SHOPKO STORES INC, S-3/A, 1999-06-28

SHOPKO STORES INC
S-3/A, 1999-06-28
VARIETY STORES

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<PAGE>

As filed with the Securities and Exchange Commission on June 28, 1999

Registration No. 333-79763
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

--------------

AMENDMENT NO. 1

TO
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933

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ShopKo Stores, Inc.
(Exact name of Registrant as specified in its charter)

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Wisconsin 700 Pilgrim Way 41-0985054
(State or other Green Bay, Wisconsin (I.R.S. Employer
jurisdiction 54304 Identification No.)
of incorporation or (920) 497-2211
organization) (Name, address, including
zip code,
and telephone number,
including area code, of
Registrant's principal
executive offices)

--------------

William J. Podany
President and Chief Executive Officer
ShopKo Stores, Inc.
700 Pilgrim Way
Green Bay, WI 54304
(920) 497-2211
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

Copies To:
Randall J. Erickson Richard D. Schepp
Godfrey & Kahn, S.C. Senior Vice President and Valerie Ford Jacob
General Counsel
780 North Water Street Fried, Frank, Harris,
ShopKo Stores, Inc.
Milwaukee, Wisconsin
53202 700 Pilgrim Way Shriver & Jacobson

(414) 273-3500 Green Bay, WI 54304 One New York Plaza

(920) 497-2211 New York, New York 10004

(212) 859-8000

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Approximate Date of Commencement of Proposed Sale to the Public: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

--------------

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Subject to Completion

Preliminary Prospectus Supplement dated June 28, 1999

PROSPECTUS SUPPLEMENT
(To prospectus dated June , 1999)

3,500,000 Shares
ShopKo Stores, Inc.
Common Stock

-----------

All of the shares of common stock are being sold by ShopKo. The
underwriters are offering 3,500,000 shares in the United States and Canada.

The common stock trades on The New York Stock Exchange under the symbol
"SKO." On June 25, 1999, the last sale price of the common stock as reported on
The New York Stock Exchange was $34 3/8 per share.

Investing in the common stock involves risks which are described in the
"Risk Factors" section beginning on page 3 of the accompanying prospectus.

-----------

<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price............................... $ $
Underwriting discount............................... $ $
Proceeds, before expenses, to ShopKo................ $ $
</TABLE>

The underwriters may also purchase up to an additional 525,000 shares from
ShopKo at the public offering price, less the underwriting discount, within 30
days from the date of this prospectus supplement to cover over-allotments.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.

The shares of common stock will be ready for delivery in New York, New York
on or about , 1999.

-----------

Merrill Lynch & Co.
Banc of America Securities LLC
Robert W. Baird & Co.
Incorporated
William Blair & Company

-----------

The date of this prospectus supplement is June , 1999.
<PAGE>

[Pictures of pharmacy and optical departments, athletic apparel and home office
displays.]

<PAGE>

TABLE OF CONTENTS

Prospectus Supplement

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Supplement Summary............................................ S-5
Selected Historical Consolidated Financial Data.......................... S-10
Use of Proceeds.......................................................... S-11
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... S-12
Business................................................................. S-24
Management............................................................... S-39
Underwriting............................................................. S-41
Legal Matters............................................................ S-43
Experts.................................................................. S-43
Index to Consolidated Financial Statements............................... F-1

Prospectus

Our Company.............................................................. 3
Risk Factors............................................................. 3
Ratio of Earnings to Fixed Charges....................................... 6
Use of Proceeds.......................................................... 7
Description of Common Stock.............................................. 7
Description of Debt Securities........................................... 10
Book-Entry Securities.................................................... 15
Certain United States Federal Income Tax Consequences.................... 17
Plan of Distribution..................................................... 28
Legal Matters............................................................ 30
Where You Can Find More Information...................................... 30
Incorporation of Information We File With the SEC........................ 31
</TABLE>

-----------------

FORWARD-LOOKING STATEMENTS

This prospectus supplement, the accompanying prospectus and documents
incorporated by reference in this prospectus supplement and the accompanying
prospectus contain certain forward-looking statements regarding the operations
and business of ShopKo. Statements in this document that are not historical
facts are "forward-looking statements." Such forward-looking statements include
those relating to:

. our anticipated growth strategies,

. anticipated trends in our businesses,

. our ability to continue to control costs and maintain quality, and

. statements regarding ShopKo's Year 2000 readiness.

The words "estimate," "project," "intend," "expect" and similar
expressions are intended to identify forward-looking statements. These
"forward-looking statements" are found at various places throughout this
prospectus supplement and accompanying prospectus. Wherever they occur in this
prospectus or in other statements attributable to ShopKo, forward-looking
statements are necessarily estimates reflecting our best judgment. However,
these statements still involve a number of risks and uncertainties that could
cause actual results to differ materially from those suggested by the forward-
looking statements. Discussions in this prospectus supplement and accompanying
prospectus under the captions "Prospectus Supplement Summary," "Risk Factors,"
"Use of Proceeds," Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business" are particularly susceptible to risks
and uncertainties. Such forward-looking statements should, therefore, be
considered in light of various important factors, including those set forth in
this prospectus supplement

S-3
<PAGE>

and accompanying prospectus and other factors set forth from time to time in
ShopKo's reports and registration statements filed with the SEC. You are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. ShopKo disclaims any intent or
obligation to update forward-looking statements. Moreover, ShopKo, through
senior management, may from time to time make forward-looking statements about
the matters described herein or other matters concerning ShopKo.

-----------------

ShopKo(R) is a trademark and servicemark of ShopKo Stores, Inc.
ProVantage(R), RationalMed(R), ProVQuery(TM), PharMark(R), and ProVMed(R) are
trademarks or servicemarks of ProVantage Health Services, Inc. or its
subsidiaries. All other trademarks, servicemarks and trade names referred to in
this prospectus supplement and the accompanying prospectus are the property of
their respective owners.

-----------------

You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus supplement and the accompanying
prospectus is accurate only as of the date on the front cover of this
prospectus supplement. Our business, financial condition, results of operations
and prospects may have changed since that date.

S-4
<PAGE>

PROSPECTUS SUPPLEMENT SUMMARY

ShopKo's fiscal year conforms to the National Retail Federation calendar
and ends on the Saturday closest to the end of January. ShopKo has adopted a
convention of referring to a fiscal year by the year in which the fiscal year
begins. For example, the fiscal year which began on February 1, 1998 and ended
on January 30, 1999 is referred to as "fiscal 1998." Unless the context
requires otherwise, all references to "ShopKo," "we" and "our" are to ShopKo
Stores, Inc. and its subsidiaries. Unless otherwise indicated, information in
this prospectus assumes no exercise of the underwriters' option to purchase
from ShopKo up to 525,000 additional shares of common stock to cover over-
allotments, if any.

This offering is not conditioned on the completion of our acquisition of
Pamida Holdings Corporation or the initial public offering of the common stock
of our ProVantage Health Services, Inc. subsidiary. We describe both of these
proposed transactions in this prospectus supplement.

Our Company

We operate in the specialty discount and the managed healthcare
industries. We are a leading specialty discount retailer operating 158 ShopKo
stores in 19 states, primarily in the Midwest, Western Mountain and Pacific
Northwest regions as of May 1, 1999. We are acquiring 147 Pamida discount
retail stores, which operate in 15 Midwestern, North Central and Rocky Mountain
states. We also serve the rapidly growing managed healthcare industry through
our subsidiary, ProVantage Health Services, Inc. ProVantage is a leading health
benefit management company providing pharmacy benefit and health information
technology products and services to its customers.

Our Strategy

Retail Operating Strategy

Our business strategy focuses on serving our customers and building
customer loyalty. We instituted a number of strategic initiatives designed to
build our infrastructure and strengthen our market position. These initiatives
include:

Delivering Comprehensive Value. We believe delivering comprehensive value
builds customer loyalty. Comprehensive value is more than just delivering a
superior quality product at a compelling price. Comprehensive value includes:

. ensuring that merchandise, particularly advertised merchandise, is
available for purchase,

. providing clarity in our merchandise offering,

. continually responding to our customers' changing lifestyle needs,

. ensuring the speed of merchandise to the sales floor, and

. providing simplicity, speed and friendliness in the shopping
experience.

Continuing to Differentiate Our Merchandising Strategy. We are
continuously changing and updating our merchandising strategy to differentiate
our stores from our competitors by projecting a more upscale image and meeting
consumer's changing lifestyle preferences. Our current merchandising strategy
is focused on expanding and dominating certain lifestyle categories in areas
such as:

. home furnishings in linens, domestics and housewares,

. nationally branded activewear for men, women and children,

. vitamin centers,

. bath and body centers,

. women's intimate and plus-size apparel, and

. pharmacy and optical services.

S-5
<PAGE>

Maintaining Competitive Pricing. We price our merchandise to be
competitive with our discount retail competitors, both regional and national.
In approximately 60 circulars per year, we advertise a large group of high
demand items to reinforce our competitive price image and to generate store
traffic. We do not attempt to meet the lowest available price on every item. We
believe we provide our customers with quality brands and trend-correct
assortments at competitive prices.

Enhancing Competitiveness Through Continued Infrastructure
Improvements. We have remodeled substantially all of our stores in the 1990s.
We expect to spend $70 million over the next two years to expand and upgrade
our distribution centers. During the 1990s, we also invested over $140 million
in technology systems and decision system support software. We have closely
linked our merchandising, financing, marketing and logistics functions to
enable us to respond quickly and effectively to changing customer demands.
These improvements have made us more competitive by allowing us to:

. Increase the convenience of the shopping experience, with
improvements such as wide, clear aisles, and informative signing;

. Quickly identify and adapt to changing consumer preferences;

. Improve inventory replenishment and in-stock position;

. Reduce costs associated with the sales process, such as
distribution; and

. Reduce store payroll costs as a percent of revenue.

Capitalizing on Our Pharmacy and Optical Centers. Of our 158 retail stores
at May 1, 1999, 156 stores have pharmacy centers and 155 stores have optical
centers. These centers generate store traffic and build customer loyalty. In
addition, offering professional healthcare services contributes significantly
to our overall profitability and provides the opportunity for additional
growth. Our prescription pharmacy sales constituted approximately 16% of our
retail stock revenues for fiscal 1998, which we believe is a higher percentage
than that of most national discount store chains.

Retail Growth Strategy

We plan to achieve economies of scale and to capitalize on our existing
infrastructure by growing the number of our retail stores through new store
construction, opportunistic acquisitions of existing retail stores or sites and
selective acquisitions of existing value-oriented retail businesses which
compliment our strategy of delivering comprehensive value to the customer.

In reviewing possible acquisitions of store sites and businesses, we take
a disciplined approach to maintain our competitive position and financial
integrity. The key elements of our approach are:

. Maintaining a strong balance sheet, which will demonstrate our
financial strength to the vendor and creditor communities;

. Leveraging off our existing infrastructure, including our advanced
management information and distribution systems; and

. Using an analytical system for site selection that models
demographics, competition, geography and location.

New Store Construction. We plan to concentrate our new store construction
in our existing markets and adjacent geographic areas in order to enhance our
name recognition, increase our market penetration and gain economies of scale
in areas such as advertising, distribution and corporate overhead. We also plan
to continue the practice of purchasing existing pharmacy businesses in the
market where a new ShopKo store opens and transferring the business to the new
store to generate customer traffic and to improve the financial performance of
the store in its initial years.

S-6
<PAGE>

Opportunistic Acquisitions of Existing Store Sites. We plan to
opportunistically acquire existing store sites, or clusters, with the intention
of remodeling or refurbishing the stores to generally mirror our existing
stores to benefit from our merchandising strategies. Purchasing existing stores
allows us to quickly establish a presence in locations that might otherwise be
difficult to enter. Examples of successfully integrated store acquisitions
include:

. The 1997 acquisition of the Penn-Daniels retail chain which added 17
stores which have been reopened as ShopKo stores; and

. The 1998 acquisition of 10 former Venture locations and one former
Target location which have now reopened as ShopKo stores.

Selective Acquisitions of Existing Value-Oriented Retail Businesses. We
intend to selectively consider acquisitions of existing value-oriented retail
businesses which meet our rigorous financial and strategic criteria. Any
acquired business may be operated as an autonomous business unit and is
expected to accelerate our growth and enhance shareholder value. We would
expect to use our existing infrastructure to enhance the operating
characteristics of an acquired business. We also intend to use our strong
financial position to facilitate growth initiatives of the acquired business.
Our pending acquisition of Pamida is an example of this strategy.

Pamida

On May 10, 1999, we signed a definitive agreement to acquire Pamida
Holdings, which reported sales of $672 million in the fiscal year ended January
31, 1999. The transaction, which offers cash to current shareholders, values
Pamida at approximately $375 million, including our assumption of $265 million
in debt and capitalized lease obligations. The boards of directors of ShopKo
and Pamida have approved the transaction.

Pamida operates 147 discount retail stores in 15 Midwestern, North Central
and Rocky Mountain states as of January 31, 1999. Pamida stores are located in
smaller, rural markets and offer consumers the convenience of selection at
discount prices. Virtually all of Pamida's stores operate in markets with
populations of less than 20,000, significantly below the average size of our
current markets. In addition, approximately 80% of Pamida's stores are located
where there is no direct local competition from a major discount retailer.

We have identified more than 500 small, rural markets that can support a
Pamida retail store concept. Pamida currently plans to open 15 new stores in
1999 and under our ownership, we expect to accelerate store growth for the year
2000 and beyond. Pamida provides us with a new retail format with access to a
new customer base in underserved markets. We expect to immediately reduce
Pamida's cost structure by using our lower borrowing costs and financial
strength to refinance a portion of Pamida's existing debt. We also expect to
realize significant operating efficiencies within one year in areas such as
retail health services, technology, global sourcing capabilities, logistics and
employee training and development.

Pursuant to the purchase agreement, we commenced a tender offer for all of
Pamida's outstanding voting common shares at a cash price of $11.50 per share
on May 17, 1999. Each of Pamida's directors and its principal shareholder have
agreed to support the transaction and to tender their shares. Pamida's
principal shareholder has also granted ShopKo an irrevocable option to purchase
its voting and non-voting common shares, under certain circumstances, at the
tender offer price. The tender offer is contingent upon customary conditions,
including the tender of at least 51% of Pamida's outstanding voting stock. The
acquisition is expected to close by early July, 1999. ShopKo expects to
purchase the Pamida common shares with cash on hand, and expects to refinance a
portion of Pamida's debt with a combination of proceeds from the ProVantage
initial public offering, a potential subsequent debt offering and this
offering. We cannot assure you that our acquisition of Pamida will be
completed.

S-7
<PAGE>

ProVantage

Business Overview. As an extension of our retail business, which includes
the sale of pharmaceutical and optical products and services, we serve the
rapidly growing managed healthcare industry through our subsidiary, ProVantage
Health Services, Inc. ProVantage is a leading health benefit management company
providing pharmacy benefit management and health information technology
products and services to its customers. As of January 1999, ProVantage served
over 3,500 customers, including pharmacy benefit management services covering
approximately 4.5 million individuals and vision benefit management services
covering approximately 500,000 individuals. In addition, ProVantage licensed
products are designed to improve the quality of healthcare, which are currently
being used in programs covering over 13 million people. ProVantage's primary
customers include healthcare payors, self-funded employers, third-party health
plan administrators, state federal agencies and pharmaceutical manufacturers.

Pharmacy benefit management companies address the pressing need for health
plan sponsors to manage costs and to better understand the effect of
pharmaceutical utilization on their membership. ProVantage's traditional
pharmacy benefit management products and services include plan design,
administration of a network of over 50,000 retail pharmacies, electronic point-
of-sale claims processing, mail pharmacy services, formulary
administration/management, and physician profiling. In addition, our products
go beyond commonly available pharmacy benefit management offerings to include
clinical services and information-based products which are used to track
medical treatment and results. These services enable our customers to assess
the safety and effectiveness of healthcare practices and to identify the most
effective treatments, thereby optimizing the quality and minimizing the cost of
healthcare services.

Growth Strategy. ProVantage's goal is to be the leading third-party
supplier of products and services designed to optimize the quality and minimize
the cost of healthcare services. To accomplish this goal, ProVantage intends
to:

. Continue to grow the pharmacy benefit management operations and
expand ProVantage's client base by increasing the number of people
to whom it provides services;

. Leverage information-based clinical expertise to develop and enhance
products and services that help manage ProVantage clients'
healthcare treatment and results; and

. Selectively pursue acquisitions or alliances through which
ProVantage can realize additional scale benefits in pharmacy benefit
management offerings or augment its advanced clinical and health
information technology capabilities.

Initial Public Offering of ProVantage Common Stock. In an effort to
increase our shareholder value, we are currently pursuing an initial public
offering of ProVantage's common stock. Stocks of publicly traded companies in
ProVantage's industry generally trade at multiples of earnings which are higher
than those in the discount retail industry. On February 4, 1999, ProVantage
filed a registration statement with the SEC for the initial public offering.
The offering size is currently estimated at approximately $90 million. If the
offering is completed as currently contemplated, ProVantage would retain $20
million from the offering proceeds, we would receive approximately $63 million
as payment on a dividend note, and we would retain between 66% and 70% of
ProVantage's common stock. We cannot assure you that ProVantage's initial
public offering will be completed or that it will be completed on the terms
described above. ShopKo intends to use any proceeds from payment on the
dividend note to repay debt assumed in the pending acquisition of Pamida.

---------------

Our principal executive offices are located at 700 Pilgrim Way, Green Bay,
Wisconsin 54304. Our telephone number is (920) 497-2211.

S-8
<PAGE>

The Offering

Common stock offered by 3,500,000 shares
ShopKo...................

Shares outstanding after 29,706,080 shares
the offering.............

Use of proceeds..........
We estimate that the net proceeds from this
offering of common stock, after deducting the
underwriting discount and estimated expenses of the
offering, will be approximately $114.5 million,
assuming a public offering price of $34 3/8 per
share. We intend to use these net proceeds to
redeem a portion of Pamida's debt, including a
portion of Pamida's 11.75% senior subordinated
notes.

Risk factors............. See "Risk Factors" and the other information
included in this prospectus supplement and the
accompanying prospectus for a discussion of factors
you should carefully consider before deciding to
invest in shares of the common stock.

New York Stock Exchange SKO
symbol...................

The number of shares that will be outstanding after the offering excludes
an aggregate of 2,095,705 shares of common stock issuable pursuant to stock
options as of May 24, 1999. If the over-allotment option is exercised in full,
we will issue and sell an additional 525,000 shares.

S-9
<PAGE>

Selected Historical Consolidated Financial Data

The selected consolidated financial data in the following table for each
of the five years in the period ended January 30, 1999 have been derived from
ShopKo's consolidated financial statements which have been audited by Deloitte
& Touche LLP, independent auditors. The selected consolidated financial data in
the following table for the first quarters of fiscal 1998 and 1999 have been
derived from ShopKo's unaudited financial statements which, in the opinion of
management, include all adjustments necessary for a fair presentation of the
results of operations and financial position for the periods and as of the
dates presented.

In August 1997, we changed our fiscal year end from the last Saturday in
February to the Saturday nearest January 31. We made this change in order to
conform our fiscal year to the National Retail Federation calendar. This change
caused fiscal 1997 to consist of 49 weeks rather than 52 weeks.

The selected consolidated financial data should be read in conjunction
with ShopKo's consolidated financial statements and notes thereto included or
incorporated by reference in this prospectus supplement.

<TABLE>
<CAPTION>
Fiscal Years Ended Fiscal Quarters Ended
-------------------------------------------------------- ---------------------
Feb. 25, Feb. 24, Feb. 22, Jan. 31, Jan. 30, May 2, May 1,
1995 1996 1997 1998 1999 1998 1999
(52 Weeks) (52 Weeks) (52 Weeks) (49 Weeks) (52 Weeks) (13 Weeks) (13 Weeks)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(unaudited)
(dollars and shares in millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Financial Data:
Summary of Operations
Net sales.............. $1,853 $1,968 $2,333 $2,448 $2,981 $ 646 $ 760
Gross margin........... 488 501 550 564 662 139 152
Income from
operations............ 91 97 106 111 130 13 17
Earnings before income
taxes and
extraordinary item.... 62 63 74 80 92 4 7
Earnings before
extraordinary item.... 38 38 45 49 56 2 4
Net earnings........... 38 38 45 49 56 2 1
Per Share Data
Diluted earnings per
common share before
extraordinary item.... $ 1.18 $ 1.20 $ 1.39 $ 1.71 $ 2.10 $ 0.08 $ 0.16
Diluted earnings per
common share.......... 1.18 1.20 1.39 1.71 2.10 0.08 0.02
Adjusted weighted
average number of
common shares
outstanding........... 32.0 32.0 32.4 28.6 26.5 26.3 26.6
Other Data
Working capital........ $ 187 $ 215 $ 232 $ 144 $ 167 $ 151 $ 103
Property and
equipment--net........ 618 617 603 630 704 628 713
Total assets........... 1,110 1,118 1,234 1,251 1,374 1,239 1,499
Total debt............. 429 416 421 440 472 439 571
Total shareholders'
equity................ 397 422 461 396 459 403 461
Capital expenditures... 95 53 39 32 100 15 26
Depreciation and
amortization.......... 53 56 60 58 68 17 18
Segment Data
Net Sales
Retail Store......... $1,840 $1,881 $2,006 $2,002 $2,351 $ 504 $ 549
ProVantage........... 14 94 349 472 666 150 222
Gross Margin
Retail Store......... 485 493 525 529 615 129 138
ProVantage........... 3 8 25 35 47 10 14
Income from operations
Retail Store......... 103 107 114 127 141 17 18
ProVantage........... 2 3 10 13 16 3 4
Operating Data:
Same Retail Store
sales growth.......... 0.7% (0.5)% 6.0% 3.8%(1) 5.7% 5.3% 8.1%
Stores open at end of
period................ 124 129 130 149(2) 147 148 158
Average store size--
square feet........... 90,260 89,945 89,840 88,754 89,106 88,990 89,301
</TABLE>
- -------

(1) Same Retail Store sales growth for these periods is calculated on a
comparable 52-week to 52-week basis.

(2) Includes 19 stores acquired from Penn-Daniels, Incorporated, two of which
closed in fiscal 1998.

S-10
<PAGE>

USE OF PROCEEDS

We estimate that the net proceeds from this offering of common stock,
after deducting the underwriting discount and estimated expenses of this
offering and assuming a public offering price of $34 3/8 per share, will be
approximately $114.5 million. We intend to use these net proceeds to redeem a
portion of Pamida's senior subordinated notes. Pamida's senior subordinated
notes have an aggregate principal amount of $140 million, bear interest at the
rate of 11.75% per annum, and are due in March 2003. If the Pamida acquisition
is not completed, we will use the net proceeds for general corporate purposes.

The Pamida acquisition is expected to close by early July, 1999. ShopKo
expects to purchase the Pamida common shares with cash on hand, and expects to
refinance a portion of Pamida's debt with a combination of proceeds from the
ProVantage initial public offering, a potential subsequent debt offering and
this offering.

S-11
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In August 1997, ShopKo approved a change in its fiscal year end to the
Saturday closest to the end of January, commencing January 31, 1998. This
change in ShopKo's fiscal year conforms to the National Retail Federation
calendar. ShopKo's audited consolidated financial statements were issued for
fiscal 1998, which is the period of 52 weeks ended January 30, 1999, fiscal
1997, which is the period of 49 weeks ended January 31, 1998 and fiscal 1996,
which is the period of 52 weeks ended February 22, 1997. For comparative
purposes, ShopKo is also providing supplemental unaudited financial information
concerning ShopKo's results of operations for the 52 weeks ended January 31,
1998 and February 1, 1997. In the opinion of management, this unaudited
financial information includes all necessary adjustments for a fair
presentation of the results of operations for the periods presented.

Results of Operations

The following table sets forth items from ShopKo's consolidated
statements of earnings as percentages of consolidated net sales:

<TABLE>
<CAPTION>
Fiscal Years Ended Fiscal Quarters Ended
-------------------------------- ---------------------
Jan. 30, Jan. 31, Feb. 22, May 1, May 2,
1999 1998 1997 1999 1998
(52 Weeks) (49 Weeks) (52 Weeks) (13 Weeks) (13 Weeks)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Net sales............. 100.0% 100.0% 100.0% 100.0% 100.0%
Licensed department
rentals and other
income............... 0.4 0.5 0.6 0.4 0.4
----- ----- ----- ----- -----
100.4 100.5 100.6 100.4 100.4
Costs and Expenses:
Cost of sales......... 77.8 77.0 76.4 80.0 78.4
Selling, general and
administrative
expenses............. 15.8 16.5 17.0 15.9 17.2
Nonrecurring charge... 0.2 0.1 -- -- 0.3
Depreciation and
amortization
expenses............. 2.2 2.4 2.6 2.3 2.6
----- ----- ----- ----- -----
96.0 96.0 96.0 98.2 98.5
Income from operations.. 4.4 4.5 4.6 2.2 1.9
Interest expense--net... 1.3 1.2 1.4 1.3 1.4
----- ----- ----- ----- -----
Earnings before income
taxes and extraordinary
item................... 3.1 3.3 3.2 0.9 0.5
Provision for income
taxes.................. 1.2 1.3 1.3 0.3 0.2
----- ----- ----- ----- -----
Earnings before
extraordinary item..... 1.9 2.0 1.9 0.6 0.3
Extraordinary (loss) on
early retirement of
debt, net of income
taxes.................. -- -- -- (0.5) --
----- ----- ----- ----- -----
Net earnings............ 1.9% 2.0% 1.9% 0.1% 0.3%
===== ===== ===== ===== =====
</TABLE>

ShopKo has two business segments: a Retail Store segment, which includes
general merchandise, retail pharmacy and retail optical operations, and a
ProVantage segment, which includes health benefit management services, pharmacy
mail services, vision benefit management services and health information and
clinical support services. Intercompany sales, which consist of prescriptions
that were both sold at a ShopKo pharmacy and processed by ProVantage, have been
eliminated.

S-12
<PAGE>

Retail Store Segment

ProVantage Segment

First Fiscal Quarter of 1999 Compared to First Fiscal Quarter of 1998

Consolidated net sales for the first quarter of fiscal 1999 increased
$114.1 million or 17.7% over the first quarter of fiscal 1998 to $759.9
million.

Retail Store sales for the first quarter of fiscal 1999 increased $45.3
million or 9.0% over the first quarter of fiscal 1998 to $549.5 million. This
increase is primarily due to increased comparable Retail Store sales.
Comparable Retail Store sales increased 8.1% and the changes by category were
as follows: retail health increased 16.3%, apparel increased 6.5% and
hardlines/home increased 5.1%. Changes in comparable Retail Store sales are
based upon those stores which were open for the entire preceding fiscal year.

S-13
<PAGE>

ProVantage sales for the first quarter of fiscal 1999 increased $72.3
million or 48.2% over the first quarter of fiscal 1998 to $222.2 million. This
increase is due to internally generated growth in claims processing and mail
pharmacy. Included in ProVantage sales are the following:

. administrative and dispensing fees plus the cost of
pharmaceuticals dispensed by pharmacies participating in the
network maintained by ProVantage or by ProVantage's mail service
pharmacy to members of health benefit plans sponsored by
ProVantage's clients;

. amounts billed to pharmaceutical manufacturers and third-party
formulary administrators for formulary fees;

. administrative fees plus the cost of sales of eyeglasses and
contact lenses relating to ProVantage's vision benefit management
services; and

. license and service fees for health information technology and
clinical support services.

Consolidated gross margins as percentages of sales were 20.0% for the
first fiscal quarter of 1999 and 21.6% in the first fiscal quarter of 1998.
Retail Store gross margins as percentages of sales were 25.2% for the first
fiscal quarter of 1999 and 25.6% for the first fiscal quarter of 1998. The
Retail Store gross margins include LIFO charges of $1.3 million for the first
fiscal quarters of 1999 and 1998. Retail Store gross margins, before LIFO
charges, were 25.4% for the first fiscal quarter of 1999 and 25.8% for the
first fiscal quarter of 1998. This decrease is primarily attributable to
planned lower gross margin rates in general merchandise due to increased
promotional sales and lower gross margin rates in retail pharmacy due to
increased third-party business. ProVantage gross margins as percentages of
sales were 6.2% for the first fiscal quarter of 1999 and 6.8% for the first
fiscal quarter of 1998. This decrease in gross margin rate is attributable to
increases in the cost of prescription drugs and the addition of larger clients
with lower average transaction fees.

Consolidated selling, general and administrative expenses as a percent of
sales for the first quarter were 15.9% compared with 17.2% last year. Retail
selling, general and administrative expenses as a percent of sales for the
quarter were 19.6% compared with 19.8% last year. Excluding expenses incurred
for Year 2000 compliance, retail selling, general and administrative expenses
as a percent of sales were 19.5% for the first quarter compared to 19.8% last
year. This reduction is primarily due to leveraging store payroll cost against
increased sales volume. ProVantage's selling, general and administrative
expenses were 3.5% of sales for the first quarter compared to 3.8% of sales for
the same period last year. This is primarily due to leveraging fixed costs
against increased sales volume.

Fiscal 1998 Compared to Fiscal 1997

Fiscal 1998 consisted of 52 weeks and fiscal 1997 consisted of 49 weeks.
Consolidated net sales for fiscal 1998 increased $533.6 million or 21.8% over
fiscal 1997 to $2,981.5 million.

Retail Store sales for fiscal 1998 increased 17.5% or $349.6 million from
fiscal 1997 to $2,351.2 million. ShopKo attributes this increase primarily to
the 17 new stores acquired from Penn-Daniels, Incorporated, three additional
weeks in the fiscal year, merchandising operations and marketing initiatives.

ProVantage sales for fiscal 1998 increased 41.1% or $193.9 million over
fiscal 1997 to $666.2 million. This increase is due primarily to internally
generated growth in claims processing, mail pharmacy and formulary fees.

Consolidated gross margins as percentages of sales were 22.2% for fiscal
1998 and 23.0% for fiscal 1997. Retail Store gross margins as percentages of
sales were 26.2% for fiscal 1998 and 26.4% for fiscal 1997. The Retail Store
gross margins include LIFO credits of $3.6 million for fiscal 1998 and $3.7
million for fiscal 1997. Retail Store gross margins, before LIFO credits, were
26.0% for fiscal 1998 and 26.2% for fiscal 1997. This decrease is primarily due
to increases in promotional sales and third party

S-14
<PAGE>

sales in retail pharmacy. ProVantage gross margins as percentages of sales were
7.1% for fiscal 1998 and 7.5% for fiscal 1997. This decrease is attributable to
increases in the cost of prescriptions and the addition of larger clients with
lower average transaction fees, offset in part by the addition of higher margin
clinical services and information technology products.

Consolidated selling, general and administrative expenses as a percentage
of net sales decreased to 15.8% in fiscal 1998, compared with 16.5% in fiscal
1997. Retail Store selling, general and administrative expenses were 18.1% of
net sales in fiscal 1998 and 18.0% of net sales for fiscal 1997. Excluding the
17 new stores related to the Penn-Daniels acquisition and expenses incurred for
year 2000 compliance, retail selling, general and administrative expenses as a
percent of sales were 17.6% for fiscal 1998. The decrease is attributable to
continued expense control initiatives at the store level. ProVantage selling,
general and administrative expenses decreased to 3.8% in fiscal 1998 compared
with 3.9% in fiscal 1997. This decrease is primarily due to leveraging expenses
over the increased sales volume.

ShopKo's operating earnings, which are earnings before interest and
income taxes, increased 17.0% to $129.9 million in fiscal 1998 from $111.0
million in fiscal 1997. Retail Store operating earnings, which are earnings
before corporate expenses, interest and income taxes, increased 10.6% to $140.8
million in fiscal 1998 compared to $127.3 million in fiscal 1997. This increase
is primarily due to increased sales and expense control initiatives. ProVantage
operating earnings increased 27.6% in fiscal 1998 to $16.2 million compared to
$12.7 million in fiscal 1997. This increase is due to internally generated
growth primarily in health benefit management services.

Net interest expense as a percentage of net sales increased to 1.3% in
fiscal 1998 compared with 1.2% in fiscal 1997. The increase is attributable to
additional borrowings for working capital and remodeling costs associated with
the new stores acquired from Penn-Daniels in fiscal 1997.

Supplemental Comparison of Fiscal 1998 to Fiscal 1997

The supplemental comparison should be read in conjunction with ShopKo's
audited financial information included in this prospectus supplement.

Annual Consolidated Financial Summary

<TABLE>
<CAPTION>
Fiscal Years Ended
---------------------
Jan. 30, Jan. 31, Comparable
1999 1998 Store Sales
(52 Weeks) (52 Weeks) Change (%) Increase (%)
---------- ---------- ---------- ------------
(in millions)
<S> <C> <C> <C> <C>
Net Sales
Retail Store................... $2,351.2 $2,103.4 11.8 5.7
ProVantage..................... 666.2 500.9 33.0
Intercompany................... (35.9) (27.4) --
-------- -------- ----
Consolidated................... $2,981.5 $2,576.9 15.7
Gross Margin..................... 662.5 593.1 11.7
Income from operations........... 129.9 113.6 14.4
Earnings before income taxes..... 91.6 81.3 12.7
Net earnings..................... 55.6 49.4 12.7
</TABLE>

Consolidated net sales for the 52 weeks ended January 30, 1999 increased
15.7% compared to the corresponding 52-week period of the previous fiscal year.
Retail Store sales for the same period increased 11.8%, primarily due to the 17
new stores acquired from Penn-Daniels and increased comparable Retail Store
sales. Comparable Retail Store sales increased 5.7% and the changes for that
period by category were as follows: Retail Health--11.9%, Hardline/Home--5.9%
and Apparel--(0.2%). Changes in comparable Retail Store sales for a year are
based upon those stores which were open for the entire preceding year.
ProVantage sales increased 33.0% for this period. This increase is due
primarily to internally generated growth in claims processing, mail pharmacy
and formulary fees.

S-15
<PAGE>

Consolidated gross margin as a percent of sales for the 52 weeks ended
January 30, 1999 was 22.2% compared with 23.0% for the 52 weeks ended January
31, 1998. The Retail Store gross margin as a percent of sales for the same
period was 26.2% compared with 26.4% for the preceding period. The FIFO Retail
Store gross margin as a percent of sales for the 52 weeks was 26.0% compared
with 26.2%. The decrease in the Retail Store gross margin rate is primarily
attributable to additional promotional sales and increased third party sales in
retail pharmacy. ProVantage's gross margin as a percent of sales for the same
period decreased to 7.1% from 7.4% primarily due to increasing prescription
costs and the addition of larger clients with lower average transaction fees,
offset in part by the addition of higher margin clinical services and
information technology products.

Consolidated selling, general and administrative expenses as a percent of
sales for the 52 weeks ended January 30, 1999 decreased to 15.8% from 16.6% for
the 52 weeks ended January 31, 1998. Retail Store selling, general and
administrative expenses as a percent of sales for the same period were 18.1%
for both this year and the prior year. Excluding the 17 new stores related to
the Penn-Daniels acquisition and expenses incurred for year 2000 compliance,
retail selling, general and administrative expenses as a percent of sales were
17.6% for fiscal 1998. The decrease is primarily due to continued expense
control initiatives at store level. ProVantage's selling, general and
administrative expenses decreased to 3.8% of sales for the 52 weeks ended
January 30, 1999 compared with 4.0% of sales for the preceding 52-week period.
This decrease is primarily due to leveraging expenses over the increased sales
volume.

Fiscal 1997 Compared to Fiscal 1996

Fiscal 1997 consisted of 49 weeks and fiscal 1996 consisted of 52 weeks.
Consolidated net sales for fiscal 1997 increased $114.4 million or 4.9% over
fiscal 1996 to $2,447.8 million.

Retail Store sales for fiscal 1997 decreased 0.2% or $4.2 million from
fiscal 1996 to $2,001.6 million. ShopKo attributes this decrease to three fewer
weeks due to the fiscal year change which occurred in August 1997.

ProVantage sales for fiscal 1997 increased 35.4% or $123.4 million over
fiscal 1996 to $472.2 million. This increase is primarily attributable to
growth in claims processing activities, most of which was internally generated
and a portion of which was due to the acquisition of CareStream ScripCard.

Consolidated gross margins as percentages of sales were 23.0% for fiscal
1997 and 23.6% for fiscal 1996. Retail Store gross margins as percentages of
sales were 26.4% for fiscal 1997 and 26.2% for fiscal 1996. The Retail Store
gross margins include a LIFO credit of $3.7 million for fiscal 1997 and a LIFO
charge of $2.6 million for fiscal 1996. Retail Store gross margins, before LIFO
expense, were 26.2% for fiscal 1997 and 26.3% for fiscal 1996. ProVantage gross
margins as percentages of sales were 7.5% for fiscal 1997 and 6.9% for fiscal
1996. This increase is primarily due to improved gross margin rates in
ProVantage's formulary business.

Consolidated selling, general and administrative expenses as a percentage
of net sales decreased to 16.5% in fiscal 1997 compared with 17.0% in fiscal
1996. Retail Store selling, general and administrative expenses were 18.0% of
net sales for fiscal 1997 and 18.3% of net sales for fiscal 1996. This
improvement is primarily due to more effectively managing store payroll costs.
ProVantage selling, general and administrative expenses increased 0.1% of net
sales in fiscal 1997 to 3.9% compared with 3.8% in fiscal 1996. This increase
is primarily due to increased operating costs subsequent to the acquisition of
PharMark Corporation and its affiliates and additional investments in
information technology and infrastructure support related to continued growth.

ShopKo's operating earnings, which are earnings before interest and
income taxes, increased 4.9% to $111.0 million in fiscal 1997 from $105.8
million in fiscal 1996. Retail Store operating earnings, which are earnings
before corporate expenses, interest and income taxes, increased 12.0% to $127.3
million in fiscal 1997 compared to $113.7 million in fiscal 1996. This increase
is primarily due to higher gross margin rates and expense control initiatives.
ProVantage operating earnings increased 32.8% in

S-16
<PAGE>

fiscal 1997 to $12.7 million compared to $9.5 million in fiscal 1996. This
increase is primarily due to growth in prescription benefit management services
and business acquisitions.

Net interest expense as a percentage of net sales decreased to 1.2% in
fiscal 1997 compared with 1.4% in fiscal 1996. This decrease is primarily due
to increased sales.

Supplemental Comparison of Fiscal 1997 to Fiscal 1996

The supplemental comparison should be read in conjunction with Shopko's
audited financial information included in this prospectus supplement.

Annual Consolidated Financial Summary

<TABLE>
<CAPTION>
Fiscal Years Ended
---------------------
Jan. 31, Feb. 1, Comparable
1998 1997 Store Sales
(52 Weeks) (52 Weeks) Change (%) Increase (%)
---------- ---------- ---------- ------------
(in millions)
<S> <C> <C> <C> <C>
Net Sales
Retail Store................... $2,103.4 $2,000.8 5.1 3.8
ProVantage..................... 500.9 330.1 51.8
Intercompany................... (27.4) (20.5) --
-------- -------- ----
Consolidated................... $2,576.9 $2,310.4 11.5
Gross Margin..................... 593.1 547.3 8.4
Income from operations........... 113.6 107.2 5.9
Earnings before income taxes..... 81.3 75.2 8.1
Net earnings..................... 49.4 45.7 8.1
</TABLE>

Consolidated net sales for the 52 weeks ended January 31, 1998 increased
11.5% over the corresponding 52-week period of the previous year. During this
period, Retail Store sales increased 5.1% and comparable Retail Store sales
increased 3.8%. The comparable Retail Store increases for that period by
category were as follows: Retail Health--10.9%, Apparel--3.2% and
Hardline/Home--1.8%. Changes in retail comparable store sales for a year are
based upon those stores which were open for the entire preceding year.
ProVantage sales increased 51.8% during this 52-week period. This increase is
primarily attributable to growth in claims processing activities, most of which
was internally generated and a portion of which was due to the acquisition of
CareStream ScripCard.

Consolidated gross margin as a percent of sales for the 52 weeks ended
January 31, 1998 was 23.0% compared with 23.7% for the 52 weeks ended February
1, 1997. The Retail Store gross margin as a percent of sales for the same
period was 26.4% compared with 26.3% for the preceding period. The FIFO Retail
Store gross margin as a percent of sales for the 52 weeks was 26.3% compared
with 26.4%. ProVantage's gross margin as a percent of sales for the same period
increased to 7.4% from 6.8% primarily due to improved gross margin rates in its
formulary business.

Consolidated selling, general and administrative expenses as a percent of
sales for the 52 weeks ended January 31, 1998 decreased to 16.6% from 17.0%.
Retail Store selling, general and administrative expenses as a percent of sales
for the same period were 18.1% compared with 18.3% for the preceding period.
This decrease is primarily due to more effectively managing store payroll
costs. ProVantage's selling, general and administrative expenses increased to
4.0% of sales for the 52 weeks ended January 31, 1998 compared with 3.6% of
sales for the preceding period. This increase is primarily due to increased
operating cost subsequent to the acquisition of PharMark and additional
investments in information technology and infrastructure support related to
continued growth.

S-17
<PAGE>

Liquidity and Capital Resources

ShopKo relies on cash generated from its operations, with the remaining
needs being met by short-term and long-term borrowings. Cash provided from
operating activities was $73.8 million in fiscal 1998, $142.6 million in fiscal
1997 and $111.7 million in fiscal 1996. This decrease in fiscal 1998 is
primarily due to increased working capital needs associated with the new stores
and planned higher inventory levels across the rest of the chain. Cash used in
operating activities was $13.8 million for the first quarter of fiscal 1999
compared to $12.8 million for the same period last year.

As of May 1, 1999, ShopKo had a $200.0 million revolving credit agreement
with a consortium of banks. This credit facility is unsecured and is effective
through January 31, 2002. In April 1999, ShopKo negotiated a $50.0 million
unsecured bankers' acceptance note which is due October 20, 1999. ShopKo had
$159.0 million outstanding under its credit agreements at the end of the first
quarter of fiscal 1999 compared to nothing outstanding at the end of the first
quarter of fiscal 1998. This increase in amount outstanding is primarily due to
early retirement of long-term debt, increased cash balances and increased
inventory due to our new stores. We have accumulated cash in anticipation of
the Pamida acquisition. Funds generated from operations, and if necessary, the
revolving credit facility or other short-term borrowings are expected to fund
the projected working capital needs and total capital expenditures through
fiscal 1999, except for possible acquisitions described below.

Capital Expenditures

ShopKo spent $99.7 million on capital expenditures, excluding
acquisitions, in fiscal 1998, compared to $32.0 million in fiscal 1997 and
$38.9 million in fiscal 1996. Capital expenditures were $26.2 million in the
first quarter of fiscal 1999 compared to $14.9 million for the same period last
year. The following table sets forth the components of ShopKo's capital
expenditures and acquisitions:

On December 19, 1997, ShopKo acquired the retail chain Penn-Daniels which
operated 18 Jacks' discount stores in Iowa, Illinois and Missouri and one Lots-
A-Deals close-out store in Moline, Illinois. During fiscal 1998, ShopKo
converted 17 of the Jacks' retail locations to ShopKo stores, including the
addition of in-store pharmacy centers in 16 of those stores and optical centers
in 17 of those stores.

On September 8, 1998, ShopKo announced plans to open 13 new stores in
1999. As of May 1, 1999, we opened 11 of these stores. Ten of the new stores
are former Venture store locations and one is a former Target location which
were remodeled, including the addition of in-store pharmacies and optical
centers. Two additional locations will be new stores and will open in the fall
of 1999. All 13 stores are leased, of which 7 are operating leases and 6 are
capital leases.

S-18
<PAGE>

ShopKo's total capital expenditures for the fiscal year ending January
29, 2000 are anticipated to approximate $150.0 million to $170.0 million. The
expenditures would relate to:

. remodeling the ten former Venture store locations and one former
Target location and construction of the two new stores,

. expansion of distribution facilities, including expanding the
Wisconsin and Idaho facilities and replacing the Nebraska
facility,

. supporting the existing retail business for merchandise
initiatives and ongoing store equipment and fixturing
replacements, and

. continuing investments in systems technology.

This amount excludes any capital that may be required for acquisitions of
businesses or real estate. Such plans may be reviewed and revised from time to
time in light of changing conditions.

ShopKo expects to pursue growth of its Retail Store business through new
store construction or acquisition of existing retail stores or businesses.
ShopKo may also consider the acquisition of health services businesses. Such
plans may be reviewed and revised from time to time in light of changing
conditions. Depending upon the size and structure of any such acquisitions,
ShopKo may require additional capital resources. ShopKo believes that adequate
sources of capital will be available.

Acquisitions

ShopKo did not make any acquisitions in fiscal 1998. ShopKo spent $40.5
million on acquisitions in fiscal 1997 compared to $30.5 million in fiscal
1996.

On January 3, 1995, ProVantage completed the acquisition of Bravell,
Inc., a pharmacy benefit management firm that provides custom prescription
benefit plan design, program administration and claims benefit processing
services to insurance companies, third party administrators and self-funded
medical plan sponsors. The transaction was accounted for as a purchase, whereby
ProVantage acquired 97% of the outstanding common stock of Bravell for
approximately $17.3 million. ProVantage was also required to make additional
payments which were contingent upon future results of Bravell's operations. In
fiscal 1996, a $0.7 million payment was made based on the results of fiscal
1995. On April 10, 1997, ProVantage made a payment of approximately $8.9
million to the founders of Bravell to:

. acquire the remaining 3% of the common stock of Bravell which
ProVantage did not acquire in January 1995,

. extinguish all remaining contingent payment obligations to the
founders, and

. terminate the founders' employment agreements.

On August 2, 1996, ProVantage completed the acquisition of CareStream
ScripCard from Avatex Corporation, formerly known as FoxMeyer Health
Corporation. CareStream ScripCard is a prescription benefit management company
and its operations have been integrated with ProVantage. The initial purchase
price was $30.5 million in cash, plus a supplemental cash payment. If Avatex
exercises its right to the supplemental cash payment within the prescribed time
frame after the close of the offering, the supplemental cash payment will be an
amount equal to 1.5% of ProVantage's market value subject to a minimum of $2.5
million and a maximum of $5.0 million. Avatex is entitled to $5.0 million if
ShopKo sells a majority of ProVantage's common stock, other than in a public
offering or public distribution, or if ShopKo buys a competing business or if
ProVantage disposes of a substantial portion of its business. The right of
Avatex to the supplemental cash payment expires on August 2, 2001. Such
supplemental payment will be capitalized as additional purchase price and
amortized over a period of 15 to 18 years. We expect that a substantial portion
of the supplemental payment will be capitalized as additional purchase price
upon completion of ProVantage's initial public offering.

S-19
<PAGE>

On August 20, 1997, ProVantage acquired PharMark, a software and database
development company providing information driven strategies for optimizing
medical and pharmaceutical outcomes, based in Arlington, Virginia, from M. Lee
Morse and Aida A. LeRoy. Mr. Morse and Dr. LeRoy were employed by ProVantage
from August 20, 1997 to January 31, 1999 pursuant to employment agreements
entered into in conjunction with the acquisition. The purchase price for
PharMark was approximately $15.2 million, of which $14.2 million has been paid
in cash and a total of $1.0 million is due in 1999. The sellers of PharMark may
also be entitled to contingent payments of up to $8.0 million in the aggregate
based on the fair market value of ProVantage's outstanding common stock. No
payment will be due if the fair market value is $250.0 million or less at the
measurement date; the full $8.0 million will be due if the value equals or
exceeds $500.0 million at the measurement date; and a pro rata portion of the
$8.0 million contingent payment will be due if the value is between $250.0
million and $500.0 million at the measurement date. The contingent payment, if
any, will be due, and the ultimate amount of the payment calculated, on the
first to occur of August 20, 2002 and the date on which ShopKo and its
affiliates cease to own at least a majority of ProVantage's outstanding common
stock. The contingent payments, if any, will be capitalized as additional
purchase price and amortized over a period of 15 to 19 years. The contingent
payments may be made, at ProVantage's election, in either cash, ShopKo common
stock, ProVantage common stock or any combination thereof; provided, however,
that any stock used for the contingent payments must be traded on a national
securities exchange or the Nasdaq National Market. If the contingent payments
are made in ShopKo or ProVantage common stock, the sellers have the right to
require the issuer of the stock to register the stock for sale under the
Securities Act. The sellers also have the right to have the shares of common
stock they receive as contingent payment included in registration statements
filed under the Securities Act by the issuer.

On December 19, 1997, ShopKo bought the outstanding stock of Penn-
Daniels, a retail chain headquartered in Quincy, Illinois for approximately
$16.4 million in cash and $42.5 million of assumed debt. Approximately $25.5
million of the assumed debt has been retired. ShopKo used cash and borrowings
under its revolving credit facility to fund the acquisition and the retirement
of a portion of Penn-Daniels' outstanding debt. The acquisition was accounted
for under the purchase method of accounting. The results of Penn-Daniels'
operations since the date of acquisition have been included in the Company's
consolidated statement of earnings.

In connection with the Penn-Daniels acquisition, ShopKo incurred
nonrecurring pre-tax costs of $5.7 million eliminating duplicate operations at
the Penn-Daniels administrative office and warehouse and other transaction
related items in fiscal 1998. ShopKo funded these costs from available cash and
borrowings under ShopKo's revolving credit facility.

ShopKo had been testing a stand alone optical store format with four
stores in Ohio. The results were mixed and ShopKo decided to close the stores.
The stores were closed on August 29, 1998. The closings did not have a material
financial impact on ShopKo.

On February 4, 1999, ShopKo and ProVantage announced that a registration
statement for the initial public offering of ProVantage's common stock had been
filed with the SEC. If this offering is completed as currently contemplated,
net proceeds will total approximately $82.8 million, ProVantage will receive
approximately $20.0 million for operating capital and strategic alternatives,
and ShopKo will use the balance of approximately $62.8 million for strategic
and/or financial alternatives, including retiring a portion of existing Pamida
debt.

Pending Acquisition of Pamida

On May 10, 1999, ShopKo and Pamida Holdings Corporation signed an
agreement for ShopKo to acquire Pamida. Pamida operates 147 discount retail
stores in 15 Midwestern, North Central and Rocky Mountain states as of January
31, 1999. The transaction values Pamida at approximately $375.0 million,
including our assumption of approximately $265.0 million in debt and capital
lease obligations. The transaction is expected to close by early July, 1999.
ShopKo expects to purchase the Pamida common shares with cash on hand and
expects to refinance a portion of Pamida's debt with a

S-20
<PAGE>

combination of proceeds from the ProVantage initial public offering, a
potential subsequent debt offering and this offering. We cannot assure you that
the acquisition of Pamida will be completed.

Termination of Plan of Reorganization

On September 7, 1996, ShopKo entered into a Plan of Reorganization with
Phar-Mor, Inc. and Cabot Noble, Inc. Pursuant to the Plan of Reorganization,
ShopKo and Phar-Mor would have become subsidiaries of Cabot Noble. On April 2,
1997, ShopKo, Cabot Noble and Phar-Mor mutually agreed to terminate this
planned business combination. ShopKo recorded a nonrecurring pre-tax charge of
$2.8 million, or $0.06 per share, during fiscal 1997 for costs incurred in
connection with the terminated business combination.

Stock Buyback Agreement

On April 24, 1997, ShopKo and Supervalu Inc. entered into an agreement
pursuant to which Supervalu exited its 46% investment in ShopKo. Under the
terms of the agreement, ShopKo and Supervalu completed two simultaneous
transactions. The first transaction was a $150.0 million stock buyback, whereby
ShopKo repurchased 8,174,387 shares of its common stock held by Supervalu for
$18.35 per share. The second transaction was a secondary public offering of
Supervalu's remaining 6,557,280 shares of ShopKo's common stock and 983,592
additional shares which were issued by ShopKo to cover over-allotments. The
secondary offering was priced at $25.00 per share on June 26, 1997. The stock
buyback and secondary offering were completed on July 2, 1997. ShopKo received
$23.4 million in proceeds from the sale of the over-allotment shares. Supervalu
paid the underwriting discount for the shares it sold and certain other
expenses related to the secondary offering.

Year 2000

State of Readiness

In order to address Year 2000 compliance, ShopKo is actively engaged in a
comprehensive project designed to eliminate or minimize any business disruption
associated with potential date processing problems in its information
technology systems, as well as its non-information technology systems. Non-
information technology systems include heating-ventilation-air-conditioning
systems and building security systems. The project consists of five phases:
company awareness, assessment, strategy and work plan development, renovation
and testing. ShopKo has completed the first three phases for both information
technology and non-information technology systems, is nearing completion of the
renovation phase and has commenced the testing phase.

With respect to information technology systems, approximately 89.0% of
ShopKo's critical business systems are currently compliant and approximately
11.0% are in the process of being renovated. With respect to non-information
technology systems, the assessment phase indicated a need for only minor
renovation work. For both information technology and non-information technology
systems, the renovation phase currently underway is expected to be completed in
the second quarter of fiscal 1999. ShopKo has certified 22.0% of its business
systems and the remaining 78.0% will be certified during the third quarter of
fiscal 1999. The testing phase for both information technology and non-
information technology systems is planned to be completed in the third quarter
of fiscal 1999.

As part of its Year 2000 project, ShopKo has initiated communications
with all of its merchandise vendors and services suppliers to assess their
state of Year 2000 readiness. A significant percentage of ShopKo's vendors have
responded in writing to ShopKo's Year 2000 readiness inquiries. ShopKo plans to
continue assessment of its third party business partners, including face-to-
face meetings with management and/or onsite visits as deemed appropriate.
Despite ShopKo's diligence, there can be no guarantee that the systems of other
companies which ShopKo relies upon to conduct its day-to-day business will be
compliant.

S-21
<PAGE>

Costs

As a result of the significant investment made by ShopKo in both hardware
and software over the past several years, the majority of its information
technology systems do not require renovation. ShopKo estimates that it will
incur internal and external expenses of $4.0 to $6.0 million in conjunction
with the Year 2000 compliance project of which approximately $2.9 million has
already been incurred. $2.0 million was incurred in fiscal 1998, and $0.9
million was incurred in the first quarter of fiscal 1999.

Risks

With respect to the risks associated with its information technology and
non-information technology systems, ShopKo believes that the most reasonably
likely worst case scenario is that ShopKo will experience a number of minor
system malfunctions and errors in the early days and weeks of the Year 2000
that were not detected during its renovation and testing efforts. ShopKo also
believes that these problems will not be overwhelming and will not have a
material effect on ShopKo's operations or financial results.

With respect to the risks associated with third parties, ShopKo believes
that the most reasonably likely worst case scenario is that some of ShopKo's
merchandise vendors will not be compliant and will have difficulty filling
orders and flowing goods. Management also believes that the number of such
vendors will have been minimized by ShopKo's program of identifying non-
compliant vendors and replacing or jointly developing alternative supply or
delivery solutions prior to the Year 2000.

ShopKo also designs and sells software products to third parties through
its ProVantage subsidiary. While ShopKo has taken appropriate steps to ensure
the readiness of this software and believes it to be compliant, ShopKo cannot
be certain that the software will operate error free, or that ShopKo will not
be subject to litigation, whether the software operates error free or not.
However, ShopKo believes that based on its efforts to ensure compliance, and
the terms and conditions of its software licensing contracts, it is not
reasonably likely that ShopKo will be subject to litigation which will have a
material adverse effect on ShopKo.

ShopKo has limited the scope of its risk assessment to those factors
which it can reasonably be expected to have an influence upon. For example,
ShopKo has made the assumption that government agencies, utility companies, and
national telecommunications providers will continue to operate. Obviously, the
lack of such services could have a material effect on ShopKo's ability to
operate, but ShopKo has little, if any, ability to influence such an outcome,
or to reasonably make alternative arrangements in advance for such services in
the event they are unavailable.

Contingency Plans

ShopKo has commenced the development of contingency plans for the most
reasonably likely worst case scenarios described above and anticipates that the
majority of these plans will be in place by July 31, 1999.

Year 2000 Readiness Statements

To allow its customers and suppliers an opportunity to assess ShopKo's
state of readiness for the Year 2000, ShopKo maintains a Year 2000 web page at
www.shopko.com. Statements made or contained in this prospectus or on the web
page or any past statements made or contained in this prospectus or on the web
page are deemed Year 2000 Readiness Statements and are subject to the Year 2000
Information and Readiness Disclosure Act (P.L. 105-271), to the fullest extent
permitted by law.

Treasury Stock Retirement

In fiscal 1998, ShopKo retired all 8,174,387 shares of common stock held
as treasury stock for accounting purposes, and the shares of treasury stock
were returned to the status of authorized but unissued shares. As a result, the
$152.2 million assigned to treasury stock was eliminated with a corresponding
decrease in par value, additional paid-in capital and retained earnings.

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Stock Repurchase Program

On March 26, 1998, ShopKo announced that its Board of Directors had
authorized the repurchase of up to $20.0 million of ShopKo's common stock.
Repurchased shares will be used for stock-based employee benefit plans and
other corporate purposes. As of May 1, 1999, no shares of common stock had been
repurchased under this program.

Senior Note Repurchase Program

On February 8, 1999, ShopKo announced that its Board of Directors had
authorized ShopKo to repurchase its senior notes from time to time in the open
market and through privately negotiated transactions. Any purchases would
depend on price, market conditions and other factors. As of March 12, 1999,
ShopKo has repurchased approximately $57.1 million of the senior notes.

Inflation

Inflation has had only a minor effect on the results of operations of
ShopKo and its internal and external sources of liquidity.

Recent Pronouncements

In 1997, Statement of Financial Accounting Standards, SFAS, No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," were issued. In February 1998, SFAS
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," was issued. These statements were adopted by ShopKo beginning
February 1, 1998.

SFAS No. 130, "Reporting Comprehensive Income," which specifies how to
report and display comprehensive income and its components, had no impact on
ShopKo's consolidated financial statements.

ShopKo adopted SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information," and SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," this fiscal year. These SFASs did
not significantly impact ShopKo's consolidated financial statements.

In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. ShopKo anticipates that this statement will
have no significant impact on ShopKo's consolidated financial statements.

Market Risk

ShopKo is exposed to market risk from changes in interest rates. Under
ShopKo's revolving credit facility, ShopKo has various borrowing options for
short-term loans. During fiscal 1998, the monthly average amount borrowed under
the revolving credit facility was approximately $28.0 million, and the weighted
average interest rate was 6.0% per annum. If ShopKo's weighted average interest
rate had increased by 10.0% for fiscal 1998, net income would have been reduced
by an immaterial amount. Management continually monitors the interest rate
environment with the objective of lowering borrowing costs without subjecting
ShopKo to excessive exposure to fluctuating interest rates.

ProVantage Accounting Changes

In connection with ProVantage's initial public offering, ProVantage
restated its financial statements for fiscal 1996 and fiscal 1997 to adjust the
timing of recognition and the classification of formulary concessions and to
adjust certain amounts related to two acquisitions. ProVantage's results of
operations for fiscal 1998 were not restated. These adjustments did not have a
material effect on ShopKo's historical financial statements. The statistical
and other information concerning ProVantage included in this prospectus
supplement has not been adjusted for such restatement by ProVantage. In the
future, ShopKo will conform its revenue recognition policies for formulary
concessions to that used by ProVantage. This will result in formulary
concessions being reflected as a reduction in cost of sales instead of being
included in net sales.

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BUSINESS

General

We are a leading specialty discount retailer which provides general
merchandise and health services through our retail stores. We have two business
segments: a Retail Store segment, which includes general merchandise, retail
pharmacy and retail optical operations, and a ProVantage segment, which
includes health benefit management services, mail pharmacy services, vision
benefit management services and health information and clinical support
services. As of May 1, 1999, our 158 retail stores operated in 19 Midwest,
Pacific Northwest and Western Mountain states. ProVantage conducts business
principally throughout the United States.

On February 4, 1999, ProVantage filed a registration statement with the
SEC for the initial public offering of its common stock. The offering size is
currently estimated at approximately $90 million. If the offering is completed
as currently contemplated, ProVantage would retain $20 million from the
offering proceeds, we would receive approximately $63 million as payment on a
dividend note, and we would retain between 66.0% and 70.0% of ProVantage's
common stock. We cannot assure you that ProVantage's initial public offering
will be completed or that it will be completed on the terms described above.
ShopKo intends to use any proceeds from payment on the dividend note to repay
debt assumed in the pending acquisition of Pamida.

Pursuant to the purchase agreement, we commenced a tender offer for all
of Pamida's outstanding voting common shares at a cash price of $11.50 per
share on May 17, 1999. Each of Pamida's directors and its principal shareholder
have agreed to support the transaction and to tender their shares. Pamida's
principal shareholder has also granted ShopKo an irrevocable option to purchase
its voting and non-voting common shares, under certain circumstances, at the
tender offer price. The tender offer is contingent upon customary conditions,
including the tender of at least 51% of Pamida's outstanding voting stock. The
acquisition is expected to close by early July, 1999. ShopKo expects to
purchase the Pamida common shares with cash on hand, and expects to refinance a
portion of Pamida's debt with a combination of proceeds from the ProVantage
initial public offering, a potential subsequent debt offering and this
offering. We cannot assure you that our acquisition of Pamida will be
completed.

Retail Stores

Merchandising Philosophy--Retail Store

We are committed to offering quality merchandise, service and value to
meet customers' requirements for health, home, family basics, casual apparel
and seasonal needs in our stores with speed, friendliness and simplicity. We
strive to differentiate ourself from our competition by meeting customer needs
more quickly and by anticipating the needs of our customers' changing
lifestyles.

With a focus on serving the customer and building customer loyalty, we
successfully undertook a significant strategic repositioning under our Vision
2000 program between 1991 and 1995. That strategy combined a new, upscale image
with an increased emphasis on customer service. Building upon Vision 2000, we
have developed and implemented Beyond 2000, a long-term strategic operating
model which is based upon creating market opportunities by serving time-
strapped consumers' changing shopping habits. The Beyond 2000 operating model
is based upon four interdependent strategic initiatives:

. a differentiation strategy,

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. an integrated business planning process,

. execution by an experienced and well-trained management
organization, and

. delivery of comprehensive value.

Differentiation Strategy. Our differentiation strategy focuses on
accentuation of selected and targeted merchandise categories tied to changing
lifestyle needs. Within each of these merchandise categories, shoppers will
find wide assortments. A strong national brand presence is combined with our
private brands to offer a unique product mix.

Integrated Business Planning Process. We have reorganized our merchandise
into categories that are defined and driven by customer lifestyles. An
integrated business planning process has allowed us to identify and prioritize
growth potentials of our product categories based on the changing lifestyle
needs of our customers. These priorities are used to allocate store shelf
space, inventory commitments, external advertising space and in-store capital
improvement disbursements among the various categories of merchandise. We call
this process "infrastructural funding." We make heavier infrastructure
commitments to categories in which we have a strong market presence and other
categories we believe have the potential to become prominent categories. We
perform regular and systematic analysis of category rankings as part of our
business planning process.

Execution. We are executing our Beyond 2000 strategy through our
operating committee which is headed by our president and chief executive
officer and comprised of senior vice presidents from all areas of ShopKo. The
operating committee seeks to create a performance-driven culture. We have
reengineered the work processes of our central organization and store
operations. The reengineered work processes require centralized decisions with
respect to product selection, pricing, space utilization and marketing. This
allows store personnel to focus on overall customer satisfaction through
inventory in-stock position, creation of a friendly environment and
simplification of the shopping experience.

Delivery of Comprehensive Value. We deliver comprehensive value to our
customers through the shopping experience in our retail stores. Comprehensive
value is more than just delivering a superior quality product at a compelling
price. The comprehensive value we deliver is also based on:

. ensuring that merchandise, particularly advertised merchandise, is
available for purchase,

. providing clarity in our merchandise offering,

. continually responding to our customers' changing lifestyle needs,

. ensuring the speed of merchandise to the sales floor, and

. providing simplicity, speed and friendliness in the shopping
experience.

Merchandising and Services--Retail Store

Our Retail Store net sales mix has been relatively consistent for the
last three fiscal years. During fiscal 1998, our Retail Store net sales mix
was:

. 24% for softline goods,

. 54% for hardline/home goods, and

. 22% for retail health services.

Our retail stores carry a wide assortment of trend-correct branded and
private label softline goods such as:

. women's, men's and children's apparel,

. shoes,

. jewelry,

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. cosmetics, and

. accessories.

We also carry a wide assortment of seasonal and everyday basic categories
of hardline/home goods such as:

. housewares,

. music/videos,

. home textiles,

. toys,

. household supplies,

. sporting goods,

. health and beauty aids,

. social occasion products,

. home entertainment products,

. candy, and

. small appliances,

. snack foods.
. furniture,

We carry a broad assortment of merchandise so that we may provide customers
with a convenient one-stop shopping source for everyday items. Our
accommodating customer service policies provide customers with a pleasant
shopping experience.

We believe that we offer leading brand names in our merchandise lines. We
concentrate on brands which have wide customer acceptance and provide quality
and value. In addition, we have well developed private label programs. We
subject our private label merchandise and direct imports to independent testing
and certification for product performance, safety and fit. In addition, our in-
house quality assurance and technical design team analyzes and develops the
quality of our fashion offerings. This allows us to deliver a better and more
consistent product, with greater control and efficiency.

We also provide professional health services in most of our stores. Of
our 158 stores as of May 1, 1999, 156 stores include pharmacy centers and 155
stores include optical centers. On December 19, 1997, we acquired the retail
chain Penn-Daniels, Incorporated, which operated 18 Jacks' discount stores in
Iowa, Illinois and Missouri and one Lots-A-Deals close-out store in Moline,
Illinois. We converted 17 of the Jacks' retail locations to ShopKo stores. We
closed the Lots-A-Deals store and one Jacks' store in fiscal 1998. The
conversion of the 17 Jacks' stores included the addition of in-store
pharmacies, except in one store, and optical centers. In April, 1999, we opened
ten former Venture locations and one former Target location as ShopKo stores.
These 11 stores include in-store pharmacies and optical centers. In addition to
generating store traffic and building customer loyalty, these services
contribute significantly to our overall profitability and provide the
opportunity for additional growth. Each store with pharmacy and optical centers
employs or contracts with an average of approximately three licensed
pharmacists, one licensed optometrist and six opticians. Our optometrists
perform in-store eye exams and prescribe correctional lenses, most of which we
make in our centralized optical laboratory and in approximately 89 in-store
finishing labs. In fiscal 1998, we dispensed over 690,000 eyewear
prescriptions. The in-store finishing labs typically service other ShopKo
stores in the vicinity and provide customers with same day or next day optical
service for single vision lenses.

We had been testing a stand alone optical store format with four stores
in Ohio. The results were mixed and we decided to close the stores. We closed
the stores on August 29, 1998. The closings did not have a material financial
impact on us.

Marketing and Advertising--Retail Store

We market our general merchandise and retail pharmacy and optical
services by using weekly newspaper circulars, which enable us to reach a broad-
based group of customers consisting largely of middle income families. These
full-color circulars average 24 pages and feature values in all of the
departments in our stores and have a circulation of more than 5.1 million. We
use direct mail

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advertisements selectively during key promotional periods. Our direct mail
advertisements have a circulation of more than 6.9 million. All printed
advertising materials are designed by our in-house graphic design team and
photographed in our own photography studio. In addition to the newspaper
circulars and direct mail advertisements, we use image building television and
radio advertising, which focuses on differentiating our stores from our
competition.

We price our merchandise so as to be competitive with our regional and
national discount retail competitors. In general, we use our frequent
advertising of a large group of high demand items to reinforce our competitive
price image and to generate store traffic, rather than attempting to meet the
lowest available price on every item. We believe that we provide comprehensive
value through our offering of quality trend-correct, lifestyle merchandise at
compelling prices in an attractive, customer-friendly shopping environment.

Retail Store Layout and Design

Our stores are designed for simplicity, speed and ease of the shopping
experience. Our stores feature a fashion stage at the store entrance to enhance
the upscale image of the store. The stores also feature competitive assortments
of softline goods, hardline/home goods and professional pharmacy and optical
departments. We place our optical and pharmacy departments near the front of
the store. We design the remainder of the store in a "racetrack" configuration
which takes customers between and around departments. We prominently display
promotionally priced items.

Over the last several years, we have substantially remodeled our stores.
We have converted seventeen of the Jacks' locations that we acquired in
December 1997 to our current format. We expect to continue to explore and test
alternative store layout and display techniques and merchandise mixes.
Depending on the cost of land acquisition, size of store and site preparation
work, we expect that a typical new store's cost for land acquisition, site
preparation, building and fixturing will generally approximate $6.0 million to
$11.0 million. We believe that opportunities to lower the initial capital
outlay for new stores exist through leasing, sale and leaseback, or other
financing alternatives. Remodels, which generally take place approximately
every ten years, usually cost from $0.5 to $2.5 million per store. A store
renovation, where the square footage is expanded or more extensive remodeling
is needed, usually costs from $2.0 million to $4.5 million per store.

Our average store size is approximately 89,000 square feet with
approximately 84% of our stores greater than 74,000 square feet. As of May 1,
1999, we are basing our new ShopKo stores on one of three standard prototypes:
a 110,000 square foot store, a 100,000 square foot store or a 90,000 square
foot store. The prototype we select depends on the community and the retail
competition in the immediate area. In comparison to old versions of our stores,
our current prototypes feature a greater portion of store square footage
dedicated to selling space and less space dedicated to the storage of
inventory.

Retail Store Operations and Management

Our store operations organization focuses on:

. leadership,

. performance,

. merchandising innovation, and

. excellence in execution.

We strive for continual improvements in overall customer satisfaction, which is
measured by an independent research firm for use in our unique process entitled
"Customer Satisfaction and Loyalty Monitor." The successful Beyond 2000
operating model has been integrated into store operations with significant
improvements in operating efficiency and dedication to customer service. Best
practices have

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been shared and communicated across the organization as the "ShopKo Way." Our
store operations organization is now focusing on a framework of three
leadership planks as part of the Company's Beyond 2000 operating model. These
three planks are people, performance and profit.

People. We believe that we have improved teammate satisfaction despite a
challenging environment characterized by low unemployment and intense
competition for quality teammates. We have undertaken an intensive management
and teammate development program to ensure commitment to our mission and
principles. This education is intended to sharpen management's focus and
ability to drive sales through an integrated partnership with the central
organization and a focus on leadership.

Performance. We have improved customer service through a comprehensive
strategic initiative designed to enhance store execution and reduce costs. This
initiative identified non-value-added activities which we eliminated to
simultaneously increase productivity and enhance associate availability to help
customers. Our Customer Satisfaction and Loyalty Monitor indicates that 87% of
our shoppers give us high performance ratings over the last two years for
overall satisfaction with ShopKo.

Profit. We use technological innovation to support store performance and
profitability. These innovations include multi-media computer-based training
for our associates, as well as implementation of an innovative resource
management system which provides on-line sales forecasting in 15 minute
increments, ties labor scheduling to customer traffic patterns and eliminates
duplication of human resources and payroll processes in our stores and our
general office.

We hold our store operations management team accountable for execution of
aggressive plans and achievement of comprehensive goals. We emphasize ongoing
development of this management team to ensure that we have the competencies
required for continued success.

Purchasing and Distribution--Retail Store

We purchase merchandise from more than 2,300 vendors. Our ten largest
vendors accounted for approximately 30% of our purchases during fiscal 1998. We
believe that most merchandise, other than branded goods, is available from a
variety of sources. We are working with our entire supply chain to link our
vendors into our general merchandise business planning process to reduce costs
and to replenish our inventory more efficiently. We linked more than 700
vendors to our electronic data interchange purchase order systems as of January
30, 1999. Vendors electronically receive point-of-sale information from us,
which allows them to respond to changing inventory levels in our stores. We
have also implemented the use of electronic purchase order acknowledgments
issued by vendors based on the sales information they have received. In
addition, over 390 vendors are now electronically transmitting invoices
directly into our automated invoice matching system.

We continue to upgrade our merchandise planning, allocation and control
systems. In addition, stock keeping unit level physical inventories continue to
improve perpetual inventory accuracy. We believe these upgrades and
improvements in the physical inventory process allow us to more effectively
manage in-stock positions and better manage merchandise assortments.

Direct imports accounted for approximately 8% of our purchases, based
upon cost of goods, during fiscal 1998. We buy our imported goods, principally
in the Far East, and ship the goods to our distribution centers for
distribution to our stores.

Our use of our four distribution centers has enabled us to:

. purchase the majority of our merchandise directly from
manufacturers, which reduces our cost of goods,

. reduce direct vendor-to-store deliveries, which reduces our
freight charges and cost of goods through consolidated volume
purchasing, and

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. increase our pick and pull capabilities, which allows us to
enhance the effectiveness and efficiency of our store
replenishment process.

We believe that these cost reductions help us remain price competitive. During
fiscal 1998, approximately 88% of the merchandise sold by us, excluding optical
and pharmaceutical products, flowed through our distribution centers.

We will be expanding our distribution centers in Wisconsin and Idaho and
replacing our distribution center in Nebraska. These projects will improve
service to our stores, reduce backroom congestion and support our anticipated
growth. We expect to complete the expansion in Wisconsin and Idaho in early
2000. We expect to complete the Nebraska facility in 2001.

Our shoe department, other than certain nationally branded athletic
shoes, is in every store and is the principal department operated by an
unrelated company under a license agreement. We retain a percentage of the
gross proceeds collected as rent.

Management Information Systems--Retail Store

We use information technology to improve customer service, reduce
operating costs and provide useful information to help us make timely decisions
regarding merchandising. We use modern point-of-sale terminal systems for
electronic price lookup and tracking sales information at store and stock
keeping unit level. We use integrated earth satellite communications systems to
provide on-line credit card and check authorization. We use portable radio-
frequency terminals extensively in our stores for merchandise receiving,
stocking, replenishment, pricing and label printing. We also make extensive use
of automated labor scheduling systems within our stores.

Our state-of-the-art warehouse management system provides complete
warehouse functionality such as conveyor control and direction of picking and
put-away processes by using portable radio-frequency terminals. In addition,
this system is highly integrated with our central information systems through
our telecommunications network, thereby ensuring up-to-date perpetual inventory
records, as well as facilitating the delivery of highly accurate information
regarding merchandise allocation and distribution decisions to our management
team.

We use the tools of modern electronic commerce to support our focus on
total supply chain management. This includes integrated replenishment systems,
vendor managed inventories and electronic data interchange. We believe that
these tools have resulted in higher customer service levels, optimized
inventory levels, and greater productivity.

In fiscal 1998, we completed the replacement of our mainframe-based
merchandise applications software with new, open architecture, client/server
applications. In addition, we installed a merchandise assortment planning
application, thereby completing our merchandise planning initiative which
integrates merchandise financial planning, space planning, and assortment
planning processes. The installation of these applications in 1998 was the
culmination of a multi-year strategy that fully integrates our operational,
planning, and decision support systems, while at the same time providing
significant improvements in functionality and the size necessary to support our
future growth plans.

Finally, our investments in the systems described above and technical
architecture have enabled us to convert the massive amounts of transaction-
based "raw data" we amass in the normal course of business into "actionable
information" by implementing a data warehouse, as well as the decision support
tools required to effectively access the information stored in the warehouse.
Additionally, this technology enables us to use data mining tools to analyze
sales data in order to validate and optimize the effectiveness of our
promotional campaigns.

Expansion--Retail Store

Our current growth plan for the retail business is to increase the number
of retail stores to achieve economies of scale and to capitalize on our
existing infrastructure. We intend to consider the

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acquisition of existing stores, either as specific sites, in clusters, or as
part of an existing business. We believe that selective and opportunistic
acquisitions of retail stores or sites will allow us to improve our
profitability and maintain our financial strength. We will also consider new
store construction, financed with our own capital or by using leases, sale and
leaseback, or other financing alternatives. Our plans with respect to new store
growth are subject to change, and we cannot assure you that we will achieve our
plans.

In December 1997, we acquired the Penn-Daniels retail chain which added
17 stores, after we closed two locations, to our retail store base. On
September 8, 1998, we announced plans to open 13 new stores in 1999. As of May
1, 1999, we opened 11 of these stores. Ten of the new stores are former Venture
store locations and one is a former Target location which were remodeled,
including the addition of in-store pharmacies and optical centers. Two
additional locations will be new stores and will open in the fall of 1999. All
13 stores are leased, of which 7 are operating leases and 6 are capital leases.

On May 17, 1999, we began a tender offer for all of the outstanding
common stock of Pamida Holdings Corporation. Pamida operates 147 discount
retail stores in 15 Midwestern, North Central and Rocky Mountain states. Our
board of directors and the board of directors of Pamida have approved the
acquisition.

In reviewing possible retail store acquisitions, we intend to take a
disciplined approach to ensure our competitive position and financial
integrity. The key elements of this disciplined approach are:

. maintaining a strong balance sheet, which will exhibit our
financial strength to the vendor and creditor communities;

. leveraging our existing infrastructure, including our advanced
management information and distribution systems;

. maintaining adequate liquidity for our operations; and

. using an analytical system for site selection that models
demographics, competition, geography and location.

Competition--Retail Store

The discount general merchandise business is very competitive. We compete
in most of our markets with a variety of national, regional and local discount
stores, national category killers, specialty niche retailers and internet
retailers. In addition, department stores compete in some branded merchandise
lines, discount specialty retail chains compete in some merchandise lines such
as electronics, bed and bath, housewares, casual furniture and toys, and
pharmaceutical and optical operations compete with some of our pharmacy and
optical centers. We believe that the principal competitive factors in our
markets include:

. store location;

. differentiated merchandising;

. competitive pricing;

. quality of product selection;

. attractiveness and cleanliness of the stores;

. responsiveness to changing lifestyle needs and regional and local
trends;

. customer service;

. in-stock availability of merchandise; and

. advertising.

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Our principal national general merchandise discount chain competitors are
Wal-Mart, Kmart and Target, each of which is substantially larger than, and has
greater resources than, us. As of May 1,1999, Kmart stores compete with
approximately 92.0% of our stores, Target stores compete with approximately 67%
of our stores and Wal-Mart stores compete with approximately 89.0% of our
stores. We also compete with regional chains in some markets in the Midwest and
the Pacific Northwest.

Historically, the entry of one of these chains into an area served by one
of our stores generally has had an adverse effect on the affected store's sales
growth for approximately 12 months. After the 12 month time period, the store
generally has resumed a positive growth trend. Entry by one of these
competitors into our markets often has resulted in permanently intensified
price competition. Our efficiency measures and distribution center expenditures
are important aspects of our efforts to maintain or improve operating margins
and market share in these markets.

Seasonality--Retail Store

Our retail general merchandise operations are highly seasonal.
Historically, our third and fourth fiscal quarters have contributed a
significant part of our earnings due to the Christmas selling season. Because
we have changed our fiscal year end to the Saturday closest to the end of
January, the Christmas selling season in fiscal 1998 and forward will primarily
impact the fourth fiscal quarter.

ProVantage

Products and Services--ProVantage

ProVantage provides prescription and vision benefit management services
and healthcare information-based products and clinical services. ProVantage
believes that its pharmacy benefit management services, in combination with its
information-based products and services, results in a highly differentiated
product offering with the potential to assess the effectiveness of healthcare
services, identify ways of improving healthcare results, and lower
pharmaceutical and, more importantly, overall medical costs.

Healthcare Benefit Management Services

ProVantage provides high quality, cost efficient pharmacy benefit
management services to health plan sponsors. As of January 1999, ProVantage
provided pharmacy benefit services to approximately 4.5 million people and
vision benefit management services to approximately 500,000 people through more
than 3,500 customers. ProVantage's core client base has historically been small
to mid-size employers, insurance companies, third party administrators, health
maintenance organizations and self-funded healthcare plan sponsors. ProVantage
is increasingly marketing its pharmacy benefit management services to larger
organizations based on its advanced clinical and information-based products and
services.

ProVantage's pharmacy benefit management services include:

. national retail pharmacy network administration,

. claims adjudication services,

. mail pharmacy service,

. formulary development, and

. management and benefit plan design consultation.

ProVantage manages a network of over 50,000 retail pharmacies to provide
prescription drugs to health plan members. ProVantage contracts with these
pharmacies to fill prescriptions at predetermined, negotiated rates, which are
significantly more favorable than typical retail prices, in exchange for
designating them as network pharmacies. Health plan members can fill
prescriptions at a network

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pharmacy in all 50 states, Puerto Rico and the Virgin Islands. ProVantage uses
on-line point-of-sale electronic claims processing with pharmacies for swift
adjudication of pharmacy claims.

ProVantage is compensated for pharmacy benefit management services
through processing fees, clinical service fees, formulary administration fees
and reimbursement of the cost of the pharmaceuticals dispensed. In addition,
ProVantage may charge various ancillary and information management fees.

ProVantage's mail service pharmacy offers health plans and their members
a cost effective way to receive maintenance prescription drugs to treat chronic
illnesses. Members mail or call in their prescriptions, which typically provide
for up to a three month supply, to ProVantage's mail service pharmacy, where
ProVantage processes and mails their prescriptions, typically within two
business days of receipt. ProVantage's mail service pharmacy helps control
prescription costs for health plan sponsors by buying drugs at volume discounts
and dispensing generic drug products when appropriate. As of February 1999, the
ProVantage mail service pharmacy in Green Bay, Wisconsin, dispensed and mailed
approximately 75,000 prescriptions per month.

ProVantage's Advanced Therapeutic Intervention program is one of the key
differentiating features of its pharmacy benefit management services.
ProVantage began providing this service in mid-1998. The Advanced Therapeutic
Intervention program analyzes the prescription drug and medical encounter data
of each of its participating clients. Using the RationalMed software, this data
is analyzed to identify specific patients who have been prescribed drugs that
significantly increase the patient's risk of hospitalization due to the
underlying medical condition and multiple diseases. A clinical pharmacist
reviews the results and determines those patients for whom intervention is
appropriate. The clinical staff, under the direction of our physicians,
intervenes by issuing alerts for these patients to the treating physicians.
These alerts inform the treating physicians of the medical condition,
prescribing pattern or other factors that create the increased hospitalization
risk.

ProVantage's pharmacy benefit management services also include plan
design consultation intended to reduce drug costs while promoting clinically
appropriate drug use. The most common plan design features offered are co-pay
options, incentives for substituting generic for branded drugs, limitations of
the number of days per prescription and requirements that maintenance drugs be
filled by the mail service pharmacy. ProVantage assigns an account executive to
work closely with each customer to determine the appropriate plan design
features based on the customer's specific benefit requirements.

ProVantage provides vision benefit management services to client plan
sponsors offering vision benefits. As of January 1999, ProVantage's vision
benefit management business covered approximately 500,000 people through a
national network of approximately 4,500 retail optical chains and private
ophthalmologists, optometrists and opticians. Unlike the pharmacy benefit
management business, the vision benefit management business offers self-insured
as well as fully-insured products. The self-insured products offered are
similar to the pharmacy benefit management product and service offering. The
insured products are sold by licensed independent and employee sales agents and
are underwritten by a licensed insurance company, a subsidiary of American
International Group.

Healthcare Information Technology

ProVantage's healthcare information technology allows ProVantage to add
value to its pharmacy benefit management services. ProVantage has acquired or
developed a number of healthcare information products and services over the
last several years. These products include RationalMed, ProVQuery, ProVMed and
ProVCOR.

RationalMed is clinical outcomes assessment software that integrates the
clients' medical claim, diagnosis, and pharmaceutical data to identify
problematic prescribing patterns and quantify the resulting increased risk of
patient hospitalization or other adverse medical events. RationalMed uses
therapeutic criteria for disease categories and over 7,800 rules that are based
on medical research to analyze the integrated medical data for drug-drug, drug-
disease, over- and under-utilization, duplication and duration conflicts. The
physician can therefore determine whether treating the condition is worth this
added risk.

S-32
<PAGE>

ProVQuery is an internet-accessible pharmaceutical decision support
software system. The system provides clients with desk-top access to their
prescription claims detail for profiling, national comparisons, drug category
breakdown and demographic analyses.

ProVMed is an administrative, financial and clinical decision support
tool that provides direct and easy access to company-wide data traditionally
contained in the customer's separate databases. ProVMed gives clients the
ability to access their medical and pharmaceutical data as well as to view that
data relative to national norms. ProVMed was developed as a joint venture with
American Medical Security, Inc., one of ProVantage's principal pharmacy benefit
management clients. ProVantage owns 80.0% of this joint venture.

ProVCOR is a healthcare decision support product currently under
development. ProVCOR is designed to help study the effects of pharmaceutical
and clinical interventions on healthcare treatment and results in specific
disease areas. It is also being designed to offer disease-specific "datamarts,"
which can be accessed by the customer to create or support disease management
programs.

Clients--ProVantage

As of January 30, 1999, ProVantage provides health benefit management
services for over 3,500 health benefit plan customers, covering over 5.0
million plan members. ProVantage's health benefit management client base is
comprised of health maintenance organizations, third party administrators,
insurance companies, self-funded healthcare plan sponsors and government
agencies. ProVantage's ten largest customers accounted for approximately 38.6%
of ProVantage's revenues in the first quarter of fiscal 1999, 35.2% of
ProVantage's revenues in fiscal 1998, approximately 37.1% of ProVantage's
revenues in fiscal 1997 and approximately 42.8% of ProVantage's revenues in
fiscal 1996. In addition, one of those ten customers, American Medical
Security, Inc., accounted for approximately 10.4% of ProVantage's revenues in
the first quarter of fiscal 1999, 11.4% of ProVantage's revenues in fiscal
1998, 11.7% of ProVantage's revenues in fiscal 1997 and 17.9% of ProVantage's
revenues in fiscal 1996. ProVantage's contract with American Medical Security
terminates on July 1, 2000. American Medical Security has requested that
ProVantage and other interested parties submit bids to assume the business
after this contract expires. ProVantage's health information technology clients
include federal and state agencies, third party health plan administrators,
health maintenance organizations, insurance companies and pharmaceutical
manufacturers. Ten states currently use ProVantage's health information
technology for the operation of their state Medicaid programs.

Sales and Marketing--ProVantage

ProVantage markets its pharmacy benefit management services on the basis
of high quality customer service, advanced clinical capabilities, including the
Advanced Therapeutic Intervention program, and healthcare information products.
ProVantage has a nationwide sales force of 12 regional sales managers and one
director.

Sales of the healthcare information products tend to require marketing
support by our senior executives and approval at senior levels in a client's
organization and tend to have a long sales cycle. ProVantage's sales strategy
in these circumstances is to differentiate itself with these products and then
to cross-sell the traditional pharmacy benefit management and other services to
the health information technology customers.

ProVantage has sales offices in:

. Atlanta, Georgia
. Charlotte, North Carolina

. Omaha, Nebraska
. Dallas, Texas

. Chicago, Illinois
. Salt Lake City, Utah

. Arlington, Virginia
. Scottsdale, Arizona

. Milwaukee, Wisconsin
. Green Bay, Wisconsin

S-33
<PAGE>

ProVantage also uses a national network of independent agents and brokers
to market its products. For certain healthcare information products, ProVantage
may in the future use strategic partners or other distribution channels for
product marketing.

Suppliers--ProVantage

ProVantage has a large number of suppliers for goods and services.
However, only a few are significant in terms of sustaining its daily business.
McKesson HBOC, Inc. is ProVantage's current wholesaler of pharmaceuticals for
its mail service pharmacy. International Business Machines Corporation, Oracle
Corporation and MicroStrategy Incorporated provide key computer systems that
ProVantage uses to manage its internal databases and decision support tools.
Commencing in 2000, ProVantage plans to use the claims processing programs of
Systems Xcellence USA, Inc. to process pharmacy claims in the retail network.

Management Information Systems--ProVantage

ProVantage operates an electronic network tying in approximately 50,000
retail pharmacies to process third-party claims. ProVantage also uses similar
systems to support its vision benefit management business. ProVantage has
developed software to perform database enhancement and querying essential to
its clinical services.

Acquisitions and Alliances--ProVantage

Beyond internal growth, ProVantage intends to selectively pursue the
acquisition of companies that either increase the size of its pharmacy benefit
management business or augment its advanced clinical and health information
technology capabilities.

In addition to acquisitions, ProVantage is seeking corporate alliances to
expand its health information technology capabilities. These types of alliances
allow ProVantage to gain access to new technology and data without committing
the level of financial and management resources associated with a major
acquisition.

Competition--ProVantage

ProVantage faces direct competition in both the pharmacy benefit
management and vision benefit management businesses. The pharmacy benefit
management industry is relatively consolidated and dominated by large companies
with significant resources. Many of the large pharmacy benefit management
companies are owned by large companies, including pharmaceutical manufacturers,
which can provide them with significant purchasing power and other advantages
which ProVantage does not have. Competitors in this industry include other
pharmacy benefit management companies, drug retailers, physician practice
management companies, and insurance companies/health maintenance organizations.
In addition to many smaller companies, ProVantage's five primary competitors
for pharmacy benefit management customers are:

. PCS Health Systems, Inc., a subsidiary of Rite-Aid Corp.

. Merck-Medco Managed Care, LLC, a subsidiary of Merck & Co., Inc.

. Express Scripts, Inc.

. Caremark International, Inc., a subsidiary of MedPartners, Inc.

. Advance Paradigm, Inc.

ProVantage may also experience competition from other sources in the
future, such as internet-based drug stores. Pharmacy benefit management
companies compete primarily on the basis of price, service, reporting
capabilities and clinical services. The primary competitor for vision benefit

S-34
<PAGE>

management services is Vision Service Plan, which is the largest vision benefit
management provider in the nation. Vision benefit management companies compete
principally on the basis of size and scope of network, service and price. In
most cases, the competitors listed above are large, profitable and well-
established companies with substantially greater financial and marketing
resources than ProVantage.

ProVantage's competitive strengths include the ability to help customers
lower hospitalization and other medical costs, its reputation for client
service, its database of integrated medical and pharmaceutical data, the use of
cutting-edge technology, and clinical capabilities that leverage its database
and technology strengths. ProVantage believes that pharmacy benefit management
companies which are unaffiliated with pharmaceutical manufacturers will be in a
competitively advantaged position; due to its independence, ProVantage is able
to use its products and an independent pharmacy and therapeutics committee to
ensure that decisions are primarily based on drug efficacy rather than on
economics alone.

Consolidated

Employees

As of January 30, 1999, we employed approximately 21,000 persons, of whom
approximately 11,000 were full-time employees and 10,000 were part-time
employees. During the Christmas shopping season, we typically employ
approximately 2,000 additional persons on a temporary basis. None of our
employees are covered by collective bargaining agreements. We believe that our
relations with our employees are satisfactory.

Government Regulation

Our health services business is subject to extensive federal and state
laws and regulations governing, among other things:

Licensure and Regulation of Retail Pharmacies and Optical Centers

There are extensive federal and state regulations applicable to the
practice of pharmacy and optometry at the retail level. Most states have laws
and regulations governing the operation and licensing of pharmacies and optical
centers, and regulate standards of professional practice by pharmacy and
optical service providers. These regulations are issued by an administrative
body in each state, typically a pharmacy board or board of optometry, which is
empowered to impose sanctions for non-compliance.

Licensure and Regulation of Mail Service Pharmacy

ProVantage's mail service pharmacy is duly licensed and in good standing,
in accordance with the laws and regulations of the State of Wisconsin.
Additionally, many of the states into which ProVantage delivers pharmaceuticals
have laws and regulations that require out-of-state mail service pharmacies to
register with the board of pharmacy or similar regulatory body in the state.
These states generally permit the mail service pharmacy to follow the laws of
the state within which the mail service pharmacy is located. ProVantage has
registered in every state in which, to ProVantage's knowledge, such
registration is required. In addition, various pharmacy associations and boards
of pharmacy have promoted enactment of laws and regulations directed at
restricting or prohibiting the operation of out-of-state mail service
pharmacies by, among other things, requiring compliance with all laws of
certain states into which the mail service pharmacy dispenses medications
whether or not those laws conflict with the laws of the state in which the
pharmacy is located. To the extent such laws or regulations are found to be
applicable to ProVantage, ProVantage would be required to comply with them.
Other statutes and regulations impact ProVantage's mail service operations.
Federal statutes and regulations govern the labeling, packaging, advertising
and adulteration of prescription drugs and the dispensing of controlled
substances. The Federal Trade Commission requires mail order sellers of goods
generally to engage in truthful advertising, to stock a reasonable supply of
the product to be sold, to fill mail orders within thirty

S-35
<PAGE>

days, and to provide customers with refunds when appropriate. The United States
Postal Service has statutory authority to restrict the transmission of drugs
and medicines through the mail to a degree that could have an adverse effect on
ProVantage's mail service operations. The United States Postal Service has
exercised such statutory authority only with respect to controlled substances.
Alternative means of delivery are available to ProVantage.

Regulation of Prescription Benefit Management Services

Various forms of government regulations affect or could affect providers
of prescription benefit management services. Among the most prominent forms of
such regulation are the following:

Many states have licensure or registration laws governing certain types
of ancillary health care organizations, including preferred provider
organizations, third party administrators and utilization review organizations.
These laws differ significantly from state to state, and the application of
such laws to the activities of pharmacy benefit managers is often unclear.
ProVantage has registered under such laws in those states in which ProVantage
has concluded such registration is required.

Numerous states have also adopted "any willing provider" legislation,
which requires pharmacy network sponsors to admit for network participation any
retail pharmacy willing to meet a health care plan's price and other terms.
ProVantage has not been materially affected by these statutes because it
administers a network of over 50,000 retail pharmacies and will admit any
qualified, licensed pharmacy that agrees to comply with the terms of its plans.

"Anti-kickback" statutes at the federal and state level prohibit an
entity from paying or receiving any remuneration to induce the referral of
health care plan beneficiaries or the purchase of items or services for which
payment may be made under such health care plans. Additionally, most states
have consumer protection laws that have been the basis for investigations and
multi-state settlements relating to financial incentives provided by
pharmaceutical manufacturers to retail pharmacies in connection with
pharmaceutical switching programs. At the federal level, such regulations
pertain to beneficiaries of Medicare, Medicaid or other federally-funded health
care programs. State regulations typically pertain to beneficiaries of any
health care plan. Under the federal regulations, safe harbors exist for certain
properly disclosed payments made by vendors to group purchasing organizations.
To ProVantage's knowledge, these anti-kickback laws have not been applied to
prohibit prescription benefit management companies from receiving amounts from
pharmaceutical manufacturers in connection with pharmaceutical purchasing and
formulary management programs, to therapeutic substitution programs conducted
by independent prescription benefit management companies or to the contractual
relationships such as those ProVantage has with certain of its customers.

Regulation of Vision Benefit Management Services

ProVantage's vision benefit management services are subject to the same
or similar state and federal regulation as the prescription benefit management
services described above.

Privacy and Confidentiality Legislation

Most of ProVantage's activities involve the receipt or use of
confidential, medical information concerning individual members, including the
transfer of the confidential information to the member's health benefit plan.
In addition, ProVantage uses aggregated data, that is, data from which
information which identifies specific patients is removed, for research and
analysis purposes. Legislation has been proposed at the federal level and in
several states to restrict the use and disclosure of confidential medical
information. To date, no such legislation has been enacted that adversely
impacts ProVantage's ability to provide its services, but we cannot assure you
that federal or state governments will not enact legislation, impose
restrictions or adopt interpretations of existing laws that could have a
material adverse effect on ProVantage's operations.

S-36
<PAGE>

Applicability of Insurance Laws

ProVantage's prescription pharmaceutical plans currently offered or
administered by ProVantage are on a fee-for-service basis, and are therefore
not generally subject to state insurance laws. The insured vision benefit plans
administered by ProVantage are underwritten by an unaffiliated licensed
insurer, and ProVantage believes it is in material compliance with all
applicable insurance laws.

Comprehensive Pharmacy Benefit Management Legislation

Although no state or the federal government has passed legislation
regulating pharmacy benefit management activities in a comprehensive manner,
such legislation has been introduced on several occasions. Such legislation, if
enacted in any state in which we have a significant concentration of business
or if enacted by the federal government, could adversely impact our operations.

Future Legislative Initiatives

Legislative and regulatory initiatives pertaining to such health care
related issues as reimbursement policies, payment practices, therapeutic
substitution programs, and other healthcare cost containment issues are
frequently introduced at both the state and federal level. We are unable to
predict accurately whether or when legislation may be enacted or regulations
may be adopted relating to our health services operations or what the effect of
such legislation or regulations may be.

Substantial Compliance

We believe that we are in substantial compliance with, or are in the
process of complying with, all existing statutes and regulations material to
the operation of our health services businesses and, to date, no state or
federal agency has taken enforcement action against us for any material non-
compliance, and to our knowledge, no such enforcement against us is presently
contemplated.

Properties

As of May 1, 1999, we operated 158 retail stores in 19 Midwest, Western
Mountain and Pacific Northwest states. The following table sets forth the
geographic distribution of our present stores:

<TABLE>
<CAPTION>
# of
State Stores
----- ------
<S> <C>
California.......... 1
Colorado............ 3
Idaho............... 8
Illinois............ 13
Indiana............. 2
Iowa................ 13
Kansas.............. 2
Kentucky............ 1
Michigan............ 4
Minnesota........... 13
</TABLE>
<TABLE>
<CAPTION>
# of
State Stores
----- ------
<S> <C>
Missouri............ 3
Montana............. 5
Nebraska............ 11
Nevada.............. 3
Oregon.............. 4
South Dakota........ 6
Utah................ 15
Washington.......... 10
Wisconsin........... 41
---
Total............. 158
===
</TABLE>

Of our 158 retail stores at May 1, 1999, we own the land and building
outright with respect to 84 stores, own the building subject to a ground lease
with respect to 5 stores and lease the land and building with respect to 21
stores. Our wholly-owned subsidiaries own the land and building outright with
respect to 37 stores, 7 of which are subject to mortgages, own the building
subject to a ground lease with respect to 3 stores and lease the land and
building with respect to 8 stores. The ground leases expire at various dates
ranging from 2012 through 2038 and the other leases expire at various dates
ranging from 2000 through 2020.

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<PAGE>

Our other principal properties are as follows:

<TABLE>
<CAPTION>
Sq. Ft of
Building
Location Use Space Title
-------- --- --------- -----
<C> <S> <C> <C>
Green Bay, WI Corporate Headquarters...................... 228,000 Owned
Lawrence, WI Corporate Headquarters--South Annex/Return
Center..................................... 114,300 Owned
De Pere, WI Distribution Center......................... 265,000 Owned
Boise, ID Distribution Center......................... 210,000 Owned
Omaha, NE Distribution Center......................... 50,000 Owned
Quincy, IL Distribution Center......................... 449,500 Leased
Brookfield, WI ProVantage Claims Processing/Administrative
Office..................................... 14,100 Leased
Elm Grove, WI ProVantage Claims Processing/
Administrative Office Annex................ 15,700 Leased
Green Bay, WI ProVantage Mail Service..................... 10,000 Leased
Arlington, VA PharMark Office............................. 15,500 Leased
Green Bay, WI ProVMed Office.............................. 7,200 Leased
</TABLE>

As of the Spring of 1999, construction is underway on a new 60,000 square
foot corporate headquarters for ProVantage in Pewaukee, Wisconsin to replace
the Elm Grove and Brookfield facilities. The new building is expected to be
available for occupancy in the Summer of 1999. We expect that this building
will be owned by us and leased to ProVantage.

Legal Proceedings

We are involved in various litigation matters arising in the ordinary
course of our business. We believe that none of this litigation will have a
material adverse effect on our financial condition, cash flows or results of
operations.

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<PAGE>

MANAGEMENT

Set forth below is information about our Chairman of the Board and
Executive Officers.

<TABLE>
<CAPTION>
Name Age* Position**
------------------------- ---- ------------------------------------------
<C> <C> <S>
Dale P. Kramer........... 59 Chairman of the Board

William J. Podany........ 52 President and Chief Executive Officer

Michael J. Bettiga....... 45 Senior Vice President, General Merchandise
Manager, Retail Health Services

Senior Vice President, Chief Information
Paul A. Burrows.......... 50 Officer

Roger J. Chustz.......... 48 Senior Vice President, General Merchandise
Manager, Apparel and Product Development

Ingrid A. Davis.......... 40 Senior Vice President of Stores

Senior Vice President, Chief Financial
Paul H. Freischlag, Jr... 44 Officer

Steven T. Harig.......... 44 Senior Vice President, Planning,
Replenishment and Analysis, Distribution
and Transportation

Gary A. Hillerman........ 50 Senior Vice President, General Merchandise
Manager, Hardlines

Michael J. Hopkins....... 48 Senior Vice President, General Merchandise
Manager, Home/Hardlines

Rodney D. Lawrence....... 41 Senior Vice President, Store Marketing

David A. Liebergen....... 52 Senior Vice President, Human Resources and
Internal Communication

L. Terry McDonald........ 56 Senior Vice President, Marketing

Senior Vice President, General Counsel and
Richard D. Schepp........ 38 Secretary
</TABLE>
- --------

* as of January 30, 1999

** as of April 19, 1999

Dale P. Kramer has been our Chairman of the Board since July, 1997 and
our President and Chief Executive Officer from February, 1991 to March, 1999.
Prior thereto, he served as our Executive Vice President from April, 1983 to
February, 1986 and as our Executive Vice President and Chief Operating Officer
from February, 1986 to February, 1991. Mr. Kramer was employed by ShopKo in
various other positions since 1971.

William J. Podany has been our President and Chief Executive Officer
since March, 1999. He was President and Chief Operating Officer of ShopKo's
retail stores from November, 1997 to March, 1999, and was our Executive Vice
President from November, 1994 to March, 1999. From 1992 to 1994, Mr. Podany was
Executive Vice President--Merchandise of Carter Hawley Hale, a federation of
four department store chains. He has held senior merchandising executive
positions with Allied Stores, May Department Stores and Carter Hawley Hale
since 1978.

Michael J. Bettiga has been our Senior Vice President, General
Merchandise Manager, Retail Health Services since November, 1997 and our Senior
Vice President, Health Services from February, 1995 to November, 1997. He was
our Vice President, Health Services from October, 1993 to February, 1995. Prior
to that, he has held the position of Vice President of Pharmacy as well as
various other positions since 1977.

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<PAGE>

Paul A. Burrows joined us in January 1998 as our Senior Vice President
and Chief Information Officer. Mr. Burrows was First Vice President/Chief
Information Officer with Coldwell Banker Corp. from June, 1996 through
December, 1997. Prior to that, Mr. Burrows was employed with Broadway Stores,
Inc. (formerly Carter Hawley Hale Stores, Inc.) for thirteen years, most
recently as Senior Vice President, Information Services.

Roger J. Chustz has been our Senior Vice President, General Merchandise
Manager, Apparel and Product Development since October, 1993 and our Vice
President, General Merchandise Manager, Apparel from March, 1993 to October,
1993. Mr. Chustz was employed by Maison Blanche in various positions from 1975
through 1992, most recently Senior Vice President--General Merchandising
Manager.

Ingrid A. Davis has been our Senior Vice President, Stores since August,
1998. Ms. Davis joined us in February, 1997 as our Vice President Special
Projects and has also held the position of Regional Vice President of Store
Operations. Prior to joining ShopKo, Ms. Davis was with the Target division of
Dayton Hudson Corp. as Director of Super Target Stores. She also held a variety
of operations management positions with Best Price Clothing Stores, Inc.,
Conran's Habitat and the Lerner Division of The Limited, Inc.

Paul H. Freischlag, Jr. joined us in July 1998 as our Senior Vice
President, Chief Financial Officer. Mr. Freischlag was Treasurer and Vice
President for Royal Ahold, Zaandam, The Netherlands from July, 1996 to July,
1998. Prior to that, he was with The Stop & Shop Companies in Boston,
Massachusetts for nine years, most recently as Vice President and Treasurer.

Steven T. Harig has been our Senior Vice President, Planning,
Replenishment and Analysis, Distribution and Transportation since October,
1993. Prior thereto, he was our Vice President, Inventory, Merchandise
Forecasts, Replenishment and Electronic Data Interchange since February 1990
and served as our Vice President, Special Projects from May, 1989 to February,
1990. Mr. Harig was employed by Wal-Mart Stores, Inc. in various positions from
1978 to May, 1989, most recently as Vice President-- International
Merchandising.

Gary A. Hillerman has been our Senior Vice President--General Merchandise
Manager, Hardlines since March, 1997. Mr. Hillerman also served as our Vice
President--Divisional Merchandise Manager from March, 1996 to March, 1997. He
was Divisional Merchandise Manager at Dillards from 1991 to 1996. Mr. Hillerman
also served as Vice President of Buying at Tuesday Morning and Senior Vice
President--General Merchandise Manager of Hardlines and Home at May Department
Stores.

Michael J. Hopkins has been our Senior Vice President--General
Merchandise Manager, Home/Hardlines since November, 1995. From 1992 to 1995,
Mr. Hopkins was Senior Vice President--Merchandise Planning and Distribution at
Carter Hawley Hale Stores, Inc. Prior thereto, Mr. Hopkins served as Senior
Vice President and General Merchandise Manager of Home with Broadway Southwest
division of Carter Hawley Hale Stores, Inc. from 1985 to 1992.

Rodney D. Lawrence has been our Senior Vice President--Store Marketing
since May, 1996. He was Vice President--Store Planning with Broadway Stores,
Inc. from 1994 to 1996. Mr. Lawrence was Director of Store Planning with Carter
Hawley Hale Stores, Inc. from 1992 to 1994 and Vice President-- Visual
Merchandising with Broadway from 1989 to 1992.

David A. Liebergen has been our Senior Vice President, Human Resources
and Internal Communication since October, 1993. He served as our Secretary from
August, 1991 to October, 1995, and has been employed by ShopKo in various other
positions since 1973.

L. Terry McDonald has been our Senior Vice President--Marketing since
July, 1994. Mr. McDonald was Senior Vice President--Marketing with Payless Shoe
Source from 1988 to 1994 and Senior Vice President--Advertising & Sales
Promotion with M. O'Neil Co., from 1986 to 1988. Payless Shoe Source and M.
O'Neil Co. are both divisions of May Department Stores. Mr. McDonald also held
various merchandising and marketing positions, including Vice President--
General Merchandise Manager, Home and Vice President Advertising and Sales
Promotion with Cain-Sloan Co., an Allied Stores Division.

Richard D. Schepp has been our Senior Vice President and General Counsel
since November, 1997 and our Secretary since 1995. Mr. Schepp served as our
Vice President--Legal Affairs from 1995 to November, 1997 and has held various
other positions within our Legal Department since 1992.

S-40
<PAGE>

UNDERWRITING

General

We intend to offer our common stock in the United States and Canada
through a number of underwriters. Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Banc of America Securities LLC, Robert W. Baird & Co.
Incorporated and William Blair & Company, L.L.C. are acting as representatives
of each of the underwriters named below. Subject to the terms and conditions
set forth in a purchase agreement among us and the underwriters, we have agreed
to sell to the underwriters, and each of the underwriters severally and not
jointly has agreed to purchase from us, the number of shares of common stock
set forth opposite its name below.

<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..........................................
Banc of America Securities LLC.................................
Robert W. Baird & Co. Incorporated.............................
William Blair & Company, L.L.C.................................
----------
Total..................................................... 3,500,000
==========
</TABLE>

In the purchase agreement, the several underwriters have agreed, subject
to the terms and conditions set forth in the agreement, to purchase all of the
shares of common stock being sold under the terms of the agreement if any of
the shares of common stock being sold under the terms of the agreement are
purchased. In the event of a default by an underwriter, the purchase agreement
provides that, in certain circumstances, the purchase commitments of the
nondefaulting underwriters may be increased or the purchase agreements may be
terminated.

We have agreed to indemnify the underwriters against some liabilities,
including some liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in respect of those
liabilities.

The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the underwriters and
certain other conditions. The underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part.

Commissions and Discounts

The representatives have advised us that the underwriters propose
initially to offer the shares of common stock to the public at the initial
public offering price set forth on the cover page of this prospectus
supplement, and to certain dealers at such price less a concession not in
excess of $ per share of common stock. The underwriters may allow, and such
dealers may reallow, a discount not in excess of $ per share of common
stock to certain other dealers. After the initial public offering, the public
offering price, concession and discount may change.

The following table shows the per share and total public offering price,
underwriting discount to be paid by us to the underwriters and the proceeds
before expenses to us. This information is presented assuming either no
exercise or full exercise by the underwriters of their over-allotment option.

S-41
<PAGE>

<TABLE>
<CAPTION>
Per Without With
Share Option Option
----- ------- ------
<S> <C> <C> <C>
Public offering price................................. $ $ $
Underwriting discount................................. $ $ $
Proceeds, before expenses, to ShopKo.................. $ $ $
</TABLE>

The expenses of the offering, exclusive of the underwriting discount,
are estimated at $135,000 and are payable by us.

Over-allotment Option

We have granted an option to the underwriters, exercisable for 30 days
after the date of this prospectus supplement, to purchase up to an aggregate
of 525,000 additional shares of our common stock at the public offering price
set forth on the cover page of this prospectus supplement, less the
underwriting discount. The underwriters may exercise this option from time to
time solely to cover over-allotments, if any, made on the sale of our common
stock offered hereby. To the extent that the underwriters exercise this
option, each underwriter will be obligated, subject to certain conditions, to
purchase a number of additional shares of our common stock proportionate to
such underwriter's initial amount reflected in the foregoing table.

No Sales of Similar Securities

We have agreed, with certain exceptions, without the prior written
consent of Merrill Lynch on behalf of the underwriters for a period of 90 days
after the date of this prospectus supplement, not to directly or indirectly

. offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any
option, right or warrant for the sale of, lend or otherwise
dispose of or transfer any shares of our common stock or
securities convertible into or exchangeable or exercisable for or
repayable with our common stock, or file a registration statement
under the Securities Act relating to any shares of our common
stock or

. enter into any swap or other agreement that transfers, in whole or
in part, the economic consequence of ownership of our common stock
whether any such swap or transaction is to be settled by delivery
of our common stock or other securities, in cash or otherwise.

New York Stock Exchange Listing

Our common stock is listed on the New York Stock Exchange under the
symbol "SKO."

Price Stabilization and Short Positions

Until the distribution of our common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters
and certain selling group members to bid for and purchase our common stock. As
an exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of our common stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of our common stock.

If the underwriters create a short position in our common stock in
connection with the offering, i.e., if they sell more shares of our common
stock than are set forth on the cover page of this prospectus supplement, the
representatives may reduce that short position by purchasing our common stock
in the open market. The representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described
above.

S-42
<PAGE>

In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases.

Neither our company nor any of the underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of our common stock. In
addition, neither we nor any of the underwriters makes any representation that
the representatives or the lead managers will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.

Other Relationships

Certain of the underwriters and their affiliates have from time to time
provided, and may in the future provide, investment banking and general
financing and banking services to us and our affiliates. Merrill Lynch & Co. is
acting as the dealer manager for our tender offer for Pamida's outstanding
common stock. Merrill Lynch also rendered a fairness opinion in connection with
the acquisition of Pamida. Merrill Lynch is also acting as the lead underwriter
in the initial public offering of the common stock of our subsidiary ProVantage
Health Services, Inc.

LEGAL MATTERS

The validity of our common stock offered hereby will be passed upon for
us by Godfrey & Kahn, S.C., Milwaukee, Wisconsin. Certain legal matters will be
passed upon for the underwriters by Fried, Frank, Harris, Shriver & Jacobson (a
partnership including professional corporations), New York, New York. Fried,
Frank, Harris, Shriver & Jacobson will rely on Godfrey & Kahn, S.C. with
respect to matters governed by Wisconsin law.

EXPERTS

The consolidated financial statements of ShopKo Stores, Inc. as of
January 30, 1999 and January 31, 1998 and for each of the three fiscal years in
the period ended January 30, 1999 included and incorporated by reference in
this prospectus supplement and in the accompanying prospectus, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is included and incorporated by reference, and has been so
included and incorporated in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.

S-43
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Index to Consolidated Financial Statements of ShopKo Stores, Inc. and
Subsidiaries

Independent Auditors' Report.............................................. F-2

Consolidated Statements of Earnings for each of the three years in the
period ended January 30, 1999 and for the first fiscal quarters ended May
1, 1999 and May 2, 1998 (unaudited)...................................... F-3

Consolidated Balance Sheets as of January 30, 1999 and January 31, 1998
and as of May 1, 1999 and May 2, 1998 (unaudited)........................ F-4

Consolidated Statements of Cash Flows for each of the three years in the
period ended January 30, 1999 and for the first fiscal quarters ended May
1, 1999 and May 2, 1998 (unaudited)...................................... F-5

Consolidated Statements of Shareholders' Equity for each of the three
years in the period ended January 30, 1999 and for the first fiscal
quarters ended May 1, 1999 and May 2, 1998 (unaudited)................... F-6

Notes to Consolidated Financial Statements................................ F-8
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders
ShopKo Stores, Inc.:

We have audited the consolidated balance sheets of ShopKo Stores, Inc.
and subsidiaries as of January 30, 1999 and January 31, 1998 and the related
consolidated statements of earnings, shareholders' equity and cash flows for
the year (52 weeks) ended January 30, 1999, the year (49 weeks) ended January
31, 1998 and for the year (52 weeks) ended February 22, 1997. 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 ShopKo Stores, Inc. and
subsidiaries as of January 30, 1999 and January 31, 1998, and the results of
their operations and their cash flows for the year (52 weeks) ended January 30,
1999, the year (49 weeks) ended January 31,1998 and the year (52 weeks) ended
February 22, 1997 in conformity with generally accepted accounting principles.

/s/ Deloitte & Touche LLP
Deloitte & Touche LLP

Milwaukee, Wisconsin
March 12, 1999

F-2
<PAGE>

SHOPKO STORES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)

<TABLE>
<CAPTION>
Fiscal Years Ended First Quarter Ended
------------------------------------ ---------------------
January 30, January 31, February 22, May 1, May 2,
1999 1998 1997 1999 1998
(52 Weeks) (49 Weeks) (52 Weeks) (13 Weeks) (13 Weeks)
----------- ----------- ------------ ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Net sales............. $2,981,451 $2,447,847 $2,333,407 $759,857 $645,801
Licensed department
rentals and other
income............... 12,325 11,756 13,058 2,918 2,943
---------- ---------- ---------- -------- --------
2,993,776 2,459,603 2,346,465 762,775 648,744
Costs and Expenses:
Cost of sales......... 2,318,979 1,883,891 1,783,741 607,662 506,569
Selling, general and
administrative
expenses............. 471,546 403,635 397,092 120,669 110,834
Nonrecurring charge... 5,723 2,800 1,696
Depreciation and
amortization
expenses............. 67,590 58,252 59,833 17,648 17,073
---------- ---------- ---------- -------- --------
2,863,838 2,348,578 2,240,666 745,979 636,172
Income from operations.. 129,938 111,025 105,799 16,796 12,572
Interest expense--net... 38,311 30,582 31,777 9,692 9,029
---------- ---------- ---------- -------- --------
Earnings before income
taxes and extraordinary
item................... 91,627 80,443 74,022 7,104 3,543
Provision for income
taxes.................. 35,991 31,598 29,076 2,791 1,392
---------- ---------- ---------- -------- --------
Earnings before
extraordinary item..... 55,636 48,845 44,946 4,313 2,151
Extraordinary (loss) on
early retirement of
debt, net of income
taxes of $2,443........ (3,776)
---------- ---------- ---------- -------- --------
Net earnings............ $ 55,636 $ 48,845 $ 44,946 $ 537 $ 2,151
========== ========== ========== ======== ========
Basic earnings per
common share before
extraordinary item..... $ 2.14 $ 1.73 $ 1.40 $ 0.16 $ 0.08
Extraordinary (loss) on
early retirement of
debt................... (0.14)
---------- ---------- ---------- -------- --------
Basic net earnings per
common share........... $ 2.14 $ 1.73 $ 1.40 $ 0.02 $ 0.08
========== ========== ========== ======== ========
Diluted earnings per
common share before
extraordinary item..... $ 2.10 $ 1.71 $ 1.39 $ 0.16 $ 0.08
Extraordinary (loss) on
early retirement of
debt................... (0.14)
---------- ---------- ---------- -------- --------
Diluted net earnings per
common share........... $ 2.10 $ 1.71 $ 1.39 $ 0.02 $ 0.08
========== ========== ========== ======== ========
Weighted average number
of common shares
outstanding............ 26,035 28,161 32,092 26,140 25,869
Adjusted weighted
average number of
common shares
outstanding............ 26,517 28,569 32,370 26,591 26,346
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE>

SHOPKO STORES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In thousands)

<TABLE>
<CAPTION>
First Quarter as of
---------- ---------- ---------------------
January January May 1, May 2,
30, 1999 31, 1998 1999 1998
---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents....... $ 30,219 $ 54,344 $ 84,240 $ 28,968
Receivables, less allowance for
losses of $7,487, $8,637,
$7,695 and $9,722,
respectively................... 117,652 97,812 124,860 92,010
Merchandise inventories......... 434,643 376,568 483,876 401,938
Other current assets............ 5,461 13,508 11,594 8,677
---------- ---------- ---------- ----------
Total current assets.......... 587,975 542,232 704,570 531,593
Other assets and deferred
charges.......................... 6,960 7,202 6,980 6,991
Intangible assets--net............ 74,749 71,668 73,637 72,024
Property and equipment--net....... 703,840 629,733 713,342 628,462
---------- ---------- ---------- ----------
Total assets...................... $1,373,524 $1,250,835 $1,498,529 $1,239,070
========== ========== ========== ==========

Liabilities and Shareholders'
Equity
Current liabilities:
Short-term debt................. $ 159,000
Accounts payable--trade......... $ 189,581 $ 193,646 240,423 $ 212,347
Accrued compensation and related
taxes.......................... 40,955 39,964 35,488 30,002
Accrued other liabilities....... 169,530 135,522 146,080 118,138
Accrued income and other taxes.. 16,127 24,502 17,429 14,259
Current portion of long-term
obligations.................... 4,597 4,174 2,734 5,552
---------- ---------- ---------- ----------
Total current liabilities..... 420,790 397,808 601,154 380,298
Long-term obligations............. 467,191 436,125 409,543 433,636
Deferred income taxes............. 26,301 20,906 26,831 21,651
Commitments and contingencies..... -- -- -- --
Shareholders' equity:
Preferred stock; none
outstanding
Common stock; shares issued,
26,129 at January 30, 1999,
33,941 at January 31, 1998,
26,183 at May 1, 1999 and
26,041 at May 2, 1998.......... 261 339 262 260
Additional paid-in capital...... 228,479 283,520 229,652 226,661
Retained earnings............... 230,502 264,316 231,087 176,564
Less treasury stock; 8,174
shares......................... (152,179)
---------- ---------- ---------- ----------
Total shareholders' equity.... 459,242 395,996 461,001 403,485
---------- ---------- ---------- ----------
Total liabilities and
shareholders' equity............. $1,373,524 $1,250,835 $1,498,529 $1,239,070
========== ========== ========== ==========
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE>

SHOPKO STORES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>
Fiscal Years Ended Year to Date Ended
------------------------------------ ---------------------
January 30, January 31, February 22, May 1, May 2,
1999 1998 1997 1999 1998
(52 Weeks) (49 Weeks) (52 Weeks) (13 weeks) (13 weeks)
----------- ----------- ------------ ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net earnings............ $ 55,636 $ 48,845 $ 44,946 $ 537 $ 2,151
Adjustments to reconcile
net earnings to net
cash provided by
operating activities:
Depreciation and
amortization.......... 67,590 58,252 59,833 17,648 17,073
Provision for losses
on receivables........ 609 2,999 1,200 209 112
Loss (gain) on the
sale of property and
equipment............. 415 (540) (2,140) (673)
Deferred income
taxes................. 12,000 (1,334) (1,620) (767) 5,527
Extraordinary loss on
early retirement of
debt, net of tax
benefit............... 3,776
Change in assets and
liabilities
(excluding effects of
business
acquisitions):
Receivables.......... (19,857) (3,593) (40,636) (7,417) 5,690
Merchandise
inventories......... (64,630) (9,872) (12,529) (49,233) (25,370)
Other current
assets.............. 1,442 (1,282) 523 (4,834) 57
Other assets......... (5,839) (1,878) (13,062) (472) (888)
Accounts payable..... (4,065) 17,867 21,074 50,842 18,701
Accrued liabilities.. 30,548 33,137 54,133 (25,839) (35,854)
-------- --------- -------- -------- --------
Net cash provided by
(used in) operating
activities............. 73,849 142,601 111,722 (13,780) (12,801)
Cash flows from
investing activities:
Payments for property
and equipment.......... (99,725) (32,003) (38,899) (26,221) (14,888)
Proceeds from the sale
of property and
equipment.............. 2,301 2,348 3,275 746
Business acquisitions,
net of cash acquired... (40,488) (30,500)
-------- --------- -------- -------- --------
Net cash (used in)
investing activities... (97,424) (70,143) (66,124) (25,475) (14,888)
Cash flows from
financing activities:
Change in short-term
debt................... 159,000
Change in common stock
from stock options..... 4,572 10,907 1,249 765 3,453
Early retirement of
debt................... (64,208)
Change in common stock
from public offering... 23,419
Purchase of treasury
stock.................. (152,179)
Dividends paid.......... (10,583)
Reduction in debt and
capital leases......... (5,122) (24,811) (1,183) (2,281) (1,140)
-------- --------- -------- -------- --------
Net cash (used in)
provided by financing
activities............. (550) (142,664) (10,517) 93,276 2,313
-------- --------- -------- -------- --------
Net (decrease) increase
in cash and cash
equivalents............ (24,125) (70,206) 35,081 54,021 (25,376)
Cash and cash
equivalents at
beginning of period.... 54,344 124,550 89,469 30,219 54,344
-------- --------- -------- -------- --------
Cash and cash
equivalents at end of
period................. $ 30,219 $ 54,344 $124,550 $ 84,240 $ 28,968
======== ========= ======== ======== ========
Supplemental cash flow
information:
Noncash investing and
financial
activities--
Retirement of
treasury stock...... $152,179 $152,179
Capital lease
obligations
incurred............ $ 35,779 $ 5,533
Restricted stock
issued.............. $ 416 $ 1,012
Cash paid during the
period for:
Interest............. $ 38,140 $ 29,265 $ 31,663 $ 5,964 $ 3,906
Income taxes......... $ 28,423 $ 26,852 $ 30,086 $ 1,103 $ 6,560
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE>

SHOPKO STORES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
Common Stock Additional
-------------- Paid-in Retained
Shares Amount Capital Earnings
------ ------ ---------- --------
(In thousands, except per share
data)
<S> <C> <C> <C> <C>
Balances at February 24, 1996............. 32,005 $320 $242,843 $178,468
Net earnings.............................. 44,946
Sale of common stock under option plans... 97 1 1,248
Income tax benefit related to stock
options.................................. 35
Issuance of restricted stock.............. 65 1 1,011 (1,012)
Restricted stock expense.................. 63
Cash dividends declared on common stock--
$0.22 per share.......................... (7,060)
------ ---- -------- --------
Balances at February 22, 1997............. 32,167 322 245,137 215,405
Net earnings.............................. 48,845
Sale of common stock under option plans... 780 7 10,900
Income tax benefit related to stock
options.................................. 3,658
Sale of common stock in public offering... 984 10 23,409
Issuance of restricted stock.............. 10 246 (246)
Remeasurement of restricted stock......... 170 (170)
Restricted stock expense.................. 482
Purchase of treasury stock................
------ ---- -------- --------
Balances at January 31, 1998.............. 33,941 339 283,520 264,316
Net earnings.............................. 55,636
Sale of common stock under option plans... 362 4 4,568
Income tax benefit related to stock
options.................................. 2,435
Restricted stock expense.................. 603
Retirement of treasury stock.............. (8,174) (82) (62,044) (90,053)
------ ---- -------- --------
Balances at January 30, 1999.............. 26,129 261 228,479 230,502
Net earnings.............................. 537
Sale of common stock under option plans... 54 1 764
Income tax benefit related to stock
options.................................. 409
Restricted stock expense.................. 48
------ ---- -------- --------
Balances at May 1, 1999................... 26,183 $262 $229,652 $231,087
====== ==== ======== ========
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE>

SHOPKO STORES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
Treasury Stock Total
----------------- ----------------
Shares Amount Shares Amount
------ --------- ------ --------
(In thousands, except per share
data)
<S> <C> <C> <C> <C>
Balances at February 24, 1996............ 32,005 $421,631
Net earnings............................. 44,946
Sale of common stock under option plans.. 97 1,249
Income tax benefit related to stock
options................................. 35
Issuance of restricted stock............. 65
Restricted stock expense................. 63
Cash dividends declared on common stock--
$0.22 per share......................... (7,060)
------ --------- ------ --------
Balances at February 22, 1997............ 32,167 460,864
Net earnings............................. 48,845
Sale of common stock under option plans.. 780 10,907
Income tax benefit related to stock
options................................. 3,658
Sale of common stock in public offering.. 984 23,419
Issuance of restricted stock............. 10
Remeasurement of restricted stock........
Restricted stock expense................. 482
Purchase of treasury stock............... (8,174) $(152,179) (8,174) (152,179)
------ --------- ------ --------
Balances at January 31, 1998............. (8,174) (152,179) 25,767 395,996
Net earnings............................. 55,636
Sale of common stock under option plans.. 362 4,572
Income tax benefit related to stock
options................................. 2,435
Restricted stock expense................. 603
Retirement of treasury stock............. 8,174 152,179
------ --------- ------ --------
Balances at January 30, 1999............. 26,129 459,242
Net earnings............................. 537
Sale of common stock under option plans.. 54 765
Income tax benefit related to stock
options................................. 409
Restricted stock expense................. 48
------ --------- ------ --------
Balances at May 1, 1999.................. 26,183 $461,001
====== ========= ====== ========
</TABLE>

See notes to consolidated financial statements.

F-7
<PAGE>

SHOPKO STORES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Detailed footnote information for the 13 week periods is not presented.
In the opinion of management, the unaudited interim financial information
reflects all adjustments, consisting only of normal recurring accruals,
necessary for a fair presentation thereof.

A. Summary of Significant Accounting Policies

Organization and Basis of Presentation

The consolidated financial statements include the accounts of ShopKo
Stores, Inc. and its subsidiaries ("ShopKo" or the "Company"). All significant
intercompany accounts and transactions have been eliminated. The Company, which
is a Wisconsin corporation, was incorporated in 1961 and in 1971 became a
wholly owned subsidiary of Supervalu Inc. ("Supervalu"). On October 16, 1991,
the Company sold 17,250,000 common shares or 54% of equity ownership in an
initial public offering. On July 2, 1997, Supervalu exited its remaining 46%
investment in the Company through a stock buyback and secondary public
offering.

ShopKo is engaged in the business of providing general merchandise and
professional health services through its retail stores. Retail stores are
operated in the Midwest, Western Mountain and Pacific Northwest states. The
Company also provides custom health benefit management services; pharmacy mail
services; vision benefit management services and health information and
clinical support services through its subsidiary ProVantage Health Services,
Inc. ("ProVantage"). ProVantage conducts business principally throughout the
United States.

Change in Fiscal Year

The Company changed its fiscal year end from the last Saturday in
February to the Saturday nearest January 31, effective with the fiscal year
ended January 31, 1998. This change was made in order to coincide the Company's
fiscal year with the calendar predominantly used by the retail industry.
Consequently, for that transition year, the statements of earnings, cash flows
and shareholders' equity are presented for the 49-week period ended January 31,
1998. The table below illustrates how the fiscal years are referred to in the
notes to consolidated financial statements.

<TABLE>
<S> <C>
February 1, 1998 through January 30, 1999 (52 weeks)................ 1998
February 23, 1997 through January 31, 1998 (49 weeks)............... 1997
February 25, 1996 through February 22, 1997 (52 weeks).............. 1996
</TABLE>

Cash and Cash Equivalents

The Company records all highly liquid investments with a maturity of
three months or less as cash equivalents. In accordance with Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," these investments are classified as
trading securities and are reported at fair value.

Receivables

Receivables consist of amounts collectible from third party pharmacy
insurance carriers and self-funded medical plan sponsors for medical claims;
from retail store customers for optical, main store layaway and pharmacy
purchases; from pharmaceutical manufacturers and third party formulary
administrators for formulary fees; and from merchandise vendors for promotional
and advertising allowances. Substantially all amounts are expected to be
collected within one year.

F-8
<PAGE>

SHOPKO STORES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Merchandise Inventories

Merchandise inventories are stated at the lower of cost or market. Cost,
which includes certain distribution and transportation costs, is determined
through use of the last-in, first-out (LIFO) method for substantially all
inventories. If the first-in, first-out (FIFO) method had been used to
determine cost of inventories, the Company's inventories would have been higher
by approximately $34.4 million at January 30, 1999, $38.1 million at January
31, 1998 and $41.8 million at February 22, 1997.

Property and Equipment

Property and equipment are carried at cost. The cost of buildings and
equipment is depreciated over the estimated useful lives of the assets.
Buildings and certain equipment (principally computer and retail store
equipment) are depreciated using the straight-line method. Remaining properties
are depreciated on an accelerated basis. Useful lives generally assigned are:
buildings-25 to 50 years; retail store equipment-8 to 10 years; warehouse,
transportation and other equipment-3 to 10 years. Costs of leasehold
improvements are amortized over the period of the lease or the estimated useful
life of the asset, whichever is shorter, using the straight-line method.
Property under capital leases is amortized over the related lease term using
the straight-line method. Interest on property under construction of $0.2, $0.0
and $0.1 million was capitalized in fiscal years 1998, 1997 and 1996,
respectively.

The components of property and equipment are:

<TABLE>
<CAPTION>
Jan. 30, Jan. 31,
1999 1998
---------- ----------
(in thousands)
<S> <C> <C>
Property and equipment at cost:
Land............................................ $ 121,577 $ 118,723
Buildings....................................... 540,953 522,732
Equipment....................................... 408,313 348,817
Leasehold improvements.......................... 58,820 53,932
Property under construction..................... 12,999 456
Property under capital leases................... 58,004 26,419
---------- ----------
1,200,666 1,071,079
Less accumulated depreciation and amortization:
Property and equipment.......................... 487,137 430,293
Property under capital leases................... 9,689 11,053
---------- ----------
Net property and equipment........................ $ 703,840 $ 629,733
========== ==========
</TABLE>

Intangible Assets

The fair value of the intangible assets of businesses acquired are being
amortized using the straight-line method over 18 to 22 years. Accumulated
amortization for these costs was $9.4 million and $5.7 million at January 30,
1999 and January 31, 1998, respectively.

Impairment of Long Lived Assets

The Company evaluates whether events and circumstances have occurred that
indicate the remaining estimated useful life of long lived assets may warrant
revision or that the remaining balance of an asset may not be recoverable. The
measurement of possible impairment is based on the ability to

F-9
<PAGE>

SHOPKO STORES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

recover the balance of assets from expected future operating cash flows on an
undiscounted basis. In the opinion of management, no such impairment existed as
of January 30, 1999 or January 31, 1998.

Accrued Other Liabilities

Accrued other liabilities include amounts related to ProVantage for
medical claims and formulary rebate sharing and other current liabilities not
related to compensation or taxes. As of January 30, 1999 and January 31, 1998,
the amounts payable by ProVantage for medical claims and formulary rebate
sharing included in the accrued other liabilities were $73.2 million and $56.4
million, respectively.

ProVantage Accounting

ProVantage's net sales include: (i) administrative and dispensing fees
plus the cost of pharmaceuticals dispensed by pharmacies participating in the
network maintained by ProVantage or by ProVantage's mail service pharmacy to
members of health benefit plans sponsored by ProVantage's clients; (ii) amounts
billed to pharmaceutical manufacturers and third-party formulary administrators
for formulary fees, which are fees earned from pharmaceutical manufacturers for
improving product sales, marketing and other promotional activities; (iii) the
sale of eyeglasses and contact lenses and related administrative fees relating
to ProVantage's vision benefit management services; and (iv) license and
service fees for health information technology and clinical support services.
Cost of sales includes the amounts paid to network pharmacies and optical
centers for medical claims, the cost of prescription medications sold through
the mail service pharmacy and the amounts paid to plan sponsors for shared
formulary fees.

Pre-opening Costs

During fiscal 1998, the Company expensed pre-opening costs of retail
stores, except for advertising, as incurred. Pre-opening advertising costs are
charged against earnings in the year the advertising events occur. In years
prior to fiscal 1998, pre-opening costs of retail stores were charged against
earnings in the year the store was opened.

Net Earnings Per Common Share

Basic net earnings per common share are computed by dividing net earnings
by the weighted average number of common shares outstanding. Diluted net
earnings per common share are computed by dividing net earnings by the weighted
average number of common shares outstanding increased by the number of dilutive
potential common shares based on the treasury stock method. For fiscal years
1998, 1997 and 1996, respectively, the weighted average shares outstanding were
increased by 482,000, 408,000 and 278,000 for the dilutive effect of employee
stock options in calculating diluted earnings per share.

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 and the reporting period. Actual results could differ from those
estimates.

F-10
<PAGE>

SHOPKO STORES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

B. Acquisitions

On January 3, 1995, the Company completed the acquisition of Bravell,
Inc. ("Bravell"), a prescription benefit management company. The transaction
was accounted for as a purchase, whereby the Company acquired 97% of the
outstanding common stock of Bravell for approximately $17.3 million. The
Company was also required to make additional payments which were contingent
upon future results of Bravell's operations. In fiscal 1996, $0.7 million was
paid based on the results of fiscal 1995. On April 10, 1997, the Company made a
payment of approximately $8.9 million to the founders of Bravell to (i) acquire
the remaining 3% of the common stock of Bravell which the Company did not
acquire in January 1995, (ii) extinguish all remaining contingent payment
obligations to the founders and (iii) terminate the founders' employment
agreements.

On August 2, 1996, the Company completed the acquisition of CareStream
Scrip Card from Avatex Corporation, formerly known as Foxmeyer Health
Corporation. CareStream Scrip Card is a prescription benefit management company
which has been integrated with the Company's ProVantage subsidiary. The
purchase price was $30.5 million in cash, plus a supplemental cash payment
equal to 1.5% of ProVantage's market value subject to a minimum of $2.5 million
and a maximum of $5.0 million. The right of Avatex to the supplemental cash
payment expires on August 2, 2001. Such supplemental payment will be
capitalized as additional purchase price and amortized over a period of 15 to
18 years.

On August 20, 1997, the Company acquired The Mikalix Group, Inc. and its
subsidiaries ("Mikalix"), an international privately held group of companies
based in Arlington, Virginia. Mikalix's primary subsidiary is PharMark
Corporation, a software and database development business providing information
driven strategies for optimizing medical and pharmaceutical outcomes. The
purchase price for Mikalix was approximately $15.2 million, of which $14.2
million has been paid in cash and $1.0 million is due in 1999. The sellers of
Mikalix may also be entitled to contingent payments of up to $8.0 million in
the aggregate based on future increases in the market value of ProVantage's
outstanding common stock (the "Contingent Payments"). The Contingent Payments,
if any, will be due on the first to occur of August 20, 2002 or certain
liquidity events related to ProVantage. The Contingent Payments may be made, at
ProVantage's election, in either cash, Company common stock, or ProVantage
common stock; provided, however, that any stock used for such payments must be
traded in a public market. The Contingent Payments, if any, will be capitalized
as additional purchase price and amortized over a period of 15 to 19 years.

On December 19, 1997, the Company bought the outstanding stock of Penn-
Daniels, Incorporated ("Penn-Daniels"), a retail chain headquartered in Quincy,
Illinois for approximately $16.4 million in cash and $42.5 million of assumed
debt. The Company utilized cash and borrowings under its revolving credit
facility to fund the acquisition and the retirement of a portion of Penn-
Daniels' outstanding debt. Penn-Daniels operated 18 Jacks' discount stores in
Iowa, Illinois and Missouri and one Lots-A-Deals close-out store in Moline,
Illinois.

These acquisitions were accounted for under the purchase method of
accounting and the allocations of the purchase prices were based on fair values
at the dates of acquisition. The results of Bravell's, CareStream Scrip Card's,
Mikalix's and Penn-Daniels' operations since the dates of acquisition have been
included in the consolidated statement of earnings.

F-11
<PAGE>

SHOPKO STORES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

C. Short-Term Debt

As of January 30, 1999, the Company had a $200.0 million revolving credit
agreement with a consortium of banks. The credit facility is unsecured and is
effective through January 31, 2002. The Company pays an annual facility fee of
1/5 of one percent. As of January 30, 1999 and January 31, 1998, the Company
had no amounts outstanding under the current or prior agreements. The weighted
average interest rate on borrowings under the credit agreement for fiscal 1998
was 6.0%.

The Company also issues letters of credit during the ordinary course of
business as required by foreign vendors. As of January 30, 1999 and January 31,
1998, the Company had issued letters of credit for $17.3 million and $21.5
million, respectively.

D. Long-Term Obligations and Leases

<TABLE>
<CAPTION>
Jan. 30, Jan. 31,
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Senior Unsecured Notes, 9.0% due November 15, 2004,
less unamortized discount of $170 and $200,
respectively......................................... $ 99,830 $ 99,800
Senior Unsecured Notes, 8.5% due March 15, 2002, less
unamortized discount of $113 and $150, respectively.. 99,887 99,850
Senior Unsecured Notes, 9.25% due March 15, 2022, less
unamortized discount of $443 and $462, respectively.. 99,557 99,538
Senior Unsecured Notes, 6.5% due August 15, 2003, less
unamortized discount of $126 and $154, respectively.. 99,874 99,846
Industrial Revenue Bond, 6.4% due May 1, 2008......... 1,000 1,000
Mortgage obligations.................................. 19,177 21,304
Capital lease obligations............................. 52,463 18,961
-------- --------
471,788 440,299
Less current portion.................................. 4,597 4,174
-------- --------
Long-term obligations................................. $467,191 $436,125
======== ========
</TABLE>

The notes contain certain covenants which, among other things, restrict
the ability of the Company to consolidate, merge or convey, transfer or lease
its properties and assets substantially as an entirety, to create liens or to
enter into sale and leaseback transactions.

The mortgage obligations represent debt collateralized by certain
properties assumed in the Penn-Daniels acquisition. The interest rates on this
debt range from 7.50% to 8.75% with maturities ranging from February 1999 to
April 2007.

Approximate annual maturities of long-term obligations, excluding capital
leases, for the five years subsequent to the year ended January 30, 1999 are as
follows (in thousands):

<TABLE>
<CAPTION>
Long-Term
Year Obligations
---- -----------
<S> <C>
1999......................................................... $ 3,212
2000......................................................... 1,512
2001......................................................... 1,644
2002......................................................... 106,350
2003......................................................... 101,517
Later........................................................ 205,090
--------
Total maturities............................................. $419,325
========
</TABLE>

F-12
<PAGE>

SHOPKO STORES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The underwriting and issuance costs of all the long-term obligations are
being amortized over the terms of the notes using the straight-line method. At
January 30, 1999 and January 31, 1998, $2.0 million and $2.3 million remained
to be amortized over future periods. Amortization expense for these costs was
$0.3 million in fiscal years 1998, 1997 and 1996.

The Company leases certain stores under capital leases. Many of these
leases include renewal options, and occasionally, include options to purchase.

Amortization of property under capital leases was $2.2, $2.5 and $2.7
million in fiscal years 1998, 1997 and 1996, respectively. Minimum future
obligations under capital leases in effect at January 30, 1999 are as follows
(in thousands):

<TABLE>
<CAPTION>
Capital Lease
Year Obligations
---- -------------
<S> <C>
1999....................................................... $ 5,115
2000....................................................... 5,893
2001....................................................... 5,893
2002....................................................... 5,918
2003....................................................... 5,543
Later...................................................... 80,036
--------
Total minimum future obligations........................... 108,398
Less interest.............................................. (55,935)
--------
Present value of minimum future obligations................ $ 52,463
========
</TABLE>

The present values of minimum future obligations shown above are
calculated based on interest rates ranging from 7.4% to 13.4%, with a weighted
average of 9.6%, determined to be applicable at the inception of the leases.

Interest expense on the outstanding obligations under capital leases was
$2.8, $2.1 and $2.2 million in fiscal years 1998, 1997 and 1996, respectively.

Contingent rent expense, based primarily on sales performance, for
capital and operating leases was $0.5 million in fiscal years 1998, 1997 and
1996.

In addition to its capital leases, the Company is obligated under
operating leases, primarily for land, buildings and computer equipment. Minimum
future obligations under operating leases in effect at January 30, 1999 are as
follows (in thousands):

<TABLE>
<CAPTION>
Operating Lease
Year Obligations
---- ---------------
<S> <C>
1999..................................................... $ 17,674
2000..................................................... 15,231
2001..................................................... 13,163
2002..................................................... 10,742
2003..................................................... 8,581
Later.................................................... 100,070
--------
Total minimum obligations................................ $165,461
========
</TABLE>

F-13
<PAGE>

SHOPKO STORES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Total minimum rental expense, net of sublease income, related to all
operating leases with terms greater than one year was $9.3, $5.3 and $4.6
million in fiscal years 1998, 1997 and 1996, respectively.

Certain operating leases require payments to be made on an escalating
basis. The accompanying consolidated statements of earnings reflect rent
expense on a straight-line basis over the term of the leases. An obligation of
$3.2 million and $2.8 million, representing pro-rata future payments, is
reflected in the accompanying consolidated balance sheets at January 30, 1999
and January 31, 1998, respectively.

E. Income Taxes

Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Components of the Company's net deferred tax liability are as follows (in
thousands):

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Property and equipment.............................. $ 33,557 $ 26,200
Intangibles......................................... 2,394 1,210
LIFO inventory valuation............................ 11,188 9,800
Other............................................... 625 1,335
-------- --------
Total deferred tax liabilities...................... 47,764 38,545
-------- --------
Deferred tax assets:
Reserves and allowances............................. (14,391) (14,950)
Capital leases...................................... (2,443) (2,252)
Compensation and benefits........................... (2,704) (5,117)
-------- --------
Total deferred tax assets........................... (19,538) (22,319)
-------- --------
Net deferred tax liability............................ $ 28,226 $ 16,226
======== ========
</TABLE>

The amounts reflected in the provision for income taxes are based on
applicable federal statutory rates, adjusted for permanent differences between
financial and taxable income. The provision for federal and state income taxes
includes the following (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Current
Federal..................................... $19,465 $27,812 $25,858
State....................................... 4,572 5,191 4,838
General business and other tax credits...... (46) (71)
Deferred...................................... 12,000 (1,334) (1,620)
------- ------- -------
Total provision............................... $35,991 $31,598 $29,076
======= ======= =======
</TABLE>

The effective tax rate varies from the statutory federal income tax rate
for the following reasons:

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory income tax rate.............................. 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefits........ 4.3 4.3 4.0
Other.................................................. 0.0 0.0 0.3
---- ---- ----
Effective income tax rate.............................. 39.3% 39.3% 39.3%
==== ==== ====
</TABLE>

F-14
<PAGE>

SHOPKO STORES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Provision is made for deferred income taxes and future income tax
benefits applicable to temporary differences between financial and tax
reporting. The sources of these differences and the effects of each are as
follows (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Depreciation................................. $ 8,394 $ (142) $ 3,256
Inventory and LIFO valuation reserves........ 714 2,021 (212)
Insurance accruals and valuation reserves.... 57 (148) (1,625)
Other property related items................. (474) (707)
Compensation................................. 3,081 (1,690) (433)
Other........................................ 228 (1,375) (1,899)
------- ------- -------
Total deferred tax expense (benefit)......... $12,000 $(1,334) $(1,620)
======= ======= =======
</TABLE>

Other temporary differences between financial and tax reporting include
amortization and interest relating to capital leases and certain provisions for
expenses which are not deducted for tax purposes until paid.

F. Preferred and Common Stock

The Company has 20,000,000 shares of $0.01 preferred stock authorized but
unissued. There are 75,000,000 shares of $0.01 par value common stock
authorized.

The Company's Stock Option Plans and Stock Incentive Plan allows the
granting of stock options and other equity-based awards to various officers,
directors and other employees of the Company at prices not less than 100
percent of fair market value, determined by the closing price on the date of
grant. The Company has reserved 4,850,000 shares for issuance under the 1991
and 1995 Stock Option Plans and the 1998 Stock Incentive Plan. The majority of
the options under the 1991 and 1995 Stock Option Plans vest at the rate of 40%
on the second anniversary of the grant date and 20% annually thereafter for
officers and employees and at the rate of 60% on the second anniversary of the
date of grant and 20% annually thereafter for non-employee directors. The
options from the 1998 Stock Option Plan vest in accordance with vesting
schedules determined at the discretion of the Compensation Committee of the
Board of Directors. All stock options vest immediately upon a change of
control. Changes in the options are as follows (shares/options in thousands):

<TABLE>
<CAPTION>
Weighted Ave.
Exercise
Shares Price Range Price
------ ------------- -------------
<S> <C> <C> <C>
Outstanding, February 24, 1996..... 2,373 $10.00-$16.25 $ 12.82
Granted............................ 542 10.63- 16.25 11.59
Exercised.......................... (97) 10.00- 15.00 (12.91)
Cancelled and forfeited............ (182) 10.00- 16.25 (11.84)
----- ------------- -------
Outstanding, February 22, 1997..... 2,636 10.00- 16.25 12.63
Granted............................ 1,233 17.88- 28.69 21.45
Exercised.......................... (783) 10.00- 16.25 (13.98)
Cancelled and forfeited............ (790) 10.00- 24.56 (11.41)
----- ------------- -------
Outstanding, January 31, 1998...... 2,296 10.00- 28.69 17.32
Granted............................ 324 28.19- 36.44 30.66
Exercised.......................... (361) 10.00- 16.25 (12.65)
Cancelled and forfeited............ (157) 10.00- 31.75 (19.52)
----- ------------- -------
Outstanding, January 30, 1999...... 2,102 $10.00-$36.44 $ 20.02
===== ============= =======
</TABLE>

F-15
<PAGE>

SHOPKO STORES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
Weighted Ave.
Options Exercise
Exercisable Price
----------- -------------
<S> <C> <C>
January 30, 1999.. 549 $13.39
January 31, 1998.. 741 13.39
February 22,
1997............. 1,305 14.14
</TABLE>

The following tables summarize information about stock options
outstanding at January 30, 1999 (shares in thousands):

<TABLE>
<CAPTION>
Options Outstanding
-----------------------------------------------------------------
Range of Exercise Shares Outstanding at Weighted Average Weighted Average
Prices Jan. 30, 1999 Remaining Contractual Life Exercise Price
----------------- --------------------- -------------------------- ----------------
<S> <C> <C> <C>
$10.00 to $15.00........ 656 4.4 years $12.84
15.01 to 20.00........ 727 8.2 19.26
20.01 to 36.44........ 719 9.1 27.35
------------------------ ----- --------- ------
$10.00 to $36.44........ 2,102 7.3 $20.02
======================== ===== ========= ======
</TABLE>

<TABLE>
<CAPTION>
Options Exercisable
--------------------------------------
Range of Exercise Shares Outstanding at Weighted Average
Prices Jan. 30, 1999 Exercise Price
----------------- --------------------- ----------------
<S> <C> <C>
$10.00 to $15.00.................... 526 $13.27
15.01 to 20.00.................... 23 16.22
20.01 to 36.44.................... -- --
--- ------
--------------------
$10.00 to $36.44.................... 549 $13.39
=== ======
--------------------
--------------------
</TABLE>

The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost
has been recognized for the Company's stock option plans. If the Company had
elected to recognize compensation cost based on the fair value of the options
granted at grant date as prescribed by SFAS No. 123, net earnings and diluted
net earnings per common share would have been reduced to the proforma amounts
indicated below:

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net earnings (in thousands)
As reported................................... $55,636 $48,845 $44,946
Pro forma..................................... 53,972 48,325 44,228
Diluted net earnings per common share
As reported................................... $ 2.10 $ 1.71 $ 1.39
Pro forma..................................... 2.04 1.69 1.37
</TABLE>

The weighted average fair value of options granted was $10.96, $7.35 and
$3.04 per share in fiscal years 1998, 1997 and 1996, respectively.

F-16
<PAGE>

SHOPKO STORES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The fair value of stock options used to compute pro forma net earnings
and diluted net earnings per common share disclosures is the estimated present
value at grant date using the Black-Scholes option-pricing model with weighted
average assumptions as follows:

<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- -----
<S> <C> <C> <C>
Risk-free interest rate.................... 5.3% 7.0% 7.0%
Expected volatility........................ 34.0% 35.0% 29.0%
Dividend yield............................. 0.0% 0.0% 0.0%
Expected option life, standard option
(years)................................... 1.0 to 5.0 2.0 to 5.0 5.0
Expected option life, performance vested
option (years)............................ 2.5
</TABLE>

In fiscal 1993, the Company adopted a Restricted Stock Plan which
provides awards of up to 200,000 shares of common stock to key employees of the
Company. Plan participants are entitled to cash dividends and to vote their
respective shares. Restrictions limit the sale or transfer of the shares during
a restricted period. There were 75,000 shares of restricted stock outstanding
at January 30, 1999 and January 31, 1998.

G. Employee Benefits

Substantially all employees of the Company are covered by a defined
contribution profit sharing plan. The plan provides for two types of company
contributions: an amount determined annually by the Board of Directors and an
employer matching contribution equal to one-half of the first 6 percent of
compensation contributed by participating employees. Contributions were $14.2,
$12.8 and $11.8 million for fiscal years 1998, 1997 and 1996, respectively.

The Company also has change of control severance agreements with certain
key officers. Under these agreements, the officers are entitled to a lump-sum
cash payment equal to a multiple of one, two or three times their annual salary
plus a multiple of one, two or three times their average annual bonus for the
three fiscal years immediately preceding the date of termination, if, within
two years after a "change of control" (as defined in such agreements) the
Company terminates the individual's employment without cause.

In accordance with SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," the Company accrues the estimated
cost of retiree benefits, other than pensions, during employees' credited
service period. The following disclosure is made in accordance with the
requirements of SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." The net periodic costs for postretirement benefits
include the following (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost for benefits accumulated during the year... $131 $130 $ 98
Interest cost on accumulated benefit obligation......... 139 138 95
---- ---- ----
Net periodic postretirement benefit cost.............. $270 $268 $193
==== ==== ====
</TABLE>

F-17
<PAGE>

SHOPKO STORES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company's postretirement healthcare plans currently are not funded.
The changes in accumulated postretirement benefit obligations are as follows
(in thousands):

<TABLE>
<CAPTION>
Jan. 30, Jan. 31,
1999 1998
-------- --------
<S> <C> <C>
Benefit obligation at beginning of year................ $1,760 $1,586
Service cost........................................... 131 130
Interest cost.......................................... 139 138
Net benefit payments................................... (134) (94)
------ ------
Benefit obligation at end of year.................... $1,896 $1,760
====== ======
</TABLE>

The assumed discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% as of January 30, 1999 and January
31, 1998.

The assumed healthcare cost trend rate used in measuring the accumulated
postretirement benefit obligation was 8.1% for fiscal 1998 decreasing each
successive year until it reaches 5.5% in fiscal 2015 after which it remains
constant. A 1.0% increase in the healthcare trend rate would not have a
material effect on either the accumulated postretirement benefit obligation at
the end of fiscal 1998 and fiscal 1997 or the net periodic benefit cost for the
fiscal years.

H. Fair Values of Financial Instruments

The following disclosure is made in accordance with the requirements of
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments." The
following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments.

Short-term debt and long-term obligations: The carrying amounts, if any,
of the Company's borrowings under its short-term revolving credit agreement
approximate their fair value. The fair values of the Company's long-term
obligations are estimated using discounted cash flow analysis based on interest
rates that are currently available to the Company for issuance of debt with
similar terms and remaining maturities.

The carrying amounts and fair values of the Company's financial
instruments at January 30, 1999 are as follows (amounts in thousands):

<TABLE>
<CAPTION>
Carrying Fair
Amount Value
-------- --------
<S> <C> <C>
Long-term obligations:
Senior Unsecured Notes, due November 15, 2004....... $99,830 $109,752
Senior Unsecured Notes, due March 15, 2002.......... 99,887 104,650
Senior Unsecured Notes, due March 15, 2022.......... 99,557 116,077
Senior Unsecured Notes, due August 15, 2003......... 99,874 98,886
Industrial Revenue Bond, due May 1, 2008............ 1,000 1,000
Mortgage obligations................................ 19,177 19,357
Capital lease obligations........................... 52,463 53,742
</TABLE>

F-18
<PAGE>

SHOPKO STORES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

I. Unaudited Quarterly Financial Information

Unaudited quarterly financial information is as follows:

<TABLE>
<CAPTION>
Fiscal Year (52 Weeks) Ended January 30, 1999
---------------------------------------------------------------------------
First Second Third Fourth Year
(13 weeks) (13 weeks) (13 weeks) (13 weeks) (52 weeks)
--------------- ------------- ------------- ----------------- -------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales............... $645,801 $678,453 $731,270 $925,927 $2,981,451
Gross margins........... 139,232 151,937 152,837 218,466 662,472
Net earnings............ 2,151 5,900 6,964 40,621 55,636
Basic net earnings per
common share........... 0.08 0.23 0.27 1.56 2.14
Weighted average
shares................. 25,869 26,067 26,093 26,113 26,035
Diluted net earnings per
common share........... 0.08 0.22 0.26 1.53 2.10
Adjusted weighted
average shares......... 26,346 26,626 26,517 26,592 26,517
Price range per common
share*................. 34 15/16-25 7/8 36 5/8-29 1/4 32 1/2-25 1/8 33 11/16-29 11/16 36 5/8-25 1/8
</TABLE>

<TABLE>
<CAPTION>
Fiscal Year (49 Weeks) Ended January 31, 1998
-------------------------------------------------------------------
First Second Third Fourth Year
(16 weeks) (12 weeks) (12 weeks) (9 weeks) (49 weeks)
------------- ------------- ----------- ------------- -------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales............... $719,968 $546,106 $608,389 $573,384 $2,447,847
Gross margins........... 163,583 119,852 138,143 142,378 563,956
Net earnings............ 7,238 4,173 11,912 25,522 48,845
Basic net earnings per
common share........... 0.22 0.15 0.46 0.99 1.73
Weighted average
shares................. 32,240 26,975 25,718 25,749 28,161
Diluted net earnings per
common share........... 0.22 0.15 0.45 0.98 1.71
Adjusted weighted
average shares......... 32,767 27,831 26,468 26,086 28,569
Price range per common
share*................. 26 7/8-14 1/2 29 3/4-25 1/2 28 13/16-21 25 5/8-19 1/4 29 3/4-14 1/2
</TABLE>
- --------

*Price range per common share reflects the highest and lowest stock market
prices on the New York Stock Exchange during each quarter.

J. Significant Events

Termination of Combination:

On September 7, 1996, the Company entered into a Plan of Reorganization
with Phar-Mor, Inc. ("Phar-Mor") and Cabot Noble, Inc. ("Cabot Noble").
Pursuant to the Plan of Reorganization, the Company and Phar-Mor would have
become subsidiaries of Cabot Noble. On April 2, 1997, the Company, Cabot Noble
and Phar-Mor mutually agreed to terminate this planned business combination.
The Company recorded a one-time pre-tax charge of approximately $2.8 million
($0.06 per share) during fiscal 1997 to cover costs associated with the
terminated business combination.

F-19
<PAGE>

SHOPKO STORES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Common Stock Buyback and Secondary Offering:

On April 24, 1997, the Company and Supervalu Inc. ("Supervalu") entered
into an agreement pursuant to which Supervalu exited its 46% investment in the
Company. Under the terms of the agreement, the companies completed two
simultaneous transactions. The first transaction was a $150.0 million stock
buyback, whereby the Company repurchased 8,174,387 shares of its common stock
held by Supervalu for $18.35 per share. The second transaction was a secondary
public offering of Supervalu's remaining 6,557,280 shares of the Company's
common stock and 983,592 additional shares which were issued by the Company to
cover over-allotments. The secondary offering was priced at $25.00 per share on
June 26, 1997. The stock buyback and secondary offering were completed on July
2, 1997. The Company received $23.4 million in proceeds from the sale of the
over-allotment shares. Supervalu paid the underwriting discount for the shares
it sold and certain other expenses related to the secondary offering.

Treasury Stock Retirement:

In fiscal 1998, the Company retired all 8,174,387 shares of common stock
held as treasury stock for accounting purposes, and such shares were returned
to the status of authorized but unissued shares. As a result, the $152.2
million assigned to treasury stock was eliminated with a corresponding decrease
in par value, additional paid-in capital and retained earnings.

K. Other Events

On February 4, 1999, the Company and ProVantage announced that a
registration statement for the initial public offering of ProVantage's common
stock had been filed with the Securities and Exchange Commission. The
registration statement was filed for approximately $100.0 million of ProVantage
common stock. ProVantage will receive approximately $20.0 million for operating
capital and strategic alternatives and the Company will utilize the balance for
strategic and/or financial alternatives.

On February 8, 1999, the Company announced that its Board of Directors
had authorized the Company to repurchase its Senior Notes from time to time in
the open market and through privately negotiated transactions. Any purchases
would depend on price, market conditions and other factors. As of March 12,
1999, the Company has repurchased approximately $57.1 million of the Senior
Notes.

L. Business Segment Information

In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," was issued effective for fiscal years ending after
December 15, 1998. The Company has adopted this statement for the year ended
January 30, 1999.

The Company's reportable segments are strategic business units that offer
different products and services, and include a Retail Store segment (which
includes general merchandise, retail pharmacy and retail optical operations)
and a ProVantage segment (which includes health benefit management services,
pharmacy mail services, vision benefit management services and health
information and clinical support services).

The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. Intersegment sales and
transfers are accounted for at current market prices. The Company evaluates
performance based on operating earnings of the respective business segments.

F-20
<PAGE>

SHOPKO STORES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)

Summarized financial information concerning the Company's reportable
segments is shown in the following table (in thousands):

<TABLE>
<CAPTION>
Fiscal Years
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net sales
Retail Store....................... $2,351,183 $2,001,568 $2,005,731
ProVantage......................... 666,154 472,215 348,780
Intercompany*...................... (35,886) (25,936) (21,104)
---------- ---------- ----------
Total net sales.................. $2,981,451 $2,447,847 $2,333,407
========== ========== ==========
Earnings before income taxes
Retail Store....................... $ 140,763 $ 127,269 $ 113,683
ProVantage......................... 16,160 12,664 9,533
Corporate.......................... (26,985) (28,908) (17,417)
Interest expense................... (38,311) (30,582) (31,777)
---------- ---------- ----------
Earnings before income taxes..... $ 91,627 $ 80,443 $ 74,022
========== ========== ==========
Assets
Retail Store....................... $1,147,221 $1,040,146 $ 985,374
ProVantage......................... 200,777 155,037 123,847
Corporate.......................... 25,526 55,652 124,671
---------- ---------- ----------
Total assets..................... $1,373,524 $1,250,835 $1,233,892
========== ========== ==========
Depreciation and amortization
expenses
Retail Store....................... $ 60,106 $ 53,245 $ 57,036
ProVantage......................... 6,776 4,641 2,312
Corporate.......................... 708 366 485
---------- ---------- ----------
Total depreciation and
amortization expenses........... $ 67,590 $ 58,252 $ 59,833
========== ========== ==========
Capital expenditures
Retail Store....................... $ 85,531 $ 27,762 $ 34,258
ProVantage......................... 8,863 3,514 2,953
Corporate.......................... 5,331 727 1,688
---------- ---------- ----------
Total capital expenditures....... $ 99,725 $ 32,003 $ 38,899
========== ========== ==========
</TABLE>
- --------

*Intercompany sales consist of prescriptions that were both sold at a ShopKo
pharmacy and processed by ProVantage.

The Company's areas of operations are principally in the United States.
No major customer accounted for a significant amount of consolidated revenue in
fiscal years 1998, 1997 and 1996.

M. Subsequent Events (Unaudited)

On May 10, 1999, ShopKo and Pamida Holdings Corporation ("Pamida") signed
an agreement for ShopKo to acquire Pamida. The transaction values Pamida at
approximately $375.0 million, including assumed debt of approximately $265.0
million. Pursuant to such agreement, ShopKo commenced a tender offer at $11.50
cash per share on May 17, 1999.

F-21
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Subject to Completion

Preliminary Prospectus dated June 28, 1999

PROSPECTUS

$500,000,000

ShopKo Stores, Inc.

Common Stock and Debt Securities

-----------

We may offer from time to time in one or more series, together or
separately,

. shares of common stock, or

. unsecured debt securities consisting of debentures, notes and/or other
evidences of indebtedness.

The securities issued pursuant to this prospectus will have an aggregate
public offering price of up to $500 million. The specific terms of the
securities will be described in an accompanying prospectus supplement.

The common stock is listed on The New York Stock Exchange under the trading
symbol "SKO." Any common stock sold pursuant to a prospectus supplement will be
listed on The New York Stock Exchange.

We may offer the securities directly, to or through agents, underwriters or
dealers which we may designate from time to time, or through a combination of
such methods, at market prices prevailing at the time of sale or at prices
otherwise negotiated. If any agents, underwriters or dealers are involved in
the sale of any of the securities, their names, and any applicable purchase
price, fee, commission or discount arrangement between or among them, will be
included, or will be calculable from the information included, in an
accompanying prospectus supplement.

This prospectus may not be used to consummate sales of securities unless
accompanied by a prospectus supplement. Investing in the common stock or debt
securities involves risks which are described in the "Risk Factors" section
beginning on page 3 of this prospectus.

-----------

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

-----------

The date of this prospectus is June , 1999.
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Our Company................................................................ 3
Risk Factors............................................................... 3
Ratio of Earnings to Fixed Charges......................................... 6
Use of Proceeds............................................................ 7
Description of Common Stock................................................ 7
Description of Debt Securities............................................. 10
Book-Entry Securities...................................................... 15
Certain United States Federal Income Tax Consequences...................... 17
Plan of Distribution....................................................... 28
Legal Matters.............................................................. 30
Where You Can Find More Information ....................................... 30
Incorporation of Information We File With The SEC.......................... 31
</TABLE>

2
<PAGE>

OUR COMPANY

We are a leading specialty discount retailer operating 158 stores in 19
states, primarily in the Midwest, Western Moutain and Pacific Northwest regions
as of May 1, 1999. We also serve the rapidly growing managed healthcare
industry through our subsidiary, ProVantage Health Services, Inc. ProVantage is
a leading health benefit management company providing pharmacy benefit and
health information technology products and services to its customers. Our
principal executive offices are located at 700 Pilgrim Way, Green Bay,
Wisconsin 54304. Our telephone number is (920) 497-2211.

RISK FACTORS

You should carefully consider the following risk factors before deciding
to purchase the securities.

Competition in the retail industry could limit our growth opportunities and
reduce our profitability.

We compete in the discount retail merchandise and retail health services
businesses. These businesses are highly competitive. This competitive
environment subjects us to the risk of reduced profitability. We compete with
other discount retail merchants as well as mass merchants, internet retailers
and other general merchandise, apparel and household merchandise retailers. Our
retail health services business competes with independent and chain pharmacies
and optical centers. The discount retail merchandise business is subject to
excess capacity and some of our competitors are much larger and have
substantially greater resources than we have. The competition for customers and
store locations has intensified in recent years as larger competitors, such as
Wal-Mart, Kmart and Target, have moved into our geographic markets. We expect a
further increase in competition from these national discount retailers. We
cannot assure you that we will be able to continue to compete successfully.

Our inability to secure additional retail store sites could limit our growth
opportunities.

If additional retail store sites are unavailable, we may not be able to
carry out a significant part of our growth strategy, which could materially
adversely affect our future growth. Our plans to increase the number of our
retail stores will depend in part on the availability of existing retail stores
or store sites. We cannot assure you that stores or sites will be available to
us for purchase or lease, or that they will be available on terms acceptable to
us. Rising real estate costs and construction and development costs could also
inhibit our ability to grow. If we are unable to grow our retail business, our
financial performance could be materially adversely affected.

Our conversion, integration and operation of companies which we acquire may not
succeed or generate the expected results, which may have a significant adverse
effect on our financial performance and our growth strategy and prospects.

If we are unable to integrate companies which we acquire into our
business, then our financial performance and our growth strategy and prospects
may be adversely affected. A significant part of our growth strategy depends on
our ability to identify and acquire companies which complement our business,
such as Pamida Holdings Corporation, and to integrate those companies into our
management and operational structure. This integration requires substantial
management, logistical and financial resources which might otherwise be devoted
to our existing operations. Our pending acquisition of Pamida is larger than
any other acquisition we have made. Our failure to accommodate this growth
could have a material adverse affect on our results of operations.

3
<PAGE>

Our ProVantage subsidiary is subject to various risks, which could adversely
affect our financial performance.

If our ProVantage subsidiary is adversely affected by the business and
other risks to which it is subject, then our results of operations and
financial results may suffer. For fiscal 1998, our ProVantage subsidiary
generated approximately 22.0% of our sales and approximately 12.5% of our
income from operations. The ProVantage business is substantially different from
our retail business and is subject to additional and different risks. To the
extent these risks could materially and adversely effect ProVantage, they could
also have a material and adverse effect on us. The risks that ProVantage is
subject to include the following:

. ProVantage's industry is very competitive and this competition is
reducing profitability in ProVantage's industry.

. Consistent with industry practice, ProVantage does not have long-
term contracts with its customers, network pharmacies or
pharmaceutical manufacturers and loss of a significant number of
these contractual relationships could materially adversely affect
ProVantage and its results of operations.

. ProVantage is introducing new products which the market may not
accept.

. ProVantage is growing rapidly, and if ProVantage is unable to
manage this growth, then its business and results of operations
could be materially adversely affected.

. ProVantage's business is subject to extensive government
regulation, and if government regulations are interpreted and
enforced in a manner adverse to ProVantage's business, then
ProVantage may be materially adversely affected.

. Other governmental actions, including changes in healthcare
finance and reimbursement practices and patient confidentiality
laws, could materially adversely affect ProVantage.

. ProVantage may be subject to liability claims which are not
covered by insurance, which may adversely affect ProVantage's
results of operations.

. ProVantage relies on the use of intellectual property, such as
computer software, to conduct its business, which, if not properly
protected, could be lost, restricted, copied or used by other
businesses which could have a material adverse effect on
ProVantage.

The foregoing is a summary of the risk factors applicable to ProVantage.
For a more complete description of those risks, please see "Risk Factors" in
ProVantage's Registration Statement on Form S-1, Reg. No. 333-71743, which
section is incorporated by reference in this prospectus.

Failure to successfully address the Year 2000 problem could materially
adversely affect our business.

Because we depend on the proper functioning of our computer systems and
those of our vendors, systems failures could materially adversely affect our
business. If our computer systems or those of our vendors are not Year 2000
compliant, we may have difficulty obtaining goods for our stores on a timely
basis. We have taken steps to determine whether our vendors are or expect to be
Year 2000 compliant by the end of 1999. Although we believe that we have
minimized the risk of non-compliance, we cannot assure Year 2000 compliance by
the end of 1999. For a further description of Year 2000 risks, please refer to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000" in the prospectus supplement.

Our general merchandise business is seasonal and quarterly performance
fluctuates, which may cause volatility or a decline in the price of our
securities.

Because our retail business is seasonal, our results of operations may
fluctuate which may lead to significant volatility or declines in the price of
our securities. Our retail general merchandise business is highly seasonal. The
Christmas selling season has historically contributed a significant part of our

4
<PAGE>

earnings and primarily impacts the fourth fiscal quarter. Inventory imbalances
caused by unanticipated fluctuations in consumer demand also results in
fluctuations of our results. This seasonality and these fluctuations cause our
operating results to vary considerably from quarter to quarter and could
materially adversely affect the market price of our securities.

Loss of our key management personnel, especially William J. Podany, our
president and chief executive officer, could materially adversely affect our
business.

Our success depends to a significant extent on the continued services of
our senior management, particularly William J. Podany. We do not have
employment contracts with members of our senior management, including Mr.
Podany. If we lose key senior management, then our business could be materially
adversely affected.

Adverse weather and general economic conditions could have a significant
adverse effect on our business.

Because our business is subject to adverse weather conditions in our
retail markets, particularly in the Midwest, Western Mountain and Pacific
Northwest regions, our operating results may be unexpectedly and materially
adversely affected. Frequent or unusually heavy snow, ice or rain storms in our
markets could have a material adverse effect on our sales and earnings and
could adversely impact our ability to make scheduled interest payments on our
indebtedness. General economic factors in the regions in which we operate that
are beyond our control may also materially adversely affect our forecasts and
actual performance. The factors that may materially adversely affect our
forecasts and actual performance include:

. interest rates,

. recession,

. inflation,

. deflation,

. consumer credit availability,

. consumer debt levels,

. tax rates and policy,

. unemployment trends, and

. other matters that influence consumer confidence and spending.

Increasing volatility in financial markets may cause these factors to
change with a greater degree of frequency and magnitude.

Labor conditions may have a material adverse impact on our performance.

If we cannot attract and retain quality employees, our business will
suffer. We depend on attracting and retaining quality employees. Many of our
employees are in entry level or part-time positions with historically high
rates of turnover. We may be unable to meet our labor needs while controlling
costs due to external factors such as unemployment levels, minimum wage
legislation and changing demographics.

5
<PAGE>

We have a significant amount of debt which could adversely affect our business
and growth prospects.

At January 30, 1999, we had approximately $467.2 million of long-term
debt and other long-term obligations. We expect to incur more debt as we expand
our retail operations. This additional debt could have significant adverse
effects on our business. For example, it could:

. make it more difficult for us to obtain additional financing on
favorable terms,

. require us to dedicate a substantial portion of our cash flows
from operations to the repayment of our debt and the interest on
our debt,

. limit our ability to capitalize on significant business
opportunities,

. make us more vulnerable to economic downturns, and

. contain certain covenants which restrict our ability to operate
our business.

Anti-takeover provisions in our organizational documents and statutes may
inhibit premium offers for our common stock.

Anti-takeover provisions in our amended and restated articles of
incorporation, by-laws and Wisconsin law and our rights plan may deter
unfriendly offers or other efforts to obtain control of ShopKo. This could make
us less attractive to a potential acquirer and deprive our shareholders of
opportunities to sell their shares of common stock at a premium price.

Pending or future litigation could subject us to significant monetary damages.

If we become subject to liability claims which are in excess of our
insurance coverage or are not covered by our insurance policies, then we may be
liable for damages and other expenses which could have a material adverse
effect on our business, operating results and financial condition. In addition,
any claims against us, regardless of merit or eventual outcome, may have a
material adverse effect on our reputation and business. The sale of retail
merchandise and provision of in-store pharmacy and optical services entail a
risk of litigation and liability. We are currently subject to a number of
lawsuits, and we expect that from time to time we will be subject to similar
suits in the ordinary course of business. We currently maintain insurance
intended to cover a majority of liability claims, subject to a $250,000
deductible for general liability claims and a $500,000 deductible for liability
claims arising from prescription dispensing errors. We believe that our
insurance programs are adequate. We cannot assure you that we will be able to
maintain appropriate types or levels of insurance in the future, that adequate
replacement policies will be available on acceptable terms, or that insurance
will cover all claims against us.

RATIO OF EARNINGS TO FIXED CHARGES

Our consolidated ratios of earnings to fixed charges are as follows:

<TABLE>
<CAPTION>
Fiscal Quarters
Fiscal Years Ended Ended
----------------------------------------------- -----------------
Feb. 25, Feb. 24, Feb. 22, Jan 31, Jan. 30, May 2, May 1,
1995 1996 1997 1998 1999 1998 1999
(52 wks) (52 wks) (52 wks) (49 wks)(1) (52 wks) (13 wks) (13 wks)
-------- -------- -------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to
Fixed Charges.......... 2.9 2.7 3.2 3.4 3.2 1.4 1.7
</TABLE>
- --------

(1) We changed our fiscal year end from the last Saturday in February to the
Saturday nearest January 31.

For purposes of computing the ratio of earnings to fixed charges,
earnings consist of earnings before change in accounting principle plus income
taxes, interest expense, the interest portion of rent expense and amortization
expense of capitalized interest. Fixed charges consist of interest expense, the
interest portion of rental expense and capitalized interest.

6
<PAGE>

USE OF PROCEEDS

Unless we indicate a different use in an accompanying prospectus
supplement, the net proceeds from the sale of the securities will be added to
our general funds and may be used for:

.working capital,

.capital expenditures,

.debt refinancing or debt reduction,

.acquisition of companies, businesses, real property, store sites and other
assets,

.short-term investments pending use of such funds for other purposes, and

.other general corporate purposes.

DESCRIPTION OF COMMON STOCK

General

We have 75,000,000 shares of common stock, $0.01 par value per share,
authorized for issuance. As of March 31, 1999, we had 26,140,380 shares of
common stock issued and outstanding. All of such shares are validly issued,
fully paid and non-assessable, and upon completion of the offering all of the
outstanding shares of common stock will be validly issued, fully paid and non-
assessable, except as provided by Section 180.0622(2)(b) of the Wisconsin
Business Corporation Law, the WBCL. Under Section 180.0622(2)(b), holders of
common stock are liable up to the amount equal to the par value of the common
stock owned by such holder for all debt owing to employees for services
performed, but not exceeding six months' service in any one case. Some
Wisconsin courts have interpreted "par value" to mean the full amount paid by
the holders to purchase the common stock.

We have summarized below certain provisions of our common stock. This
summary is not complete. You should refer to all of the provisions of our
amended and restated articles of incorporation and by-laws, which have been
filed as exhibits to the registration statement.

Voting. For all matters submitted to a vote of shareholders, each holder
of common stock is entitled to one vote for each share held of record. Our
common stock does not have cumulative voting rights. As a result, subject to
the voting rights of any outstanding preferred stock and any voting limitations
imposed by the WBCL, persons who hold more than 50% of the outstanding common
stock can elect all of the directors who are nominated for election in a
particular year.

Staggered Board of Directors. Our amended and restated articles of
incorporation divide the board of directors into three classes serving
staggered three-year terms. As a result, at least two annual meetings will
generally be required for shareholders to effect a change of a majority of the
board of directors. Any director, or the entire board of directors, may be
removed from office only for cause. Proposals to amend, alter or repeal these
provisions in the amended and restated articles of incorporation require a 75%
vote of shareholders and a majority vote of each class or series, if any.

Dividends. If our board of directors declares a dividend, holders of
common stock will receive payments from the funds of ShopKo that are legally
available to pay dividends. However, this dividend right is subject to any
preferential dividend rights we may grant to the persons who hold preferred
stock, if any is outstanding.

Liquidation. If ShopKo is dissolved, the holders of common stock will be
entitled to share ratably in all the assets that remain after we pay our
liabilities and any amounts we may owe to the persons who hold preferred stock,
if any is outstanding.

7
<PAGE>

Other Rights and Restrictions. Holders of common stock do not have
preemptive rights, and they have no right to convert their common stock into
any other securities. Our common stock is not redeemable.

Listing. Our common stock is listed on The New York Stock Exchange.

Transfer Agent and Registrar. The transfer agent and registrar for our
common stock is Norwest Shareowner Services.

Anti-Takeover Provisions

Certain provisions of our shareholder rights plan and the WBCL could have
the effect of delaying, deterring or preventing a change in control of ShopKo.

Shareholder Rights Plan

We have a shareholder rights plan pursuant to which one right to purchase
one one-thousandth of a share of Series B junior participating preferred stock,
par value $0.01 per share, is attached to each outstanding share of common
stock. One right also attaches to each newly issued share of our common stock.
Each right, when exercisable, represents the right to purchase one one-
thousandth of a share of Series B junior participating preferred stock at a
specified price. The rights become exercisable ten days after a person or group
acquires 15% or more of our outstanding common stock, or commences or announces
a tender or exchange offer which would result in such ownership of 15% or more
of our outstanding common stock.

If, after the rights become exercisable, we were to be acquired through a
merger or other business combination transaction or 50% or more of our assets
or earning power were sold, each right would permit the holder to purchase, for
the exercise price, common stock of the acquiring company having a market value
of twice the exercise price. In addition, if any person acquires 15% or more of
our outstanding common stock, each right not owned by the acquiring person
would permit the purchase, for the exercise price of $100.00, of common stock
having a market value of twice the exercise price.

The rights expire on September 23, 2007, unless earlier redeemed by us in
accordance with the terms of the rights plan. The purchase price payable and
the shares of Series B junior participating preferred stock issuable upon
exercise of the rights is subject to adjustment from time to time as specified
in the rights plan. In addition, the board of directors retains the authority
to redeem, at $0.01 per right, and replace the rights with new rights at any
time, provided that no such redemption could occur after a person or group
acquires 15% or more of our outstanding common stock.

Shares of Series B junior participating preferred stock, when issued upon
exercise of the rights, will be nonredeemable and will rank junior to all
series of any other class of preferred stock. Each share of Series B junior
participating preferred stock will be entitled to a cumulative preferential
quarterly dividend payment equal to the greater of $10.00 per share or 1,000
times the dividend declared per share of common stock. In the event of
liquidation, the holders of shares of Series B junior participating preferred
stock will be entitled to a preferential liquidation payment equal to the
greater of $1,000.00 per share or 1,000 times the payment made per share of
common stock. Each share of Series B junior participating preferred stock will
entitle the holder to 1,000 votes, and will vote together with the common
stock. Finally, in the event of any merger, consolidation or other transaction
in which common stock is exchanged, each share of Series B junior participating
preferred stock will be entitled to receive 1,000 times the amount received per
share of common stock. The rights described above are subject to antidilution
adjustments. The number of shares constituting the series of Series B junior
participating preferred stock is 100,000.

8
<PAGE>

Wisconsin Business Corporation Law

Restrictions on Business Combinations. Sections 180.1130 to 180.1134 of
the WBCL provide generally that in addition to the vote otherwise required by
law or the articles of incorporation of a resident domestic corporation, such
as ShopKo, certain business combinations not meeting certain fair price
standards specified in the statute must be approved by the affirmative vote of
at least (1) 80% of the votes entitled to be cast by the outstanding voting
shares of the corporation, and (2) two-thirds of the votes entitled to be cast
by the holders of voting shares other than voting shares beneficially owned by
a "significant shareholder" or an affiliate or associate of a significant
shareholder who is a party to the transaction. The term "business combination"
is defined to include, subject to certain exceptions, a merger or share
exchange of the issuing public corporation, or any subsidiary thereof, with, or
the sale or other disposition of substantially all of the property and assets
of the issuing public corporation to, any significant shareholder or affiliate
of a significant shareholder. "Significant shareholder" is defined generally to
mean a person that is the beneficial owner of 10% or more of the voting power
of the outstanding voting shares of the issuing public corporation. These
statutory sections also restrict the repurchase of shares and the sale of
corporate assets by an issuing public corporation in response to a takeover
offer.

Sections 180.1140 to 180.1144 of the WBCL prohibit certain business
combinations between a resident domestic corporation, such as ShopKo, and a
person beneficially owning 10% or more of the voting power of the outstanding
voting stock of the resident domestic corporation, within three years after the
date such person became a 10% beneficial owner, unless the business combination
or the acquisition of such stock has been approved before the stock acquisition
date by the corporation's board of directors. A person who owns 10% or more of
the voting power of a resident domestic corporation is known as an interested
shareholder. After the three-year period, a business combination with the
interested shareholder may be consummated only with the approval of the holders
of a majority of the voting stock not beneficially owned by the interested
shareholder at a meeting called for that purpose, unless the business
combination satisfies certain adequacy-of-price standards intended to provide a
fair price for shares held by disinterested shareholders.

Control Share Voting Restrictions. Under Section 180.1150(2) of the WBCL,
if any person owns shares of a resident domestic corporation, such as ShopKo,
which represent in excess of 20% of the voting power in the election of
directors, then the voting power of the excess shares will be reduced to 10% of
their full voting power on all matters. This reduction in voting power will not
occur if provided otherwise in the articles of incorporation or if full voting
rights of the excess shares have been restored at a special meeting of the
shareholders called for that purpose. This statute is designated to protect
corporations against uninvited takeover bids by reducing to one-tenth of their
normal voting power all shares in excess of 20% owned by an acquiring person.
Section 180.1150(3) excludes shares held or acquired under certain
circumstances from the application of Section 180.1150(2), including, among
others, shares acquired directly from ShopKo and shares acquired in a merger or
share exchange to which ShopKo is a party.

Constituency Provision. Under Section 180.0827 of the WBCL, in
discharging his or her duties, a director or officer of ShopKo may, in addition
to considering the effects of any action on shareholders, consider the effects
of any action on employees, suppliers, customers, the communities in which
ShopKo operates and any other factors that the director or officer considers
pertinent.

9
<PAGE>

DESCRIPTION OF DEBT SECURITIES

The debt securities we may offer will be senior debt securities. The
securities will be issued under an indenture dated July 15, 1993 between us and
First Trust National Association, as trustee. A copy of the form of indenture
has been filed as an exhibit to the registration statement of which this
prospectus forms a part.

We have summarized selected provisions of the indenture. The summary is
not complete. You should read the indenture for provisions that may be
important to you.

Terms of the Securities

The securities will be not be secured by any of our assets. The indenture
does not limit the amount of securities that we may issue and provides that we
may issue securities from time to time in one or more series. The indenture
does not limit the principal amount of any particular series of securities. The
securities will rank equally with all of our other unsecured and non-
subordinated indebtedness.

Each prospectus supplement will specify the particular terms of the
securities offered. These terms may include:

. the title of the securities,

. any limit on the aggregate principal amount of the securities,

. the date or dates on which the securities will mature,

. the interest rate or rates of the securities, if any, and the date
or dates from which interest will accrue,

. the interest payment dates, the dates on which payment of any
interest will begin and the regular record dates,

. any mandatory or optional redemption provisions applicable to the
securities,

. any mandatory or optional sinking fund or similar provisions
applicable to the securities,

. the terms on which the securities may be repayable prior to final
maturity,

. the portion of the principal amount payable upon acceleration of
maturity,

. certain events of default,

. if other than U.S. dollars, the currency or currencies in which
payments on the securities will be payable,

. the method of determining the amount of any payments on the
securities which are linked to an index,

. whether the securities will be issuable only in global form, which
is known as a global security, and, if so, the identity of the
depositary for the global security and the circumstances under
which the global security may be registered for transfer or
exchange in the name of a person other than the depositary, and

. any other specific terms of the securities.

Some of the securities may be issued as original issue discount
securities. Original issue discount securities bear no interest or bear
interest at below-market rates and will be sold at a discount below their
stated principal amount. The prospectus supplement will also contain any
special tax or other information relating to original issue discount
securities.

10
<PAGE>

Events of Default

The following will be events of default under the indenture with respect
to securities of a series:

. our failure to pay principal of, or any premium on, any security
of that series when the payment is due,

. our failure to pay any interest on any security of that series
when the interest payment is due, and continuance of this default
for 30 days,

. our failure to deposit any sinking fund payment for security of
that series when the deposit is due,

. our failure to perform any of our other covenants in the
indenture, other than a covenant included in the indenture solely
for the benefit of a different series of securities, which has
continued for 60 days after we have been given written notice of
the default as provided in the indenture,

. acceleration of indebtedness in a principal amount of at least
$25,000,000 for money borrowed by us or by a significant
subsidiary, and the acceleration is not annulled, or we do not
discharge the indebtedness, within 10 days after written notice is
given according to the indenture,

. the occurrence of certain events in bankruptcy, insolvency or
reorganization, and

. any other event of default regarding that series of securities.

If an event of default in connection with any outstanding series of
securities occurs and is continuing, the trustee or the holders of at least
25% in principal amount of the outstanding securities of that series may
declare the principal amount due and payable immediately. If the securities of
that series are original issue discount securities, the holders of at least
25% in principal amount of those securities may declare the portion of the
principal amount specified in the terms of that series of securities to be due
and payable immediately. In either case, a written notice must be given to us,
and must also be given to the trustee, if notice is given by the holders
instead of the trustee. Subject to certain conditions, the declaration of
acceleration may be rescinded and annulled, and past defaults, except
nonpayment of accelerated principal, may be waived, by the holders of a
majority of the principal amount of securities of that series.

You should refer to the prospectus supplement relating to each series of
securities which are original issue discount securities for the particular
provisions relating to acceleration of the maturity upon the occurrence and
continuation of an event of default.

Consolidation, Merger and Transfer of Assets

We may not consolidate or merge with or into any other person, and we
may not convey, transfer or lease all or substantially all of our properties
or assets to another person, unless

. the person, other than us, surviving the merger, formed by the
consolidation or which acquires our assets expressly assumes our
obligations under the indenture,

. there is no event of default, and

. if our property or assets become subject to a lien which is not
permitted by the limitations on liens in the indenture, we or our
successor secure the securities equally and ratably with debt
secured by the impermissible lien.

Registration and Transfer

Unless otherwise indicated in the applicable prospectus supplement, each
series of the offered securities will be issued in registered form only,
without coupons.

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Unless otherwise indicated in the applicable prospectus supplement, the
securities issued in certificated form will be issued in integral multiples of
$1,000.00. No service charge will be made for any transfer or exchange of the
securities, but we may require payment of an amount sufficient to cover any tax
or other governmental charge payable in connection with a transfer or exchange.

Payment and Paying Agent

We will pay principal, interest and any premium on fully registered
securities at the office or agency of the trustee in St. Paul, Minnesota. At
our option, payment of interest on fully registered securities may also be made
by check mailed to the persons in whose names the securities are registered.

No Protection in the Event of a Highly Leveraged Transaction

The indenture does not protect holders from a sudden and significant
decline in the credit quality of ShopKo resulting from takeovers,
recapitalizations, similar restructurings or other highly leveraged
transactions.

Global Securities

The securities of a series may be issued in whole or in part in the form
of one or more global securities that will be deposited with a depositary that
we will identify in a prospectus supplement. Unless and until a global security
is exchanged in whole or in part for individual certificates in definitive form
which evidence the securities represented by a global security, a global
security may not be transferred except as a whole by the depositary to a
nominee of that depositary or by a nominee of that depositary to a depositary
or another nominee of that depositary.

The specific terms of the depositary arrangements for each series of
securities will be described in the applicable prospectus supplement.

Modification and Waiver

The indenture provides that modifications and amendments may be made by
us and the trustee with the consent of the holders of a majority of the
principal amount of the outstanding securities of each series affected by the
amendment of modification. However, no modification or amendment may, without
the consent of each holder affected:

. change the stated maturity date of the principal of, or any
installment of interest on, any security,

. reduce the principal amount, the premium or interest on any
security,

. reduce the principal amount of original issue discount securities
which could be declared due and payable upon an acceleration of
their maturity,

. change the place of payment or currency in which any security or
any premium or interest thereon is payable,

. impair the right to institute suit for the enforcement of any
payment on or after the stated maturity date of any security,

. reduce the percentage of securities required to modify or amend
the indenture, or

. reduce the percentage of the principal amount of securities of any
series necessary for waiver of compliance with certain provisions
or for waiver of certain defaults under the indenture.

The holders of a majority of the principal amount of the outstanding
securities of any series may waive compliance by us with certain provisions of
the indentures. The holders of a majority of the

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principal amount of the outstanding securities of any series may waive any past
default under applicable indenture with respect to that series, except a
default in the payment of the principal, or any premium or interest payable on
security of that series or in respect of a provision which under the indenture
cannot be modified or amended, without the consent of each affected holder.

Defeasance of Debt Securities or Covenants

Defeasance and Discharge. We may be discharged from our obligations with
respect to the securities of any series upon the deposit with the trustee, in
trust, of money and/or U.S. government obligations sufficient to pay and
discharge the principal, and premium, if any, and interest on and any mandatory
sinking fund payments in respect of the securities of that series on the stated
maturity date of the payments in accordance with the terms of the indenture and
the securities. A discharge may only occur if we have received from, or there
has been published by, the Internal Revenue Service a ruling, or there has been
a change in the federal income tax law, in each case stating that holders of
the outstanding securities of that series will not recognize income, gain or
loss for federal income tax purposes as a result of the deposit, defeasance and
discharge and will be subject to federal income tax on the same amount and in
the same manner and at the same times as they would have been if the deposit,
defeasance and discharge had not occurred.

Covenant Defeasance. At our option, we may omit to comply with and have
no liability with respect to certain covenants set forth in the indenture, but
the remainder of the indenture and the securities of that series will be
unaffected. In order to exercise our option, we will be required to deposit
with the trustee money and/or U.S. government obligations sufficient to pay
principal, and premium, if any, and interest on and any mandatory sinking fund
payments in respect of the securities of the series on the stated maturity date
of the payments in accordance with the terms of the indenture and the
securities. We will also be required to deliver to the trustee certain evidence
to the effect that the deposit and related covenant defeasance will not cause
the holders of the outstanding securities of that series to recognize gain or
loss for federal income tax purposes as a result of our deposit and related
covenant defeasance and will be subject to federal income tax on the same
amount and in the same manner and at the same times as they would have been if
the deposit and related covenant defeasance had not occurred.

Limitations on Liens

We may not, and may not permit any subsidiary to, incur or suffer to
exist any lien on any operating property or on any shares of stock of any
subsidiary without securing the securities equally and ratably with the lien.

This limitation will not apply to:

. liens existing at the date of the indenture,

. liens securing only the securities issued under the indenture,

. liens in favor of only ShopKo,

. liens on property of a person existing at the time the person
merges into or consolidates with ShopKo or any subsidiary,

. liens on property existing immediately prior to the time of
acquisition,

. liens on an operating property to secure debt incurred for
financing all or part of the purchase price or cost of
construction or improvement provided that the operating property
first becomes an operating property after, or construction or
development of the operating property is underway on and completed
after, March 12, 1992 and is incurred within 24 months after the
later of the purchase and the completion of construction or
improvements,

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. liens securing debt incurred to extend, renew, refinance or refund
debt secured by any lien referred to above, and

. liens securing debt owed by us to a wholly-owned subsidiary.

Limitations on Sale and Leaseback Transactions

A sale and leaseback transaction is an arrangement with any lender or
investor providing for the leasing by the lender or investor of any operating
property that within a certain time period has been or is to be sold, conveyed,
transferred or otherwise disposed of by the lender or investor with the
intention of taking back a lease on the operating property. We may not, and may
not permit any subsidiary to, enter into any sale and leaseback transaction
without equally and ratably securing the securities, or, if none, any other
indebtedness or, if none, indebtedness of any subsidiary, unless:

. the sum of (a) the principal amount of debt secured by all liens
incurred after the date of the indenture and otherwise prohibited
by the indenture and (b) the attributable value of all sale and
leaseback transactions entered into after the date of the
indenture and otherwise prohibited by the indenture does not
exceed 15% of our consolidated tangible assets, or

. we or the subsidiary apply or commit to apply, within 60 days
before or after the sale transaction pursuant to the sale and
leaseback transaction, an amount equal to the net available
proceeds from the transaction to the repayment of our
indebtedness, including any outstanding securities.

The foregoing limitation will not apply to any sale and leaseback
transaction for a term of not more than 36 months.

Additional Provisions

We may in certain circumstances set any day as the record date for the
purpose of determining the holders of outstanding securities of any series
entitled to give or take any request, demand, authorization, direction, notice,
waiver or other action as provided or permitted by the indenture.

The trustee has the duty to act with the required standard of care during
an event of default. The trustee is not otherwise obligated to exercise any of
its rights or powers under the indenture at the request or direction of any of
the holders of the securities, unless the holders have offered the trustee
reasonable indemnification. The indenture provides that the holders of a
majority of the principal amount of outstanding securities of any series may,
in certain circumstances, direct the time, method and place of conducting any
proceeding for any remedy available to the trustee, or exercising any trust or
other power conferred on the trustee.

No holder of a security of any series will have the right to institute
any proceeding for any remedy under the applicable indenture, unless:

. the holder has provided the trustee with written notice of a
continuing event of default regarding the holder's series of
securities,

. the holders of at least 25% in principal amount of the outstanding
securities of a series have made a written request, and offered
reasonable indemnity to the trustee, to institute a proceeding for
remedy,

. the trustee has not received a direction during such 60 day period
inconsistent with such request from the holders of a majority in
principal amount of the outstanding securities of that series, and

. the trustee has failed to institute the proceeding within 60 days
after the receipt of such request.

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However, the holder of any security will have an absolute and
unconditional right to receive payment of the principal, any premium, any
interest or any additional amounts in respect of such security on or after the
due dates expressed in such security and to institute suit for the enforcement
of any such payment.

We are required to furnish the trustee an annual statement regarding
whether we are in default under the indenture. The trustee may withhold notice
to the holders of securities of any series of any default, except notice of
nonpayment of principal, any premium, interest or any sinking fund payment,
with respect to the securities of the series if the trustee considers it in the
interests of the holders of securities of the series to do so.

The Trustee

The trustee is affiliated with First Bank National Association. The
trustee is also the trustee under two other indentures with us dated as of
March 22, 1992 under which we have issued senior notes. We have a letter of
credit arrangement with and receive certain cash management services from First
Bank. First Bank also participates in our revolving credit agreement. In
addition, we may enter into other borrowing arrangements with First Bank in the
future. As a result, if a default occurs with respect to securities of any
series, the trustee may be deemed to have a conflict of interest which would
require it to resign as trustee and require us to appoint a successor trustee.

BOOK-ENTRY SECURITIES

Unless we specify otherwise in the applicable prospectus supplement, we
will issue debt securities in the form of one or more book-entry certificates,
which is referred to below as the book-entry security, registered in the name
of a depositary or a nominee of a depositary. Unless we specify otherwise in
the applicable prospectus supplement, the depositary will be The Depository
Trust Company, or DTC. We have been informed by DTC that its nominee will be
Cede & Co. Accordingly, Cede & Co. is expected to be the initial registered
holder of all securities that we issue in book-entry form.

No person that acquires a beneficial interest in a book-entry security,
known as a beneficial owner, will be entitled to receive a certificate, except
as set forth in this prospectus or in the applicable prospectus supplement.
Unless and until definitive securities are issued under the limited
circumstances described below, all references to actions by beneficial owners
of securities issued in book-entry form will refer to actions taken by DTC upon
instructions from its participants, and all references to payments and notices
to beneficial owners will refer to payments and notices to DTC or Cede & Co.,
as the registered holder of a book-entry security.

DTC has informed us that it is:

. A limited purpose trust company organized under New York banking
laws;

. A "banking organization" within the meaning of the New York
banking laws;

. A member of the Federal Reserve System; and

. A "clearing agency" registered under the Exchange Act.

DTC has also informed us that it was created to:

. Hold securities for its participating clients, known as
participants; and

. Facilitate the clearance and settlement of securities transactions
among participants through electronic book-entry, thereby
eliminating the need for the physical movement of securities
certificates.

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Participants include securities brokers and dealers, banks, trust
companies and clearing corporations. Indirect access to the DTC system also is
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly, which are referred to as indirect participants.

Persons that are not participants or indirect participants but that
desire to buy, sell or otherwise transfer ownership of or interest in
securities may do so only through participants and indirect participants. Under
the book-entry system, beneficial owners may experience some delay in receiving
payments, as such payments will be forwarded by our agent to Cede & Co., as
nominee for DTC. DTC will forward such payments to its participants, which
thereafter will forward them to indirect participants or beneficial owners.
Beneficial owners will not be recognized by the applicable registrar, transfer
agent or trustee as registered holders of the securities entitled to the
benefits of the certificate or the applicable Indenture. Beneficial owners that
are not participants will be permitted to exercise their rights as an owner
only indirectly through participants and, if applicable, indirect participants.

Under the current rules and regulations affecting DTC, DTC will be
required to make book-entry transfers of securities among participants and to
receive and transmit payments to participants. Participants and indirect
participants with which beneficial owners of securities have accounts are also
required to make book-entry transfers and receive and transmit such payments on
behalf of their respective account holders.

Because DTC can act only on behalf of participants, who in turn act only
on behalf of other participants or indirect participants, and on behalf of
certain banks, trust companies and other persons approved by it, the ability of
a beneficial owner of securities issued in book-entry form to pledge such
securities to persons or entities that do not participate in the DTC system may
be limited due to the unavailability of physical certificates for such
securities.

DTC has advised us that DTC will take any action permitted to be taken by
a registered holder of any securities under the certificate or the applicable
indenture, only at the direction of one or more participants to whose accounts
with DTC such securities are credited.

Unless otherwise specified in the applicable prospectus supplement, a
book-entry security will be exchangeable for definitive securities registered
in the names of persons other than DTC or its nominee only if:

. DTC notifies us that it is unwilling or unable to continue as
depositary for such book-entry security or DTC ceases to be a
clearing agency registered under the Exchange Act at a time when
DTC is required to be so registered;

. We execute and deliver to the applicable registrar, transfer agent
and/or trustee an order complying with the requirements of the
certificate or the applicable indenture that such book-entry
security will be so exchangeable; or

. There is a default in the payment of any amount due in respect of
the securities or an event of default.

Any book-entry security that is exchangeable pursuant to the preceding sentence
will be exchangeable for securities registered in such names as DTC directs.

If one of the events described in the immediately preceding paragraph
occurs, DTC is generally required to notify all participants of the
availability through DTC of definitive securities. Upon surrender by DTC of the
book-entry security representing the securities and delivery of instructions
for reregistration, the registrar, transfer agent or trustee, as the case may
be, will reissue the securities as definitive securities. After reissuance of
the securities, such persons will recognize the beneficial owners of such
definitive securities as registered holders of securities.

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Except as described above:

. A book-entry security may not be transferred except as a whole
book-entry security by or among DTC, a nominee of DTC and/or a
successor depositary appointed by us; and

. DTC may not sell, assign or otherwise transfer any beneficial
interest in a book-entry security unless such beneficial interest
is in an amount equal to an authorized denomination for the
securities evidenced by the book-entry security.

We, the trustees, any registrar and transfer agent, or any agent of any
of them, will not have any responsibility or liability for any aspect of DTC's
or any participant's records relating to, or for payments made on account of,
beneficial interests in a book-entry security.

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of the principal United States federal income
tax consequences of the purchase, ownership and disposition of debt securities,
or common stock, as the case may be, by U.S. Holders (as defined below). This
summary is for general information only and is based upon the Internal Revenue
Code of 1986, as amended (the "Code"), applicable income tax regulations,
published rulings, administrative pronouncements and court decisions, all as in
effect on the date hereof and all of which are subject to change or differing
interpretations at any time and in some circumstances with retroactive effect.
This summary does not discuss all aspects of federal income taxation that may
be relevant to a particular investor in light of the investor's particular
circumstances, or to certain types of investors subject to special treatment
under the federal income tax laws, including, but not limited to, financial
institutions, tax-exempt organizations, insurance companies, regulated
investment companies, brokers, dealers, traders in securities that elect
market-to-market accounting treatment, foreign persons and entities, persons
holding securities as part of a "straddle", "conversion" or hedging
transaction, Non-U.S. Holders (as defined below) who own, actually or
constructively, more than 5% of our common stock, or persons whose functional
currency is not the U.S. Dollar. In addition, this summary does not consider
the effect of any foreign, state, local or other tax laws, or any other United
States tax consequences other than income tax consequences, that may be
applicable to particular investors. This summary also assumes that the
securities, or common stock, as the case may be, are held as capital assets.
Each prospective purchaser of the securities should consult its own tax advisor
concerning the application of United States federal income tax laws to its
particular situation as well as any consequences of the purchase, ownership and
disposition of the securities, or common stock, as the case may be, arising
under the laws of any other taxing jurisdiction.

As used herein, the term "U.S. Holder" means a beneficial owner of a debt
security or common stock, as the case may be, that is, for United States
federal income tax purposes,

. a citizen or individual resident of the United States,

. a corporation or partnership created or organized in or under the
laws of the United States or of any political subdivision thereof,
other than a partnership that is not treated as a U.S. person
under any applicable Treasury regulations,

. an estate the income of which is subject to United States federal
income taxation regardless of its source, or

. a trust if, in general, a court within the United States is able
to exercise primary supervision over the administration of the
trust and one or more United States persons have the authority to
control all substantial decisions of the trust.

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Debt Securities

Payments of Stated Interest

Generally, the amount of any stated interest payment on a debt security
which constitutes "qualified stated interest" (as defined below), will be
taxable to a U.S. Holder as ordinary interest income when it is accrued or
received in accordance with the U.S. Holder's method of accounting for federal
income tax purposes.

Original Issue Discount

If a U.S. Holder holds a security which has original issue discount
("OID"), as defined below, and a maturity of more than one year from its date
of issue (a "discount security"), such U.S. Holder will generally be required
to recognize such OID as ordinary interest income on a constant yield basis in
advance of the receipt of cash payments to which such income is attributable,
regardless of the U.S. Holder's method of tax accounting.

A security has OID to the extent that the security's "stated redemption
price at maturity" exceeds its "issue price;" provided that such excess equals
or exceeds a de minimis amount (generally defined as 0.25% of the security's
stated redemption price at maturity multiplied by the number of complete years
from its issue date to its maturity). The stated redemption price at maturity
of a security is the sum of all payments provided by the security other than
payments of "qualified stated interest." The term "qualified stated interest"
generally means stated interest that is unconditionally payable in cash or
property (other than debt instruments of ours) at least annually at a single
fixed rate, or at certain floating rates, that appropriately takes into account
the length of the interval between stated interest payments. The issue price of
a security is the first price at which a substantial amount of such issue of
securities has been sold, ignoring sales to bond houses, brokers, or similar
persons or organizations acting in the capacity of dealers, placement agents,
or wholesalers.

In general, if the excess of a security's stated redemption price at
maturity over its issue price is de minimis, then such excess constitutes "de
minimis OID." Unless the election described below under "--Possible Election to
Treat All Interest as OID" is made, such a security will not be treated as
issued with OID (in which case the following paragraphs under "--Original Issue
Discount" will not apply) and a U.S. Holder of such a security will recognize
capital gain with respect to such de minimis OID as stated principal payments
on the security are made. The amount of such gain with respect to each such
payment will equal the product of the total amount of the security's de minimis
OID and a fraction, the numerator of which is the amount of the principal
payment and the denominator of which is the stated principal amount of the
security.

Except as described below with respect to short-term securities (as
hereinafter defined), the amount of OID that a U.S. Holder will be required to
include in gross income in a taxable year will equal the sum of the "daily
portions" of OID, determined by allocating to each day of the taxable year
during which the U.S. Holder holds the security a pro rata portion of OID
allocable to each "accrual period" in such taxable year. An accrual period may
be of any length selected by the U.S. Holder and the accrual periods may vary
in length over the term of the security as long as (1) each accrual period is
no longer than one year, and (2) each scheduled payment of principal or
interest occurs either on the final day of an accrual period or on the first
day of an accrual period. The amount of OID allocable to each accrual period
generally will equal the product of (1) the security's "adjusted issue price"
at the beginning of such accrual period and (2) its "yield to maturity"
determined on the basis of compounding at the close of each accrual period and
appropriately adjusted to take into account the length of the particular
accrual period, less the amount of any qualified stated interest payments
allocable to such accrual period. The "adjusted issue price" of a security at
the beginning of the first accrual period is simply the issue price.
Thereafter, the "adjusted issue price" of a security generally is the sum of
the issue price plus the amount of OID previously includible in the gross
income of the U.S. Holder reduced by the amount of any payments previously made
on the security, other than payments of qualified stated interest. A

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<PAGE>

discount security's "yield to maturity" is the discount rate that causes the
present value on the issue date of the payments provided for in such security
to equal the security's issue price. Thus, under these rules, a U.S. Holder
generally will have to include in gross income increasingly greater amounts of
OID during the life of the security. Special rules apply for calculating OID in
short initial or final accrual periods.

Optional Redemption. Generally, special rules apply for determining the
yield to maturity of discount securities which are subject to certain options.
If we have an unconditional option to redeem a discount security, or the U.S.
Holder has an unconditional option to cause a discount security to be
repurchased, in any case prior to the discount security's stated maturity, such
option will be presumed to be exercised if, by utilizing any date on which such
discount security may be redeemed or repurchased as the maturity date and the
amount payable on such date in accordance with the terms of the discount
security as the stated redemption price at maturity, the yield on the discount
security would be (a) in the case of an option of ours, lower than its yield to
stated maturity or (b) in the case of an option of the U.S. Holder, higher than
its yield to stated maturity. If such option is not in fact exercised when
presumed to be exercised, the discount security would be treated solely for OID
purposes as if it were retired and then reissued on the presumed exercise date
for an amount equal to the discount security's adjusted issue price on that
date.

Acquisition Premium. A U.S. Holder that purchases a discount security for
an amount that is greater than its adjusted issue price and less than or equal
to the sum of all amounts payable on the discount security after the purchase
date, other than payments of qualified stated interest, will be considered to
have purchased such discount security at an "acquisition premium." Under the
acquisition premium rules, the daily portion of OID which such U.S. Holder must
otherwise include in its gross income with respect to such discount security
for any day will be reduced by an amount which would be the daily portion of
OID for such day multiplied by a fraction, the numerator of which is the excess
of the U.S. Holder's adjusted basis in the discount security immediately after
its purchase over the adjusted issue price of the discount security, and the
denominator of which is the sum of the daily portions for such discount
security for all days after the date of purchase and ending on the stated
maturity date, i.e., the total OID remaining on the discount security.

Alternatively, rather than applying the acquisition premium fraction to
reduce the daily portion of accrued OID, a U.S. Holder of a discount security
may, as discussed below under "--Possible Election to Treat All Interest as
OID", elect to treat all interest on the discount security as OID, adjusted for
acquisition premium, and thus compute OID by treating the purchase of the
discount security as a purchase at original issuance and applying the mechanics
of the constant yield method. Prior to making this election, a U.S. Holder of a
discount security should consult its own tax advisor concerning the potential
United States federal income tax consequences of such election in its
particular situation.

Variable Securities. Floating rate securities and indexed securities
("variable securities") that qualify as "variable rate debt instruments" will
be subject to special rules. Generally, provided the variable security provides
for stated interest at a single "qualified floating rate" or "objective rate"
(each as defined in the applicable income tax regulations) that is
unconditionally payable in cash or in property, other than debt instruments of
ours, at least annually, then (a) all stated interest with respect to such
variable security is qualified stated interest, and (b) the amount of OID, if
any, is determined under the general OID rules (as described above under "--
Original Issue Discount") by assuming that the variable rate is a fixed rate
equal to (a) in the case of a qualified floating rate or inverse floating rate,
the value, as of the issue date, of such qualified floating rate or inverse
floating rate, or (b) in the case of an objective rate other than an inverse
floating rate, a rate that reflects the yield that is reasonably expected for
such variable security. Additional rules will apply, as set forth in the
applicable pricing supplement, if a variable security does not provide for
stated interest at a single qualified floating rate or objective rate, or if a
variable security provides for stated interest either at one or more qualified
floating rates or at an inverse floating rate and in addition provides for
stated interest at a single fixed rate.

Short-Term Securities. A security that has a fixed maturity date of not
more than one year from the date of issue (a "short-term security") will be
treated as issued with OID equal to the excess of the

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<PAGE>

total principal and interest payments thereon over its issue price. Generally,
an individual or other cash basis U.S. Holder of a short-term security is not
required to include OID in gross income currently for United States federal
income tax purposes unless it elects to do so. Such an election by a cash basis
U.S. Holder will apply to all short-term obligations acquired on or after the
beginning of the first taxable year to which the election applies and in all
subsequent taxable years unless the IRS consents to the revocation of the
election. Accrual basis U.S. Holders and certain other U.S. Holders, including
banks, regulated investment companies, dealers in securities, common trust
funds, U.S. Holders that hold short-term securities as part of certain
identified hedging transactions, certain pass-through entities and cash basis
U.S. Holders that so elect, are required to include currently in gross income
the OID on a short-term security on either a straight-line basis or, at the
irrevocable election of the U.S. Holder, under the constant yield method based
on daily compounding. In the case of a U.S. Holder not required and not
electing to include OID in gross income currently, any gain realized on the
sale or retirement of the short-term security will be ordinary income to the
extent of the OID accrued on a straight-line basis (unless an irrevocable
election is made to accrue the OID under the constant yield method) through the
date of sale or retirement. U.S. Holders that are not required and do not elect
to include OID on short-term securities in gross income currently will be
required to defer deductions for all or a portion of interest expense on
indebtedness incurred or maintained to purchase or carry the short-term
securities.

Any U.S. Holder of a short-term security can elect to apply the rules in
the preceding paragraph taking into account the amount of "acquisition
discount," if any, with respect to the security, rather than the OID with
respect to such security. Such election will apply to all short-term debt
obligations acquired by the U.S. Holder on or after the first day of the first
taxable year to which the election applies and in all subsequent taxable years,
and may not be revoked without the consent of the IRS. Acquisition discount is
the excess of the stated redemption price at maturity of the short-term
security over the U.S. Holder's purchase price therefor. Acquisition discount
will be treated as accruing on a ratable basis or, at the irrevocable election
of the holder, on a constant yield basis (with daily compounding).

For purposes of determining the amount of OID or acquisition discount
subject to these rules, the OID rules provide that no interest payments on a
short-term security are qualified stated interest and, therefore, such interest
payments are included in the short-term security's stated redemption price at
maturity.

Market Discount

The market discount rules in the Code generally provide that if a person
acquires a security, other than a short-term security, with more than a de
minimis amount of "market discount" (the amount by which the stated redemption
price at maturity or, in the case of a discount security, the "revised issue
price" of the security exceeds the U.S. Holder's tax basis for the security
immediately following its acquisition) (a "market discount security"), any gain
realized upon a disposition, including redemption or retirement, of the
security (other than in connection with certain nonrecognition transactions),
or any partial principal payment on the security, will be treated as ordinary
income (generally, interest income) to the extent of the market discount which
accrued while such U.S. Holder held the security. The "revised issue price" of
a market discount security is equal to the issue price of the security plus the
amount of OID includible in the income of all holders for periods prior to the
acquisition of the security by the U.S. Holder, determined without regard to
the acquisition premium rules discussed above. Market discount is de minimis if
it is less than 0.25% of the security's stated redemption price at maturity
multiplied by the number of complete years remaining from the time the taxpayor
acquired the security until its maturity. The amount of market discount treated
as having accrued will be determined either (a) on a ratable basis by
multiplying the market discount and a fraction, the numerator of which is the
number of days the security was held by the U.S. Holder and the denominator of
which is the total number of days after the date such U.S. Holder acquired the
security up to and including its maturity date, or (b) if the U.S. Holder so
elects on an irrevocable basis with respect to the security, on a constant
yield basis. The market discount rules also provide that a U.S. Holder that
acquires a market discount security may be required to defer the deduction of
all or a portion of interest expense that may otherwise

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be deductible on any indebtedness incurred or maintained to purchase or carry
the security until the holder disposes of the security in a taxable
transaction.

Instead of recognizing market discount, if any, upon the disposition of,
or partial principal payment on, a market discount security, a U.S. Holder may
elect to include market discount in gross income currently as it accrues,
either on a ratable basis or on a constant yield basis, as described above. The
current inclusion election, once made, applies to all market discount
obligations of the holder acquired on or after the first day of the taxable
year in which the election applies and in all subsequent taxable years and may
not be revoked without the consent of the IRS. If a U.S. Holder elects to
include market discount in gross income in accordance with these rules (or
makes the election described below under "--Possible Election to Treat All
Interest as OID"), the foregoing discussion regarding the deferral of interest
deductions on indebtedness incurred or maintained to purchase or carry the
security would not apply. Further, if a U.S. Holder makes the election,
discussed below, to treat as OID all interest on a market discount security,
the U.S. Holder is deemed to have made the election to include market discount
in gross income currently using a constant yield method on all other market
discount obligations. Finally, if a U.S. Holder has previously made the
election to include market discount currently, the conformity requirements of
that election are satisfied for market discount securities with respect to
which the U.S. Holder elects to treat all interest as OID.

The Treasury Department is authorized to issue regulations implementing
the market discount provisions of the Code. The Treasury Department has not
issued or proposed any such regulations. It is impossible to anticipate what
effect, if any, such regulations would have on purchasers of the securities.

On February 1, 1999, the Clinton Administration proposed an amendment to
the market discount rules in the Code that, if enacted, will require a U.S.
Holder that uses the accrual method of tax accounting to include market
discount in gross income currently as it accrues, using a yield for purposes of
accruing market discount that is limited to the greater of (a) the original
yield to maturity of the security plus 5% or (b) the applicable federal rate at
the time the U.S. Holder acquired the security plus 5%. This amendment is
proposed to apply to debt instruments acquired on or after the date of its
enactment. It is impossible, however, to predict whether the proposed amendment
will be enacted and, if enacted, whether it will be enacted in its proposed
form. U.S. Holders of market discount securities that use the accrual method of
tax accounting should consult their own tax advisors regarding the proposed
amendment.

Amortizable Bond Premium

Generally, if the tax basis of a security immediately after its purchase
by a U.S. Holder exceeds the sum of all amounts payable on the security after
the purchase date, other than payments of qualified stated interest, such
excess will constitute "bond premium" which a U.S. Holder may elect to amortize
over the period from the security's acquisition date to its maturity date (or,
in certain circumstances, until an earlier call date). A U.S. Holder that
purchases a security with bond premium is not required to include in gross
income any OID on the security. A U.S. Holder which makes the election to
amortize bond premium is required to allocate the bond premium to each accrual
period under the constant yield method, using a yield computed based on the
U.S. Holder's initial tax basis for the security and all payments to be made
thereon after the security's acquisition date, in a manner similar to the
application of such method in the accrual of OID (as discussed above). The
amount of the amortized bond premium allocated to an accrual period generally
will be treated first as a reduction of the qualified stated interest on the
security included by the U.S. Holder in that accrual period to the extent
thereof, then as a deduction allowed in that accrual period to the extent of
the U.S. Holder's prior interest inclusions on the security, and finally as a
carryforward allowable against the U.S. Holder's future interest inclusions on
the security. A U.S. Holder that elects to amortize bond premium must reduce
its tax basis in the security by the amount of the bond premium used to reduce
qualified stated interest on the security and the amount allowed as a deduction
against the U.S. Holder's prior interest inclusions on the security. The
election to amortize bond premium will apply to all debt instruments held by
the U.S. Holder at the beginning of the first taxable year to which the
election applies or thereafter acquired, and is irrevocable

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<PAGE>

without the consent of the IRS. The election to treat all interest, including
for this purpose, amortizable bond premium, as OID (discussed below under "--
Possible Election to Treat All Interest as OID") is deemed to be an election to
amortize bond premium for purposes of the conformity requirements of the latter
election. In addition, if a U.S. Holder has already made an election to
amortize bond premium, the conformity requirements will be deemed satisfied
with respect to a security for which the U.S. Holder makes an election to treat
all interest as OID.

In the case of a security that may be called at a premium prior to
maturity, an earlier call date of the security is treated as the maturity date
of the security and the amount of bond premium is determined by treating the
amount payable on such call date as the amount payable at maturity if such a
calculation produces a smaller amortizable bond premium than the method
described in the preceding paragraph. If the security is not redeemed on such
call date, the remaining bond premium may be amortized to a later call date or
to maturity under the rules set forth above. In general terms, if a security
purchased with bond premium is redeemed prior to its maturity, a U.S. Holder
that has elected to amortize the bond premium may deduct any remaining
unamortized bond premium as an ordinary loss in the taxable year of the
redemption.

If an election to amortize bond premium is not made by a U.S. Holder, the
U.S. Holder must include in gross income the full amount of each interest
payment on the security and will include the bond premium in its tax basis for
the security for purposes of computing its gain or loss on the disposition of
the security.

Special rules apply to certain variable securities, and U.S. Holders
should consult their tax advisors regarding these rules.

Possible Election to Treat All Interest as OID

A U.S. Holder of a debt instrument is entitled to elect to treat all
interest that accrues on the instrument as OID. Interest for this purpose
includes stated interest, OID (including any de minimis OID), acquisition
discount, market discount (including any de minimis market discount), and
unstated interest, adjusted for amortizable bond premium and acquisition
premium. Special rules and limitations apply to taxpayors that make this
election and, as discussed herein, this election may affect the tax treatment
of other debt instruments held by a U.S. Holder. The election is made for the
year in which the U.S. Holder acquired the security, and may not be revoked
without the consent of the IRS. Prior to making such an election, U.S. Holders
should consult their own tax advisors regarding the decision of whether to make
this election.

Disposition of a Security

Except as discussed above, upon the sale, exchange, retirement or other
taxable disposition of a security, a U.S. Holder generally will recognize
taxable gain or loss equal to the difference between the amount realized on the
disposition, other than amounts representing accrued and unpaid interest, which
will be taxable as such, and such U.S. Holder's adjusted tax basis in such
security. A U.S. Holder's adjusted tax basis in a security generally will equal
such U.S. Holder's initial investment in such security, increased by any OID or
acquisition discount and any accrued market discount includible in gross
income, and decreased by the amount of any payments that are not qualified
stated interest payments and amortizable bond premium applied to reduce, or
allowed as a deduction against, interest with respect to such security. Except
as discussed above with respect to short-term securities, market discount
securities and contingent securities, such gain or loss generally will be long-
term capital gain or loss if the security was held for more than one year at
the time of the disposition.

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Information Reporting and Backup Withholding

In general, information reporting requirements will apply to payments of
principal, any premium and interest on a security, including accrual of OID on
a discount security, and the proceeds of the sale of a security before maturity
within the United States to non-corporate U.S. Holders. In addition, "backup
withholding" at a rate of 31% will apply to such payments and to payments of
OID if the U.S. Holder fails to provide an accurate taxpayor identification
number or is notified by the IRS that it has failed to report all interest and
dividends required to be shown on its federal income tax returns.

Any amounts withheld under the backup withholding rules from payment to a
beneficial owner would be allowed as a refund or credit against such beneficial
owner's United States federal income tax provided the required information is
furnished to the IRS.

Non-U.S. Holders

As used herein, a "Non-U.S. Holder" means a beneficial owner of a
security or common stock, as the case may be, other than a U.S. Holder. An
individual may, subject to certain exceptions, be deemed to be a resident alien
as opposed to a nonresident alien by virtue of being present in the United
States for at least 31 days in the calendar year and for an aggregate of at
least 183 days during a three-year period ending in the current calendar year,
counting for such purposes all of the days present in the current year, one-
third of the days present in the immediately preceding year and one-sixth of
the days present in the second preceding year. Resident aliens are subject to
U.S. federal tax as if they were U.S. citizens.

Under present U.S. federal income and estate tax law and subject to the
discussion of backup withholding below:

(1) payments of principal, premium, if any, interest and original issue
discount on a security by us or any of our agents to any Non-U.S. Holder will
not be subject to withholding of U.S. federal income tax, provided that in the
case of interest and original issue discount:

. the Non-U.S. Holder does not directly or indirectly, actually or
constructively, own ten percent or more of the total combined
voting power of all classes of our stock entitled to vote;

. the Non-U.S. Holder is not (x) a controlled foreign corporation
that is related to us through sufficient stock ownership, or (y) a
bank receiving interest described in Section 881(c)(3)(A) of the
Internal Revenue Code; and

. either the beneficial owner of the security certifies to us or our
agent, under penalties of perjury, that it is not a "United States
person" under the meaning of the Internal Revenue Code and
provides its name and address, or a securities clearing
organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or
business that holds the note on behalf of the beneficial owner
certifies to us or our agent under penalties of perjury that it,
or the financial institution between it and the beneficial owner,
has received from the beneficial owner a statement, under
penalties of perjury, that it is not a "United States person" and
provides the payor with a copy of this statement;

(2) a Non-U.S. Holder will not be subject to U.S. federal income tax on
any gain or income realized on the sale, exchange, redemption, retirement at
maturity or other disposition of a security, provided that, in the case of
proceeds representing accrued interest, the conditions described in paragraph
(1) above are met, unless:

. the Non-U.S. Holder is an individual who is present in the United
States for 183 days or more during the taxable year and some other
conditions are met; or

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<PAGE>

. the gain is effectively connected with the conduct of a U.S. trade
or business by the Non-U.S. Holder, or if an income tax treaty
applies, is generally attributable to a U.S. "permanent
establishment" maintained by the Non-U.S. Holder; and

(3) a security held by an individual who at the time of death is not a
citizen or resident of the United States will not be subject to U.S. federal
estate tax as a result of the individual's death if, at the time of the
individual's death:

. the individual did not directly or indirectly, actually or
constructively, own ten percent or more of the total combined
voting power of all classes of our stock entitled to vote; and

. the income on the security would not have been effectively
connected with the conduct of a trade or business by the
individual in the United States.

If a Non-U.S. Holder is engaged in a trade or business in the United
States and interest, including original issue discount, on the security is
effectively connected with the conduct of this trade or business or if an
income tax treaty applies and the Non-U.S. Holder maintains a U.S. "permanent
establishment" to which the interest, including original issue discount, is
generally attributable, although the Non-U.S. Holder is exempt from the
withholding tax discussed in the preceding paragraph (1) provided that the
holder furnishes a properly executed United States Internal Revenue Service
Form W-8ECI or successor form on or before any payment date to claim the
exemption, the holder may be subject to U.S. federal income tax on such
interest, including original issue discount, on a net basis in the same manner
as if it were a U.S. Holder.

In addition, a foreign corporation that is a holder of a security may be
subject to a branch profits tax equal to 30% of its effectively connected
earnings and profits for the taxable year, subject to some adjustments, unless
it qualifies for a lower rate under an applicable income tax treaty. For this
purpose, interest on a security or gain recognized on the disposition of a
security will be included in earnings and profits if the interest or gain is
effectively connected with the conduct by the foreign corporation of a trade or
business in the United States.

Recently finalized Treasury Regulations generally effective for payments
made after December 31, 2000 will provide alternative methods for satisfying
the certification requirement described in the third bullet point of paragraph
(1) above and will require a Non-U.S. Holder that provides an Internal Revenue
Service Form W-8ECI or successor form as discussed above as well as a Non-U.S.
Holder claiming the benefit of an income tax treaty, to also provide its U.S.
taxpayor identification number. The finalized Treasury Regulation generally
also will require, in the case of a security held by a foreign partnership,
that the certification described in the third bullet point of paragraph (1)
above be provided by the partners and that the partnership provide certain
information, including a U.S. taxpayor identification number. A look-through
rule will apply in the case of tiered partnerships.

Under current Treasury Regulations, backup withholding and information
reporting will not apply to payments made by us or any of our agents, in their
capacities as agents, to a Non-U.S. Holder of a security if the holder has
provided the required certification that it is not a United States person as
set forth in paragraph (1) above, provided that neither we nor our agent has
actual knowledge that the holder is a United States person. We or our agent
may, however, report payments of interest on the securities. Payments of the
proceeds from a disposition by a Non-U.S. Holder of a security made to or
through a foreign office of a broker will not be subject to information
reporting or backup withholding, except that information reporting may apply to
those payments if the broker is:

. a United States person,

. a controlled foreign corporation for U.S. federal income tax
purposes,

. a foreign person 50% or more of whose gross income is effectively
connected with a U.S. trade or business for a specified three-year
period, or

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. with respect to payments made after December 31, 2000, a foreign
partnership, if at any time during its tax year, one or more of
its partners are U.S. persons, as defined in Treasury Regulations,
who in the aggregate hold more than 50% of the income or capital
interest in the partnership or if, at any time during its tax
year, the foreign partnership is engaged in a U.S. trade or
business.

Payments of the proceeds from a disposition by a Non-U.S. Holder of a
note made to or through the U.S. office of a broker are subject to information
reporting and backup withholding unless the holder or beneficial owner
certifies as to its taxpayor identification number or otherwise establishes an
exemption from information reporting and backup withholding.

Any amounts withheld under the backup withholding rules from a payment to
a Non-U.S. Holder would be allowed as a refund or a credit against the holder's
U.S. federal income tax liability, provided the required information is
furnished to the U.S. Internal Revenue Service.

Common Stock

Dividends

We do not anticipate paying any cash dividends on our common stock in the
foreseeable future. Should we pay dividends, dividends paid to a Non-U.S.
Holder of common stock generally will be subject to withholding of U.S. federal
income tax at a 30% rate or such lower rate which an applicable income tax
treaty specifies. Non-U.S. Holders should consult their tax advisors regarding
their entitlement to benefits under a relevant income tax treaty.

Dividends that are effectively connected with a Non-U.S. Holder's conduct
of a trade or business in the U.S. (or, if an income tax treaty applies,
attributable to a permanent establishment, or, in the case of an individual, a
"fixed base" in the U.S., as provided in such treaty) ("U.S. trade or business
income") are generally subject to U.S. federal income tax on a net income basis
at regular graduated rates, but generally are not subject to the 30%
withholding tax if the Non-U.S. Holder files the appropriate U.S. Internal
Revenue Service form with the payor. Any U.S. trade or business income received
by a Non-U.S. Holder that is a corporation may, under certain circumstances, be
subject to an additional "branch profits tax" at a 30% rate or such lower rate
which an applicable income tax treaty specifies.

Dividends paid prior to 2001 to an address in a foreign country are
presumed, absent actual knowledge to the contrary, to be paid to a resident of
that country for purposes of the withholding discussed above and for purposes
of determining the applicability of an income tax treaty rate. For dividends
paid after 2000:

. a Non-U.S. Holder of common stock that claims the benefit of an
income tax treaty rate generally will be required to satisfy
applicable certification and other requirements.

. in the case of common stock held by a foreign partnership, the
certification requirement will generally be applied to the
partners of the partnership, and the partnership will be required
to provide certain information, including a U.S. taxpayor
identification number.

. look-through rules will apply to tiered partnerships.

A Non-U.S. Holder of common stock that is eligible for a reduced rate of
U.S. withholding tax under an income tax treaty may obtain a refund or credit
of any excess amounts withheld by filing an appropriate claim for a refund with
the U.S. Internal Revenue Service.

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<PAGE>

Disposition of Common Stock

A Non-U.S. Holder generally will not be subject to U.S. federal income
tax in respect of gain recognized on a disposition of common stock unless:

. the gain is U.S. trade or business income, in which case the
branch profits tax described above may also apply to a corporate
Non-U.S. Holder,

. the Non-U.S. Holder is an individual who holds the common stock as
a capital asset within the meaning of Section 1221 of the U.S.
Internal Revenue Code, is present in the United States for more
than 182 days in the taxable year of the disposition and meets
certain other requirements,

. the Non-U.S. Holder is subject to tax under provisions of U.S. tax
law applicable to certain U.S. expatriates, or

. we are or have been a "U.S. real property holding corporation" for
U.S. federal income tax purposes at any time during the shorter of
the five-year period ending on the date of disposition and the
Non-U.S. Holder's holding period for the common stock.

The tax relating to stock in a "U.S. real property holding corporation"
will not apply to a Non-U.S. Holder whose holdings, actual and constructive, at
all times during the applicable period, amount to 5% or less of the common
stock, provided that the common stock is regularly traded on an established
securities market. Generally, a corporation is a "U.S. real property holding
corporation" if the fair market value of its "U.S. real property interests"
equals or exceeds 50% of the sum of the fair market value of its worldwide real
property interests and its other assets used or held for use in a trade or
business.

Federal Estates Taxes

Common stock owned or treated as owned by an individual who is a Non-U.S.
Holder at the time of death will be included in the individual's gross estate
for U.S. federal estate tax purposes and may be subject to U.S. federal estate
tax, unless an applicable estate tax treaty provides otherwise.

Information Reporting Requirements and Backup Withholding Tax

We must report annually to the U.S. Internal Revenue Service and to each
Non-U.S. Holder the amount of the dividends paid to that holder and any tax
withheld with respect to those dividends. These information reporting
requirements apply regardless of whether withholding is required. Copies of the
information returns reporting those dividends and withholding may also be made
available, under an applicable income tax treaty or agreement, to the tax
authorities in the country in which the Non-U.S. Holder resides.

Under certain circumstances, U.S. Treasury regulations require
information reporting and backup withholding at a rate of 31% on certain
payments on common stock. Under currently applicable law, Non-U.S. Holders of
common stock generally will be exempt from these information reporting
requirements and from backup withholding on dividends paid prior to 2001 to an
address outside the U.S. For dividends paid after 2000, however, a Non-U.S.
Holder of common stock that fails to certify its Non-U.S. Holder status in
accordance with applicable U.S. Treasury regulations may be subject to backup
withholding at a rate of 31% on payments of dividends.

The payment of the proceeds of the disposition of common stock by or
through the U.S. office of a broker generally will be subject to information
reporting and backup withholding at a rate of 31% unless the holder certifies
its status as a Non-U.S. Holder under penalties of perjury or otherwise
establishes an exemption. The payment of the proceeds of the disposition by a
Non-U.S. Holder of common stock by or through a non-U.S. office of a non-U.S.
broker will not be subject to backup withholding or information reporting
unless the non-U.S. broker is a "U.S. related person". In the case

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<PAGE>

of the payment of proceeds from disposition of common stock by or through a
non-U.S. office of a broker that is a U.S. person or a "U.S. related person,"
information reporting, but currently not backup withholding, on the payment
applies unless, in general, the holder certifies its status as a Non-U.S.
Holder under penalties of perjury or the broker has documentary evidence in its
files that the holder is a Non-U.S. Holder and the broker has no actual
knowledge to the contrary. For this purpose, a "U.S. related person" is:

. a "controlled foreign corporation" for U.S. federal income tax
purposes,

. a foreign person 50% or more of whose gross income from all
sources for the three-year period ending with the close of its
taxable year preceding the payment, or for such part of the period
that the broker has been in existence, is derived from activities
that are effectively connected with the conduct of a U.S. trade or
business, or

. effective after 2000, a foreign partnership if, at any time during
the taxable year, (A) at least 50% of the capital or profits
interest in which is owned by U.S. persons, or (B) that is engaged
in a U.S. trade or business.

Effective after 2000, backup withholding may apply to the payment of
disposition proceeds by or through a non-U.S. office of a broker that is a U.S.
person or a "U.S. related person" unless certain certification requirements are
satisfied or an exemption is otherwise established and the broker has no actual
knowledge that the holder is a U.S. person. Non-U.S. Holders should consult
their own tax advisors regarding the application of the information reporting
and backup withholding rules to them, including changes to these rules that
will become effective after 2000.

Any amounts withheld under the backup withholding rules from a payment to
a Non-U.S. Holder will be refunded or credited against the holder's U.S.
federal income tax liability, if any, if the required information is furnished
to the U.S. Internal Revenue Service.

Limitations On Issuance Of Bearer Securities

To avoid potential adverse United States federal tax consequences to
holders of the securities, Bearer Securities, including securities in permanent
global form that are either Bearer Securities or exchangeable for Bearer
Securities, may not be offered or sold during the restricted period (as defined
in Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)) within the United
States or to United States persons (each as defined below) other than to an
office of a financial institution (as defined in Treasury Regulations Section
1.165-12(c)(1)(v)) which is located outside the United States. That office must
be purchasing for its own account or for resale or for the account of certain
customers, and must provide a certificate stating that it agrees to comply with
the requirements of Section 165(j)(3)(A), (B) or (C) of the Internal Revenue
code and the Treasury Regulations thereunder, or to certain other persons
described in Treasury Regulations Section 1.163-5(c)(2)(i)(D)(1)(iii)(B).

Bearer Securities may not be delivered in connection with their sale
during the restricted period within the United States. Any distributor (as
defined in Treasury Regulations Section 1.163-5(c)(2)(i)(D)(4)) participating
in the offering or sale of Bearer Securities must certify that:

. it will not offer or sell during the restricted period any Bearer
Securities within the United States or to United States persons
(other than the persons described above),

. it will not deliver any Bearer Securities during the restricted
period within the United States; and

. it has in effect procedures reasonably designed to ensure that its
employees and agents who are directly engaged in selling the
Bearer Securities are aware of the restrictions on offers and
sales described above.

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<PAGE>

No Bearer Securities, other than a temporary global security may be
delivered, nor may any amounts be paid on any Bearer Security until we receive:

. a Depositary Tax Certification in the case of temporary global
securities, or

. an Owner Tax Certification in all other cases.

Bearer Securities will bear a legend similar to the following: "Any
United States person who holds this obligation will be subject to limitations
under the United States income tax laws, including the limitations provided in
Section 165(j) and 1287(a) of the Internal Revenue Code."

Purchasers of Bearer Securities may be affected by certain United States
tax laws. Such laws will be discussed in the applicable prospectus supplement.

As used in this section "United States person" means any citizen or
resident of the United States, any corporation or partnership created or
organized in or under the laws of the United States or any political
subdivision thereof, other than a partnership that is not treated as a U.S.
person under any applicable Treasury regulations, any estate the income of
which is subject to United States federal income taxation regardless of its
source, and a trust, in general, if both (i) a U.S. court is able to exercise
primary supervision over the administration of the trust and (ii) one or more
United States persons have the authority to control all substantial decisions
of the trust, and "United States" means the United States of America, including
all of its states, the District of Columbia and its possessions.

PLAN OF DISTRIBUTION

General

We may sell securities to or through one or more underwriters, directly
to institutional investors or other purchasers, through agents or through a
combination of any such or other methods. The distribution of the securities
may be effected from time to time in one or more transactions at a fixed price
or prices, which may be changed, or at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices.

The prospectus supplement with respect to the securities offered by such
supplement will describe the terms of the offering of such securities,
including:

. the name or names of any underwriters, dealers or agents,

. the purchase price of such securities,

. the proceeds to our company from such sale,

. any underwriting discounts and other items constituting
compensation to underwriters, dealers or agents,

. any initial public offering price,

. any discounts or concessions allowed or reallowed or paid by
underwriters or dealers to other dealers, and

. any securities exchanges on which such securities may be listed.

Only underwriters named in the prospectus supplement are deemed to be
underwriters in connection with the securities offered thereby.

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<PAGE>

Sales May be Underwritten

If underwriters or dealers are used in the sale, the securities will be
acquired by the underwriters or dealers for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. The securities may be offered to the public either through
underwriting syndicates represented by one or more managing underwriters, or
directly by one or more of such firms.

Unless otherwise set forth in the prospectus supplement, the obligations
of the underwriters to purchase securities will be subject to certain
conditions precedent, and the underwriters will be obligated to purchase all of
the securities offered by the prospectus supplement if any are purchased. Any
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.

Underwriting Compensation

In connection with the sale of securities, underwriters or agents may
receive compensation from our company or from purchasers of securities for whom
they may act as agents in the form of discounts, concessions or commissions.
Underwriters may sell securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters and/or commissions from the purchasers for whom they may act
as agents.

Underwriters, dealers and agents that participate in the distribution of
securities may be deemed to be underwriters, and any discounts or commissions
received by them from our company and any profit on the resale of securities by
them may be deemed to be underwriting discounts and commissions under the
Securities Act. Any such underwriter or agent will be identified, and any such
compensation received from our company will be described in the related
prospectus supplement.

Delayed Delivery Contracts

If so indicated in the related prospectus supplement, we will authorize
underwriters, dealers or other persons acting as our agents to solicit offers
by certain institutions to purchase securities from us at the public offering
price described in the prospectus supplement pursuant to contracts providing
for payment and delivery on a specified future date. Institutions with which
such contracts may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and such other institutions as may be approved by us.

The obligations of any purchaser under any such contract will not be
subject to any conditions except that:

. the purchase of the securities shall not, at the time of delivery,
be prohibited under the laws of the jurisdiction to which such
purchaser is subject, and

. we shall have sold to the underwriters the total amount of
securities being offered pursuant to the prospectus supplement
less the amount of securities subject to such delayed delivery and
payment arrangements.

The prospectus supplement will describe the commission payable for solicitation
of such contracts. The underwriters and such other agents will not have any
responsibility in respect of the validity or performance of such contracts.

29
<PAGE>

Indemnification

Underwriters, dealers and agents who participate in the distribution of
securities may be entitled, under agreements which may be entered into by our
company, to indemnification by us against certain liabilities, including
liabilities under the Securities Act, or to contribution by us with respect to
payments they may be required to make in respect thereof.

Other Relationships

Certain of the underwriters or agents and their associates may engage in
transactions with and perform services to our company or affiliates in the
ordinary course of their respective businesses.

Listing

The debt securities may or may not be listed on a national securities
exchange. Any common stock sold pursuant to a prospectus supplement will be
listed on The New York Stock Exchange, subject to official notice of issuance.
No assurances can be given that there will be an active trading market for the
securities.

Price Stabilization and Short Positions

If underwriters or dealers are used in the sale, until the distribution
of the securities is completed, rules of the Securities and Exchange Commission
may limit the ability of any such underwriters and selling group members to bid
for and purchase the securities. As an exception to these rules,
representatives of any underwriters are permitted to engage in transactions
that stabilize the price of the securities. Such transactions may consist of
bids or purchases for the purpose of pegging, fixing or maintaining the price
of the securities.

If the underwriters create a short position in the securities in
connection with the offering, i.e., if they sell more securities than are set
forth on the cover page of the prospectus supplement, the representatives of
the underwriters may reduce that short position by purchasing securities in the
open market. The representatives of the underwriters may also elect to reduce
any short position by exercising all or part of any over-allotment option
described in the prospectus supplement.

We make no representation or prediction as to the direction or magnitude
of any effect that the transactions described above may have on the price of
the securities. In addition, we make no representation that the representatives
of any underwriters will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.

LEGAL MATTERS

The validity of our common stock offered hereby will be passed upon for
us by Godfrey & Kahn, S.C., Milwaukee, Wisconsin.

WHERE YOU CAN FIND MORE INFORMATION

We file reports, proxy statements and other information with the SEC. Our
SEC filings are also available over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for more information
on the public reference rooms and their copy charges. You may also inspect our
SEC reports and other information at the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.

30
<PAGE>

We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information about our company and the securities,
you should refer to our registration statement and its exhibits. This
prospectus summarizes material provisions of contracts and other documents
that we refer you to. Since the prospectus may not contain all the information
that you may find important, you should review the full text of these
documents. We have included copies of these documents as exhibits to our
registration statement.

INCORPORATION OF INFORMATION WE FILE WITH THE SEC

The SEC allows us to "incorporate by reference" the information we file
with them, which means that:

. incorporated documents are considered part of the prospectus;

. we can disclose important information to you by referring you to
those documents; and

. information that we file with the SEC will automatically update
and supersede this prospectus.

We incorporate by reference the documents listed below which were filed
with the SEC:

. Annual Report on Form 10-K for the year ended January 30, 1999,

. Current Report on Form 8-K dated January 22, 1999,

. Quarterly Report on Form 10-Q for the quarter ended May 1, 1999,
and

. the description of our common stock contained in our registration
statement on Form 8-A under the Exchange Act, including any
amendment or reports filed for the purpose of updating such
description.

We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus, including any
documents we file after the date we filed our registration statement and
before the registration statement becomes effective:

. Reports filed under Sections 13(a) and (c) of the Exchange Act,

. Definitive proxy or information statements filed under Section 14
of the Exchange Act in connection with any subsequent
shareholders' meeting, and

. Any reports filed under Section 15(d) of the Exchange Act.

You may request a copy of any filings referred to above, excluding
exhibits, at no cost, by contacting us orally or in writing at the following
address or telephone number:

ShopKo Stores, Inc.
700 Pilgrim Way
P.O. Box 19060
Green Bay, Wisconsin 54304
Attention: Investor Relations
(920) 429-7039

31
<PAGE>

[Description of graphics: Map of the United States indicating the
location of ShopKo and Pamida retail stores and distribution centers.

Retail Stores:
California
ShopKo - 1
Colorado
ShopKo - 3
Idaho
ShopKo - 8
Illinois
ShopKo - 13
Pamida - 3
Indiana
ShopKo - 2
Pamida - 4
Iowa
ShopKo - 13
Pamida - 26
Kansas
ShopKo - 2
Pamida - 3
Kentucky
ShopKo - 1
Pamida - 2
Michigan
ShopKo - 4
Pamida - 12
Minnesota
ShopKo - 13
Pamida - 29
Missouri
ShopKo - 3
Pamida - 1
Montana
ShopKo - 5
Pamida - 6
Nebraska
ShopKo - 11
Pamida - 14
Nevada
ShopKo - 3
North Dakota
Pamida - 7
Ohio
Pamida - 10
Oregon
ShopKo - 4
South Dakota
ShopKo - 6
Pamida - 6
Utah
ShopKo - 15
Washington
ShopKo - 10
Wisconsin
ShopKo - 41
Pamida - 15
Wyoming
Pamida - 9
Distribution Centers
ShopKo - 4 - WI, ID, NE, IL
Pamida - 3 - NE(2), IN

[Circle with the following words on the outside: Differentiating Strategy,
Integrated Business Planning Process, Integrated Lateral Organization for
Execution and Comprehensive Value; and the following words on the inside:
Performance through Improved Customer Satisfaction.]

<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

3,500,000 Shares

ShopKo Stores, Inc.

Common Stock

---------------------------

PROSPECTUS SUPPLEMENT

---------------------------

Merrill Lynch & Co.

Banc of America Securities LLC

Robert W. Baird & Co.
Incorporated

William Blair & Company

June , 1999

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

PART II

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth those expenses to be incurred by the
Company in connection with the issuance and distribution of the securities
being registered, other than underwriting discounts and commissions. All of the
amounts shown are estimates, except the applicable Securities and Exchange
Commission registration fee.

<TABLE>
<S> <C>
SEC registration fee............................................ $139,000
Rating agency fees.............................................. 325,000
Printing, engraving and postage expenses........................ 125,000
Legal fees...................................................... 100,000
NYSE Listing fee................................................ 44,400
Accounting fees................................................. 50,000
Trustees' fees and expenses..................................... 6,000
Miscellaneous expenses.......................................... 10,600
--------
Total....................................................... $800,000
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 180.0851 of the Wisconsin Business Corporation Law (the "WBCL")
requires the Company to indemnify a director or officer, to the extent such
person is successful on the merits or otherwise in the defense of a proceeding
for all reasonable expenses incurred in the proceeding, if such person was a
party to such proceeding because he or she was a director or officer of the
Company unless it is determined that he or she breached or failed to perform a
duty owed to the Company and such breach or failure to perform constitutes: (i)
a willful failure to deal fairly with the Company or its shareholders in
connection with a matter in which the director or officer has a material
conflict of interest; (ii) a violation of criminal law, unless the director or
officer had reasonable cause to believe his or her conduct was unlawful; (iii)
a transaction from which the director or officer derived an improper personal
profit; or (iv) willful misconduct.

Section 180.0858 of the WBCL provides that subject to certain
limitations, the mandatory indemnification provisions do not preclude any
additional right to indemnification or allowance of expenses that a director or
officer may have under the articles of incorporation or bylaws of the Company,
a written agreement between the director or officer and the Company, or a
resolution of the Board of Directors or the shareholders.

Unless otherwise provided in the Company's articles of incorporation or
bylaws, or by written agreement between the director or officer and the
Company, an officer or director seeking indemnification is entitled to
indemnification if approved in any of the following manners as specified in
Section 180.0855 of the WBCL: (i) by majority vote of a disinterested quorum of
the board of directors; (ii) by independent legal counsel chosen by a quorum of
disinterested directors or its committee; (iii) by a panel of three arbitrators
(one of which is chosen by a quorum of disinterested directors); (iv) by the
vote of the shareholders; (v) by a court; or (vi) by any other method permitted
in Section 180.0858 of the WBCL.

Reasonable expenses incurred by a director or officer who is a party to a
proceeding may be reimbursed by the Company, pursuant to Section 180.0853 of
the WBCL, at such time as the director or officer furnishes to the Company
written affirmation of his or her good faith that he or she has not breached or
failed to perform his or her duties and written confirmation to repay any
amounts advanced if it is determined that indemnification by the Company is not
required.

Section 180.0859 of the WBCL provides that it is the public policy of the
State of Wisconsin to require or permit indemnification, allowance of expenses
or insurance to the extent required or permitted

II-1
<PAGE>

under Sections 180.0850 or 180.0858 of the WBCL for any liability incurred in
connection with a proceeding involving a federal or state statute, rule or
regulation regulating the offer, sale or purchase of securities.

As permitted by Section 180.0858, the Company has adopted indemnification
provisions in its By-Laws which closely track the statutory indemnification
provisions with certain exceptions. In particular, Article VII of the Company's
By-Laws, among other items, provides (i) that an individual shall be
indemnified unless it is proven by a final judicial adjudication that
indemnification is prohibited and (ii) payment or reimbursement of expenses,
subject to certain limitations, will be mandatory rather than permissive.

The Company has entered into agreements to indemnify its directors and
certain officers, in addition to the indemnification provided for in the
Company's By-Laws. These agreements will, among other things, indemnify the
Company's directors and certain of its officers to the full extent permitted by
the WBCL for any claims, liabilities, damages, judgments, penalties, fines,
settlements, disbursements or expenses (including attorneys' fees) incurred by
such person in any action or proceeding, including any action by or in the
right of the Company, on account of services as a director or officer of the
Company.

In addition, the Company has directors' and officers' insurance that
insures against certain liabilities which may arise under the Securities Act of
1933, as amended, subject to applicable restrictions.

Under Section 180.0828 of the WBCL, a director of the Company is not
personally liable for breach of any duty resulting solely from his or her
status as a director, unless it shall be proved that the director's conduct
constituted conduct described in the first paragraph of this item.

The underwriting agreements will contain provisions pursuant to which the
underwriters will indemnify the Company and its directors and officers in
specified circumstances.

ITEM 16. EXHIBITS

<TABLE>
<C> <S> <C>
1.1* Form of Equity Underwriting Agreement.

1.2* Form of Debt Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of the
Company, incorporated by reference to the Company's
Current Report on Form 8-K dated May 22, 1998.
3.2 By-laws of the Company, incorporated by reference to the
definitive Proxy Statement dated April 10, 1998 in
connection with the Company's 1998 Annual Meeting of
Shareholders.
4.1 Indenture dated as of July 15, 1993 between the Company
and First Trust National Association, as Trustee,
incorporated by reference to the Company's Registration
Statement on Form S-3 (Reg. No. 33-66584).
4.2* Form of Note.
5.1* Opinion of Godfrey & Kahn, S.C.
12.1 Statement Regarding Computation of Ratios, incorporated by
reference to the Company's Annual Report on Form 10-K for
the fiscal year ended January 30, 1999.
12.2 Statement Regarding Computation of Ratios, incorporated by
reference to Exhibit 12 of the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended May 1, 1999.
23.1 Consent of Deloitte & Touche LLP.
23.2* Consent of Godfrey & Kahn, S.C. (included in Exhibit 5).
24.1** Powers of Attorney.
</TABLE>

II-2
<PAGE>

<TABLE>
<C> <S> <C>
25.1** Form T-1 Statement of Eligibility of First Trust National
Association, as Trustee under the Indenture.
27.1** Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment or as an exhibit to a document to be incorporated
by reference herein.

**Previously filed.

ITEM 17. UNDERTAKINGS

1. The undersigned registrant hereby undertakes:

(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in the volume of securities
offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low
or high and of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20% change in the maximum
aggregate offering price set forth in the "Calculations of
Registration Fee" table in the effective Registration Statement;
and

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.

Provided, however, that paragraphs (a)(i) and (a)(ii) do not apply if
the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.

(b) That, for the purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.

(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.

2. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at the time shall be deemed to be the initial bona fide offering
thereof.

3. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will,

II-3
<PAGE>

unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

4. The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be a part of this registration statement as of the time it was declared
effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.

5. The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee for the Debt
Securities to act under subsection (a) of Section 310 of the Trust
Indenture Act in accordance with the rules and regulations prescribed by
the Commission under Section 305(b)(2) of the Act.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Green Bay, State of
Wisconsin, on June 25, 1999.

Shopko Stores, Inc.

/s/ William J. Podany*
By:________________________________
William J. Podany
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ Dale P. Kramer* Chairman of the Board June 25, 1999
____________________________________
Dale P. Kramer

/s/ William J. Podany* President and Chief June 25, 1999
____________________________________ Executive Officer and a
William J. Podany Director

/s/ Paul H. Freischlag, Jr. Senior Vice President and June 25, 1999
____________________________________ Chief Financial Officer
Paul H. Freischlag, Jr.

/s/ Jeffery R. Simons Chief Accounting Officer June 25, 1999
____________________________________
Jeffery R. Simons

Director
____________________________________
Jack W. Eugster

/s/ Jeffrey C. Girard* Director June 25, 1999
____________________________________
Jeffrey C. Girard

Director
____________________________________
James L. Reinertsen, M.D.

/s/ Stephen E. Watson* Director June 25, 1999
____________________________________
Stephen E. Watson

/s/ Gregory H. Wolf* Director June 25, 1999
____________________________________
Gregory H. Wolf
</TABLE>

/s/ Richard D. Schepp
_________________________________
*By Richard D. Schepppursuant
to Power of Attorney

II-5

<PAGE>

Exhibit 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-79763 of ShopKo Stores, Inc. on Form S-3 of our
report dated March 12, 1999, included in the Annual Report on Form 10-K of
ShopKo Stores, Inc. for the year ended January 30, 1999, and to the use of our
report dated March 12, 1999, appearing in the Prospectus, which is part of this
Registration Statement. We also consent to the reference to us under the heading
"Selected Historical Consolidated Financial Data" and "Experts" in such
Prospectus.

/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Milwaukee, Wisconsin
June 25, 1999