifications, the Agency Agreement and/or
the Lease, and in compliance with all material Legal Requirements and
Insurance Requirements and (unless not required in connection with the
construction, renovation and/or modification of Improvements on Improved
Property) a certificate of occupancy has been issued with respect to such
Property by the appropriate governmental entity.
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"Completion Date" shall mean, with respect to a Property, the earlier
of (i) the date on which Completion for such Property has occurred and (ii)
the Construction Period Termination Date.
"Condemnation" shall mean any taking or sale of the use, access,
occupancy, easement rights or title to any Property or any part thereof,
wholly or partially (temporarily or permanently), by or on account of any
actual or threatened eminent domain proceeding or other taking of action by
any Person having the power of eminent domain, including an action by a
Governmental Authority to change the grade of, or widen the streets
adjacent to, any Property or alter the pedestrian or vehicular traffic flow
to any Property so as to result in a change in access to such Property, or
by or on account of an eviction by paramount title or any transfer made in
lieu of any such proceeding or action.
"Construction Advance" shall mean an advance of funds to pay Property
Costs and other amounts related thereto with respect to Unimproved Property
pursuant to Section 5.4 or 5.5 of the Participation Agreement.
"Construction Agent" shall mean Fred Meyer, Inc., a Delaware
corporation, as construction agent under the Agency Agreement.
"Construction Budget" shall mean, as to any Property, the aggregate
of Land acquisition costs and the estimated cost of constructing and
developing any Improvements, on a Property by Property basis, as determined
by the Construction Agent or the Lessee, as the case may be, in its
reasonable, good faith judgment, specifying the acquisition cost for Land
and the projected hard costs relating to Improvements and soft costs
relating to Improvements.
"Construction Commencement Date" shall mean, with respect to
Improvements, the date on which construction of such Improvements commences
pursuant to the Agency Agreement.
"Construction Period" shall mean, with respect to a Property, the
period commencing on the Construction Commencement Date for such Property
and ending on the Completion Date for such Property.
"Construction Period Property" shall have the meaning specified in
Section 1.1 of the Credit Agreement.
"Construction Period Termination Date" shall mean the second annual
anniversary of the Initial Closing Date, as such date may be extended for
up to six (6) additional months to the extent that a delay in construction
is caused by a Force Majeure Event.
"Control" shall mean (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect to
any Person, the possession directly or indirectly, of the power to direct
or cause the direction of the
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management and policies of such Person, whether through the ownership of
voting securities or by contract or otherwise.
"Co-Owner Trustee" shall have the meaning specified in Section 9.2 of
the Trust Agreement.
"Credit Agreement" shall mean the Credit Agreement, dated as of the
Initial Closing Date, among the Lessor, the Agent and the Lenders, as
specified therein.
"Credit Agreement Default" shall mean any event or condition which,
with the lapse of time or the giving of notice, or both, would constitute a
Credit Agreement Event of Default.
"Credit Agreement Event of Default" shall mean any event or condition
defined as an "Event of Default" in Section 6 of the Credit Agreement.
"Credit Documents" shall have the meaning specified in Section 1.1 of
the Credit Agreement.
"Credit Suisse" shall mean Credit Suisse, a Swiss banking
corporation.
"Debt" of any Person means, without duplication, (a) all indebtedness
of such Person for borrowed money, whether or not evidenced by bonds,
debentures, notes or similar instruments, (b) all obligations of such
Person as lessee under Capital Leases which have been recorded as
liabilities on a balance sheet of such Person, (c) all obligations of such
Person to pay the deferred purchase price of property or services (other
than current accounts payable in the ordinary course of business), (d) all
indebtedness secured by a Lien on the property of such Person, whether or
not such indebtedness shall have been assumed by such Person (it being
understood that if such Person has not assumed or otherwise become
personally liable for any such indebtedness, the amount of the Debt of such
Person in connection therewith shall be limited to the lesser of the face
amount of such indebtedness or the fair market value of all property of
such Person securing such indebtedness), (e) all obligations, contingent or
otherwise, with respect to the face amount of all letters of credit
(whether or not drawn) and banker's acceptances issued for the account of
such Person, (f) all obligations of such Person in respect of Hedging
Arrangements, (g) all Suretyship Liabilities of such Person and (h) all
Debt (as defined above) of any partnership in which such Person is a
general partner. The amount of the Debt of any Person in respect of Hedging
Arrangements shall be deemed to be the unrealized net loss position of such
Person thereunder (determined for each counterparty individually, but
netted for all Hedging Arrangements maintained with such counterparty).
"Deed" shall mean a special or limited warranty deed regarding Land
and/or Improvements in form and substance satisfactory to the Owner Trustee
and the Agent.
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"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Employee Benefit Plan" or "Plan" shall mean an employee benefit plan
(within the meaning of Section 3(3) of ERISA, including any Multiemployer
Plan), or any "plan" as defined in Section 4975(e)(1) of the Code and as
interpreted by the Internal Revenue Service and the Department of Labor in
rules, regulations, releases or bulletins in effect on any Closing Date.
"Environmental Claims" shall mean any investigation, notice,
violation, demand, allegation, action, suit, injunction, judgment, order,
consent decree, penalty, fine, lien, proceeding, or claim (whether
administrative, judicial, or private in nature) arising (a) pursuant to, or
in connection with, an actual or alleged violation of, any Environmental
Law, (b) in connection with any Hazardous Substance, (c) from any
abatement, removal, remedial, corrective, or other response action in
connection with a Hazardous Material, Environmental Law, or other order of
a Tribunal or (d) from any actual or alleged damage, injury, threat, or
harm to health, safety, natural resources, or the environment.
"Environmental Laws" shall mean any Law, permit, consent, approval,
license, award, or other authorization or requirement of any Tribunal
relating to emissions, discharges, releases, threatened releases of any
Hazardous Substance into ambient air, surface water, ground water, publicly
owned treatment works, septic system, or land, or otherwise relating to the
handling, storage, treatment, generation, use, or disposal of Hazardous
Substances, pollution or to the protection of health or the environment,
including without limitation CERCLA, the Resource Conservation and Recovery
Act, 42 U.S.C. ss. 6901, et seq., and state statutes analogous thereto.
"Environmental Violation" shall mean any activity, occurrence or
condition that violates or threatens (if the threat requires remediation
under any Environmental Law and is not remediated during any grace period
allowed under such Environmental Law) to violate or results in or threatens
(if the threat requires remediation under any Environmental Law and is not
remediated during any grace period allowed under such Environmental Law) to
result in noncompliance with any Environmental Law.
"Equipment" shall mean equipment, apparatus, furnishings, fittings
and personal property of every kind and nature whatsoever purchased, leased
or otherwise acquired using the proceeds of the Loans or the Holder
Advances by the Construction Agent, the Lessee or the Lessor as specified
or described in either a Requisition or a Lease Supplement, whether or not
now or subsequently attached to, contained in or used or usable in any way
in connection with any operation of any Improvements or other improvements
to Land.
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"Equipment Schedule" shall mean (a) each Equipment Schedule attached
to the applicable Requisition and (b) each Equipment Schedule attached to
the applicable Lease Supplement as Schedule I-A.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" shall mean each entity required to be aggregated
with any Lessee pursuant to the requirements of Section 414(b) or (c) of
the Code.
"Eurocurrency Reserve Requirements" shall have the meaning specified
in Section 1.1 of the Credit Agreement.
"Eurodollar Holder Advance" shall mean the Holder Advance
bearing a Holder Yield based on the Eurodollar Rate.
"Eurodollar Rate" shall have the meaning specified in Section 1.1 of
the Credit Agreement.
"Eurodollar Reserve Rate" shall have the meaning specified in Section
1.1 of the Credit Agreement.
"Event of Default" shall mean a Lease Event of Default, an
Agency Agreement Event of Default or a Credit Agreement Event of
Default.
"Excepted Payments" shall mean: (a) all indemnity payments (including
indemnity payments made pursuant to Section 13 of the Participation
Agreement), whether made by adjustment to Basic Rent or otherwise, to which
the Owner Trustee, any Holder or any of their respective Affiliates,
agents, officers, directors or employees is entitled;
(b) any amounts (other than Basic Rent, Termination Value, or
Purchase Option Price) payable under any Operative Agreement to reimburse
the Owner Trustee, the Trust Company, any Holder or any of their respective
Affiliates (including the reasonable expenses of the Owner Trustee, the
Trust Company and the Holders incurred in connection with any such payment)
for performing or complying with any of the obligations of the Lessee under
and as permitted by any Operative Agreement;
(c) any amount payable to any Holder by any transferee of such
interest of such Holder as the purchase price of such Holder's interest in
the Trust Estate (or a portion thereof);
(d) any insurance proceeds (or payments with respect to risks
self-insured or policy deductibles) under liability policies other than
such proceeds or payments payable to the Agent;
(e) any insurance proceeds under policies maintained by the
Owner Trustee or any Holder;
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(f) Transaction Expenses or other amounts or expenses paid
or payable to or for the benefit of the Owner Trustee or any
Holder;
(g) all right, title and interest of any Holder or the Owner Trustee
to any Property or any portion thereof or any other property to the extent
any of the foregoing has been released from the Liens of the Security
Documents and the Lease pursuant to the terms thereof;
(h) upon termination of the Credit Agreement pursuant to
the terms thereof, all remaining property covered by the Lease or
Security Documents;
(i) all payments in respect of the Holder Yield;
(j) any payments in respect of interest to the extent
attributable to payments referred to in clauses (a) through (i)
above; and
(k) any rights of either the Owner Trustee or Trust Company to
demand, collect, sue for or otherwise receive and enforce payment of any of
the foregoing amounts.
"Excepted Rights" shall mean the rights retained by the Owner Trustee
pursuant to Section 8.2(a) of the Credit Agreement and all right, title and
interest of Owner Trustee in the Shared Rights.
"Excess Proceeds" shall mean the excess, if any, of the aggregate of
all awards, compensation or insurance proceeds payable in connection with a
Casualty or Condemnation over the Termination Value paid by the Lessee
pursuant to the Lease with respect to such Casualty or Condemnation.
"Excluded Taxes" shall have the meaning specified in Section 13.2(e)
of the Participation Agreement.
"Exemption Agreement" shall have the meaning specified in Section
13.2(f) of the Participation Agreement.
"Exemption Representation" shall have the meaning specified in
Section 13.2(g) of the Participation Agreement.
"Expiration Date" shall mean the Basic Term Expiration Date or the
last day of the Extended Term, if applicable.
"Expiration Date Election Notice" shall have the meaning specified in
Section 20.2 of the Lease.
"Expiration Date Purchase Option" shall mean the Lessee's option to
purchase all (but not less than all) of the Properties on the Expiration
Date.
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"Extended Term" shall mean the five year period which immediately
follows the end of the Basic Term and expires on December 8, 2005 with
respect to which Lessee has exercised its Renewal Option pursuant to
Section 21.1 of the Lease.
"Facility" shall mean a facility used for the treatment, storage or
disposal of Hazardous Substances.
"Fair Market Sales Value" shall mean, with respect to any Property,
the amount, which in any event, shall not be less than zero, that would be
paid in cash in an arms-length transaction between an informed and willing
purchaser and an informed and willing seller, neither of whom is under any
compulsion to purchase or sell, respectively, such Property. Fair Market
Sales Value of any Property shall be determined based on the assumption
that, except for purposes of Section 17 of the Lease, such Property is in
the condition and state of repair required under Section 10.1 of the Lease
and the Lessee is in compliance with the other requirements of the
Operative Agreements.
"Federal Funds Effective Rate" shall have the meaning specified in
Section 1.1 of the Credit Agreement.
"Fixtures" shall mean all fixtures relating to the Improvements,
including all components thereof, located in or on the Improvements,
together with all replacements, modifications, alterations and additions
thereto.
"FM Trust 1995-2" shall mean the grantor trust created pursuant to
the terms and conditions of the Trust Agreement.
"Force Majeure Event" shall mean any event beyond the control of the
Construction Agent, including, but not limited to, strikes, lockouts,
adverse soil conditions, acts of God, adverse weather conditions, inability
to obtain labor or materials, governmental activities, civil commotion and
enemy action; but excluding any event, cause or condition that results from
the Construction Agent's financial condition.
"GAAP" shall mean the principles of accounting set forth in
pronouncements of the Financial Accounting Standards Board, the American
Institute of Certified Public Accountants, as such principles are from time
to time supplemented and amended.
"Governmental Action" shall mean all permits, authoriza tions,
registrations, consents, approvals, waivers, exceptions, variances, orders,
judgments, written interpretations, decrees, licenses, exemptions,
publications, filings, notices to and declarations of or with, or required
by, any Governmental Authority, or required by any Legal Requirement, and
shall include, without limitation, all environmental and operating permits
and licenses that are required for the contemplated use, occupancy, zoning
and operations of any Property.
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"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government.
"Greenwich Funding Corporation" shall mean Greenwich Funding
Corporation, a Delaware corporation.
"Ground Lease" shall mean a ground lease respecting any Property
owned by Lessee or a wholly-owned Subsidiary of Lessee in form and
substance satisfactory to Lessor (i) having a 99 year term and payments set
at $1.00 per year or (ii) subject to such other terms and conditions as are
reasonably satisfactory to Lessor, Lessee and the Agent.
"Hedging Arrangement" means any interest rate swap, cap or collar
agreement, currency swap agreement, commodity swap agreement or other
arrangement designed to hedge interest rate and/or currency risk or changes
in commodity prices.
"Hazardous Substance" shall mean any of the following: (i) any
petroleum or petroleum product, explosives, radioactive materials,
asbestos, formaldehyde, polychlorinated biphenyls, lead and radon gas; (ii)
any substance, material, product, derivative, compound or mixture, mineral,
chemical, waste, gas, medical waste, or pollutant, in each case whether
naturally occurring, man-made or the by-product of any process, that is
toxic, harmful or hazardous to the environment or human health or safety as
determined in accordance with any Environmental Law; or (iii) any
substance, material, product, derivative, compound or mixture, mineral,
chemical, waste, gas, medical waste or pollutant that would support the
assertion of any claim under any Environmental Law, whether or not defined
as hazardous as such under any Environmental Law. The term "Hazardous
Substances" shall not include (a) cleaning products, landscape fertilizers
and other products in the ordinary quantities that are customarily used in
the ordinary course of business of operating and maintaining commercial
properties or (b) products held in sealed containers for sale to customers.
"Holder" shall mean the several banks and other financial
institutions which are from time to time holders of Certificates in
connection with the FM Trust 1995-2.
"Holder Advance" shall have the meaning specified in Section 2 of the
Participation Agreement.
"Holder Amount" shall mean as of any date, the aggregate amount of
the Holder Advances made by each Holder to the Trust Estate pursuant to
Section 2 of the Participation Agreement and Section 3.1 of the Trust
Agreement less any payments of any Holder Advances received by the Holders
pursuant to Section 3.4 of the Trust Agreement.
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"Holder Applicable Margin" shall mean the Applicable Margin plus, in
each case, .50%.
"Holder Commitment" shall mean $1,800,000 in the aggregate, with
respect to which the commitment of NationsBank is $900,000 and the
commitment of Credit Suisse is $900,000, as such commitments may be reduced
or increased from time to time in accordance with the provisions of the
Trust Agreement.
"Holder Overdue Rate" shall mean the lesser of (i) the Overdue
Interest, as defined in the Credit Agreement, plus 1.00% and (ii) the
highest rate permitted by applicable law.
"Holder Property Cost" shall mean with respect to each Property, at
any date of determination, an amount equal to the product of (a) a
fraction, the numerator of which is the Property Cost for such individual
Property and the denominator of which is the aggregate Property Cost for
all Properties which are then subject to the terms and conditions of the
Operative Agreements multiplied by (b) the outstanding Holder Advances.
"Holder Up-Front Fee" shall have the meaning specified in Section 9.4
of the Participation Agreement.
"Holder Yield" shall mean the Eurodollar Reserve Rate plus the Holder
Applicable Margin; provided, however, (i) upon delivery of the notice
described in Section 3.7(c) of the Trust Agreement, the outstanding Holder
Advances of each Holder shall bear a yield at the ABR applicable from time
to time from and after the dates and during the periods specified in
Section 3.7(c) of the Trust Agreement, and (ii) upon the delivery by any
Holder of the notice described in Section 3.8(c) of the Trust Agreement,
the Holder Advances of such Holder shall bear a yield at the ABR applicable
from time to time after the dates and during the periods specified in
Section 3.8(c) of the Trust Agreement.
"Impositions" shall mean, except to the extent described in the
following sentence, any and all liabilities, losses, expenses, costs,
charges and Liens of any kind whatsoever for fees, taxes, levies, imposts,
duties, charges, assessments or withholdings ("Taxes"), including (i) real
and personal property taxes, including personal property taxes on any
property covered by the Lease that is classified by Governmental
Authorities as personal property, and real estate or ad valorem taxes in
the nature of property taxes; (ii) sales taxes, use taxes and other similar
taxes (including rent taxes and intangibles taxes); (iii) any excise taxes;
(iv) real estate transfer taxes, conveyance taxes, stamp taxes and
documentary recording taxes and fees; (v) taxes that are or are in the
nature of franchise, income, value added, privilege and doing business
taxes, license and registration fees; (vi) assessments on any Property,
including all assessments for public improvements or benefits, whether or
not such improvements are commenced or completed within the Term; and (vii)
any tax, Lien, assessment or charge
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asserted, imposed or assessed by the PBGC or any governmental authority
succeeding to or performing functions similar to, the PBGC; and in each
case all interest, additions to tax and penalties thereon, which at any
time prior to, during or with respect to the Term or in respect of any
period for which the Lessee shall be obligated to pay Supplemental Rent,
may be levied, assessed or imposed by any Governmental Authority upon or
with respect to (a) any Property or any part thereof or interest therein;
(b) the leasing, financing, refinancing, demolition, construction,
substitution, subleasing, assignment, control, condition, occupancy,
servicing, maintenance, repair, ownership, possession, activity conducted
on, delivery, insuring, use, operation, improvement, transfer of title,
return or other disposition of such Property or any part thereof or
interest therein; (c) the Notes or other indebtedness with respect to any
Property or any part thereof or interest therein; (d) the rentals, receipts
or earnings arising from any Property or any part thereof or interest
therein; (e) the Operative Agreements, the performance thereof, or any
payment made or accrued pursuant thereto; (f) the income or other proceeds
received with respect to any Property or any part thereof or interest
therein upon the sale or disposition thereof; (g) any contract (including
the Agency Agreement) relating to the construction, acquisition or delivery
of the Improvements or any part thereof or interest therein; (h) the
issuance of the Notes; or (i) otherwise in connection with the transactions
contemplated by the Operative Agreements.
The term "Imposition" shall not mean or include:
(i) Taxes and impositions (other than Taxes that are, or
are in the nature of, sales, use, rental, value added, transfer or
property taxes) that are imposed on a Indemnified Person (other than
Lessor) by the United States federal government that are based on or
measured by the net income (including taxes based on capital gains,
and minimum taxes or any tax imposed by Code ss. 59A) of such
Indemnified Person; provided, that this clause (i) shall not be
interpreted to prevent a payment from being made on an After Tax
Basis if such payment is otherwise required to be so made;
(ii) Taxes and impositions (other than Taxes that are, or
are in the nature of, sales, use, rental, value added, transfer or
property taxes) that are imposed on any Indemnified Person (other
than Lessor) by any state or local jurisdiction or taxing authority
within any state or local jurisdiction and that are in the nature of
franchise taxes or are based upon or measured by the overall gross or
net income or overall gross or net receipts of such Indemnified
Person except that this clause (ii) shall not apply to (and thus
shall not exclude) any such Taxes imposed on an Indemnified Person by
a state (or any local taxing authority thereof or therein) to the
extent that (A) such Taxes would not have been imposed but for the
location, possession or
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use of any Property in such jurisdiction, and (B) in the case of
Taxes based upon overall gross or net income or overall gross or net
receipts, such Taxes would not have been imposed had the transactions
described in the Operative Agreements been structured as a standard
financing arrangement (i.e, with the Indemnity Provider (x) being the
borrower of funds advanced by the Lenders and the Holders, (y)
holding title to each Property, and (z) being treated as the owner of
each Property for both financial accounting and federal income tax
purposes) rather than as a tax retention operating lease (it being
understood that any such indemnity would be payable only to the
extent of the net harm incurred by such Indemnified Person from such
Taxes, taking into account any incremental tax benefit in another tax
jurisdiction resulting from payment of such Taxes); provided, that
this clause (ii) shall not be interpreted to prevent a payment from
being made on an After Tax Basis if such payment is otherwise
required to be so made;
(iii) any Tax or imposition to the extent, but only to such
extent, it relates to any act, event or omission that occurs after
the termination of the Lease and redelivery or sale of the property
in accordance with the terms of the Lease (but not any Tax or
imposition that relates to such termination, redelivery or sale
and/or to any period prior to such termination, redelivery or sale);
or
(iv) any Taxes which are imposed on an Indemnified Person as
a result of the gross negligence or wilful misconduct of such
Indemnified Person itself (as opposed to gross negligence or wilful
misconduct imputed to such Indemnified Person), but not Taxes imposed
as a result of ordinary negligence of such Indemnified Person;
Any Tax or imposition excluded from the defined term "Imposition" in any
one of the foregoing clauses (i) through (iv) shall not be construed as
constituting an Imposition by any provision of any other of the
aforementioned clauses.
"Improved Property" shall mean a Property acquired by the Lessor
which contains Improvements that are suitable as of the Property Closing
Date for occupancy by the Lessee and the operation by the Lessee of a Store
therein.
"Improvements" shall mean, with respect to the construction,
renovation and/or Modification of a Store, all buildings, structures,
Fixtures, and other improvements of every kind existing at any time and
from time to time on or under the Land purchased, leased or otherwise
acquired using the proceeds of the Loans or the Holder Advances, together
with any and all appurtenances to such buildings, structures or
improvements, including sidewalks, utility pipes, conduits and lines,
parking areas and roadways, and including all Modifications and other
additions to or changes in the Improvements at any time,
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including without limitation (a) any Improvements existing as of the
Property Closing Date as such Improvements may be referenced on the
applicable Requisition and (b) any Improvements made subsequent to such
Property Closing Date.
"Incorporated Covenants" shall have the meaning specified in Section
28.1 of the Lease Agreement.
"Indebtedness" shall have the meaning specified in Section
1.1 of the Credit Agreement.
"Indemnified Person" shall mean the Lessor, the Owner Trustee, in its
individual and its trust capacity, the Agent, the Holders, the Lenders and
their respective successors, assigns, directors, shareholders, partners,
officers, employees, agents and Affiliates.
"Indemnity Provider" shall mean, respecting each Property, the
Construction Agent from the date of the Participation Agreement to and
including the Basic Term Commencement Date for such Property and the Lessee
for the duration of the Term for such Property.
"Initial Closing Date" shall mean December 8, 1995.
"Initial Construction Advance" shall mean any initial Advance (which
may be either a Construction Advance or a Modification Advance) to pay for:
(i) Property Costs for construction of any Improvements; (ii) the Property
Costs of restoring or repairing any Property which is required to be
restored or repaired in accordance with Section 15.1(e) of the Lease; and
(iii) the costs of any Modifications in accordance with Section 11.1 of the
Lease.
"Insurance Requirements" shall mean all terms and conditions of any
insurance policy either required by the Lease to be main tained by the
Lessee or required by the Agency Agreement to be maintained by the
Construction Agent, and all requirements of the issuer of any such policy
and, regarding self insurance, any other requirements of Lessee.
"Interest Period" shall have the meaning specified in Section 1.1 of
the Credit Agreement.
"Investment Company Act" shall mean the Investment Company Act of
1940, as amended, together with the rules and regulations promulgated
thereunder.
"Land" shall mean a parcel of real property described on (a) the
Requisition issued by the Construction Agent on the Property Closing Date
relating to such parcel and (b) Schedule I- C to each applicable Lease
Supplement executed and delivered in accordance with the requirements of
Section 2.4 of the Lease.
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"Law" shall mean any statute, law, ordinance, regulation, rule,
order, writ, injunction or decree of any Tribunal.
"Lease" or "Lease Agreement" shall mean the Lease Agreement (Tax
Retention Operating Lease) dated as of the Initial Closing Date, between
the Lessor and the Lessee, together with any Lease Supplements thereto, as
such Lease Agreement may from time to time be supplemented, amended or
modified in accordance with the terms thereof.
"Lease Default" shall mean any event or condition which, with the
lapse of time or the giving of notice, or both, would constitute a Lease
Event of Default.
"Lease Event of Default" shall have the meaning specified in Section
17.1 of the Lease.
"Lease Supplement" shall mean each Lease Supplement substan tially in
the form of Exhibit A to the Lease, together with all attachments and
schedules thereto, as such Lease Supplement may be supplemented, amended or
modified from time to time.
"Lease Term Debt Percentage" shall mean, as of the date of
determination, a percentage equal to 1.000 minus the Lease Term Holder
Percentage.
"Lease Term Holder Percentage" shall mean, as of the date of
determination, a percentage equal to $1,800,000 (as such amount may be
reduced or increased from time to time pursuant to the terms of the Trust
Agreement) divided by the aggregate Property Costs for all Properties after
the Completion thereof and with respect to any Improved Property, after the
acquisition thereof.
"Legal Requirements" shall mean as to any Person all foreign,
Federal, state, county, municipal and other governmental statutes, laws,
rules, orders, regulations, ordinances, judgments, decrees and injunctions
affecting such Person and all foreign, Federal, state, county, municipal
and other governmental statutes, laws, rules, orders, regulations,
ordinances, judgments, decrees and impositions affecting any Property or
the taxation, demolition, construction, use or alteration of such Property,
whether now or hereafter enacted and in force, including any that require
repairs, modifications or alterations in or to any Property or in any way
limit the use and enjoyment thereof (including all building, zoning and
fire codes and the Americans with Disabilities Act of 1990, 42 U.S.C. ss.
12101 et. seq., and any other similar Federal, state or local laws or
ordinances and the regulations promulgated thereunder) and any that may
relate to environmental requirements (including all Environmental Laws),
and all permits, certificates of occupancy, licenses, authorizations and
regulations relating thereto, and all covenants, agreements, restrictions
and encumbrances contained in any instruments which are either of record or
known to the Lessee affecting any Property, the Appurtenant Rights and
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any easements, licenses or other agreements entered into pursuant to
Section 10.5 of the Participation Agreement.
"Lender Commitment Fee" shall have the meaning specified in Section
9.5(a) of the Participation Agreement.
"Lender Financing Statements" shall mean UCC financing statements and
fixture filings appropriately completed and executed for filing in the
applicable jurisdiction in order to procure a security interest in favor of
the Agent in any Equipment or in any Improvements.
"Lender Up-Front Fee" shall have the meaning specified in Section 9.4
of the Participation Agreement.
"Lenders" shall mean the several banks and other financial
institutions from time to time party to the Credit Agreement.
"Lessee" shall have the meaning set forth in the Lease.
"Lessor" shall mean the Owner Trustee, not in its individual
capacity, but as Lessor under the Lease.
"Lessor Basic Rent" shall mean the scheduled Holder Yield due on the
Holder Advances on any Specified Interest Payment Date pursuant to the
Trust Agreement (but not including interest on overdue amounts under the
Trust Agreement or otherwise).
"Lessor Financing Statements" shall mean UCC financing statements and
fixture filings appropriately completed and executed for filing in the
applicable jurisdictions in order to protect the Lessor's interest under
the Lease to the extent the Lease is a security agreement or a mortgage.
"Lessor Lien" shall mean any Lien, true lease or sublease or
disposition of title arising as a result of (a) any claim against the
Lessor or Trust Company, in its individual capacity, not resulting from the
transactions contemplated by the Operative Agreements, (b) any act or
omission of the Lessor or Trust Company, in its individual capacity, which
is not required by the Operative Agreements or is in violation of any of
the terms of the Operative Agreements, (c) any claim against the Lessor or
Trust Company, in its individual capacity, with respect to Taxes or
Transaction Expenses against which the Lessee is not required to indemnify
Lessor or Trust Company, in its individual capacity, pursuant to Section 13
of the Participation Agreement or (d) any claim against the Lessor arising
out of any transfer by the Lessor of all or any portion of the interest of
the Lessor in the Properties, the Trust Estate or the Operative Agreements
other than the transfer of title to or possession of any Properties by the
Lessor pursuant to and in accordance with the Lease, the Credit Agreement
or the Participation Agreement or pursuant to the exercise of the remedies
set forth in Article XVII of the Lease.
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"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien, option or charge of any kind.
"Limited Power of Attorney" shall mean the Limited Power of Attorney
dated as of the Initial Closing Date given by the Owner Trustee in favor of
the Company and in form and substance satisfactory to the Agent, the
Holders, the Owner Trustee and the Company.
"Limited Recourse Amount" shall mean with respect to the Properties
on an aggregate basis, an amount equal to the sum of the Termination Values
with respect to all of the Properties on each Payment Date, less the
Maximum Residual Guarantee Amount as of such date with respect to the
Properties.
"Loans" shall have the meaning specified in Section 2.1 of
the Credit Agreement.
"Loan Basic Rent" shall mean the interest due on the Loans on any
Specified Interest Payment Date pursuant to the Credit Agreement (but not
including interest on (i) any such Loan prior to the Basic Term
Commencement Date with respect to the Property to which such Loan relates
or (ii) any overdue amounts under Section 2.7(b) of the Credit Agreement or
otherwise).
"Loan Property Cost" shall have the meaning specified in Section 1.1
of the Credit Agreement.
"Majority Lenders" shall have the meaning specified in Section 1.1 of
the Credit Agreement.
"Marketing Period" shall mean, if the Lessee have not given the
Expiration Date Election Notice in accordance with Section 20.2 of the
Lease, the period commencing on the date 90 days prior to the applicable
Expiration Date and ending on such Expiration Date.
"Material Adverse Effect" shall mean a material adverse effect on (a)
the ability of the Lessee or any Subsidiary to perform its respective
obligations under any Operative Agreement to which it is a party, (b) the
validity or enforceability of any Operative Agreement or the rights and
remedies of the Agent, the Lenders, the Holders, or the Lessor thereunder,
(c) the validity, priority or enforceability of any Lien on any Property
created by any of the Operative Agreements, or (d) the value, utility or
useful life of any Property or the use, or ability of the Lessee to use,
any Property for the purpose for which it was intended.
"Material Subsidiary" means any Subsidiary of Lessee which either (a)
has assets which constitute 5% or more of the consolidated assets of Lessee
and its Subsidiaries or (b) has revenues during its most recently-ended
fiscal year which constitute more than 5% of the consolidated revenues of
Lessee and its Subsidiaries during the most recently-ended fiscal year of
Lessee.
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"Maturity Date" shall have the meaning specified in Section 1.1 of
the Credit Agreement.
"Maximum Property Cost" shall mean the aggregate amount of the
Property Costs for all Properties subject to the Lease as of the applicable
determination date.
"Maximum Residual Guarantee Amount" shall mean an amount equal to the
product of the aggregate Property Cost for all of the Properties times 89
1/2%.
"Modification Advance" shall mean an advance of funds to pay Property
Costs and other amounts related thereto with respect to Improved Property
pursuant to Section 5.4 or 5.5 of the Participation Agreement.
"Modifications" shall have the meaning specified in Section
11.1(a) of the Lease.
"Mortgage Instrument" shall mean any mortgage, deed of trust or any
other instrument executed by the Owner Trustee in favor of the Agent and
evidencing a Lien on a Property, in form and substance substantially in the
form attached as Exhibit J to the Participation Agreement.
"Multiemployer Plan" shall mean any plan described in Section
4001(a)(3) of ERISA to which contributions are or have been made or
required by the Lessee or any of its Subsidiaries or ERISA Affiliates.
"Multiple Employer Plan" shall mean a plan to which the Lessee or any
ERISA Affiliate and at least one other employer other than an ERISA
Affiliate is making or accruing an obligation to make, or has made or
accrued an obligation to make, contributions.
"NationsBank" shall mean NationsBank of Texas, N.A., a
national banking association.
"Net Proceeds" shall mean all amounts paid in connection with any
Casualty or Condemnation, and all interest earned thereon, less the expense
of claiming and collecting such amounts, including all costs and expenses
in connection therewith for which the Agent or Lessor are entitled to be
reimbursed pursuant to the Lease.
"1995 Credit Agreement" shall have the meaning specified in Section
28.1 of the Lease.
"Notes" shall have the meaning specified in Section 1.1 of
the Credit Agreement.
"Occupational Safety and Health Law" shall mean the Occupational
Safety and Health Act of 1970 and any other federal, state or local
statute, law, ordinance, code, rule, regulation,
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order or decree regulating or relating to, or imposing liability or
standards of conduct concerning, employee health and/or safety, as now or
at any time hereafter in effect.
"Officer's Certificate" shall mean a certificate signed by any
individual holding the office of vice president or higher, which
certificate shall certify as true and correct the subject matter being
certified to in such certificate.
"Operative Agreements" shall mean the following: the Participation
Agreement, the Agency Agreement, the Original Trust Agreement, the Trust
Agreement, the Certificates, the Credit Agreement, the Notes, the Lease
(and a memorandum thereof in a form reasonably acceptable to the Agent),
each Lease Supplement (and a memorandum thereof in a form reasonably
acceptable to the Agent), the Security Agreement and each Mortgage
Instrument.
"Orem Deed" shall mean the Warranty Deed dated September 26, 1995
executed by Philips Semiconductors Inc. for the benefit of the Owner
Trustee and recorded September 27, 1995, as Entry No. 64619, in Book 3777,
Page 619 in the Official Records of Utah County, Utah.
"Original Trust Agreement" shall have the meaning specified in the
recitals of the Trust Agreement.
"Overdue Rate" shall mean (i) with respect to Basic Rent, and any
other amount owed under or with respect to the Credit Agreement or the
Security Documents, the rate specified in Section 2.7(b) of the Credit
Agreement, (ii) with respect to Lessor Basic Rent, the Holder Yield and any
other amount owed under or with respect to the Trust Agreement, the
applicable rate specified in the Trust Agreement, and (iii) with respect to
any other amount, the amount specified in Section 2.7(b) of the Credit
Agreement.
"Owner Trustee" shall mean First Security Bank of Utah, N.A., not
individually, except as expressly stated in the various Operative
Agreements, but solely as Owner Trustee under the FM Trust 1995-2, and any
successor or replacement Owner Trustee expressly permitted under the
Operative Agreements.
"Participation Agreement" shall mean the Participation Agreement
dated as of December 1, 1995, among the Lessee, the Owner Trustee, not in
its individual capacity except as expressly stated therein, the Holders,
the Lenders and the Agent, as such Participation Agreement may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms thereof or of any other Operative Agreement.
"Payment Date" shall mean any Specified Interest Payment Date and any
date on which interest or Holder Yield in connection with a prepayment of
principal on the Loans or of the Holder Advances is due under the Credit
Agreement or the Trust Agreement.
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"PBGC" shall mean the Pension Benefit Guaranty Corporation created by
Section 4002(a) of ERISA or any successor thereto.
"Permitted Exceptions" shall mean:
(i) Liens of the types described in clauses (i),
(ii) and (v) of the definition of Permitted Liens;
(ii) Liens for Taxes not yet due; and
(iii) all encumbrances, exceptions, restrictions, easements,
rights of way, servitudes, encroachments and irregularities in title,
other than Liens which, in the reasonable assessment of the Agent, do
not materially impair the use of the Property for its intended
purpose.
"Permitted Liens" shall mean:
(i) the respective rights and interests of the
parties to the Operative Agreements as provided in the
Operative Agreements;
(ii) the rights of any sublessee, assignee or
other transferee expressly permitted by the terms of the
Lease;
(iii) Liens for Taxes that either are not yet due
or are being contested in accordance with the provisions of
Section 13.1 of the Lease;
(iv) Liens arising by operation of law, material men's,
mechanics', workmen's, repairmen's, employees', carriers',
warehousemen's and other like Liens relating to the construction of
the Improvements or in connection with any Modifications or arising
in the ordinary course of business for amounts that either are not
more than 30 days past due or are being diligently contested in good
faith by appropriate proceedings, so long as such proceedings satisfy
the conditions for the continuation of proceedings to contest Taxes
set forth in Section 13.1 of the Lease;
(v) Liens of any of the types referred to in clause (iv)
above that have been bonded for not less than the full amount in
dispute (or as to which other security arrangements satisfactory to
the Lessor and the Agent have been made), which bonding (or
arrangements) shall comply with applicable Legal Requirements, and
shall have effectively stayed any execution or enforcement of such
Liens;
(vi) Liens arising out of judgments or awards with respect
to which appeals or other proceedings for review are being prosecuted
in good faith and for the payment of which adequate reserves have
been provided as required by GAAP or other appropriate provisions
have been made, so long as such
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proceedings have the effect of staying the execution of such
judgments or awards and satisfy the conditions for the continuation
of proceedings set forth in Section 13.1 of the Lease;
(vii) Liens in favor of municipalities to the
extent agreed to by the Lessor; and
(viii) Permitted Exceptions.
"Pension Plan" means a "pension plan", as such term is defined in
section 3(2) of ERISA, which is subject to title IV of ERISA (other than a
Multiemployer Plan), and to which the Company or any ERISA Affiliate may
have any liability, including any liability by reason of having been a
substantial employer within the meaning of section 4063 of ERISA at any
time during the preceding five years, or by reason of being deemed to be a
contributing sponsor under section 4069 of ERISA.
"Person" shall mean any individual, corporation, partner ship, joint
venture, association, joint-stock company, trust, unincorporated
organization, governmental authority or any other entity.
"Plans and Specifications" shall mean, with respect to Improvements,
the plans and specifications for such Improvements to be constructed or
already existing, as such Plans and Specifications may be amended, modified
or supplemented from time to time.
"Prime Lending Rate" shall have the meaning specified in Section 1.1
of the Credit Agreement.
"Property" shall mean, with respect to each Store that is acquired,
constructed and/or renovated pursuant to the terms of the Operative
Agreements, the Land and each item of Equipment and the various
Improvements, in each case located on such Land.
"Property Acquisition Cost" shall mean the cost to Lessor to purchase
a Property on a Property Closing Date.
"Property Closing Date" shall mean each date on which (a) the Lessor
purchases or leases (pursuant to Ground Lease) a Property or (b) with
respect to the Property owned by Lessor pursuant to the Orem Deed, the date
as of which such Property is refinanced in accordance with the terms of the
Operative Agreements.
"Property Cost" shall mean with respect to a Property the aggregate
amount of Advances for such Property (as such amounts shall be increased
equally among all Properties respecting the Loans in regard to Section 9.1
of the Participation Agreement extended from time to time to pay for the
Transaction Expenses, fees, expenses and other disbursements referenced in
Sections 9.1(a) and (b) of the Participation Agreement).
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"Purchase Notice" shall have the meaning given to such term in
Section 20.1 of the Lease.
"Purchase Option" shall have the meaning given to such term in
Section 20.1 of the Lease.
"Purchase Option Price" shall have the meaning given to such term in
Section 20.1 of the Lease.
"Qualified Loan Assignment" shall have the meaning specified in
Section 1.1 of the Credit Agreement.
"Recipient Taxes" shall have the meaning specified in Section 13.2(e)
of the Participation Agreement.
"Release" shall mean any release, pumping, pouring, emptying,
injecting, escaping, leaching, dumping, seepage, spill, leak, flow,
discharge, disposal or emission of a Hazardous Substance.
"Renewal Option" shall have the meaning specified in Section
21.1 of the Lease.
"Rent" shall mean, collectively, the Basic Rent and the Supplemental
Rent, in each case payable under the Lease.
"Reportable Event" shall have the meaning specified in
ERISA.
"Requested Funds" shall mean any funds requested by the Lessee or the
Construction Agent, as applicable, in accordance with Section 5 of the
Participation Agreement.
"Requirement of Law" shall have the meaning specified in Section 1.1
of the Credit Agreement.
"Requisition" shall have the meaning specified in Section
4.2 of the Participation Agreement.
"Responsible Officer" shall mean the Chairman or Vice Chairman of the
Board of Directors, the Chairman or Vice Chairman of the Executive
Committee of the Board of Directors, the President, any Senior Vice
President or Executive Vice President, any Vice President, the Secretary,
any Assistant Secretary, the Treasurer, or any Assistant Treasurer, except
that when used with respect to the Trust Company or the Owner Trustee,
"Responsible Officer" shall also include the Cashier, any Assistant
Cashier, any Trust Officer or Assistant Trust Officer, the Controller and
any Assistant Controller or any other officer of the Trust Company or the
Owner Trustee customarily performing functions similar to those performed
by any of the above designated officers and also means, with respect to a
particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge of and familiarity with the particular
subject.
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"Scheduled Interest Payment Date" shall have the meaning specified in
Section 1.1 of the Credit Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.
"Security Agreement" shall mean the Security Agreement, dated as of
the Initial Closing Date between the Owner Trustee and the Agent.
"Security Documents" shall have the meaning specified in Section 1.1
of the Credit Agreement.
"Shared Rights" shall mean the rights retained by the Lessor, but not
to the exclusion of the Agent, pursuant to Section 8.2(b) of the Credit
Agreement.
"Specialized Equipment" shall mean Equipment which is not, and is not
intended to be, affixed to or a component of any of the various
Improvements or Land subject to the Operative Agreements.
"Specified Interest Payment Date" shall have the meaning specified in
Section 1.1 of the Credit Agreement.
"Store" means a combination supermarket and general merchandise
multidepartment store that is substantially similar to stores owned and/or
leased by the Lessee as of the Initial Closing Date.
"Subsidiary" shall have the meaning specified in Section 1.1
of the Credit Agreement.
"Supplemental Rent" shall mean all amounts, liabilities and
obligations (other than Basic Rent) which the Lessee assumes or agrees to
pay to Lessor, the Holders, the Administrative Agent or any other Person
under the Lease or under any of the other Operative Agreements including,
without limitation, payments of Purchase Option Price, Termination Value
and the Maximum Residual Guarantee Amount and all indemnification amounts,
liabilities and obligations.
"Suretyship Liability" means any agreement, undertaking or other
contractual arrangement by which any Person guarantees, endorses or
otherwise becomes or is contingently liable upon (by direct or indirect
agreement, contingent or otherwise, to provide funds for payment, to supply
funds to or otherwise to invest in a debtor, or otherwise to assure a
creditor against loss) any indebtedness, obligation or other liability
(including accounts payable) of any other Person (other than by
endorsements of instruments in the course of collection), or guarantees the
payment of dividends or other distributions upon the shares of any other
Person. The amount of any Person's obligation under any Suretyship
Liability shall (subject to any limitation set
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forth therein) be deemed to be the principal amount of the indebtedness,
obligation or other liability guaranteed thereby.
"Taxes" shall have the meaning specified in the definition of
Impositions; provided, solely for purposes of Section 13.2(e) of the
Participation Agreement "Taxes" shall have the meaning specified in such
Section 13.2(e).
"Term" shall mean the Basic Term and each Extended Term, if
any.
"Termination Date" shall have the meaning specified in
Section 16.2(a) of the Lease.
"Termination Event" shall mean (a) with respect to any Plan, the
occurrence of a Reportable Event or an event described in Section 4062(e)
of ERISA, (b) the withdrawal of the Lessee or any ERISA Affiliate from a
Multiple Employer Plan during a plan year in which it was a substantial
employer (as such term is defined in Section 4001(a)(2) of ERISA), or the
termination of a Multiple Employer Plan, (c) the distribution of a notice
of intent to terminate a Plan or Multiemployer Plan pursuant to Section
4041(a)(2) or 4041A of ERISA, (d) the institution of proceedings to
terminate a Plan or Multiemployer Plan by the PBGC under Section 4042 of
ERISA, (e) any other event or condition which might constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan or Multiemployer Plan, or (f) the complete
or partial withdrawal of the Lessee or any ERISA Affiliate from a
Multiemployer Plan.
"Termination Notice" shall have the meaning specified in
Section 16.1 of the Lease.
"Termination Value" shall mean, as of any Payment Date, (a) with
respect to all Properties, an amount equal to the sum of (i) the aggregate
outstanding principal of the Notes, plus (ii) the aggregate Holder Property
Cost, in each case as of the applicable Payment Date and (b) with respect
to a particular Property, an amount equal to the product of the Termination
Value of all the Properties as of such Payment Date times a fraction, the
numerator of which is the Property Cost as of such Payment Date allocable
to the particular Property in question and the denominator of which is the
aggregate Property Cost for all the Properties as of such Payment Date.
"Total Condemnation" shall mean a Condemnation that involves a taking
of Lessor's entire title to a Property.
"Transaction Expenses" shall mean all reasonable costs and expenses
incurred in connection with the preparation, execution and delivery of the
Operative Agreements and the transactions contemplated by the Operative
Agreements including without limitation:
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(a) the reasonable fees, out-of-pocket expenses and
disbursements of counsel in negotiating the terms of the Operative
Agreements and the other transaction documents, preparing for the
closings under, and rendering opinions in connection with, such
transactions and in rendering other services customary for counsel
representing parties to transactions of the types involved in the
transactions contemplated by the Operative Agreements;
(b) any and all other reasonable fees, charges or other amounts
payable to the Lenders, Agent, the Holders, the Owner Trustee or any
broker which arises under any of the Operative Agreements;
(c) any other reasonable fee, out-of-pocket expenses,
disbursement or cost of any party to the Operative Agree ments or any
of the other transaction documents; and
(d) any and all Taxes and fees incurred in recording or filing
any Operative Agreement or any other transaction document, any deed,
declaration, mortgage, security agreement, notice or financing
statement with any public office, registry or governmental agency in
connection with the transactions contemplated by the Operative
Agreement.
"Tribunal" shall mean any state, commonwealth, federal, foreign,
territorial, or other court or government body, subdivision agency,
department, commission, board, bureau or instrumentality of a governmental
body.
"Trust Agreement" shall mean the Amended and Restated Trust Agreement
dated as of the Initial Closing Date among the Holders and the Owner
Trustee.
"Trust Company" shall mean First Security Bank of Utah, N.A., in its
individual capacity, and any successor owner trustee under the Trust
Agreement in its individual capacity.
"Trust Estate" shall have the meaning specified in Section 2.2 of the
Trust Agreement.
"UCC Financing Statements" shall mean collectively the
Lender Financing Statements and the Lessor Financing Statements.
"Unfunded Amount" shall have the meaning specified in Section 3.2 of
the Agency Agreement.
"Uniform Commercial Code" and "UCC" shall mean the Uniform Commercial
Code as in effect in any applicable jurisdiction.
"Unimproved Property" shall mean a Property acquired by the Lessor
which either consists entirely of Land or consists of Land and Improvements
but the existing Improvements are not suitable as of the Property Closing
Date for occupancy by the Lessee and the operation by the Lessee of a Store
therein.
A-27
<PAGE>
"Up-Front Fee" shall mean the fee payable by Lessee to Lessor on or
prior to the Initial Closing Date pursuant to the terms and conditions of
Section 9.4 of the Participation Agreement.
"Voting Power" shall mean, with respect to securities issued by any
Person, the combined voting power of all securities of such person which
are issued and outstanding at the time of determination and which are
entitled to vote in the election of directors or such Person, other than
securities having such power only by reason of the happening of a
contingency.
"Withdrawal Liability" shall mean liability to a Multiemployer Plan
as a result of a complete or partial withdrawal from such Multiemployer
Plan, as such terms are defined in Part I of Subtitle E of Title IV of
ERISA.
"Work" shall mean the furnishing of labor, materials, components,
furniture, furnishings, fixtures, appliances, machinery, equipment, tools,
power, water, fuel, lubricants, supplies, goods and/or services with
respect to any Property.
A-28
<PAGE>Page 1 of 7
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
THIS SETTLEMENT AGREEMENT AND MUTUAL RELEASE (this "Agreement") is
made as of this 10th day of August, 1995, between REAL ESTATE PROPERTIES
LIMITED PARTNERSHIP, an Oregon limited partnership ("REPLP") and REC
Resolution Company, an Oregon corporation ("REC"); and FRED MEYER, INC., a
Delaware corporation ("FMI"), ROUNDUP CO., a Washington corporation
("Roundup"), FRED MEYER OF ALASKA, INC., an Alaska corporation ("FM
Alaska"), and B & B STORES, INC., a Montana corporation ("B & B").
R E C I T A L S
A. Roundup, FM Alaska and B & B are wholly owned subsidiaries of FMI.
B. On or about December 11, 1981, REPLP, as landlord, and FMI (or its
subsidiaries), as tenant, entered into various real property leases (or
subleases) for (i) all or substantially all of the retail buildings in
which FMI operated Fred Meyer retail developments, plus (ii) the warehouse
and manufacturing properties operated by FMI (the "1981 Leases"). In
October of 1986 REPLP sold a majority of its properties to Metropolitan
Life Insurance Company, who entered into new leases with FMI (or its
subsidiaries) for these properties. On October 22, 1986, REPLP entered into
new leases with FMI (or its subsidiaries) for the remaining properties
covered by the 1981 Leases (the "1986 Leases"). The properties covered by
the 1986 Leases are listed on Exhibit A attached hereto and incorporated by
reference.
C. REC is the successor by merger to Duane Company, Union Central
Company, Fourth Avenue Corporation, Fifth Avenue Corporation and Van Oak
Corporation and has acquired substantially all of the assets of EFEM
Company. REC's predecessors leased to REPLP the Fred Meyer retail
developments listed on Exhibit B, attached hereto and incorporated by
reference (the "REC Leases"), and REPLP in turn subleased these properties
to FMI (or its subsidiaries) under the applicable 1981 Leases and 1986
Leases. The 1986 Lease for the Gateway Fred Meyer retail development has
expired and REC is currently leasing this property directly to FMI.
D. Many of the Fred Meyer retail developments and warehouse and
manufacturing properties leased under the 1981 Leases and the 1986 Leases
contain small tenant spaces and/or adjacent pad sites or pad buildings
(collectively "Retail Tenant Space") which were, at the time or thereafter,
leased to third party tenants. Some of the Retail Tenant Space was leased
to third party tenants by FMI (or its subsidiaries) and some of the Retail
Tenant Space was leased by REPLP or REC. The Retail Tenant Space leased by
REPLP, since 1981, include, without limitation, the properties listed on
Exhibit C, attached hereto and incorporated by reference (the "REPLP Pad
Properties") and the Retail Tenant Space leased by REC (or its
predecessors) since 1981 include, without limitation, the properties listed
on Exhibit D attached hereto and incorporated by reference (the "REC Pad
Properties").
E. FMI claims that the REPLP Pad Properties at the Gresham, Clackamas
and Tigard Fred Meyer retail developments (the "Contested Pads") were, or
should have been, included in the applicable 1986 Leases and 1981 Leases
and that it is entitled to have the 1981 Leases and/or the 1986 Leases
reformed, if necessary, to include the Contested Pads, and that FMI is
entitled to the lease revenue received from the Contested
<PAGE>2 of 7
Pads. FMI has made demand that REPLP convey to FMI a leasehold estate to
the Contested Pads (and assign all existing leases encumbering the
Contested Pads) for the balance of the terms of the related 1986 Leases and
pay FMI for all lease revenue received from the Contested Pads since
December 11, 1981, including interest thereon.
F. REPLP disputes FMI's claim for control of the Contested Pads and rental
income received therefrom.
G. The parties now desire to settle all claims between themselves
arising out of or based on rental income received from the Retail Tenant
Space including, without limitation, the REPLP Pad Properties and the REC
Pad Properties.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties agree as follows:
1. Pad Properties. FMI, Roundup, FM Alaska and B & B acknowledge and
agree that (i) REPLP is the lessor under the leases for the REPLP Pad
Properties and is entitled to all rental income received under leases for
such properties and (ii) REC is the lessor under the leases for the REC Pad
Properties and is entitled to all rental income received under such leases.
Furthermore, FMI, Roundup, FM Alaska and B & B acknowledge and agree that
the REPLP Pad Properties and the REC Pad Properties are not included in the
applicable 1986 Leases and were not included in the applicable 1981 Leases.
2. Gateway. FMI acknowledges and agrees that the current lease for the
Gateway Fred Meyer retail development only includes the Fred Meyer retail
building and does not include any adjacent pad sites.
3. Settlement Payment. Upon execution and delivery of this Agreement
by the parties, REPLP will, by wire transfer, pay to FMI the sum of One Million
Seven Hundred Fifty Thousand Dollars ($1,750,000.00).
4. Modification of 1986 Leases. FMI and REPLP will execute and
deliver amendments to the 1986 Leases for the Gresham Fred Meyer retail
development and the Clackamas Fred Meyer retail development to delete the
legal descriptions of the Newport Bay Gresham Pad, the US Bank/Burger King
Gresham Pad and the Elmers Clackamas Pad from said leases. Furthermore, the
parties agree to execute such other instruments and agreements necessary to
effect the intent of this Agreement.
5. FMI, Roundup, FM Alaska and B & B Release. For good and valuable
consideration, including the mutual promises and actions made and taken
herein, FMI, Roundup, FM Alaska and B & B, for themselves and their
respective successors, assigns, agents, servants and employees, hereby
mutually release, acquit and forever discharge REPLP and REC, their
representatives, agents, servants, employees, successors and assigns of and
from any and all actions, causes of action, claims, demands, damages,
costs, expenses, liabilities, attorneys' fees, and debts whatsoever, in law
or in equity, on account of any matter or thing which will or has happened,
developed or occurred in the past, present or future, whether known or
unknown, suspected or unsuspected, which are in any way connected with,
based upon, related to, or arising out of rental income received by REPLP
from the leasing or subleasing of Retail Tenant Space at any time during
the terms of the 1981 Leases and the 1986 Leases.
6. REPLP and REC Release. For good and valuable consideration,
including the mutual promises and actions made and taken herein, REC and REPLP,
for themselves and their
<PAGE> 3 of 7
respective successors, assigns, agents, servants and employees, hereby
mutually release, acquit and forever discharge FMI, Roundup, FM Alaska and
B & B, their representatives, agents, servants, employees, successors and
assigns of and from any and all actions, causes of action, claims, demands,
damages, costs, expenses, liabilities, attorneys' fees, and debts
whatsoever, in law or in equity, on account of any matter or thing which
will or has happened, developed or occurred in the past, present or future,
whether known or unknown, suspected or unsuspected, which are in any way
connected with, based upon, related to, or arising out of rental income
received by FMI, Roundup, FM Alaska and B & B from the leasing or
subleasing of Retail Tenant Space at any time during the terms of the 1981
Leases and the 1986 Leases.
7. Entire Agreement. The parties agree that no representation or
promise not expressly contained in this Agreement has been made and further
acknowledge that they are not entering into this Agreement on the basis of
any promise or representation, express or implied, not otherwise contained
herein. This Agreement contains the entire agreement between the parties
hereto and the terms hereof are contractual and not a mere recital. This
Agreement supersedes any prior agreement and contains the entire agreement
of the parties on the matters covered. Each party hereto has fully and
personally investigated the subject matter of this Agreement, consulted
such independent counselors as required, and does not rely on any statement
of facts or opinions of any other party to this Agreement.
8. Attorneys' Fees. If either party hereto brings an action at law
or in equity to enforce, interpret or seek redress for the breach of this
Agreement, then the prevailing party in such action shall be entitled to
recover all court costs and witness fees and reasonable attorneys' fees (at
trial or on appeal) in addition to all other appropriate relief.
9. Counterparts. This Agreement may be executed in one or more
counterparts by the parties hereto. All counterparts shall be construed
together and shall constitute one agreement.
10. Binding Effect. This Agreement shall be binding on and inure to the
benefit of the parties and their respective heirs, successors and assigns.
11. Effective Date. The effective date of this Agreement and each and
every provision hereof is and shall be August 10, 1995.
<PAGE>4 of 7
IN WITNESS WHEREOF, the parties have duly executed this Agreement
effective as of the date first above written.
REPLP:
REAL ESTATE PROPERTIES
LIMITED PARTNERSHIP,
an Oregon limited partnership
By FMGP Associates,
an Oregon limited partnership,
Its General Partner
By FMGP Incorporated,
a Delaware corporation,
Its General Partner
By DAVID W. RAMUS
-------------------------------------------
David W. Ramus
-------------------------------------------
(typed or printed name)
Its Vice President
---------------------------------------
REC:
REC RESOLUTION COMPANY,
an Oregon corporation
By DAVID W. RAMUS
-------------------------------------------
David W. Ramus
-------------------------------------------
(typed or printed name)
Its Vice President
---------------------------------------
FMI:
FRED MEYER, INC.,
a Delaware corporation
By KENNETH THRASHER
-------------------------------------------
Kenneth Thrasher
-------------------------------------------
(typed or printed name)
Its Senior V.P. - Finance
---------------------------------------
(Signatures continued on following page)
<PAGE>5 of 7
ROUNDUP:
ROUNDUP CO.,
a Washington corporation
By KENNETH THRASHER
-------------------------------------------
Kenneth Thrasher
-------------------------------------------
(typed or printed name)
Its Senior V.P. - Finance
---------------------------------------
FM ALASKA:
FRED MEYER OF ALASKA, INC.,
an Alaska corporation
By KENNETH THRASHER
-------------------------------------------
Kenneth Thrasher
-------------------------------------------
(typed or printed name)
Its Senior V.P. - Finance
---------------------------------------
B & B:
B & B STORES, INC.,
a Montana corporation
By KENNETH THRASHER
-------------------------------------------
Kenneth Thrasher
-------------------------------------------
(typed or printed name)
Its Senior V.P. - Finance
---------------------------------------
(Acknowledgments on following page)
<PAGE> 6 of 7
(Acknowledgment for REPLP)
STATE OF OREGON )
) ss.
County of Washington )
This instrument was acknowledged before me on this 25th day of
August, 1995 by David W. Ramus, as Vice President of FMGP INCORPORATED, a
Delaware corporation.
Jennifer Seifert
-------------------------------------------
Notary Public for Oregon
My Commission Expires: March 28, 1997
(Acknowledgment for REC)
STATE OF OREGON )
) ss.
County of Washington )
This instrument was acknowledged before me on this 25th day of
August, 1995 by David W. Ramus, as Vice President of REC Resolution
Company, an Oregon corporation.
Jennifer Seifert
-------------------------------------------
Notary Public for Oregon
My Commission Expires: March 28, 1997
(Acknowledgment for FMI)
STATE OF OREGON )
) ss.
County of Multnomah )
This instrument was acknowledged before me on this 28th day of August,
1995 by Kenneth Thrasher, as Sr. V.P. - Finance of FRED MEYER, INC., a Delaware
corporation.
Carla J. Bangert
-------------------------------------------
Notary Public for Oregon
My Commission Expires: Nov. 13, 1997
(Acknowledgment for Roundup)
STATE OF OREGON )
) ss.
County of Multnomah )
This instrument was acknowledged before me on this 28th day of
August, 1995 by Kenneth Thraser, as V.P. of ROUNDUP CO., a Washington
corporation.
Carla J. Bangert
-------------------------------------------
Notary Public for Oregon
My Commission Expires: Nov. 13, 1997
<PAGE>7 of 7
(Acknowledgment for FM Alaska)
STATE OF OREGON )
) ss.
County of Multnomah )
This instrument was acknowledged before me on this 28th day of August,
1995 by Kenneth Thrasher, as V.P. of FRED MEYER OF ALASKA, INC., an Alaska
corporation.
Carla J. Banger
-------------------------------------------
Notary Public for Oregon
My Commission Expires: Nov. 13, 1997
(Acknowledgment for B & B)
STATE OF OREGON )
) ss.
County of Multnomah )
This instrument was acknowledged before me on this 28th day of
August, 1995 by Kenneth Thrasher, as V.P. of B & B STORES, INC., a Montana
corporation.
Carla J. Bangert
-------------------------------------------
Notary Public for Oregon
My Commission Expires: Nov. 13, 1997
<PAGE>
EXHIBIT A
FRED MEYER RETAIL DEVELOPMENTS LEASED BY REPLP
TO FMI UNDER THE 1986 LEASES
Anchorage Newport
1000 E Northern Lights Blvd. Newport, OR
Anchorage, AK
Oak Grove
Bellevue 14700 SE McLoughlin Blvd.
2041 148th NE Milwaukie, OR
Bellevue, WA
Peninsula
Burien 6850 N Lombard
14300 First Avenue South Portland, OR
Seattle, WA
Polson
Burlingame Polson, MT
7555 SW Barbur Blvd.
Portland, OR Raleigh Hills
7700 SW Beavrtn-Hillsdale Hwy.
Clackamas Portland, OR
16301 SE 82nd Drive
Clackamas, OR Rockwood
18535 SE Stark St.
Cornelius Portland, OR
2200 Baseline Street
Cornelius, OR Rose City
Portland, OR
Eugene
Eugene, OR Sixth & Alder
Portland, OR
Fairbanks
19 College Road Southeast
Fairbanks, AK 5253 SE 82nd Ave.
Portland, OR
Gateway
1111 NE 102nd Avenue Spokane Francis
Portland, OR E 525 Francis Ave.
Spokane, WA
Glisan
6615 NE Glisan St. Spokane Sprague
Portland, OR E 5204 Sprague Ave.
Spokane, WA
Greenwood
100 NW 85th St. Stadium
Seattle, WA 100 NW 20th Place
Portland, OR
Gresham
2497 NE Burnside Rd. Stark
Gresham, OR 700 SE 122nd
Portland, OR
Hawthorne
3805 SE Hawthorne Blvd. Swan Island
Portland, OR 5000 N. Basin
Portland, OR
Hazel Dell
7700 NE Highway 99 Tigard
Vancouver, WA 11565 SW Pacific Hwy.
Tigard, OR
Hollywood
Portland, OR Totem Lake
12221 120th Avenue NE
Interstate Kirkland, WA
7404 N Interstate Ave.
Portland, OR White Center
2601 Roxbury
King Road Seattle, WA
10510 SE 82nd Ave.
Portland, OR Yakima
Yakima, WA
Lake City
12778 Lake City Way, NE
Seattle, WA
<PAGE>
EXHIBIT B
REC LEASES
Burlingame
7555 SW Barbur Blvd.
Portland, OR
Gateway
1111 NE 102nd Avenue
Portland, OR
Glisan
6615 NE Glisan St.
Portland, OR
Gresham
2497 NE Burnside Rd.
Gresham, OR
Hawthorne
3805 SE Hawthorne Blvd.
Portland, OR
Hazel Dell
7700 NE Highway 99
Vancouver, WA
Interstate
7404 N Interstate Ave.
Portland, OR
Oak Grove
14700 SE McLoughlin Blvd.
Milwaukie, OR
Peninsula
6850 N Lombard
Portland, OR
Raleigh Hills
7700 SW Beavrtn-Hillsdale Hwy.
Portland, OR
Rose City
Portland, OR
Southeast
5253 SE 82nd Ave.
Portland, OR
Stadium
100 NW 20th Place
Portland, OR
Swan Island
5000 N. Basin
Portland, OR
Tigard
11565 SW Pacific Hwy.
Tigard, OR
<PAGE>
EXHIBIT C
REPLP PAD PROPERTIES
1. Gresham Fred Meyer Retail Development:
US Bank Pad
Burger King Pad
Newport Bay Pad
2. Clackamas Fred Meyer Retail Development:
US Bank Pad
Elmer's Pad
3. Tigard Fred Meyer Retail Development:
US Bank Pad
4. Everett Fred Meyer Retail Development:
Billy's Big-O-Tires Pad
5. King Road Fred Meyer Retail Development:
First Interstate Bank Pad
Southgate Locksmith Pad
Property taxes related to these pad properties are the
responsibility of REPLP
<PAGE>
EXHIBIT D
REC PAD PROPERTIES
1. Burlingame Fred Meyer Retail Development:
Burger King Pad
2. Raleigh Hills Fred Meyer Retail Development:
Quickstart pad (former Flying A Service Station)
Union 76 Station Pad
3. Beaverton Fred Meyer Retail Development:
Chevron Station Pad
Property taxes related to these pad properties are the
responsibility of REC.
<PAGE>1 of 2
SECOND LEASE MODIFICATION AGREEMENT
THIS SECOND LEASE MODIFICATION AGREEMENT (this "Agreement") is made
and entered into this 12th day of October, 1995, by and between REAL ESTATE
PROPERTIES LIMITED PARTNERSHIP, an Oregon limited partnership ("Landlord"),
and FRED MEYER, INC., a Delaware corporation ("Tenant").
R E C I T A L S
A. As of October 22, 1986, Landlord (formerly Fred Meyer Real Estate
Properties, Ltd.) and Tenant entered into a lease for the real property located
at 2497 N.E. Burnside Road, Gresham, Oregon, and more particularly described in
the lease. The lease was amended by Lease Modification Agreement dated February
7, 1992 (as amended, the "Lease").
B. Landlord and Tenant desire to further amend and modify the Lease as
set forth below.
NOW, THEREFORE, in consideration of the foregoing facts and for good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Landlord and Tenant hereby amend and modify the Lease as
follows:
1. Exhibit A. Exhibit A to the Lease is hereby deleted and Exhibit A-I,
attached hereto and incorporated by reference, is substituted in lieu thereof.
2. Effective Date. This Agreement shall be effective as of the date first
above written.
3. Ratification. Except as herein modified the Lease shall remain in full
force and effect and is hereby ratified and affirmed.
4. Successors and Assigns. This agreement shall bind and inure to the
benefit of each of the parties hereto and their respective successors and
assigns.
IN WITNESS WHEREOF, the parties have duly executed this Agreement
effective as of the date first above written.
LANDLORD:
REAL ESTATE PROPERTIES
LIMITED PARTNERSHIP,
an Oregon limited partnership
By FMGP Associates,
an Oregon limited partnership,
Its General Partner
By FMGP Incorporated,
a Delaware corporation,
Its General Partner
By DAVID W. RAMUS
-------------------------------------------
David W. Ramus
-------------------------------------------
(typed or printed name)
Its Vice President
---------------------------------------
(Signatures continued on following page)
<PAGE>2 of 2
TENANT:
FRED MEYER, INC.,
a Delaware corporation
By SCOTT L. WIPPEL
-------------------------------------------
Scott L. Wippel
-------------------------------------------
(typed or printed name)
Its Senior Vice President
---------------------------------------
<PAGE>
LEGAL DESCRIPTION
A tract of land in Section 11, Township 1 South, Range 3 East of
the Willamette Meridian, in the City of Gresham, County of
Multnomah and State of Oregon described as follows:
Beginning at a point on the westerly line of that tract of land
described in Book 2191, page 341, Multnomah County Record of
Deeds, 5.00 feet southerly from the southerly right-of-way line
of Bull Run Road, said point bears South 2 degrees 44' 22" West
14.47 feet and South 87 degrees 15' 38" East 252.33 feet South 89
degrees 38' 02" East 434.96 feet from the Northeast corner of the
J.H. Lambert Donation Land Claim, Township 1 South, Range 3 East,
Willamette Meridian, Multnomah County, Oregon:
Thence South 0 degrees 30' 55" East 185.19 feet to the
southwesterly corner of that tract of land described in Book
2191, page 341, Multnomah County Record of Deeds;
Thence South 89 degrees 38' 35" East 404.95 feet to a point
situated North 89 degrees 38' 35" West 20.00 feet from the East
line of that tract of land described in PS Miscellaneous Book
188, page 511, Multnomah County Record of Deeds; thence South 0
degrees 27' 56" East 190.00 feet to a point; thence South 21
degrees 30' 03" East 334.70 feet to a point; thence South 32
degrees 04' 14" East 220.83 feet to a 1-inch iron pipe on the
westerly boundary of that tract of land described in PS Deed Book
990, page 130; thence South 0 degrees 28' 16" East 661.58 feet
along said boundary line to the Northeast corner of that tract of
land described in Volume 1106 page 283, Multnomah County Book of
Deed Records; thence North 71 degrees 51' 12" West, conincident
with the northerly line of the aforementioned described tract,
122.03 feet to a point; thence North 0 degrees 28' 31" West
427.13 feet to a point; thence South 89 degrees 29' 30" West
252.94 feet to a point; thence South 60 degrees 57' 27" West
235.66 feet to the easterly right-of-way line of S.E. Burnside
Road; thence northwesterly along said right-of-way as follows:
North 39 degrees 07' 34" West 299.29 feet along the Northeast
boundary of that parcel of land described in Book 1701, page 3,
Deed Records, and North 28 degrees 49' 10" West 116.95 feet and
northwesterly along the arc of a 5,809.58-foot radius curve left,
of which the long chord bears North 29 degrees 50' 21" West
226.35 feet and North 58 degrees 59' 11" East 10.00 feet and
northwesterly along the arc of a 5,819.58-foot radius curve left,
of which the long chord bears North 32 degrees 47' 02" West
371.74 feet to the intersection of the easterly right-of-way line
of East Burnside Road and the southerly right-of-way line of
Third Street; thence northeasterly along the southerly right-of-
way line of Third Street as follows: Northeasterly along the arc
of a 1,732.77-foot radius curve left, the long chord bears North
48 degrees 06' East 246.87 feet; North 44 degrees 00' 53" East
163.77 feet, northeasterly along the arc of a 211.00-foot radius
curve right of which the long chord bears North 60 degrees 56'
29" East 122.86 feet, South 89 degrees 38' 02" East 70.65 feet to
the point of beginning.
Exhibit A-I
<PAGE>1 of 2
SECOND LEASE MODIFICATION AGREEMENT
THIS SECOND LEASE MODIFICATION AGREEMENT (this "Agreement") is made
and entered into this 12th day of October, 1995, by and between REAL ESTATE
PROPERTIES LIMITED PARTNERSHIP, an Oregon limited partnership ("Landlord"),
and FRED MEYER, INC., a Delaware corporation ("Tenant").
R E C I T A L S
A. As of October 22, 1986, Landlord (formerly Fred Meyer Real Estate
Properties, Ltd.) and Tenant entered into a lease for the real property located
at 16301 S.E. 82nd Drive, Clackamas, Oregon, and more particularly described in
the lease. The lease was amended by Lease Modification Agreement dated
February 7, 1992 (as amended, the "Lease").
B. Landlord and Tenant desire to further amend and modify the Lease as set
forth below.
NOW, THEREFORE, in consideration of the foregoing facts and for good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Landlord and Tenant hereby amend and modify the Lease as
follows:
1. Exhibit A. Exhibit A to the Lease is hereby deleted and Exhibit
A-I, attached hereto and incorporated by reference, is substituted in lieu
thereof.
2. Effective Date. This Agreement shall be effective as of the date
first above written.
3. Ratification. Except as herein modified the Lease shall remain in
full force and effect and is hereby ratified and affirmed.
4. Successors and Assigns. This agreement shall bind and inure to the
benefit of each of the parties hereto and their respective successors and
assigns.
IN WITNESS WHEREOF, the parties have duly executed this Agreement
effective as of the date first above written.
LANDLORD:
REAL ESTATE PROPERTIES
LIMITED PARTNERSHIP,
an Oregon limited partnership
By FMGP Associates,
an Oregon limited partnership,
Its General Partner
By FMGP Incorporated,
a Delaware corporation,
Its General Partner
By DAVID W. RAMUS
------------------------------------
DAVID W. RAMUS
------------------------------------
(typed or printed name)
Its VICE PRESIDENT
--------------------------------
(Signatures continued on following page)
<PAGE>2 of 2
TENANT:
FRED MEYER, INC.,
a Delaware corporation
By SCOTT L. WIPPEL
------------------------------------
SCOTT L. WIPPEL
------------------------------------
(typed or printed name)
Its SENIOR VICE PRESIDENT
--------------------------------
<PAGE>
Property No./Code: 004-01/CK-1
Clackamas, OR
LEGAL DESCRIPTION
2. IN THE COUNTY OF CLACKAMAS AND STATE OF OREGON
A tract of land located in the southwest one-quarter of Section 9, T.
2 S., R. 2 E., of the W. M., and the northwest one-quarter, Section
16, T. 2 S., R. 2 E., of the W. M., described as follows:
Beginning at a point on the westerly right-of-way of 82nd Drive
(Cascade Highway) and the southerly boundary line of that tract of
land described in Fee No. 70 20685, said point bears North 87 degrees
46' 28" West 30.02 feet and South 04 degrees 18' 02" West 80.15 feet
from the one-quarter corner between Sections 9 and 16, T. 2 S., R. 2
E., of the W. M.; thence North 88 degrees 40' 53" West 603.69 feet
along said southerly boundary and parallel with the south line of
Roots Addition to Marshfield, Clackamas County, Oregon, to a point on
the easterly right-of-way line of Interstate Highway 205 (I-205);
thence along said Easterly right-of-way line the following bearings
and distances: along the arc of a spiral curve offset in an easterly
direction, 135.00 feet distance from the reference spiral defined as
being 500 feet in length, having a central angle of 3 degrees 45' and
on "a" value of 0.3 (the offset spiral chord bears North 13 degrees
43' 46" East 210.12 feet) to the point of change from spiral to
circular curve along the arc of a 3,954.72 foot curve left (the long
chord bears North 10 degrees 58' 32" East 197.47 feet) through a
central angle of 2 degrees 51' 41" 197.50 feet to a point situated
135.00 feet easterly on a radial line from OSHD reference line of
I-205 Engineers' Station 542+50, North 15 degrees 11' 42" East 262.50
feet to a point situated 170.00 feet easterly on a radial line from
said reference line at I-205 Engineers' Station 540+00, North 12
degrees 13' 43" East 517.40 feet to the point of intersection of said
easterly right-of-way with the north right-of-way of Roots Webster
Road (vacated), vacation of said street recorded in Book 661, page
828, Deed Records; thence along said North right-of-way and North
right-of-way extended South 88 degrees 40' 53" East 251.01 feet to a
point which lies North 88 degrees 40' 53" West, a distance of 97.02
feet from said Southeast 82nd Drive Westerly right of way line; thence
South 0 degrees 13' 31" West parallel with said westerly right of way
line, a distance of 281.00 feet; thence South 88 degrees 40' 53" East
parallel with said north right of way line, a distance of 85.02 feet
to a point which lies Westerly, a distance of 12.00 feet from said
westerly right of way line; thence North 0 degrees 13' 31" East
parallel with said westerly right of way line, a distance of 155.94
feet; thence along the arc of a 208.33 foot radius curve to the right
(the long chord of which bears North 7 degrees 07' 03" East, a
distance of 50.00 feet) through a central angle of 13 degrees 47' 03"
an arc distance of 50.12 feet; thence along the arc of a 208.33 radius
curve to the left (the long chord of which bears North 7 degrees 07'
03" East, a distance of 50.00 feet) through a central angle of 13
degrees 47' 03" an arc distance of 50.12 feet to a point on said
westerly right of way line which lies South 0 degrees 13' 31" West, a
distance of 25.55 feet from the north right of way line of said
Roots-Webster Road; thence South 0 degrees 13' 31" West along said
westerly right of way line, a distance of 1057.37 feet to an angle
point; thence continuing along said westerly right of way line South 4
degrees 18' 02" West, a distance of 80.15 feet to the point of
beginning.
Exhibit A-I
EXHIBIT 11
FRED MEYER, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
53 Weeks 52 Weeks Ended
Ended -------------------------
Feb. 3, Jan. 28, Jan. 29,
1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
Weighted average number
of shares outstanding.................. 26,682 26,514 25,878
Weighted average number
of shares under option................. 2,683 3,452 4,032
Shares assumed to have
been purchased under the
treasury stock method.................. (1,032) (1,341) (1,535)
------- ------- -------
Weighted average number
of common and common
equivalent shares outstanding.......... 28,333 28,625 28,375
======= ======= =======
Net income before the effect
of an accounting change................ $30,286 $ 7,168 $70,904
Effect of an accounting change........... --- --- (2,588)
------- ------- -------
Net income............................... $30,286 $ 7,168 $68,316
======= ======= =======
Earnings per common share on:
Net income before the effect
of an accounting change.............. $ 1.07 $ 0.25 $ 2.50
Effect of an accounting change......... --- --- (0.09)
------- ------- -------
Net income............................... $ 1.07 $ 0.25 $ 2.41
======= ======= =======
</TABLE>
EXHIBIT 21
LIST OF ACTIVE SUBSIDIARIES OF FRED MEYER, INC.
Jurisdiction of
Incorporation
Name of Subsidiary or Organization
- ------------------ ---------------
Roundup Co. (doing business
in the State of Oregon as
Roundup Distribution Co.) Washington
B & B Stores, Inc. Montana
B & B Pharmacy, Inc. Montana
Fred Meyer of Alaska, Inc. Alaska
Fred Meyer of California, Inc. California
Distribution Trucking Company Oregon
CB&S Advertising Agency, Inc. Oregon
FM Holding Corporation Delaware
Grand Central, Inc. Utah
FM Retail Services, Inc. Washington
Fred Meyer Jewelers, Inc. Delaware
FM Inc. Utah
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
Nos. 33-13912, 33-22572, 33-31798, 33-36163, and 33-49638 all on Form S-8
and Registration Statement No. 33-51177 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), included in the
Annual Report on Form 10-K of Fred Meyer, Inc. for the year ended February 3,
1996.
DELOITTE & TOUCHE LLP
Portland, Oregon
March 20, 1996
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, an officer and/or
director of Fred Meyer, Inc., a Delaware corporation (the "Company"), does
hereby constitute and appoint Robert G. Miller, Kenneth Thrasher and Roger A.
Cooke, and each of them, his true and lawful attorney and agent, to do any and
all acts and things and execute in his name as an officer or director of the
Company the Annual Report on Form 10-K for the year ended February 3, 1996 and
any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; and the undersigned does hereby ratify and confirm all
that said attorneys and agents and each of them shall do or cause to be done
by virtue hereof. Any one of said attorneys or agents shall have, and may
exercise, all powers conferred.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 12th day of March, 1996.
KENNETH THRASHER
----------------------------------------
Kenneth Thrasher
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, an officer and/or
director of Fred Meyer, Inc., a Delaware corporation (the "Company"), does
hereby constitute and appoint Robert G. Miller, Kenneth Thrasher and Roger A.
Cooke, and each of them, his true and lawful attorney and agent, to do any and
all acts and things and execute in his name as an officer or director of the
Company the Annual Report on Form 10-K for the year ended February 3, 1996 and
any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; and the undersigned does hereby ratify and confirm all
that said attorneys and agents and each of them shall do or cause to be done
by virtue hereof. Any one of said attorneys or agents shall have, and may
exercise, all powers conferred.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 1st day of March, 1996.
THOMAS R. HUGHES
----------------------------------------
Thomas R. Hughes
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, an officer and/or
director of Fred Meyer, Inc., a Delaware corporation (the "Company"), does
hereby constitute and appoint Robert G. Miller, Kenneth Thrasher and Roger A.
Cooke, and each of them, his true and lawful attorney and agent, to do any and
all acts and things and execute in his name as an officer or director of the
Company the Annual Report on Form 10-K for the year ended February 3, 1996 and
any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; and the undersigned does hereby ratify and confirm all
that said attorneys and agents and each of them shall do or cause to be done
by virtue hereof. Any one of said attorneys or agents shall have, and may
exercise, all powers conferred.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 1st day of March, 1996.
SAUL A. FOX
----------------------------------------
Saul A. Fox
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, an officer and/or
director of Fred Meyer, Inc., a Delaware corporation (the "Company"), does
hereby constitute and appoint Robert G. Miller, Kenneth Thrasher and Roger A.
Cooke, and each of them, his true and lawful attorney and agent, to do any and
all acts and things and execute in his name as an officer or director of the
Company the Annual Report on Form 10-K for the year ended February 3, 1996 and
any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; and the undersigned does hereby ratify and confirm all
that said attorneys and agents and each of them shall do or cause to be done
by virtue hereof. Any one of said attorneys or agents shall have, and may
exercise, all powers conferred.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 1st day of March, 1996.
A.M. GLEASON
----------------------------------------
A.M. Gleason
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, an officer and/or
director of Fred Meyer, Inc., a Delaware corporation (the "Company"), does
hereby constitute and appoint Robert G. Miller, Kenneth Thrasher and Roger A.
Cooke, and each of them, his true and lawful attorney and agent, to do any and
all acts and things and execute in his name as an officer or director of the
Company the Annual Report on Form 10-K for the year ended February 3, 1996 and
any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; and the undersigned does hereby ratify and confirm all
that said attorneys and agents and each of them shall do or cause to be done
by virtue hereof. Any one of said attorneys or agents shall have, and may
exercise, all powers conferred.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 1st day of March, 1996.
JEROME KOHLBERG, JR.
----------------------------------------
Jerome Kohlberg, Jr.
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, an officer and/or
director of Fred Meyer, Inc., a Delaware corporation (the "Company"), does
hereby constitute and appoint Robert G. Miller, Kenneth Thrasher and Roger A.
Cooke, and each of them, his true and lawful attorney and agent, to do any and
all acts and things and execute in his name as an officer or director of the
Company the Annual Report on Form 10-K for the year ended February 3, 1996 and
any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; and the undersigned does hereby ratify and confirm all
that said attorneys and agents and each of them shall do or cause to be done
by virtue hereof. Any one of said attorneys or agents shall have, and may
exercise, all powers conferred.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 1st day of March, 1996.
ROGER S. MEIER
----------------------------------------
Roger S. Meier
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, an officer and/or
director of Fred Meyer, Inc., a Delaware corporation (the "Company"), does
hereby constitute and appoint Robert G. Miller, Kenneth Thrasher and Roger A.
Cooke, and each of them, his true and lawful attorney and agent, to do any and
all acts and things and execute in his name as an officer or director of the
Company the Annual Report on Form 10-K for the year ended February 3, 1996 and
any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; and the undersigned does hereby ratify and confirm all
that said attorneys and agents and each of them shall do or cause to be done
by virtue hereof. Any one of said attorneys or agents shall have, and may
exercise, all powers conferred.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 1st day of March, 1996.
MICHAEL W. MICHELSON
----------------------------------------
Michael W. Michelson
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, an officer and/or
director of Fred Meyer, Inc., a Delaware corporation (the "Company"), does
hereby constitute and appoint Robert G. Miller, Kenneth Thrasher and Roger A.
Cooke, and each of them, his true and lawful attorney and agent, to do any and
all acts and things and execute in his name as an officer or director of the
Company the Annual Report on Form 10-K for the year ended February 3, 1996 and
any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; and the undersigned does hereby ratify and confirm all
that said attorneys and agents and each of them shall do or cause to be done
by virtue hereof. Any one of said attorneys or agents shall have, and may
exercise, all powers conferred.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 1st day of March, 1996.
ROBERT G. MILLER
----------------------------------------
Robert G. Miller
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, an officer and/or
director of Fred Meyer, Inc., a Delaware corporation (the "Company"), does
hereby constitute and appoint Robert G. Miller, Kenneth Thrasher and Roger A.
Cooke, and each of them, his true and lawful attorney and agent, to do any and
all acts and things and execute in his name as an officer or director of the
Company the Annual Report on Form 10-K for the year ended February 3, 1996 and
any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; and the undersigned does hereby ratify and confirm all
that said attorneys and agents and each of them shall do or cause to be done
by virtue hereof. Any one of said attorneys or agents shall have, and may
exercise, all powers conferred.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 1st day of March, 1996.
PAUL E. RAETHER
----------------------------------------
Paul E. Raether
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-END> FEB-03-1996
<CASH> 41,849
<SECURITIES> 0
<RECEIVABLES> 24,683
<ALLOWANCES> 0
<INVENTORY> 520,555
<CURRENT-ASSETS> 632,813
<PP&E> 1,544,691
<DEPRECIATION> 530,543
<TOTAL-ASSETS> 1,671,592
<CURRENT-LIABILITIES> 349,731
<BONDS> 656,260
0
0
<COMMON> 270
<OTHER-SE> 570,964
<TOTAL-LIABILITY-AND-EQUITY> 1,671,592
<SALES> 3,428,664
<TOTAL-REVENUES> 3,428,664
<CGS> 2,449,204
<TOTAL-COSTS> 891,033
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,578
<INCOME-PRETAX> 48,849
<INCOME-TAX> 18,563
<INCOME-CONTINUING> 30,286
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,286
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.07
</TABLE>
