<PAGE>   1
 
    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 26, 1998
                                                 REGISTRATION NO. 333-
================================================================================
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                    FORM S-4
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                            ------------------------
 
                                FRED MEYER, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                             <C>                             <C>
            DELAWARE                          5331                         91-1826443
(STATE OR OTHER JURISDICTION OF   (PRIMARY STANDARD INDUSTRIAL          (I.R.S. EMPLOYER
 INCORPORATION OR ORGANIZATION)   CLASSIFICATION CODE NUMBER)         IDENTIFICATION NO.)
</TABLE>
 
                              3800 SE 22ND AVENUE
                             PORTLAND, OREGON 97202
                                 (503) 232-8844
              (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
       INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
                            ------------------------
 
                                 ROGER A. COOKE
              SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
                              3800 SE 22ND AVENUE
                             PORTLAND, OREGON 97202
                                 (503) 232-8844
 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICE)
 
  IT IS RESPECTFULLY REQUESTED THAT THE COMMISSION SEND COPIES OF ALL NOTICES,
                         ORDERS AND COMMUNICATIONS TO:
 
<TABLE>
      <S>                                             <C>
                     MARGARET HILL NOTO                              WILLIAM E. CURBOW
                      STOEL RIVES LLP                            SIMPSON THACHER & BARTLETT
              900 SW FIFTH AVENUE, SUITE 2300                       425 LEXINGTON AVENUE
                   PORTLAND, OREGON 97204                         NEW YORK, NEW YORK 10017
                       (503) 224-3380                                  (212) 455-2000
</TABLE>
 
        APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As promptly as practicable after this registration statement becomes effective.
 
    If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.  [ ]
 
<TABLE>
<S>                            <C>               <C>               <C>               <C>
                        CALCULATION OF REGISTRATION FEE
======================================================================================================
                                                 PROPOSED MAXIMUM  PROPOSED MAXIMUM      AMOUNT OF
    TITLE OF EACH CLASS OF       AMOUNT TO BE     OFFERING PRICE       AGGREGATE       REGISTRATION
 SECURITIES TO BE REGISTERED     REGISTERED(1)       PER SHARE     OFFERING PRICE(2)      FEE(3)
------------------------------------------------------------------------------------------------------
 
Common Stock, $.01 par
  value.......................    75,649,260      Not applicable    $1,494,489,056       $440,784
======================================================================================================
</TABLE>
 
(1) Represents the maximum amount of Common Stock, par value $.01 per share
    ("Fred Meyer Common Stock"), of Fred Meyer, Inc. ("Fred Meyer") issuable
    upon consummation of the Mergers (as defined in this Registration
    Statement), assuming (a) the conversion of each outstanding share of Common
    Stock, par value $.001 per share ("QFC Common Stock"), of Quality Food
    Centers, Inc. ("QFC") into 2.3 shares of Fred Meyer Common Stock and (b) the
    conversion of all outstanding shares of Common and Preferred Stock, par
    value $.01 per share ("Food 4 Less Stock"), of Food 4 Less Holdings, Inc.
    ("Food 4 Less") into 24,000,000 shares of Fred Meyer Common Stock.
 
(2) Pursuant to Rule 457(f) under the Securities Act of 1933, as amended (the
    "Act"), and solely for the purpose of calculating the registration fee, the
    proposed maximum aggregate offering price is based upon (a) with respect to
    the QFC Merger, $66 17/32, the average of the high and low sale prices of
    QFC Common Stock as reported on the NYSE Composite Transactions Reporting
    System on January 20, 1998 and a maximum of 22,456,200 shares of QFC stock
    exchanged in the QFC Merger, and (b) with respect to the Food 4 Less Merger,
    a maximum of 42,370,105 shares of Food 4 Less Stock expected to be exchanged
    or cancelled in the Food 4 Less Merger and one-third of the aggregate par
    value of such stock ($141,234).
 
(3) Pursuant to Rule 457(b) of the Act, the registration fee of $440,784
    calculated hereunder is offset by the fee of $494,158 previously paid in
    connection with the filing on December 12, 1997 with the Commission of the
    preliminary proxy materials relating to the transactions described herein,
    resulting in no additional payment.
 
    THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH A DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
 
================================================================================
<PAGE>   2
 
                                     [LOGO]
                                FRED MEYER, INC.
                              3800 SE 22nd Avenue
                             Portland, Oregon 97202
                            ------------------------
 
                   NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
 
                          To Be Held on March 5, 1998
 
To the Stockholders of
FRED MEYER, INC.:
 
     A special meeting of stockholders of Fred Meyer, Inc. will be held on March
5, 1998 at 10:00 a.m. local time, at The DoubleTree Hotel Downtown, 310 S.W.
Lincoln, Portland, Oregon, for the following purposes:
 
     1. To consider and vote on a proposal to approve the issuance of common
        stock of Fred Meyer to shareholders of Quality Food Centers, Inc. in
        connection with a merger agreement between Fred Meyer, QFC and a
        subsidiary of Fred Meyer, as described in the accompanying Joint Proxy
        and Consent Solicitation Statement/Prospectus;
 
     2. To consider and vote on a proposal to approve the issuance of common
        stock of Fred Meyer to stockholders and warrant holders of Food 4 Less
        Holdings, Inc. in connection with a merger agreement between Fred Meyer,
        Food 4 Less and a subsidiary of Fred Meyer, as described in the
        accompanying Joint Proxy and Consent Solicitation Statement/Prospectus;
 
     3. To consider and vote on a proposal to amend the certificate of
        incorporation of Fred Meyer to increase the maximum size of the Board of
        Directors; and
 
     4. To transact such other business as may properly come before the special
        meeting or any postponement or adjournment.
 
     THE BOARD OF DIRECTORS OF FRED MEYER RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE APPROVAL AND ADOPTION OF EACH OF THE PROPOSALS SET FORTH ABOVE.
 
     The close of business on January 26, 1998 has been fixed by the Board of
Directors of Fred Meyer as the record date for determination of the stockholders
of Fred Meyer entitled to notice of, and to vote at, the special meeting or any
postponement or adjournment. Whether or not you plan to attend the special
meeting, we urge you to complete, sign and return the enclosed proxy card in the
enclosed postage-paid envelope. You may revoke your proxy at any time before it
is voted by delivering to Fred Meyer, at 3800 SE 22nd Avenue, Portland, Oregon
97202, Attention: Roger A. Cooke, Secretary, a written notice of such revocation
or a duly executed, later-dated proxy or by attending the special meeting and
voting in person.
 
                                       By Order of the Board of Directors
 
                                       Roger A. Cooke
                                       Secretary
Portland, Oregon
January   , 1998
--------------------------------------------------------------------------------
                            YOUR VOTE IS IMPORTANT.
 
                    TO VOTE YOUR SHARES, PLEASE SIGN, DATE,
                   COMPLETE AND MAIL THE ENCLOSED PROXY CARD
                   PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
--------------------------------------------------------------------------------
<PAGE>   3
 
                                      LOGO
                           QUALITY FOOD CENTERS, INC.
                       10112 N.E. 10th Street, Suite 201
                           Bellevue, Washington 98004
                            ------------------------
 
                   NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
                          To Be Held on March 6, 1998
 
To the Shareholders of
QUALITY FOOD CENTERS, INC.:
 
     A special meeting of shareholders of Quality Food Centers, Inc. will be
held on March 6, 1998 at 2:00 p.m., local time, at the Sheraton Hotel and
Towers, 1400 6th Avenue, Seattle, Washington for the following purposes:
 
     1. To consider and vote on a proposal to approve and adopt the merger
        agreement between QFC, Fred Meyer, Inc. and Q-Acquisition Corp, a wholly
        owned subsidiary of Fred Meyer. Under the terms of the merger agreement,
        (i) Q-Acquisition will merge with and into QFC, with QFC surviving the
        merger and becoming a wholly owned subsidiary of Fred Meyer and (ii)
        each outstanding share of common stock of QFC (except shares with
        respect to which dissenters' rights have been asserted and not waived or
        terminated) will be converted into the greater of:
 
        - 1.9 shares of Fred Meyer common stock; or
 
        - The number of shares of Fred Meyer common stock having a value equal
          to $55.00. The value of the Fred Meyer common stock will be calculated
          based on the average closing price on the New York Stock Exchange for
          15 randomly selected days out of the 35 trading days ending on the
          second trading day preceding the effective date of the merger of Fred
          Meyer and QFC.
 
       In no event will an outstanding share of QFC common stock be converted
       into more than 2.3 shares of Fred Meyer common stock. The number of
       shares of Fred Meyer common stock to be received by shareholders of QFC
       may be reduced under certain circumstances as a result of store
       divestitures in California which may be required by state or federal
       antitrust authorities, as described in the accompanying Joint Proxy and
       Consent Solicitation Statement/Prospectus; and
 
     2. To transact such other business as may properly come before the special
        meeting or any postponement or adjournment.
 
     THE BOARD OF DIRECTORS OF QFC UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
 
     The close of business on January 26, 1998 has been fixed by the Board of
Directors of QFC as the record date for determination of the shareholders of QFC
entitled to notice of, and to vote at, the special meeting or any postponement
or adjournment.
 
     Fred Meyer has entered into shareholder agreements with Zell/Chilmark Fund,
L.P. and Stuart M. Sloan, who together at the record date owned approximately
26% of the outstanding shares of QFC. These shareholders have each agreed, among
other things, to vote all shares owned by each of them in favor of the approval
and adoption of the merger agreement.
<PAGE>   4
 
     Whether or not you plan to attend the special meeting, we urge you to
complete, sign and return the enclosed proxy card in the enclosed postage-paid
envelope. You may revoke your proxy at any time before it is voted by delivering
to QFC, at 10112 N.E. 10th Street, Suite 201, Bellevue, Washington 98004,
Attention: Susan Obuchowski, Secretary, a written notice of such revocation or a
duly executed, later-dated proxy or by attending the special meeting and voting
in person.
 
                                       BY ORDER OF THE BOARD OF DIRECTORS
 
                                       Susan Obuchowski
                                       Secretary
 
Bellevue, Washington
January   , 1998
 
--------------------------------------------------------------------------------
 
                            YOUR VOTE IS IMPORTANT.
 
                    TO VOTE YOUR SHARES, PLEASE SIGN, DATE,
                   COMPLETE AND MAIL THE ENCLOSED PROXY CARD
                   PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
 
           PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
--------------------------------------------------------------------------------
<PAGE>   5
 
LOGO                                  LOGO                                  LOGO
 
                PROPOSED MERGERS -- YOUR VOTE IS VERY IMPORTANT
 
      The Board of Directors of Fred Meyer, Inc. has approved two merger
agreements which would result in Quality Food Centers, Inc. and Food 4 Less
Holdings, Inc. becoming wholly owned subsidiaries of Fred Meyer. The Board of
Directors of each of QFC and Food 4 Less has approved its company's merger
agreement with Fred Meyer. However, neither merger is conditioned on the
other -- depending on the stockholder votes, both, one or neither of the mergers
could happen.
 
      Here is what QFC and Food 4 Less stockholders could expect to receive if
their merger is completed:
 
QFC:
 
-  Between 1.9 and 2.3 shares of Fred Meyer stock for each share of QFC stock
   you own.
 
-  Based on the $36.19 closing price of Fred Meyer stock on January 22, 1998,
   you would receive 1.9 shares of Fred Meyer stock for each QFC share.
 
FOOD 4 LESS:
 
-  Assuming this merger is completed by March 15, 1998, Food 4 Less estimates
   you will receive between 0.48 and 0.54 shares of Fred Meyer stock for each
   share of Food 4 Less common stock you own.
 
If the mergers are completed, the actual number of Fred Meyer shares each QFC
and Food 4 Less stockholder receives could be affected by several factors,
including store divestitures in California that may be required by state or
federal antitrust authorities. We discuss these factors in the summary and the
rest of this document.
 
      Fred Meyer stockholders will continue to hold their existing shares.
 
      Assuming one or both of the mergers are completed, here is what the stock
ownership percentages of Fred Meyer would be:
 
<TABLE>
<CAPTION>
  MERGERS     FRED MEYER         QFC         FOOD 4 LESS
 COMPLETED:   STOCKHOLDERS  SHAREHOLDERS    STOCKHOLDERS
------------  -----------   -------------   -------------
<S>           <C>           <C>             <C>
Both........      59%            27%             14%
QFC only....      69%            31%              --
Food 4 Less
  only......      81%             --             19%
</TABLE>
 
We based these percentages on the number of shares for each company outstanding
on January 21, 1998 and the market price of Fred Meyer stock on January 22,
1998. Also, these percentages could be affected by several factors we discuss in
the summary and the rest of this document.
 
      Here is what we are asking you to approve:
 
FRED MEYER STOCKHOLDERS:
 
-  The issuance of Fred Meyer stock in the Fred Meyer/QFC merger.
 
-  The issuance of Fred Meyer stock in the Fred Meyer/Food 4 Less merger.
 
-  An amendment of the Certificate of Incorporation to increase the maximum
   number of directors.
 
QFC SHAREHOLDERS:
 
-  The Fred Meyer/QFC merger agreement.
 
FOOD 4 LESS STOCKHOLDERS:
 
-  The Fred Meyer/Food 4 Less merger agreement.
 
-  The termination of stockholders and registration rights agreements.
<PAGE>   6
 
     YOUR VOTE IS IMPORTANT. Please take the time to vote on the proposals by
completing and mailing the enclosed proxy card or consent form, even if you plan
to attend a stockholders meeting. Also, we encourage you to read this document
carefully before you vote. It provides detailed information about the proposed
mergers. In addition, you may obtain information about our companies from
documents that we have filed with the Securities and Exchange Commission.
 
     NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED THE FRED MEYER COMMON STOCK TO BE ISSUED IN CONNECTION
WITH THIS DOCUMENT OR DETERMINED IF THIS DOCUMENT IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
 
                               January    , 1998
<PAGE>   7
 
                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                        PAGE
                                        ----
<S>                                     <C>
QUESTIONS AND ANSWERS ABOUT THE
  MERGERS.............................    3
WHO CAN HELP ANSWER MY QUESTIONS......    3
SUMMARY...............................    4
  The Companies.......................    4
  Reasons for the Mergers.............    4
  The Special Meetings................    4
  Recommendations to Stockholders.....    5
  Vote Required.......................    5
  The Merger Between Fred Meyer and
     QFC..............................    5
  The Merger Between Fred Meyer and
     Food 4 Less......................    8
  Ownership of Fred Meyer Following
     the Mergers......................   10
  Board of Directors of Fred Meyer
     Following the Mergers............   11
  Refinancing Arrangements............   11
  Comparative Market Price
     Information......................   11
  Listing of Fred Meyer Common
     Stock............................   11
  Amendment of Fred Meyer Certificate
     of Incorporation.................   11
  Selected Historical and Pro Forma
     Financial Data...................   12
  Fred Meyer Selected Historical
     Financial and Other Data.........   13
  QFC Selected Historical Financial
     and Other Data...................   15
  Food 4 Less Selected Historical
     Financial and Other Data.........   17
  The Fred Meyer/QFC Merger and Fred
     Meyer/Food 4 Less Merger Selected
     Unaudited Pro Forma Condensed
     Combined Financial Data and Per
     Share Data.......................   20
  The Fred Meyer/QFC Merger Selected
     Unaudited Pro Forma Condensed
     Combined Financial Data and Per
     Share Data.......................   24
  The Fred Meyer/Food 4 Less Merger
     Selected Unaudited Pro Forma Con-
     densed Combined Financial Data
     and Per Share Data...............   27
 
<CAPTION>
                                        PAGE
                                        ----
<S>                                     <C>
THE COMPANIES.........................   30
  Fred Meyer..........................   30
  QFC.................................   30
  Food 4 Less.........................   31
  The Combined Company................   32
FRED MEYER SPECIAL MEETING............   33
  Solicitation, Voting and
     Revocability of Proxies..........   35
  Recommendations of the Fred Meyer
     Board............................   36
QFC SPECIAL MEETING...................   36
  General.............................   36
  Solicitation, Voting and
     Revocability of Proxies..........   37
  Recommendations of the QFC Board....   38
FOOD 4 LESS CONSENT SOLICITATION......   38
  Purpose of the Food 4 Less Consent
     Solicitation.....................   38
  Recommendation of the Food 4 Less
     Board............................   39
  Consents Required...................   39
  Procedures for Delivering
     Consents.........................   41
BACKGROUND OF THE MERGERS.............   42
THE FM/QFC MERGER.....................   46
  Reasons of Fred Meyer for the
     Merger...........................   46
  Reasons of QFC for the Merger.......   47
  Opinions of Fred Meyer Financial
     Advisors Regarding the FM/QFC
     Merger...........................   49
  Opinion of QFC Financial Advisor Re-
     garding the FM/QFC Merger........   57
  Interests of Certain Persons in the
     FM/QFC Merger....................   64
  Certain United States Federal Income
     Tax Consequences.................   66
  Accounting Treatment................   67
  Regulatory Approvals................   67
  Dissenters' Rights..................   68
  Stock Exchange Listing of Fred Meyer
     Common Stock.....................   70
  Federal Securities Law
     Consequences.....................   70
</TABLE>
 
                                        i
<PAGE>   8
 
<TABLE>
<CAPTION>
                                        PAGE
                                        ----
<S>                                     <C>
THE FM/QFC MERGER AGREEMENT...........   71
  The Merger..........................   71
  Conversion of Shares................   71
  Fractional Shares...................   72
  Exchange of Certificates............   72
  Effect on Stock Options and Stock
     Plans............................   73
  Representations and Warranties......   73
  Conduct of Business of QFC Pending
     the FM/QFC Merger................   74
  Conduct of Business of Fred Meyer
     Pending the FM/QFC Merger........   74
  Antitrust Clearance; Estimated
     Gain.............................   75
  No Solicitation.....................   76
  Employee Benefit Matters............   77
  Directors' and Officers'
     Indemnification; Insurance.......   77
  Directors...........................   78
  Conditions to Each Party's
     Obligation to Effect the FM/QFC
     Merger...........................   78
  Conditions to Obligations of QFC to
     Effect the FM/QFC Merger.........   78
  Conditions to Obligations of Fred
     Meyer and QFC Sub to Effect the
     FM/QFC Merger....................   79
  Termination.........................   79
  Termination Fee and Expenses........   80
  Amendment and Waiver................   81
OTHER AGREEMENTS -- FM/QFC MERGER.....   81
  Shareholders Agreements.............   81
  Voting Agreement....................   82
  Registration Rights Agreement.......   82
THE FM/FOOD 4 LESS MERGER.............   83
  Reasons of Fred Meyer for the
     Merger...........................   83
  Reasons of Food 4 Less for the
     Merger...........................   85
  Opinions of Fred Meyer Financial
     Advisors Regarding the FM/Food 4
     Less Merger......................   87
  Opinions of Food 4 Less Financial
     Advisors Regarding the FM/Food 4
     Less Merger......................   94
  Interests of Certain Persons in the
     FM/Food 4 Less Merger............  103

<CAPTION>
                                        PAGE
                                        ----
  Certain United States Federal Income
     Tax Consequences.................  106
  Accounting Treatment................  107
  Regulatory Approvals................  108
  Appraisal Rights....................  108
  Stock Exchange Listing of Fred Meyer
     Common Stock.....................  111
  Federal Securities Law
     Consequences.....................  111
THE FM/FOOD 4 LESS MERGER AGREEMENT...  113
  The Merger..........................  113
  Conversion of Shares................  113
  Escrowed Shares.....................  114
  Fractional Shares...................  114
  Exchange of Certificates............  114
  Effect on Stock Options.............  115
  Effect on Warrants..................  115
  Treatment of Yucaipa Consulting
     Agreement and Yucaipa Warrant....  116
  Representations and Warranties......  116
  Conduct of Business of Food 4 Less
     Pending the FM/Food 4 Less
     Merger...........................  116
  Conduct of Business of Fred Meyer
     Pending the FM/Food 4 Less
     Merger...........................  117
  Antitrust Clearance; Estimated
     Gain.............................  118
  No Solicitation.....................  119
  Employee Benefit Matters............  119
  Directors' and Officers'
     Indemnification; Insurance.......  120
  Directors...........................  120
  Conditions to Each Party's
     Obligation to Effect the FM/Food
     4 Less Merger....................  120
  Conditions to Obligations of Food 4
     Less to Effect the FM/Food 4 Less
     Merger...........................  121
  Conditions to Obligations of Fred
     Meyer and Food 4 Less Sub to
     Effect the FM/Food 4 Less
     Merger...........................  121
  Termination.........................  122
  Amendment and Waiver................  122
  Certain Definitions.................  123
OTHER AGREEMENTS -- FM/FOOD 4 LESS
  MERGER..............................  124
  Stockholders Agreements.............  124
  Registration Rights Agreement.......  125
</TABLE>
 
                                       ii
<PAGE>   9
 
<TABLE>
<CAPTION>
                                        PAGE
                                        ----
<S>                                     <C>
REFINANCING ARRANGEMENTS..............  125
  The FM/QFC Merger and FM/Food 4 Less
     Merger...........................  126
  The FM/QFC Merger...................  126
  The FM/Food 4 Less Merger...........  127
THE FM/QFC MERGER AND FM/FOOD 4 LESS
  MERGER UNAUDITED PRO FORMA CON-
  DENSED COMBINED FINANCIAL
  STATEMENTS..........................  129
THE FM/QFC MERGER UNAUDITED PRO FORMA
  CONDENSED COMBINED FINANCIAL
  STATEMENTS..........................  131
THE FM/FOOD 4 LESS MERGER UNAUDITED
  PRO FORMA CONDENSED COMBINED
  FINANCIAL STATEMENTS................  132
COMPARATIVE MARKET PRICES AND
  DIVIDENDS...........................  162

<CAPTION>
                                        PAGE
                                        ----
COMPARISON OF STOCKHOLDERS' RIGHTS....  163
  Comparison of Rights of Holders of
     QFC Common Stock and Holders of
     Fred Meyer Common Stock..........  163
  Comparison of Rights of Holders of
     Food 4 Less Common Stock and
     Holders of Fred Meyer Common
     Stock............................  169
PROPOSAL TO APPROVE AND ADOPT THE
  AMENDMENT TO THE RESTATED
  CERTIFICATE OF INCORPORATION OF FRED
  MEYER, INC..........................  171
LEGAL MATTERS.........................  172
EXPERTS...............................  172
OTHER MATTERS.........................  173
WHERE YOU CAN FIND MORE IN-
  FORMATION...........................  173
APPENDIX A  -- FM/QFC Merger Agreement
APPENDIX B  -- FM/Food 4 Less Merger Agreement
APPENDIX C  -- Fairness Opinion of Salomon Brothers Inc (FM/QFC Merger)
APPENDIX D  -- Fairness Opinion of Goldman, Sachs & Co. (FM/QFC Merger)
APPENDIX E  -- Fairness Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
               (FM/QFC Merger)
APPENDIX F  -- Fairness Opinion of Salomon Brothers Inc (FM/Food 4 Less Merger)
APPENDIX G  -- Fairness Opinion of Goldman, Sachs & Co. (FM/Food 4 Less Merger)
APPENDIX H  -- Fairness Opinion of Donaldson, Lufkin & Jenrette Securities Corporation
               (FM/Food 4 Less Merger)
APPENDIX I  -- Fairness Opinion of Morgan Stanley & Co. Incorporated (FM/Food 4 Less
               Merger)
APPENDIX J  -- Chapter 23B.13 of the Washington Business Corporation Act
APPENDIX K  -- Section 262 of the Delaware General Corporation Law
</TABLE>
 
                                       iii
<PAGE>   10
 
                FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
 
     This document (and documents that are incorporated by reference) contain
forward-looking statements that are subject to risks and uncertainties.
Stockholders are cautioned not to place undue reliance on such statements which
only speak as of the date hereof. Forward-looking statements include the
information concerning possible or assumed future results of operations of Fred
Meyer, QFC or Food 4 Less, including any forecasts, projections and descriptions
of anticipated cost savings or other anticipated synergies related to the
mergers. Stockholders should note that many factors could affect the actual
financial results of Fred Meyer, QFC and Food 4 Less, and could cause actual
results to differ materially from those in the forward-looking statements. These
factors include the following:
 
     - one or both of the mergers not being consummated;
 
     - regulatory authorities making adverse determinations regarding the
       mergers;
 
     - expected cost savings from the mergers not being fully realized or
       realized within the expected time frame;
 
     - unanticipated difficulties servicing the substantially higher level of
       indebtedness after the mergers;
 
     - revenues following the mergers being lower than expected;
 
     - competitive pressures among food and nonfood retailers increasing
       significantly;
 
     - costs or difficulties related to the integration of the businesses of the
       companies being greater than expected;
 
     - demands placed on management by the substantial increase in the combined
       company's size;
 
     - unanticipated increases occurring in financing and other costs;
 
     - relations with the union bargaining units representing the employees of
       the companies deteriorating;
 
     - general economic or business conditions, either nationally or in the
       states where the companies do business, being less favorable than
       expected;
 
     - legislative or regulatory changes adversely affecting the businesses in
       which the companies are engaged; and
 
     - other opportunities being presented to and pursued by the companies.
 
     All subsequent written and oral forward-looking statements attributable to
the companies or persons acting on its or their behalf are expressly qualified
in their entirety by the cautionary statements contained or referred to in the
paragraph above. None of the companies undertake any obligation to release
publicly any revisions to any forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
 
                                        2
<PAGE>   11
 
                    QUESTIONS AND ANSWERS ABOUT THE MERGERS
 
Q:  WHAT DO I NEED TO DO NOW?
 
A:  After carefully reading and considering the information contained in this
    document, please fill out and sign your proxy card or consent form. Then
    mail your signed proxy card or consent form in the enclosed return envelope
    as soon as possible so that your shares may be represented at the special
    meetings or counted in the consent solicitation.
 
Q:  IF MY FRED MEYER OR QFC SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL
    MY BROKER VOTE MY SHARES ON THE MERGERS FOR ME?
 
A:  Your broker will vote your Fred Meyer or QFC shares on the mergers only if
    you provide instructions on how to vote. You should follow the directions
    provided by your broker regarding how to instruct your broker to vote your
    shares.
 
Q:  CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD OR CONSENT
    FORM?
 
A:  You can change your vote at any time before your proxy is voted at the Fred
    Meyer or QFC special meetings. You can do this in one of three ways. First,
    you can send a written notice stating that you would like to revoke your
    proxy. Second, you can complete and submit a new proxy card. If you choose
    either of these two methods, you must submit your notice of revocation or
    your new proxy card to Fred Meyer at the address on page 4 if you are a Fred
    Meyer stockholder, or to QFC at the address on page 4 if you are a QFC
    shareholder. Third, you can attend the Fred Meyer or QFC special meeting and
    vote in person. Simply attending the meeting, however, will not revoke your
    proxy. If you have instructed a broker to vote your shares, you must follow
    directions received from your broker to change your vote.
 
    If you are a Food 4 Less stockholder, you cannot revoke a consent form after
    Food 4 Less receives sufficient consents to approve the merger with Fred
    Meyer in accordance with Delaware law. Food 4 Less expects to receive
    sufficient consents to approve the merger promptly because holders of a
    majority of the outstanding voting power of Food 4 Less stock have agreed to
    deliver such consents.

Q:  SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
 
A:  No. After the mergers are completed, Fred Meyer will send written
    instructions to QFC shareholders and Food 4 Less stockholders for exchanging
    their stock certificates.
 
Q:  WHEN DO YOU EXPECT THE MERGERS TO BE COMPLETED?
 
A:  We are working towards completing the mergers as quickly as possible. In
    addition to stockholder approvals, we must also obtain regulatory approvals.
    We expect to complete the mergers by mid-March 1998.
 
Q:  WHAT ARE THE TAX CONSEQUENCES OF THE MERGERS?
 
A:  The mergers generally will be tax-free to stockholders for federal income
    tax purposes. To review the tax consequences to stockholders in greater
    detail, see pages 66 and 106.
 
                        WHO CAN HELP ANSWER MY QUESTIONS
 
     If you have more questions about the mergers, you should contact:
 
<TABLE>
<S>                            <C>                            <C>
Fred Meyer Stockholders:       QFC Shareholders:              Food 4 Less Stockholders:
D.F. King & Co., Inc.          D. F. King & Co., Inc.         Food 4 Less Holdings, Inc.
77 Water Street                77 Water Street                1100 West Artesia Boulevard
New York, New York 10005       New York, New York 10005       Compton, California 90220
(800) 207-2014 (toll free)     (800) 488-8075 (toll free)     Attention: Terrence J. Wallock,
                                                              Esq.
                                                              Telephone: (310) 884-9000
</TABLE>
 
                                        3
<PAGE>   12
 
                                    SUMMARY
 
     This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
mergers and related matters and the amendment to the Fred Meyer certificate of
incorporation fully and for a more complete description of the legal terms of
the mergers, you should read carefully this entire document and the documents to
which we have referred you. See "Where You Can Find More Information" on page
173.
 
                                 THE COMPANIES
 
FRED MEYER, INC.
3800 SE 22nd Avenue
Portland, Oregon 97202
(503) 232-8844
 
     Fred Meyer is a regional retailer of a wide range of food and drug products
and general merchandise including: apparel, photo and electronics, products for
the home and fine jewelry. Subsidiaries of Fred Meyer operate 112
multi-department stores under the name "Fred Meyer" in Alaska, Idaho, Montana,
Oregon, Utah and Washington. Smith's Food & Drug Centers, Inc., a subsidiary of
Fred Meyer, operates 150 combination food and drug stores and five warehouse
stores in Arizona, Idaho, Nevada, New Mexico, Texas, Utah and Wyoming. Another
subsidiary of Fred Meyer operates 164 specialty stores in 19 states, all but
five of which are mall jewelry stores operating under the name "Fred Meyer
Jewelers," "Merksamer Jewelers," or "Fox's Jewelers."
 
QUALITY FOOD CENTERS, INC.
10112 NE 10th Street, Suite 201
Bellevue, Washington 98004
(425) 462-2177
 
     QFC is an operator of premium supermarkets in the Seattle/Puget Sound
region of Washington State and in Southern California. QFC currently operates 89
stores in the Seattle/Puget Sound region as well as 56 "Hughes Family Markets"
stores in Southern California.
 
FOOD 4 LESS HOLDINGS, INC.
1100 West Artesia Boulevard
Compton, California 90220
(310) 884-9000
 
     Food 4 Less is the largest supermarket operator in Southern California. It
operates the second largest conventional supermarket chain in the region under
the "Ralphs" name (264 stores) and the largest warehouse supermarket chain in
the region under the "Food 4 Less" name (80 stores). Food 4 Less also operates
27 stores in Northern California and 38 stores in certain areas of the Midwest.
 
                            REASONS FOR THE MERGERS
 
     The Boards of Directors of the three companies have identified various
benefits that are likely to result from the mergers. The Boards of Directors
believe the mergers will:
 
     - Enhance the franchise and resources of the companies;
 
     - Increase the presence of the companies in certain geographical areas;
 
     - Increase the profitability of the companies through cost savings,
       operating efficiencies, economies of scale, lower financing costs and
       stronger market positions; and
 
     - Combine three strong management teams.
 
These and other reasons for approving and recommending the mergers identified by
each board are explained in greater detail on pages 46 through 49 and 83 through
87 of this document.
 
                              THE SPECIAL MEETINGS
 
     The Fred Meyer special meeting will be held at The DoubleTree Hotel
Downtown, 310 S.W. Lincoln, Portland, Oregon, at 10.00 a.m. on March 5, 1998.
 
     The QFC special meeting will be held at the Sheraton Hotel and Towers, 1400
6th Avenue, Seattle, Washington, at 2:00 p.m. on March 6, 1998.
 
                                        4
<PAGE>   13
 
                        RECOMMENDATIONS TO STOCKHOLDERS
 
TO FRED MEYER STOCKHOLDERS:
 
     The Fred Meyer Board believes that the mergers are in the best interests of
Fred Meyer stockholders and recommends that Fred Meyer stockholders vote FOR the
proposals to:
 
     - Approve the issuance of Fred Meyer common stock to shareholders of QFC in
       the Fred Meyer/QFC merger;
 
     - Approve the issuance of Fred Meyer common stock to stockholders of Food 4
       Less in the Fred Meyer/Food 4 Less merger; and
 
     - Approve an amendment to Fred Meyer's certificate of incorporation to
       increase the maximum size of the Board of Directors.
 
TO QFC SHAREHOLDERS:
 
     The QFC Board believes that the Fred Meyer/QFC merger is in the best
interests of QFC and its shareholders and recommends that QFC shareholders vote
FOR the proposal to approve and adopt the Fred Meyer/QFC merger agreement.
 
TO FOOD 4 LESS STOCKHOLDERS:
 
     The Food 4 Less Board believes that the Fred Meyer/Food 4 Less merger is in
the best interests of Food 4 Less and its stockholders and recommends that Food
4 Less stockholders consent to the proposals to:
 
     - Approve and adopt the Fred Meyer/Food 4 Less merger agreement; and
 
     - Terminate certain existing stockholders agreements and registration
       rights agreements.
 
                                 VOTE REQUIRED
 
     To approve the Fred Meyer/QFC merger:
 
     - more than 50% of the outstanding shares of Fred Meyer must cast votes on
       the proposal to issue Fred Meyer shares and a majority of the votes cast
       must vote in favor of the proposal; and
 
     - a majority of the outstanding shares of QFC must vote in favor of the
       Fred Meyer/QFC merger agreement.
 
     To approve the Fred Meyer/Food 4 Less merger:
     - more than 50% of the outstanding shares of Fred Meyer must cast votes on
       the proposal to issue Fred Meyer shares and a majority of the votes cast
       must vote in favor of the proposal; and
 
     - a majority of the outstanding voting power of Food 4 Less shares must
       consent to the Fred Meyer/Food 4 Less merger agreement.
 
     To approve the proposed amendment to the Fred Meyer certificate of
incorporation, at least 75% of the outstanding shares of Fred Meyer must vote in
favor of the amendment.
 
     Certain holders of shares of QFC common stock who collectively own
approximately 26% of the outstanding QFC shares have agreed to vote their QFC
shares in favor of the Fred Meyer/QFC merger agreement. Certain holders of
shares of Fred Meyer common stock who collectively own approximately 11% of the
outstanding Fred Meyer shares have agreed to vote their Fred Meyer shares in
favor of the issuance of Fred Meyer shares pursuant to the Fred Meyer/QFC merger
agreement. Certain stockholders of Food 4 Less who collectively own
approximately 66% of the voting power of the outstanding Food 4 Less shares have
agreed to execute consents to approve the Fred Meyer/Food 4 Less merger
agreement.
 
                     THE MERGER BETWEEN FRED MEYER AND QFC
 
     THE FRED MEYER/QFC MERGER AGREEMENT IS INCLUDED AS APPENDIX A TO THIS JOINT
PROXY AND CONSENT SOLICITATION STATEMENT/PROSPECTUS. YOU ARE ENCOURAGED TO READ
THE FRED MEYER/QFC MERGER AGREEMENT BECAUSE IT IS THE LEGAL DOCUMENT THAT
GOVERNS THE FRED MEYER/QFC MERGER.
 
WHAT QFC SHAREHOLDERS WILL RECEIVE
(SEE PAGE 71)
 
     As a result of the Fred Meyer/QFC merger, each outstanding share of QFC
common stock will be converted into the greater of:
 
     - 1.9 shares of Fred Meyer common stock; or
 
     - The number of shares of Fred Meyer common stock having a value equal to
       $55.00. The value of the Fred Meyer common stock will be calculated based
       on the average
 
                                        5
<PAGE>   14
 
       closing price on the New York Stock Exchange for 15 randomly selected
       days out of the 35 trading days ending on the second trading day
       preceding the merger. In no event will an outstanding share of QFC common
       stock be converted into more than 2.3 shares of Fred Meyer common stock.
 
     The number of Fred Meyer shares to be received by the shareholders of QFC
may be reduced under certain circumstances as a result of store divestitures in
California which may be required by state or federal antitrust authorities.
 
     QFC shareholders should not send in their stock certificates until
instructed to do so after the merger is completed.
 
OTHER INTERESTS OF OFFICERS AND DIRECTORS OF QFC IN THE FRED MEYER/QFC MERGER
(SEE PAGE 64)
 
     A number of officers and directors of QFC have interests in the Fred
Meyer/QFC merger that are different from or in addition to your interests. For
example:
 
     - All unvested options held by executives under QFC's 1993 Executive Stock
       Option Plan will vest and become exercisable when the merger becomes
       effective;
 
     - Certain employees of QFC will become eligible to receive severance
       payments under employment agreements if their employment is terminated
       under certain circumstances within a certain time after the effective
       time of the merger;
 
     - Samuel Zell and Stuart M. Sloan, current directors of QFC, will become
       directors of Fred Meyer after the Fred Meyer/QFC merger; and
 
     - Fred Meyer will grant to Zell/Chilmark Fund, L.P. and Stuart M. Sloan,
       who collectively own approximately 26% of the outstanding shares of QFC
       common stock, the right to demand that Fred Meyer register the resale of
       their Fred Meyer shares under the securities laws.
 
CONDITIONS TO THE FRED MEYER/QFC MERGER (SEE PAGE 78)
 
     The completion of the merger depends upon meeting a number of conditions,
including the following:
     - Approval of the merger agreement by shareholders of QFC;
 
     - Approval by stockholders of Fred Meyer of the issuance of Fred Meyer
       shares in the merger;
 
     - There shall have been no law enacted or injunction entered that
       effectively prohibits the merger;
 
     - Termination or expiration of any waiting period applicable to the merger
       under the Hart-Scott-Rodino Antitrust Improvements Act;
 
     - Effectiveness of the registration statement filed with the Securities and
       Exchange Commission with respect to the shares of Fred Meyer common stock
       to be received by QFC shareholders;
 
     - Approval of the listing on the New York Stock Exchange of Fred Meyer
       shares to be issued to QFC shareholders in the merger; and
 
     - Receipt of legal opinions regarding certain tax consequences of the
       merger.
 
     Any condition to the merger may be waived by the company entitled to assert
the condition.
 
NO SOLICITATION BY QFC (SEE PAGE 76)
 
     QFC has agreed that it will not initiate any discussions regarding a
business combination of QFC with any other party.
 
REGULATORY APPROVALS (SEE PAGE 67)
 
     Under the provisions of the Hart-Scott-Rodino Antitrust Improvements Act,
the merger may not be consummated until the applicable waiting period
requirements have been satisfied. Fred Meyer and QFC made the required filings
on January 13, 1998 and expect the waiting period to expire on February 12, 1998
if a second request is not made by the Federal Trade Commission. The merger is
also subject to review by state antitrust authorities. Since announcement of the
proposed mergers, the
 
                                        6
<PAGE>   15
 
parties have been in discussions with the staff of the
California Attorney General's office with respect to certain concerns about the
possible competitive impact of the proposed mergers in Southern California
raised by the California Attorney General. Those discussions have resulted in a
preliminary understanding that, following completion of both mergers, Fred Meyer
will cause the divestiture to other supermarket operators of 19 specified stores
in Southern California. Such preliminary understanding is not binding on the
FTC, and the FTC may have concerns regarding the potential competitive impact of
the proposed mergers in addition to those raised by the California Attorney
General, and may require additional divestitures in California or elsewhere.
 
TERMINATION OF THE FM/QFC MERGER AGREEMENT (SEE PAGE 79)
 
     Fred Meyer and QFC can agree to terminate the merger agreement without
completing the merger, and either of Fred Meyer or QFC can terminate the merger
agreement if any of the following occurs:
 
     - The merger is not completed by August 31, 1998;
 
     - The approval of shareholders of QFC or of stockholders of Fred Meyer is
       not received;
 
     - A court or other governmental authority permanently prohibits the merger;
       or
 
     - The other party materially breaches any of its representations or
       warranties or obligations under the merger agreement.
 
     Further, QFC may terminate the agreement if the average closing price of
Fred Meyer common stock for the five trading days ending on the second trading
day before the effective time of the merger is $20 or less.
 
     Fred Meyer can terminate the merger agreement if the QFC Board of Directors
withdraws, modifies or amends its approval of the merger agreement in any way
adverse to Fred Meyer or recommends an alternative transaction.
 
     QFC can also terminate the merger agreement if a person other than Fred
Meyer, prior to approval by the QFC shareholders of the merger agreement,
proposes a "superior transaction."
 
TERMINATION FEES (SEE PAGE 80)
     The merger agreement requires QFC to pay Fred Meyer a termination fee of
$40 million plus reimbursement of up to $5 million of expenses if the merger
agreement terminates under certain circumstances.
 
ACCOUNTING TREATMENT (SEE PAGE 67)
 
     Fred Meyer and QFC expect the merger to qualify as a pooling of interests,
which means that Fred Meyer and QFC will be treated as if they had always been
combined for accounting and financial reporting purposes. The merger, however,
is not conditioned on receiving this accounting treatment.
 
OPINIONS OF FINANCIAL ADVISORS (SEE PAGES 49, 51 AND 57)
 
     In deciding to approve the merger, the Fred Meyer Board considered opinions
from Salomon Brothers Inc and Goldman, Sachs & Co., its financial advisors, as
to the fairness of the exchange ratio contained in the Fred Meyer/QFC merger
agreement from a financial point of view to Fred Meyer. In deciding to approve
and adopt the merger agreement, the QFC Board considered an opinion from Merrill
Lynch, Pierce, Fenner & Smith Incorporated, its financial advisor, as to the
fairness of the exchange ratio contained in the Fred Meyer/QFC merger agreement
from a financial point of view to the shareholders of QFC. These opinions are
included as Appendices C, D and E to this Joint Proxy and Consent Solicitation
Statement/Prospectus, and we encourage you to read them.
 
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 66)
 
     Fred Meyer and QFC have structured the merger so that no gain or loss
generally should be recognized by a QFC shareholder for federal income tax
purposes on the exchange of shares of QFC common stock for shares of Fred Meyer
common stock. Federal income tax may be payable, however, on cash received by
QFC shareholders instead of fractional shares. To review the federal income tax
consequences to QFC shareholders in greater detail, see pages 66 through 67.
Each of Fred Meyer and QFC has conditioned the merger on the receipt by it of a
legal opinion regarding certain federal income tax consequences of the merger.
 
                                        7
<PAGE>   16
 
     The tax consequences of the merger to you will depend on the facts of your
own situation. You should consult your tax advisor for a full understanding of
the tax consequences of the merger to you.
 
DISSENTERS' RIGHTS OF QFC SHAREHOLDERS
                                 (SEE PAGE 68)
 
     QFC shareholders have the right to dissent from the merger under Washington
law and receive payment of the "fair value" of their shares if they comply with
certain requirements set forth in this Joint Proxy and Consent Solicitation
Statement/Prospectus.
 
                       THE MERGER BETWEEN FRED MEYER AND
                                  FOOD 4 LESS
 
     THE FRED MEYER/FOOD 4 LESS MERGER AGREEMENT IS INCLUDED AS APPENDIX B TO
THIS JOINT PROXY AND CONSENT SOLICITATION STATEMENT/PROSPECTUS. YOU ARE
ENCOURAGED TO READ THE FRED MEYER/ FOOD 4 LESS MERGER AGREEMENT BECAUSE IT IS
THE LEGAL DOCUMENT THAT GOVERNS THE FRED MEYER/ FOOD 4 LESS MERGER.
 
WHAT FOOD 4 LESS STOCKHOLDERS AND WARRANT HOLDERS WILL RECEIVE (SEE PAGE 113)
 
     As a result of the Fred Meyer/Food 4 Less merger, Food 4 Less stockholders
and warrant holders in the aggregate will receive the greater of:
 
     - 22.5 million shares of Fred Meyer common stock; or
 
     - the number of shares of Fred Meyer common stock having a value equal to
       $600 million. The value of the Fred Meyer shares will be calculated based
       on the average closing price on the New York Stock Exchange for 15
       randomly selected days out of the 35 trading days ending on the second
       trading day preceding the Fred Meyer/Food 4 Less merger. In no event will
       Food 4 Less stockholders receive more than 24 million Fred Meyer shares.
 
     The number of Fred Meyer shares to be received by Food 4 Less stockholders
and warrant holders may be reduced under certain circumstances, including as a
result of the cash settlement of Food 4 Less options and as a result of store
divestitures in California which may be required by state or federal antitrust
authorities. If, by the closing of the Fred Meyer/Food 4 Less merger, no
agreement has been reached with regulatory authorities relating to store
divestitures that may be required, Fred Meyer will place in escrow a portion of
the shares to be issued to Food 4 Less stockholders (up to 10% of the total) to
cover any eventual purchase price reduction.
 
     The Fred Meyer/Food 4 Less merger agreement states the number of shares of
Fred Meyer common stock that Food 4 Less stockholders and warrant holders will
receive in the aggregate, rather than on a per share basis. This is because the
total number of Food 4 Less shares outstanding (assuming conversion of Food 4
Less' preferred stock) is expected to increase over time (in part because the
conversion rate of the preferred stock increases on a daily basis). Hence, a per
share conversion ratio cannot be established until the closing date is known
with certainty.
 
     Additionally, as noted above, other factors -- such as the amount of cash
that must be paid to settle Food 4 Less options, and whether store divestitures
in California are required by antitrust authorities -- affect the Food 4 Less
conversion ratio. If the merger closes on March 15, 1998, Food 4 Less estimates
that its stockholders will receive between .48 and .54 shares of Fred Meyer
common stock for each share of Food 4 Less common stock (or a corresponding
amount for each share of Food 4 Less preferred stock, on an as-converted basis),
depending on the market price of Fred Meyer common stock. This estimate assumes
that there will be no adjustment to the merger consideration as a result of
store divestitures in California that may be required by antitrust authorities.
 
     Food 4 Less stockholders should not send in their stock certificates until
instructed to do so after the merger is completed.
 
OTHER INTERESTS OF OFFICERS AND DIRECTORS IN THE FRED MEYER/FOOD 4 LESS MERGER
(SEE PAGE 103)
 
     A number of officers and directors of Food 4 Less and a director of Fred
Meyer have interests in the Fred Meyer/Food 4 Less merger that are different
from, or in addition to, your interests. For example:
 
     - Ronald W. Burkle, the Chairman of the Board of Fred Meyer, is also
       chairman of the Board of Food 4 Less;
 
                                        8
<PAGE>   17
 
     - Entities controlled by Mr. Burkle and his affiliates, including The
       Yucaipa Companies, own approximately 26% of the equity interests in Food
       4 Less and approximately 5% of the outstanding Fred Meyer common stock
       (and hold a warrant to acquire an additional 4%);
 
     - In addition to receiving Fred Meyer common stock in the merger, it is
       anticipated that Yucaipa will receive a fee of $20 million for the
       termination of a consulting agreement between Yucaipa and Food 4 Less and
       for advisory services rendered by Yucaipa in connection with the merger;
 
     - A majority of the directors of Food 4 Less are affiliated with Yucaipa;
 
     - Robert Beyer, a current director of Food 4 Less, and one additional
       designee to be named by Food 4 Less, will become directors of Fred Meyer
       after the Fred Meyer/Food 4 Less merger;
 
     - Holders of Food 4 Less options, including George G. Golleher, the Chief
       Executive Officer and a director of Food 4 Less, will receive cash
       payments for the cancellation of their options;
 
     - Certain employees of Food 4 Less will be eligible to receive severance
       payments if their employment is terminated under certain circumstances
       within a specified time after the effective time of the merger; and
 
     - Fred Meyer will grant Yucaipa and certain other stockholders of Food 4
       Less the right to demand that Fred Meyer register the resale of their
       Fred Meyer shares under the securities laws.
 
CONDITIONS TO THE FRED MEYER/FOOD 4 LESS MERGER (SEE PAGE 120)
 
     The completion of the merger depends upon meeting a number of conditions,
including the following:
 
     - Approval of the merger agreement by stockholders of Food 4 Less;
 
     - Approval by the stockholders of Fred Meyer of the issuance of Fred Meyer
       shares in the merger;
 
     - There shall have been no law enacted or injunction entered that
       effectively prohibits the merger;
 
     - Termination or expiration of any waiting period applicable to the merger
       under the Hart-Scott-Rodino Antitrust Improvements Act;
 
     - Effectiveness of the registration statement filed with the Securities and
       Exchange Commission with respect to the shares of Fred Meyer common stock
       to be received by Food 4 Less stockholders;
 
     - Approval for listing on the New York Stock Exchange of the Fred Meyer
       shares to be issued to Food 4 Less stockholders and warrant holders in
       the merger; and
 
     - Receipt of legal opinions regarding certain tax consequences of the
       merger.
 
     Any condition to the merger may be waived by the company entitled to assert
the condition.
 
NO SOLICITATION BY FOOD 4 LESS (SEE PAGE 119)
 
     Food 4 Less has agreed that it will not initiate any discussions regarding
a business combination of Food 4 Less with any other party.
 
REGULATORY APPROVALS (SEE PAGE 108)
 
     Under the provisions of the Hart-Scott-Rodino Antitrust Improvements Act,
the merger may not be consummated until the applicable waiting period
requirements have been satisfied. Each of Fred Meyer and Food 4 Less has filed
notification reports under the Hart-Scott-Rodino Antitrust Improvements Act and
the waiting period has expired. The merger is also subject to review by state
antitrust authorities. Since announcement of the proposed mergers, the parties
have been in discussions with the staff of the California Attorney General's
office with respect to certain concerns about the possible competitive impact of
the proposed mergers in Southern California raised by the California Attorney
General. Those discussions have resulted in a preliminary understanding that,
following completion of both mergers, Fred Meyer will cause the divestiture to
other supermarket operators of 19 specified stores in Southern California. Such
preliminary understanding is not binding on the FTC, and the FTC may have
concerns regarding the potential competitive impact of the pro-
 
                                        9
<PAGE>   18
 
posed mergers in addition to those raised by the California Attorney General,
and may require additional divestitures in California or elsewhere.
 
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 122)
 
     Fred Meyer and Food 4 Less can agree to terminate the merger agreement
without completing the merger, and either of Fred Meyer or Food 4 Less can
terminate the merger agreement if any of the following occurs:
 
     - The merger is not completed by August 31, 1998;
 
     - Approval of stockholders of Food 4 Less or Fred Meyer is not received;
 
     - A court or other governmental authority permanently prohibits the merger;
       or
 
     - The other party materially breaches any of its representations or
       warranties or obligations under the merger agreement.
 
ACCOUNTING TREATMENT (SEE PAGE 107)
 
     Fred Meyer and Food 4 Less expect the merger to qualify as a purchase of
Food 4 Less by Fred Meyer, which means that for accounting and financial
reporting purposes the purchase price of Food 4 Less will be allocated to assets
acquired and liabilities assumed based on their estimated fair values. Income of
Fred Meyer will not include income of Food 4 Less prior to the closing of the
merger.
 
OPINIONS OF FINANCIAL ADVISORS (SEE PAGES 87, 89, 94 AND 98)
 
     In deciding to approve the merger, the Fred Meyer Board considered opinions
from Salomon Brothers Inc and Goldman, Sachs & Co., its financial advisors, as
to the fairness of the exchange ratio contained in the Fred Meyer/Food 4 Less
merger agreement from a financial point of view to Fred Meyer. In deciding to
approve the merger, the Food 4 Less Board considered opinions from Donaldson,
Lufkin & Jenrette Securities Corporation and Morgan Stanley & Co. Incorporated,
its financial advisors, as to the fairness of the consideration to be received
by Food 4 Less common stockholders in the merger from a financial point of view.
These opinions are included as Appendices F, G, H and I to this Joint Proxy and
Consent Solicitation Statement/Prospectus, and we encourage you to read them.
 
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 106)
 
     Fred Meyer and Food 4 Less have structured the merger so that no gain or
loss generally should be recognized by a Food 4 Less stockholder for federal
income tax purposes on the exchange of shares of Food 4 Less stock for shares of
Fred Meyer common stock. Federal income tax may be payable, however, on cash
received by Food 4 Less stockholders instead of fractional shares. To review the
federal income tax consequences to Food 4 Less stockholders in greater detail,
see pages 106 through 107. Fred Meyer and Food 4 Less have each conditioned the
merger on their receipt of a legal opinion regarding certain federal income tax
consequences of the merger.
 
     The tax consequences of the merger to you will depend on the facts of your
own situation. You should consult your tax advisor for a full understanding of
the tax consequences of the merger to you.
 
APPRAISAL RIGHTS (SEE PAGE 108)
 
     Food 4 Less stockholders have the right to assert appraisal rights under
Delaware law if they comply with certain requirements set forth in this Joint
Proxy and Consent Solicitation Statement/Prospectus.
 
                 OWNERSHIP OF FRED MEYER FOLLOWING THE MERGERS
 
     The following table sets forth the estimated percentage stock ownership of
Fred Meyer by the stockholders of Fred Meyer, QFC and/or Food 4 Less following
the completion of either or both of the mergers. These percentages assume that
there are no store divestitures in California that would result in an adjustment
to the merger consideration. In addition, these percentages are based on the
number of shares of each company outstanding on
 
                                       10
<PAGE>   19
 
January 21, 1998 and the market price of the Fred Meyer common stock on January
21, 1998:
 
<TABLE>
<CAPTION>
                  PERCENTAGE OF FRED MEYER STOCK OWNED BY
                 ------------------------------------------
                  FRED MEYER        QFC        FOOD 4 LESS
                 STOCKHOLDERS   SHAREHOLDERS   STOCKHOLDERS
                 ------------   ------------   ------------
<S>              <C>            <C>            <C>
Upon completion
  of both
  mergers......      59%        27%            14%
Upon completion
  of the Fred
  Meyer/QFC
  merger
  only.........      69%        31%            --
Upon completion
  of the Fred
  Meyer/Food 4
  Less merger
  only.........      81%        --             19%
</TABLE>
 
 BOARD OF DIRECTORS OF FRED MEYER FOLLOWING THE MERGERS (SEE PAGES 78 AND 120)
 
     If the Fred Meyer/QFC merger is completed, Samuel Zell and Stuart M. Sloan,
current directors of QFC, will be elected to the Fred Meyer Board. If the Fred
Meyer/Food 4 Less merger is completed, Robert Beyer, a current member of the
Food 4 Less Board, and one additional person designated by Food 4 Less will be
elected to the Fred Meyer Board.
 
                    REFINANCING ARRANGEMENTS (SEE PAGE 125)
 
     Fred Meyer expects to refinance and consolidate approximately $4.5 billion
of the indebtedness of the combined company in connection with the mergers, but
the refinancing is not a condition to the closing of either merger.
 
                      COMPARATIVE MARKET PRICE INFORMATION
                                 (SEE PAGE 162)
 
     Shares of Fred Meyer and QFC are listed on the New York Stock Exchange.
Shares of Food 4 Less are not publicly traded and there is no readily
ascertainable market value for such shares. On November 6, 1997, the last full
trading day prior to the public announcement of the proposed mergers, Fred Meyer
common stock closed at $30.94 per share and QFC common stock closed at $51.63
per share. On January 22, 1998, Fred Meyer common stock closed at $36.19 per
share and QFC common stock closed at $67.50 per share. We urge you to obtain
current market quotations.
 
     During the last two years, Fred Meyer, QFC and Food 4 Less have not paid
any cash dividends and none of these companies expects to do so in the
foreseeable future.
 
                       LISTING OF FRED MEYER COMMON STOCK
                             (SEE PAGES 70 AND 111)
 
     Fred Meyer will list the shares of Fred Meyer common stock to be issued in
the mergers on the New York Stock Exchange.
 
                     AMENDMENT OF FRED MEYER CERTIFICATE OF
                          INCORPORATION (SEE PAGE 171)
 
     The Fred Meyer Board of Directors is proposing an amendment to the
certificate of incorporation of Fred Meyer to increase the maximum size of the
Board to 25 directors. The Board is proposing this amendment to retain
flexibility to increase the size of the Board in the event of future
acquisitions or for other reasons.
 
                                       11
<PAGE>   20
 
                SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
 
     Set forth on the following pages are certain (i) selected historical
financial and other data of Fred Meyer, QFC and Food 4 Less, (ii) unaudited pro
forma condensed combined financial information of Fred Meyer after giving effect
to the Fred Meyer/QFC merger and the Fred Meyer/Food 4 Less merger and
anticipated refinancing arrangements, (iii) selected unaudited pro forma
condensed combined financial information of Fred Meyer after giving effect to
the Fred Meyer/QFC merger (assuming the Fred Meyer/Food 4 Less merger is not
consummated) and anticipated refinancing arrangements and (iv) selected
unaudited pro forma condensed combined financial information of Fred Meyer after
giving effect to the Fred Meyer/Food 4 Less merger (assuming the Fred Meyer/QFC
merger is not consummated) and anticipated refinancing arrangements. The
selected historical financial data should be read in conjunction with the
selected historical audited and unaudited financial information and historical
audited and unaudited financial statements of Fred Meyer, QFC and Food 4 Less
and the notes thereto that are incorporated herein by reference. The selected
unaudited pro forma condensed combined financial data of Fred Meyer is derived
from the unaudited pro forma condensed combined financial statements and should
be read in conjunction with such unaudited pro forma statements and notes
thereto included elsewhere in this Joint Proxy and Consent Solicitation
Statement/ Prospectus. See "The FM/QFC Merger and FM/Food 4 Less Merger
Unaudited Pro Forma Condensed Combined Financial Statements" on pages 129-146,
"The FM/QFC Merger Unaudited Pro Forma Condensed Combined Financial Statements"
on pages 147-154 and "The FM/Food 4 Less Merger Unaudited Pro Forma Condensed
Combined Financial Statements" on pages 155-161.
 
                                       12
<PAGE>   21
 
            FRED MEYER SELECTED HISTORICAL FINANCIAL AND OTHER DATA
 
     The following selected historical financial data of Fred Meyer for each of
the five fiscal years in the period ended February 1, 1997 have been derived
from Fred Meyer's historical consolidated financial statements, which have been
audited by Deloitte & Touche LLP, independent auditors. The selected historical
financial data of Fred Meyer for the 40 weeks ended November 9, 1996 and
November 8, 1997 (except for data regarding retail store square footage and
number of stores at end of period) have been derived from the unaudited
financial statements of Fred Meyer and include all adjustments consisting of
normal recurring items considered necessary by Fred Meyer management for a fair
presentation of the results for the entire fiscal year. The results of the
interim periods are not necessarily indicative of results for the entire fiscal
year. The data should be read in conjunction with Fred Meyer's historical
consolidated financial statements, the selected unaudited pro forma financial
data and the unaudited pro forma condensed combined financial statements,
including the respective notes thereto, incorporated by reference into, or
appearing elsewhere in, this Joint Proxy and Consent Solicitation
Statement/Prospectus. See "Where You Can Find More Information" on pages
173-174, "The FM/QFC Merger and FM/Food 4 Less Merger Unaudited Pro Forma
Condensed Combined Financial Statements" on pages 129-146, "The FM/QFC Merger
Unaudited Pro Forma Condensed Combined Financial Statements" on pages 147-154
and "The FM/Food 4 Less Merger Unaudited Pro Forma Condensed Combined Financial
Statements" on pages 155-161.
 
<TABLE>
<CAPTION>
                            52 WEEKS      52 WEEKS           52 WEEKS      53 WEEKS      52 WEEKS      40 WEEKS      40 WEEKS
                              ENDED         ENDED              ENDED         ENDED         ENDED         ENDED         ENDED
                           JANUARY 30,   JANUARY 29,        JANUARY 28,   FEBRUARY 3,   FEBRUARY 1,   NOVEMBER 9,   NOVEMBER 8,
                              1993          1994               1995          1996          1997          1996         1997(1)
                           -----------   -----------        -----------   -----------   -----------   -----------   -----------
                                                      (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                        <C>           <C>                <C>           <C>           <C>           <C>           <C>
OPERATING DATA
Net sales(2).............. $2,849,521    $2,973,825         $3,122,635    $3,422,718    $3,724,839    $2,729,084    $3,611,323
Cost of goods sold........  1,996,700     2,088,568          2,261,315     2,449,204     2,619,312     1,927,199     2,534,718
                           ----------    ----------         ----------    ----------    ----------    -----------   ----------
Gross margin..............    852,821       885,257 (8)        861,320       973,514     1,105,527       801,885     1,076,605
Operating, selling and
  administrative
  expenses(2).............    738,581       747,151            807,924       885,087       971,667       721,426       945,319
Writedown of California
  assets..................                                      15,978
                           ----------    ----------         ----------    ----------    ----------    -----------   ----------
Operating income..........    114,240       138,106 (8)         37,418        88,427       133,860        80,459       131,286
Interest expense..........     18,070        17,604             25,857        39,578        39,432        30,606        46,440
Provision for income
  taxes...................     35,583        49,598 (9)          4,393        18,563        35,883        18,944        34,190
                           ----------    ----------         ----------    ----------    ----------    -----------   ----------
Income before accounting
  change and extraordinary
  charge..................     60,587        70,904 (8,9)        7,168        30,286        58,545        30,909        50,656
Accounting change.........                   (2,588) (10)
Extraordinary charge(3)...                                                                                             (91,210) 
                           ----------    ----------         ----------    ----------    ----------    -----------   ----------
Net income (loss)......... $   60,587    $   68,316 (8,9,10) $   7,168    $   30,286    $   58,545    $   30,909    $  (40,554) 
                           ==========    ==========         ==========    ==========    ==========    ===========   ==========
Earnings per common
  share:(4)
  Income before accounting
    change and
    extraordinary
    charge................ $     1.10    $     1.25 (8,9)   $      .13    $      .53    $     1.05    $      .55    $      .79
  Accounting change.......                     (.05) (10)
  Extraordinary charge....                                                                                               (1.42) 
                           ----------    ----------         ----------    ----------    ----------    -----------   ----------
  Net income (loss)....... $     1.10    $     1.20 (8,9,10) $     .13    $      .53    $     1.05    $      .55    $     (.63) 
                           ==========    ==========         ==========    ==========    ==========    ===========   ==========
Common shares outstanding
  (weighted average) (in
  thousands)(4)...........     54,892        56,750             57,250        56,666        55,924        56,670        64,117
BALANCE SHEET DATA (END OF
  PERIOD)
Working capital........... $  173,975    $  192,737         $  249,514    $  283,082    $  233,202    $  249,674    $  395,848
Total assets..............  1,081,627     1,326,076          1,562,672     1,671,592     1,693,414     1,760,738     4,573,261
Total debt(5).............    214,432       338,042            555,612       671,026       535,777       591,583     1,957,106
Deferred lease
  transactions............     44,785        48,254             45,655        42,271        46,318        47,564        45,456
Stockholders' equity......    450,128       527,686            538,620       571,234       567,298       531,851     1,285,025
</TABLE>
 
                                       13
<PAGE>   22
 
<TABLE>
<CAPTION>
                            52 WEEKS      52 WEEKS           52 WEEKS      53 WEEKS      52 WEEKS      40 WEEKS      40 WEEKS
                              ENDED         ENDED              ENDED         ENDED         ENDED         ENDED         ENDED
                           JANUARY 30,   JANUARY 29,        JANUARY 28,   FEBRUARY 3,   FEBRUARY 1,   NOVEMBER 9,   NOVEMBER 8,
                              1993          1994               1995          1996          1997          1996         1997(1)
                           ----------    ----------         ----------    ----------    ----------    -----------   ----------
                                                      (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                        <C>           <C>                <C>           <C>           <C>           <C>           <C>
CASH FLOW DATA
Cash flows provided (used)
  by:
  Operating activities.... $  141,159    $  118,128         $   50,040    $  133,052    $  166,244    $  139,568    $  118,632
  Investing activities....   (133,848)     (250,724)          (280,492)     (224,159)      (11,225)        9,316      (120,734) 
  Financing activities....     (5,415)      134,766            231,266        98,088      (148,099)     (147,899)       70,708
OTHER DATA
EBITDA (as defined)(6).... $  185,673    $  205,673         $  148,979    $  194,876    $  249,548    $  174,360    $  254,671
EBITDA margin(6,7)........       6.52%         6.92%              4.77%         5.69%         6.70%         6.39%         7.05% 
EBITDA/Interest expense...      10.28x        11.68x              5.76x         4.92x         6.33x
Total debt/EBITDA.........       1.15x         1.64x              3.73x         3.44x         2.15x
Capital expenditures...... $  144,628    $  253,920         $  284,193    $  236,052    $  146,917    $  124,185    $  208,185
Retail store square
  footage.................                                                                                          26,882,000
Number of stores at end of
  period..................                                                                                                 431
</TABLE>
 
---------------
 
 (1) Includes balance sheet data of Smith's Food & Drug Centers, Inc. as of
     November 8, 1997 and results of operations of Smith's from September 9,
     1997 to November 8, 1997.
 
 (2) For fiscal years 1992 through 1996, the amounts shown reflect the
     reclassification of employee discounts to make the reporting consistent
     with the reporting for the 1996 and 1997 interim periods.
 
 (3) Represents a charge for early extinguishment of debt covering premiums paid
     and write-off of financing costs related to debt refinanced in the Smith's
     Acquisition (as defined below).
 
 (4) Based upon shares outstanding during each period and the application of the
     treasury stock method of computing the effect of outstanding stock options.
     Shares outstanding and earnings per common share amounts have been adjusted
     for the two-for-one stock split effected as a 100% stock dividend which was
     effective September 30, 1997.
 
 (5) Total debt includes long-term debt, current maturities of long-term debt
     and capital lease obligations.
 
 (6) EBITDA, as presented by Fred Meyer, represents income (loss) before
     interest expense, income taxes, depreciation and amortization expense and
     LIFO provision. EBITDA is not intended to represent cash flow from
     operations as defined by GAAP and should not be considered as an
     alternative to cash flow as a measure of liquidity or as an alternative to
     net earnings as an indicator of operating performance. EBITDA is included
     herein because management believes that certain investors find it to be a
     useful tool for measuring a company's ability to service its debt.
 
 (7) EBITDA margin represents EBITDA as a percentage of net sales.
 
 (8) Includes a nonrecurring LIFO credit of $6,178.
 
 (9) Includes $3,588 from the resolution of an Internal Revenue Service audit,
     ($2,286) related to the LIFO credit and a 38% tax rate.
 
(10) Effect of adopting Statement of Financial Accounting Standards No. 109
     relating to income taxes.
 
                                       14
<PAGE>   23
 
                QFC SELECTED HISTORICAL FINANCIAL AND OTHER DATA
 
     The following selected historical financial data of QFC for each of the
five fiscal years in the period ended December 28, 1996 have been derived from
QFC's historical consolidated financial statements, which have been audited by
Deloitte & Touche LLP, independent auditors. The selected historical financial
data of QFC for the 36 weeks ended September 7, 1996 and September 6, 1997
(except for data regarding retail store square footage and number of stores at
end of period) have been derived from the unaudited financial statements of QFC
and include all adjustments consisting of normal recurring items considered
necessary by QFC management for a fair presentation of the results for the
entire fiscal year. The results of the interim periods are not necessarily
indicative of results for the entire fiscal year. The data should be read in
conjunction with QFC's historical consolidated financial statements, the
selected unaudited pro forma financial data and the unaudited pro forma
condensed combined financial statements, including the respective notes thereto,
incorporated by reference into, or appearing elsewhere in, this Joint Proxy and
Consent Solicitation Statement/Prospectus. See "Where You Can Find More
Information" on pages 173-174, "The FM/QFC Merger and FM/Food 4 Less Merger
Unaudited Pro Forma Condensed Combined Financial Statements" on pages 129-146
and "The FM/QFC Merger Unaudited Pro Forma Condensed Combined Financial
Statements" on pages 147-154.
 
<TABLE>
<CAPTION>
                             52 WEEKS       52 WEEKS       53 WEEKS       52 WEEKS       52 WEEKS       36 WEEKS       36 WEEKS
                              ENDED          ENDED          ENDED          ENDED          ENDED          ENDED          ENDED
                           DECEMBER 26,   DECEMBER 25,   DECEMBER 31,   DECEMBER 30,   DECEMBER 28,   SEPTEMBER 7,   SEPTEMBER 6,
                               1992           1993           1994         1995(1)          1996           1996         1997(2)
                           ------------   ------------   ------------   ------------   ------------   ------------   ------------
                                                       (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                        <C>            <C>            <C>            <C>            <C>            <C>            <C>
OPERATING DATA:
  Net sales...............   $460,107       $518,260       $575,879       $729,856       $805,281       $547,166      $1,225,261
  Cost of goods sold (6)
    ......................    343,118        386,895        430,711        550,434        603,947        410,549         926,462
                             --------       --------       --------       --------       --------       --------      ----------
  Gross margin............    116,989        131,365        145,168        179,422        201,334        136,617         298,799
  Operating, selling and
    administrative
    expenses..............     80,144         92,468        105,956        136,645        152,337        103,850         238,065
                             --------       --------       --------       --------       --------       --------      ----------
  Operating income........     36,845         38,897         39,212         42,777         48,997         32,767          60,734
  Interest expense
    (income)..............       (864)          (880)          (933)         9,138          9,423          6,600          17,185
  Other charge............                                                   1,400(1)
  Provision for income
    taxes.................     12,633         13,783         13,768         12,023         14,156          9,372          17,220
                             --------       --------       --------       --------       --------       --------      ----------
  Net income..............   $ 25,076       $ 25,994       $ 26,377       $ 20,216       $ 25,418       $ 16,795      $   26,329
                             ========       ========       ========       ========       ========       ========      ==========
  Earnings per common
    share.................   $   1.28       $   1.33       $   1.34       $   1.28       $   1.71       $   1.14      $     1.33
                             ========       ========       ========       ========       ========       ========      ==========
  Common shares
    outstanding (weighted
    average) (in
    thousands)............     19,623         19,592         19,656         15,830         14,888         14,766          19,757
BALANCE SHEET DATA (END OF
  PERIOD):
  Working capital
    (deficit).............   $ 18,722       $ 14,329       $ 23,776       $  5,303       $  3,457       $(16,903)     $   64,315
  Total assets............    151,671        181,912        208,611        284,000        304,017        293,610       1,025,264
  Total debt(5)...........                                                 164,500        145,000        150,000         430,065
  Shareholders' equity....    108,345        133,620        158,178         45,368         76,798         64,407         334,800
CASH FLOW DATA:
  Cash flows provided
    (used) by:
    Operating
      activities..........   $ 36,578       $ 36,553       $ 34,675       $ 33,696       $ 50,924       $ 36,070      $   63,287
    Investing
      activities..........    (24,566)       (41,527)       (28,890)       (46,237)       (31,325)       (23,177)       (403,304)
    Financing
      activities..........      2,101           (719)        (1,819)       (11,263)       (17,083)       (12,256)        415,534
OTHER DATA:
  EBITDA (as
    defined)(3)...........   $ 44,466       $ 48,205       $ 50,817       $ 59,567       $ 69,150       $ 46,566      $   89,195
  EBITDA margin(4)........        9.7%           9.3%           8.8%           8.2%           8.6%           8.5%            7.3%
  EBITDA/Interest
    expense...............                                                   20.22x         25.23x
  Total debt/EBITDA.......                                                    3.44x          2.15x
  Capital expenditures....   $ 26,800       $ 43,000       $ 28,200       $ 89,100       $ 32,556       $ 25,000      $   35,597
  Retail store square
    footage...............                                                                                             5,156,000
  Number of stores at end
    of period.............                                                                                                   147
</TABLE>
 
---------------
 
(1) Fiscal year ended December 30, 1995 data include a one-time charge of $1.4
    million, or $.09 per share, resulting from a recapitalization completed in
    March 1995.
 
                                       15
<PAGE>   24
 
(2) Includes balance sheet data of KUI (as defined below) as of September 6,
    1997 and results of operations of KUI from February 15, 1997 to September 6,
    1997. Includes balance sheet data of Hughes (as defined below) as of
    September 6, 1997 and results of operations of Hughes for the period from
    March 20, 1997 to September 6, 1997.
 
(3) EBITDA, as presented by QFC, is defined as net earnings before interest,
    income taxes, depreciation, amortization, LIFO inventory charges, and, if
    applicable, equity earnings (losses) from subsidiaries, and non-recurring
    extraordinary items. EBITDA is not intended to represent cash flow from
    operations as defined by GAAP and should not be considered as an alternative
    to cash flow as a measure of liquidity or as an alternative to net earnings
    as an indicator of operating performance. EBITDA is included herein because
    management believes that certain investors find it to be a useful tool for
    measuring a company's ability to service its debt.
 
(4) EBITDA margin represents EBITDA as a percentage of net sales.
 
(5) Total debt includes long-term debt, current maturities of long-term debt and
    capital lease obligations.
 
(6) Cost of goods sold includes related occupancy expenses.
 
                                       16
<PAGE>   25
 
            FOOD 4 LESS SELECTED HISTORICAL FINANCIAL AND OTHER DATA
 
     The following selected historical financial data of Food 4 Less and its
predecessor Food 4 Less Supermarkets, Inc. ("Food 4 Less Supermarkets") for each
of the five fiscal years and the transition period in the period ended February
2, 1997 have been derived from Food 4 Less' and Food 4 Less Supermarkets'
historical consolidated financial statements, which have been audited by Arthur
Andersen LLP, independent public accountants. Certain prior period amounts in
the financial data presented below have been reclassified to conform to the
fiscal 1997 presentation. The selected historical financial data of Food 4 Less
for the 36 weeks ended October 6, 1996 and October 12, 1997 (except for data
regarding retail store square footage and number of stores at end of period)
have been derived from the unaudited financial statements of Food 4 Less and
include all adjustments consisting of normal recurring items considered
necessary by Food 4 Less management for a fair presentation of the results for
the entire fiscal year. The results of the interim periods are not necessarily
indicative of results for the entire fiscal year. The data should be read in
conjunction with Food 4 Less' historical consolidated financial statements, the
selected unaudited pro forma financial data and the unaudited pro forma
condensed combined financial statements, including the respective notes thereto,
incorporated by reference into, or appearing elsewhere in, this Joint Proxy and
Consent Solicitation Statement/Prospectus. See "Where You Can Find More
Information" on pages 173-174, "The FM/QFC Merger and FM/Food 4 Less Merger
Unaudited Pro Forma Condensed Combined Financial Statements" on pages 129-146
and "The FM/Food 4 Less Merger Unaudited Pro Forma Condensed Combined Financial
Statements" on pages 155-161.
 
<TABLE>
<CAPTION>
                                                            31 WEEKS        52 WEEKS        53 WEEKS                  36 WEEKS
                52 WEEKS        52 WEEKS     52 WEEKS        ENDED           ENDED           ENDED       36 WEEKS      ENDED
                 ENDED           ENDED        ENDED         JANUARY         JANUARY         FEBRUARY      ENDED       OCTOBER
                JUNE 27,        JUNE 26,     JUNE 25,         29,             28,              2,       OCTOBER 6,      12,
                  1992            1993       1994(1)        1995(2)         1996(3)           1997         1996         1997
               ----------      ----------   ----------     ----------      ----------      ----------   ----------   ----------
                                                            (DOLLARS IN THOUSANDS)
<S>            <C>             <C>          <C>            <C>             <C>             <C>          <C>          <C>
OPERATING
  DATA:
Sales......... $2,913,493      $2,742,027   $2,585,160     $1,556,522      $4,335,109      $5,516,259   $3,695,594   $3,778,470
Cost of goods
  sold(4).....  2,429,711       2,273,167    2,126,302      1,296,810       3,527,120       4,380,241    2,941,360    3,000,531
                ---------       ---------    ---------      ---------       ---------       ---------    ---------    ---------
Gross
  margin(4)...    483,782         468,860      458,858        259,712         807,989       1,136,018      754,234      777,939
Operating,
  selling, and
administrative
  expenses....    439,126         425,064      386,104        223,856         765,749         981,381      651,212      640,329
Restructuring
  charge......                                                  5,134(13)     123,083(14)
                ---------       ---------    ---------      ---------       ---------       ---------    ---------    ---------
Operating
  income
  (loss)(4)...     44,656          43,796       72,754         30,722         (80,843)        154,637      103,022      137,610
Interest
 expense(5)...     70,211          73,614       77,017         48,361         202,651         284,217      192,700      191,528
Provision for
  earthquake
  losses......                                   4,504(12)
Provision for
  income
  taxes.......      3,441           1,427        2,700                            500
                ---------       ---------    ---------      ---------       ---------       ---------    ---------    ---------
Loss before
 extraordinary
  charges.....    (28,996)        (31,245)     (11,467)       (17,639)       (283,994)       (129,580)     (89,678)     (53,918)
Extraordinary
  charges.....     (4,818)(11)                                                (38,424)(15)                              (47,983)(16)
                ---------       ---------    ---------      ---------       ---------       ---------    ---------    ---------
Net loss(6)... $  (33,814)     $  (31,245)  $  (11,467)    $  (17,639)     $ (322,418)     $ (129,580)  $  (89,678)  $ (101,901)
                =========       =========    =========      =========       =========       =========    =========    =========
BALANCE SHEET
  DATA (END OF
  PERIOD)(7):
Working
  capital
  deficit..... $  (66,254)     $  (19,222)  $  (54,882)    $  (74,776)     $ (178,456)     $ (182,641)  $ (240,294)  $ (150,068)
Total
  assets......    998,451         957,840      980,080      1,000,695       3,188,129       3,131,993    3,146,899    3,076,768
Total
  debt(8).....    525,340         588,313      576,869        598,940       2,330,221       2,376,912    2,316,764    2,486,544
Stockholders'
  equity
  (deficit)...     50,771          22,633       10,024         (7,333)       (188,798)       (319,268)    (278,466)    (421,011)
CASH FLOW
  DATA:
Cash flows
  provided
  (used) by:
  Operating
 activities... $  106,152      $  (16,502)  $   87,822     $   17,621      $  (16,842)     $  133,665   $  124,815   $   44,695
  Investing
 activities...    (62,926)        (37,800)     (55,755)       (42,621)       (505,403)       (111,135)     (58,751)     (94,200)
  Financing
 activities...    (40,231)         54,914      (24,160)        11,564         570,668         (22,924)     (67,025)      45,440
OTHER DATA:
EBITDA (as
defined)(9)... $  101,723      $  103,794   $  130,573     $   76,853      $  245,146      $  354,646   $  233,516   $  257,738
EBITDA
 margin(10)...        3.5%            3.8%         5.1%           4.9%            5.7%            6.4%         6.3%         6.8%
EBITDA/Interest
  expense.....       1.45x           1.41x        1.70x          1.59x           1.21x           1.25x
Total
debt/EBITDA...       5.16x           5.67x        4.42x          7.79x           9.51x           6.70x
Capital
expenditures... $   60,263     $   53,467   $   57,741     $   49,023      $  122,355      $  123,622   $   74,328   $  111,154
Retail store
  square
  footage.....                                                                                                       15,697,000
Number of
  stores at
  end of
  period......                                                                                                              406
</TABLE>
 
---------------
 
 (1) Operating data for the 52 weeks ended June 25, 1994 include the results of
     10 Food Barn stores, which were not material, from March 29, 1994, the date
     of the Food Barn acquisition.
 
                                       17
<PAGE>   26
 
 (2) Food 4 Less Supermarkets changed its fiscal year end from the 52 or 53-week
     period which ends on the last Saturday in June to the 52 or 53-week period
     which ends on the Sunday closest to January 31, resulting in a 31-week
     transition period.
 
 (3) Operating data for the 52 weeks ended January 28, 1996 reflects the
     acquisition of Ralphs Supermarkets, Inc. on June 14, 1995.
 
 (4) Cost of sales has been principally determined using the last-in, first-out
     ("LIFO") method of valuing inventory. If cost of sales had been determined
     using the first-in, first-out ("FIFO") method, gross profit and operating
     income would have been greater by $3.6 million, $4.4 million, $0.7 million,
     $2.7 million, $2.2 million, $5.6 million, $2.5 million (unaudited) and $1.7
     million (unaudited) for the 52 weeks ended June 27, 1992, June 26, 1993,
     and June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended
     January 28, 1996, the 53 weeks ended February 2, 1997 and the 36 weeks
     ended October 6, 1996 and October 12, 1997, respectively.
 
 (5) Interest expense includes non-cash charges related to the amortization of
     deferred financing costs.
 
 (6) Net loss includes a pre-tax provision for self-insurance, which is
     classified in cost of sales, selling, general and administrative expenses,
     and interest expense of $51.1 million, $43.9 million, $25.7 million, $9.8
     million, $32.6 million, $29.2 million, $31.4 million and $24.9 million for
     the 52 weeks ended June 27, 1992, June 26, 1993, and June 25, 1994, the 31
     weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 53
     weeks ended February 2, 1997 and the 36 weeks ended October 6, 1996 and
     October 12, 1997, respectively. Included in the 52 weeks ended June 25,
     1994, the 31 weeks ended January 29, 1995 and the 52 weeks ended January
     28, 1996 are reduced employer contributions of $8.1 million, $14.3 million
     and $26.1 million, respectively, related to union pension and health and
     welfare benefit plans. Included in the 53 weeks ended February 2, 1997, the
     36 weeks ended October 6, 1996 and the 36 weeks ended October 12, 1997 are
     reduced employer contributions of $17.8 million, $11.5 million and $11.8
     million, respectively, related to union pension and health and welfare
     benefit plans. The multi-employer union health and welfare plans to which
     Food 4 Less contributes are overfunded, and those employers who contributed
     to the plans received a pro rata share of excess reserves in the plans
     through reduction of current contributions.
 
 (7) Balance sheet data as of June 25, 1994 relate to Food 4 Less and reflect
     the acquisition of 10 Food Barn stores. Balance sheet data as of January
     28, 1996 relate to Food 4 Less and reflect the acquisition of Ralphs
     Supermarkets, Inc. and the financings associated therewith.
 
 (8) Total debt includes long-term debt, current maturities of long-term debt
     and capital lease obligations.
 
 (9) EBITDA, as presented by Food 4 Less, represents income before interest
     expense, depreciation and amortization expense, the LIFO provision,
     provision for income taxes, provision for earthquake losses, provision for
     restructuring, a one-time charge in the 1995 transition period for
     Teamsters Union sick pay benefits, $75.0 million of one-time costs incurred
     in connection with the acquisition of Ralphs Supermarkets, Inc. in fiscal
     year 1995 and $13.5 million of one-time costs incurred in connection with
     the acquisition of a distribution center located in Riverside, California
     and nine former Smith's stores in fiscal year 1996. EBITDA is a widely
     accepted financial indicator of a company's ability to service debt.
     However, EBITDA should not be construed as an alternative to operating
     income or to cash flows from operating activities (as determined in
     accordance with generally accepted accounting principles) and should not be
     construed as an indication of Food 4 Less' operating performance or as a
     measure of liquidity. EBITDA as presented may not be comparable to EBITDA
     of other companies that do not calculate EBITDA in the same manner as Food
     4 Less. Food 4 Less believes that its definition of EBITDA is the measure
     most useful to investors as it is consistent with the definitions used in
     Food 4 Less' debt covenants.
 
(10) EBITDA margin represents EBITDA as a percentage of net sales. Food 4 Less
     believes that EBITDA margin, which highlights changes in EBITDA performance
     unrelated to fluctuations in sales, is useful to investors as an indication
     of changes in operating efficiency.
 
(11) Represents an extraordinary net charge of $4.8 million reflecting the
     write-off of $6.7 million (net of related income tax benefit of $2.5
     million) of deferred debt issuance costs as a result of the early
     redemption of a portion of Food 4 Less' bank term loan, partially offset by
     a $1.9 million extraordinary gain (net of a related income tax expense of
     $0.7 million) on the replacement of partially depreciated assets following
     the civil unrest in Los Angeles.
 
(12) On January 17, 1994, Southern California was struck by a major earthquake
     which resulted in the temporary closing of 31 of Food 4 Less' stores. The
     closures were caused primarily by loss of electricity, water, inventory or
     damage to
 
                                       18
<PAGE>   27
 
     the affected stores. All but one of the closed stores reopened within a
     week of the earthquake. The final closed store reopened on March 24, 1994.
     Food 4 Less is insured, subject to deductibles, against earthquake losses
     (including business interruption). The pre-tax charge to earnings, net of
     insurance recoveries, was approximately $4.5 million.
 
(13) Food 4 Less converted 11 of its conventional supermarkets to warehouse
     stores. During the 31 weeks ended January 29, 1995, Food 4 Less recorded a
     non-cash restructuring charge for the write-off of property and equipment
     at the 11 stores of $5.1 million.
 
(14) Food 4 Less recorded a $75.2 million restructuring charge associated with
     the closing of 58 stores and one warehouse facility in the 52 weeks ended
     January 28, 1996. Pursuant to the settlement agreement with the State of
     California, 24 Food 4 Less stores (as well as 3 Ralphs stores) were
     required to be divested and an additional 34 under-performing stores were
     closed. Food 4 Less also recorded a $47.9 million restructuring charge
     associated with the closing of 9 stores and one warehouse facility in the
     52 weeks ended January 28, 1996, in conjunction with an agreement with
     Smith's to lease a distribution center located in Riverside, California and
     nine former Smith's stores.
 
(15) Represents an extraordinary charge of $38.4 million relating to the
     refinancing of Food 4 Less' old credit facility, 10.45% Senior Notes due
     2000 (the "1992 Senior Notes"), 13.75% Senior Subordinated Notes due 2001
     (the "1991 Senior Subordinated Notes") and 15.25% Senior Discount Notes due
     2004 in connection with the acquisition of Ralphs Supermarkets, Inc. and
     the write-off of their related debt issuance costs.
 
(16) Represents an extraordinary charge of $48.0 million relating to the
     write-off of debt issuance costs associated with the refinancing of the
     1995 Credit Facility and the write-off of debt issuance costs and premium
     paid relating to the redemption of the 1991 Senior Subordinated Notes and
     1995 13.75% Senior Subordinated Notes.
 
                                       19
<PAGE>   28
 
          THE FRED MEYER/QFC MERGER AND FRED MEYER/FOOD 4 LESS MERGER
                SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED
                       FINANCIAL DATA AND PER SHARE DATA
 
     The following table sets forth selected unaudited pro forma condensed
combined financial data of Fred Meyer giving effect to the Fred Meyer/QFC merger
and the Fred Meyer/Food 4 Less merger. The table gives effect to the Fred
Meyer/QFC merger as if such transaction occurred as of January 30, 1994 with
respect to the unaudited pro forma condensed combined operating and other data
for the fiscal years ended January 28, 1995, February 3, 1996, and February 1,
1997 and the 40 weeks ended November 8, 1997, and as of November 8, 1997 with
respect to the unaudited pro forma condensed combined balance sheet data.
Additionally, the table gives effect to the Fred Meyer/Food 4 Less merger as if
such transaction occurred as of February 4, 1996 with respect to the unaudited
pro forma condensed combined operating and other data for the fiscal year ended
February 1, 1997 and the 40 weeks ended November 8, 1997, and as of November 8,
1997 with respect to the unaudited pro forma condensed combined balance sheet
data. Finally, the table gives effect to refinancing certain Fred Meyer, QFC and
Food 4 Less debt, as if such refinancing occurred as of February 4, 1996 with
respect to the unaudited pro forma condensed combined operating and other data
for the fiscal year ended February 1, 1997 and the 40 weeks ended November 8,
1997, and as of November 8, 1997 with respect to the unaudited pro forma
condensed combined balance sheet data. Such pro forma information includes: (i)
the historical results of operations data of Fred Meyer for fiscal years ended
January 28, 1995 and February 3, 1996, and the historical balance sheet data of
Fred Meyer as of November 8, 1997; (ii) the pro forma results of operations data
of Fred Meyer for the fiscal year ended February 1, 1997 and the 40 weeks ended
November 8, 1997; (iii) the historical results of operations data of QFC for
fiscal years ended December 31, 1994 and December 30, 1995, and the historical
balance sheet data of QFC as of September 6, 1997; (iv) the pro forma results of
operations data of QFC for the fiscal year ended December 28, 1996 and the 36
weeks ended September 6, 1997; and (v) the historical results of operations data
of Food 4 Less for the fiscal year ended February 2, 1997 and the 36 weeks ended
October 12, 1997 and the historical balance sheet data of Food 4 Less as of
October 12, 1997. The Fred Meyer pro forma results of operations data includes
adjustments for acquisitions made by both Fred Meyer and QFC during the periods
presented. See "The FM/QFC Merger and FM/Food 4 Less Merger Unaudited Pro Forma
Condensed Combined Financial Statements" on pages 129-146.
 
     The unaudited pro forma condensed combined financial data set forth below
is not necessarily indicative of either future results of operations or results
that might have been achieved if the Fred Meyer/QFC merger and the Fred
Meyer/Food 4 Less merger had been consummated as of the indicated dates. The
unaudited pro forma condensed combined financial data does not reflect an
extraordinary charge of approximately $220 million (net of taxes) on
extinguishment of debt as a result of refinancing certain debt.
 
     Any divestitures that may be required by federal or state regulatory
authorities as a result of the mergers have not been considered and are not
reflected in the following selected unaudited pro forma condensed combined
financial data. The selected unaudited pro forma condensed combined financial
data also does not reflect approximately $50 million, $70 million, $90 million
and $100 million in annualized operating savings that management of Fred Meyer
believes are achievable by the end of 1998, 1999, 2000 and 2001, respectively.
 
     The selected unaudited pro forma condensed combined financial data should
be read in conjunction with the FM/QFC Merger and FM/Food 4 Less Merger
Unaudited Pro Forma Condensed Combined Financial Statements on pages 129-146 and
the historical consolidated financial statements of Fred Meyer, QFC and Food 4
Less, together with the related notes thereto, which are incorporated by
reference in this Joint Proxy and Consent Solicitation Statement/Prospectus. See
"Where You Can Find More Information" on pages 173-174.
 
                                       20
<PAGE>   29
 
          THE FRED MEYER/QFC MERGER AND FRED MEYER/FOOD 4 LESS MERGER
         SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                         FISCAL YEAR                      INTERIM
                                          -----------------------------------------       PERIOD
                                             1994           1995           1996            1997
                                          ----------     ----------     -----------     -----------
<S>                                       <C>            <C>            <C>             <C>
PRO FORMA OPERATING DATA:
  Net sales.............................  $3,698,514     $4,152,574     $14,358,538     $10,717,899
  Gross margin..........................   1,039,614      1,197,442       3,680,684       2,797,992
  Operating and administrative
     expenses...........................     845,620        942,683       2,705,231       2,014,085
  Depreciation and amortization
     expense............................     101,386        123,555         496,021         367,974
  Income from operations................      76,630        131,204         479,432         415,933
  Interest expense......................      24,924         48,573         413,282         294,245
  Income before income taxes and
     extraordinary charge...............      51,706         81,088          54,282         112,786
  Income before extraordinary charge....      33,545         50,502          (2,194)         42,320
OTHER DATA:
  Pro Forma EBITDA (as defined)(1)......     181,217        254,423         980,587         791,789
  Pro forma EBITDA margin(1,2)..........         4.9%           6.1%            6.8%            7.4%
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                        NOVEMBER 8,
                                                                                           1997
                                                                                        -----------
<S>                                                                                     <C>
PRO FORMA BALANCE SHEET DATA:
  Total assets.....................................................................     $10,067,514
  Total debt.......................................................................       5,323,715
  Stockholders' equity.............................................................       2,077,302
</TABLE>
 
---------------
 
(1) EBITDA represents income (loss) before interest expense, income taxes,
    depreciation and amortization and LIFO provision. EBITDA is not intended to
    represent cash flow from operations as defined by GAAP and should not be
    considered as an alternative to cash flow as a measure of liquidity or as an
    alternative to net earnings as an indicator of operating performance. EBITDA
    is included herein because management believes that certain investors find
    it to be a useful tool for measuring a company's ability to service its
    debt.
 
(2) EBITDA margin represents EBITDA as a percentage of net sales.
 
                                       21
<PAGE>   30
 
          THE FRED MEYER/QFC MERGER AND FRED MEYER/FOOD 4 LESS MERGER
                           COMPARATIVE PER SHARE DATA
 
     The following table sets forth certain historical per share data of Fred
Meyer, QFC and Food 4 Less and combined per share data on an unaudited pro forma
basis after giving effect to the Fred Meyer/QFC merger and the Fred Meyer/Food 4
Less merger and anticipated refinancing arrangements (i) as if they had occurred
on January 30, 1994 on a pooling-of-interests basis for the Fred Meyer/QFC
merger assuming that 1.9 shares of Fred Meyer common stock were issued in
exchange for each share of QFC common stock outstanding and (ii) as if they had
occurred on February 4, 1996 on a purchase accounting basis for the Fred Meyer/
Food 4 Less merger assuming that 22.5 million shares of Fred Meyer common stock
were issued in connection with the Fred Meyer/Food 4 Less merger. Such combined
per share data on an unaudited pro forma basis also gives effect to certain
acquisitions previously completed by each of Fred Meyer and QFC (which were
accounted for as purchases) as if they had occurred on February 4, 1996. This
data should be read in conjunction with the selected historical audited and
unaudited financial data and historical audited and unaudited financial
statements of Fred Meyer, QFC and Food 4 Less and the notes thereto that are
incorporated herein by reference. The unaudited selected pro forma combined
financial information of Fred Meyer, QFC and Food 4 Less is derived from the
unaudited pro forma condensed combined financial statements and should be read
in conjunction with such unaudited pro forma financial statements and notes
thereto included elsewhere in this Joint Proxy and Consent Solicitation
Statement/Prospectus. The unaudited pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the combined
financial position or results of operations of future periods or the results
that actually would have been realized had Fred Meyer, QFC and Food 4 Less been
a single entity during the periods presented.
 
                                       22
<PAGE>   31
 
          THE FRED MEYER/QFC MERGER AND FRED MEYER/FOOD 4 LESS MERGER
                           COMPARATIVE PER SHARE DATA
 
<TABLE>
<CAPTION>
                                                                FISCAL YEAR(1)            INTERIM
                                                          --------------------------      PERIOD
                                                          1994      1995       1996       1997(1)
                                                          -----     -----     ------     ---------
<S>                                                       <C>       <C>       <C>        <C>
FRED MEYER
  Historical per common share:
     Income before extraordinary charge.................  $0.13     $0.53     $ 1.05      $  0.79
     Dividends paid.....................................     --        --         --           --
     Book value(2)......................................                       10.82        14.59
  Pro forma combined-per Fred Meyer common share:
     Income (loss) before extraordinary charge..........   0.35      0.58      (0.01)        0.27
     Dividends paid.....................................   0.07      0.02         --           --
     Book value(2)......................................                       12.78        13.81
QFC
  Historical per common share:
     Income before extraordinary charge.................   1.34      1.28       1.71         1.33
     Dividends paid.....................................   0.20      0.05         --           --
     Book value(2)......................................                        0.01        15.96
  Pro forma combined-per equivalent QFC common share(3):
     Income (loss) before extraordinary charge..........   0.67      1.11      (0.03)        0.52
     Dividends paid.....................................   0.13      0.03         --           --
     Book value(2)......................................                       24.29        26.24
FOOD 4 LESS
  Historical per common share:
     Income (loss) before extraordinary charge..........                       (3.54)       (1.47)
     Dividends paid.....................................                          --           --
     Book value(2)......................................                      (18.64)      (24.31)
  Pro forma combined-per equivalent Food 4 Less common
     share(3):
     Income (loss) before extraordinary charge..........                       (0.01)        0.14
     Dividends paid.....................................                          --           --
  Book value(2).........................................                        6.39         6.90
</TABLE>
 
---------------
 
(1) For Fred Meyer, information is for the 40 weeks ended November 8, 1997, the
    52 weeks ended February 1, 1997, the 53 weeks ended February 3, 1996 and the
    52 weeks ended January 28, 1995. For QFC, information is for the 36 weeks
    ended September 6, 1997 and the fiscal years ended December 28, 1996,
    December 30, 1995 and December 31, 1994. For Food 4 Less, information is for
    the 36 weeks ended October 12, 1997 and the 53 weeks ended February 2, 1997.
 
(2) Historical book value per share is computed by dividing stockholders' equity
    for Fred Meyer, QFC and Food 4 Less by the number of shares of common stock
    outstanding at the end of each period for Fred Meyer, QFC and Food 4 Less.
    Pro forma book value per share is computed by dividing pro forma
    stockholders' equity by the pro forma number of shares of common stock
    outstanding at the end of the period.
 
(3) For QFC, amounts are calculated by multiplying Fred Meyer pro forma combined
    amounts by the assumed Fred Meyer/QFC merger exchange ratio of 1.9. For Food
    4 Less, amounts are calculated by multiplying Fred Meyer pro forma combined
    amounts by an exchange ratio of 0.50. Such exchange ratio is computed by
    dividing the total shares of Fred Meyer common stock estimated to be issued
    for each outstanding share of Food 4 Less common stock in connection with
    the Fred Meyer/Food 4 Less Merger (8.6 million) by the number of shares of
    Food 4 Less common stock outstanding (17.3 million).
 
                                       23
<PAGE>   32
 
                           THE FRED MEYER/QFC MERGER
                SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED
                       FINANCIAL DATA AND PER SHARE DATA
 
     The following table sets forth selected unaudited pro forma condensed
combined financial data of Fred Meyer giving effect to the Fred Meyer/QFC
merger. The table gives effect to the Fred Meyer/QFC merger as if such
transaction occurred as of January 30, 1994 with respect to the unaudited pro
forma condensed combined operating and other data for the fiscal years ended
January 28, 1995, February 3, 1996, and February 1, 1997 and the 40 weeks ended
November 8, 1997, and as of November 8, 1997 with respect to the unaudited pro
forma condensed combined balance sheet data. Additionally, the table gives
effect to refinancing certain Fred Meyer and QFC debt, as if such refinancing
occurred as of February 4, 1996 with respect to the unaudited pro forma
condensed combined operating and other data for the fiscal year ended February
1, 1997 and the 40 weeks ended November 8, 1997, and as of November 8, 1997 with
respect to the unaudited pro forma condensed combined balance sheet data. Such
pro forma information includes: (i) the historical results of operations data of
Fred Meyer for fiscal years ended January 28, 1995 and February 3, 1996, and the
historical balance sheet data of Fred Meyer as of November 8, 1997; (ii) the pro
forma results of operations data of Fred Meyer for the fiscal year ended
February 1, 1997 and the 40 weeks ended November 8, 1997; (iii) the historical
results of operations data of QFC for fiscal years ended December 31, 1994 and
December 30, 1995, and the historical balance sheet data of QFC as of September
6, 1997; and (iv) the pro forma results of operations data of QFC for the fiscal
year ended December 28, 1996 and the 36 weeks ended September 6, 1997. The Fred
Meyer pro forma results of operations data includes adjustments for acquisitions
made by both Fred Meyer and QFC during the periods presented. See "The FM/QFC
Merger Unaudited Pro Forma Condensed Combined Financial Statements" on pages
147-154.
 
     The unaudited pro forma condensed combined financial data set forth below
is not necessarily indicative of either future results of operations or results
that might have been achieved if the Fred Meyer/QFC merger had been consummated
as of the indicated dates. The unaudited pro forma condensed combined financial
data does not reflect an extraordinary charge of approximately $6.3 million (net
of taxes) on extinguishment of debt as a result of refinancing certain debt. The
selected unaudited pro forma condensed combined financial data also does not
reflect approximately $20 million, $25 million, $30 million and $30 million in
annualized operating savings that management of Fred Meyer believes are
achievable by the end of 1998, 1999, 2000 and 2001, respectively.
 
     The selected unaudited pro forma condensed combined financial data should
be read in conjunction with the FM/QFC Merger Unaudited Pro Forma Condensed
Combined Financial Statements on pages 147-154 and the historical consolidated
financial statements of Fred Meyer and QFC, together with the related notes
thereto, which are incorporated by reference in this Joint Proxy and Consent
Solicitation Statement/Prospectus. See "Where You Can Find More Information" on
pages 173-174.
 
                                       24
<PAGE>   33
 
                           THE FRED MEYER/QFC MERGER
         SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                          FISCAL YEAR                     INTERIM
                                            ----------------------------------------       PERIOD
                                               1994           1995           1996           1997
                                            ----------     ----------     ----------     ----------
<S>                                         <C>            <C>            <C>            <C>
PRO FORMA OPERATING DATA:
  Net sales...............................  $3,698,514     $4,152,574     $8,842,279     $6,939,429
  Gross margin............................   1,039,614      1,197,442      2,434,963      1,981,731
  Operating and administrative expenses...     845,620        942,683      1,798,491      1,459,481
  Depreciation and amortization expense...     101,386        123,555        279,534        219,820
  Income from operations..................      76,630        131,204        356,938        302,430
  Interest expense........................      24,924         48,573        181,134        131,610
  Income before income taxes and
     extraordinary charge.................      51,706         81,088        171,869        167,868
  Income before extraordinary charge......      33,545         50,502         88,896         93,453
OTHER DATA:
  Pro Forma EBITDA (as defined) (1).......     181,217        254,423        636,006        527,832
  Pro forma EBITDA margin (1,2)...........         4.9%           6.1%           7.2%           7.6%
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                         NOVEMBER 8,
                                                                                            1997
                                                                                         -----------
<S>                                                                                      <C>
PRO FORMA BALANCE SHEET DATA:
  Total assets......................................................................     $5,624,093
  Total debt........................................................................      2,442,171
  Stockholders' equity..............................................................      1,590,393
</TABLE>
 
---------------
 
(1) EBITDA represents income (loss) before interest expense, income taxes,
    depreciation and amortization and LIFO provision. EBITDA is not intended to
    represent cash flow from operations as defined by GAAP and should not be
    considered as an alternative to cash flow as a measure of liquidity or as an
    alternative to net earnings as an indicator of operating performance. EBITDA
    is included herein because management believes that certain investors find
    it to be a useful tool for measuring a company's ability to service its
    debt.
 
(2) EBITDA margin represents EBITDA as a percentage of net sales.
 
                                       25
<PAGE>   34
 
                           THE FRED MEYER/QFC MERGER
                           COMPARATIVE PER SHARE DATA
 
     The following table sets forth certain historical per share data of Fred
Meyer and QFC and combined per share data on an unaudited pro forma basis after
giving effect to the Fred Meyer/QFC merger and anticipated refinancing
arrangements as if they had occurred on January 30, 1994 on a
pooling-of-interests basis assuming that 1.9 shares of Fred Meyer common stock
were issued in exchange for each share of QFC common stock outstanding. Such
combined per share data on an unaudited pro forma basis also gives effect to
certain acquisitions previously completed by each of Fred Meyer and QFC (which
were accounted for as purchases) as if they had occurred on February 4, 1996.
This data should be read in conjunction with the selected historical audited and
unaudited financial data and historical audited and unaudited financial
statements of Fred Meyer and QFC and the notes thereto that are incorporated
herein by reference. The selected unaudited pro forma combined financial
information of Fred Meyer and QFC is derived from the unaudited pro forma
condensed combined financial statements and should be read in conjunction with
such unaudited pro forma statements and notes thereto included elsewhere in this
Joint Proxy and Consent Solicitation Statement/ Prospectus. The unaudited pro
forma information is presented for illustrative purposes only and is not
necessarily indicative of the combined financial position or results of
operations of future periods or the results that actually would have been
realized had Fred Meyer and QFC been a single entity during the periods
presented.
 
<TABLE>
<CAPTION>
                                                                  FISCAL YEAR(1)           INTERIM
                                                            --------------------------     PERIOD
                                                            1994      1995       1996      1997(1)
                                                            -----     -----     ------     ------
<S>                                                         <C>       <C>       <C>        <C>
FRED MEYER
  Historical per common share:
     Income before extraordinary charge...................  $0.13     $0.53     $ 1.05     $ 0.79
     Dividends paid.......................................     --        --         --         --
     Book value(2)........................................  .....     .....      10.82      14.59
  Pro forma combined-per Fred Meyer common share:
     Income before extraordinary charge...................   0.35      0.58       0.68       0.71
     Dividends paid.......................................   0.07      0.02         --         --
     Book value(2)........................................                       10.38      12.43
QFC
  Historical per common share:
     Income before extraordinary charge...................   1.34      1.28       1.71       1.33
     Dividends paid.......................................   0.20      0.05         --         --
     Book value(2)........................................                        0.01      15.96
  Pro forma combined-per equivalent QFC common share(3):
     Income before extraordinary charge...................   0.67      1.11       1.30       1.35
     Dividends paid.......................................   0.13      0.03         --         --
     Book value(2)........................................                       19.72      23.62
</TABLE>
 
---------------
 
(1) For Fred Meyer, information is for the 40 weeks ended November 8, 1997, the
    52 weeks ended February 1, 1997, the 53 weeks ended February 3, 1996 and the
    52 weeks ended January 28, 1995. Information is for the 36 weeks ended
    September 6, 1997 and the fiscal years ended December 28, 1996, December 30,
    1995 and December 31, 1994 for QFC.
 
(2) Historical book value per share is computed by dividing stockholders' equity
    for Fred Meyer and QFC by the number of shares of common stock outstanding
    at the end of each period for Fred Meyer and QFC. Pro forma book value per
    share is computed by dividing pro forma stockholders' equity by the pro
    forma number of shares of common stock outstanding at the end of the period.
 
(3) Amounts are calculated by multiplying Fred Meyer pro forma combined amounts
    by the assumed exchange ratio of 1.9.
 
                                       26
<PAGE>   35
 
                       THE FRED MEYER/FOOD 4 LESS MERGER
                SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED
                       FINANCIAL DATA AND PER SHARE DATA
 
     The following table sets forth selected unaudited pro forma condensed
combined financial data of Fred Meyer giving effect to the Fred Meyer/Food 4
Less merger. The table gives effect to the Fred Meyer/Food 4 Less merger as if
such transaction occurred as of February 4, 1996 with respect to the unaudited
pro forma condensed combined operating and other data for the fiscal years ended
February 1, 1997 and the 40 weeks ended November 8, 1997, and as of November 8,
1997 with respect to the unaudited pro forma condensed combined balance sheet
data. Additionally, the table gives effect to refinancing certain Fred Meyer and
Food 4 Less debt, as if such refinancing occurred as of February 4, 1996 with
respect to the unaudited pro forma condensed combined operating and other data
for the fiscal year ended February 1, 1997 and the 40 weeks ended November 8,
1997, and as of November 8, 1997 with respect to the unaudited pro forma
condensed combined balance sheet data. Such pro forma information includes: (i)
the historical balance sheet data of Fred Meyer as of November 8, 1997; (ii) the
pro forma results of operations data of Fred Meyer for the fiscal year ended
February 1, 1997 and the 40 weeks ended November 8, 1997; (iii) the historical
results of operations data of Food 4 Less for the fiscal year ended February 2,
1997 and the 36 weeks ended October 12, 1997 and the historical balance sheet
data of Food 4 Less as of October 12, 1997. The Fred Meyer pro forma results of
operations data includes adjustments for acquisitions made by Fred Meyer during
the periods presented. See "The FM/Food 4 Less Merger Unaudited Pro Forma
Condensed Combined Financial Statements" on pages 155-161.
 
     The pro forma condensed combined financial data set forth below is not
necessarily indicative of either future results of operations or results that
might have been achieved if the Fred Meyer/Food 4 Less merger had been
consummated as of the indicated dates. The unaudited pro forma condensed
combined financial data does not reflect an extraordinary charge of
approximately $205 million (net of taxes) on extinguishment of debt as a result
of refinancing certain debt. The selected unaudited pro forma condensed combined
financial data also does not reflect approximately $10 million and $15 million
in annualized operating savings that management of Fred Meyer believes are
achievable by the end of 2000 and 2001, respectively.
 
     The selected unaudited pro forma condensed combined financial data should
be read in conjunction with the FM/Food 4 Less Merger Unaudited Pro Forma
Condensed Combined Financial Statements and the historical consolidated
financial statements of Fred Meyer and Food 4 Less, together with the related
notes thereto, which are incorporated by reference in this Joint Proxy and
Consent Solicitation Statement/Prospectus. See "Where You Can Find More
Information" on pages 173-174.
 
                                       27
<PAGE>   36
 
                       THE FRED MEYER/FOOD 4 LESS MERGER
         SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                              INTERIM
                                                             FISCAL YEAR       PERIOD
                                                                1996            1997
                                                             -----------     ----------
        <S>                                                  <C>             <C>
        PRO FORMA OPERATING DATA:
          Net sales........................................  $12,258,782     $9,249,898
          Gross margin.....................................    3,059,648      2,352,797
          Operating and administrative expenses............    2,200,681      1,669,949
          Depreciation and amortization expense............      448,832        334,040
          Income from operations...........................      410,135        348,808
          Interest expense.................................      394,811        282,961
          Income before taxes and extraordinary charge.....        4,651         57,842
          Income (loss) before extraordinary charge........      (30,264)        10,458
        OTHER DATA:
          Pro Forma EBITDA (as defined)(1).................      863,401        690,308
          Pro forma EBITDA margin(1,2).....................          7.0%           7.5%
</TABLE>
 
<TABLE>
<CAPTION>
                                                                           NOVEMBER 8,
                                                                              1997
                                                                           -----------
        <S>                                                                <C>
        PRO FORMA BALANCE SHEET DATA:
          Total assets...................................................  $9,027,717
          Total debt.....................................................   4,853,650
          Stockholders' equity...........................................   1,767,969
</TABLE>
 
---------------
 
(1) EBITDA represents income (loss) before interest expense, income taxes,
    depreciation and amortization and LIFO provision. EBITDA is not intended to
    represent cash flow from operations as defined by GAAP and should not be
    considered as an alternative to cash flow as a measure of liquidity or as an
    alternative to net earnings as an indicator of operating performance. EBITDA
    is included herein because management believes that certain investors find
    it to be a useful tool for measuring a company's ability to service its
    debt.
 
(2) EBITDA margin represents EBITDA as a percentage of net sales.
 
                                       28
<PAGE>   37
 
                       THE FRED MEYER/FOOD 4 LESS MERGER
                           COMPARATIVE PER SHARE DATA
 
     The following table sets forth certain historical per share data of Fred
Meyer and Food 4 Less and combined per share data on an unaudited pro forma
basis after giving effect to the Fred Meyer/Food 4 Less merger and anticipated
refinancing arrangements as if they had occurred on February 4, 1996 on a
purchase accounting basis assuming that 22.5 million shares of Fred Meyer common
stock were issued in connection with the Fred Meyer/Food 4 Less merger. Such
combined per share data on an unaudited pro forma basis also gives effect to a
certain acquisition of Fred Meyer (which was accounted for as a purchase) as if
it had occurred on February 4, 1996. This data should be read in conjunction
with the selected historical audited and unaudited financial data and historical
audited and unaudited financial statements of Fred Meyer and Food 4 Less and the
notes thereto that are incorporated herein by reference. The unaudited selected
pro forma combined financial information of Fred Meyer and Food 4 Less is
derived from the unaudited pro forma condensed combined financial statements and
should be read in conjunction with such unaudited pro forma statements and notes
thereto included elsewhere in this Joint Proxy and Consent Solicitation
Statement/Prospectus. The unaudited pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the combined
financial position or results of operations of future periods or the results
that actually would have been realized had Fred Meyer and Food 4 Less been a
single entity during the periods presented.
 
<TABLE>
<CAPTION>
                                                                                 INTERIM
                                                                 FISCAL YEAR     PERIOD
                                                                   1996(1)       1997(1)
                                                                 -----------     -------
        <S>                                                      <C>             <C>
        FRED MEYER
          Historical per common share:
             Income before extraordinary charge................    $  1.05       $  0.79
             Dividends paid....................................         --            --
             Book value(2).....................................      10.82         14.59
          Pro forma combined-per Fred Meyer common share:
             Income (loss) before extraordinary charge.........      (0.27)         0.09
             Dividends paid....................................         --            --
             Book value(2).....................................      17.67         15.99
        FOOD 4 LESS
          Historical per common share:
             Loss before extraordinary charge..................      (3.54)        (1.47)
             Dividends paid....................................         --            --
             Book value(2).....................................     (18.64)       (24.31)
          Pro forma combined-per equivalent Food 4 Less common
             share(3):
             Income (loss) before extraordinary charge.........      (0.13)         0.05
             Dividends paid....................................         --            --
             Book value (2)....................................       8.83          8.00
</TABLE>
 
---------------
 
(1) For Fred Meyer, information is for the 40 weeks ended November 8, 1997 and
    the 52 weeks ended February 1, 1997. Information is for the 36 weeks ended
    October 12, 1997 and the 53 weeks ended February 2, 1997 for Food 4 Less.
 
(2) Historical book value per share is computed by dividing stockholders' equity
    for Fred Meyer and Food 4 Less by the number of shares of common stock
    outstanding at the end of each period for Fred Meyer and Food 4 Less. Pro
    forma book value per share is computed by dividing pro forma stockholders'
    equity by the pro forma number of shares of common stock outstanding at the
    end of the period.
 
(3) Amounts are calculated by multiplying Fred Meyer pro forma combined amounts
    by an exchange ratio of 0.50. Such exchange ratio is computed by dividing
    the total shares of Fred Meyer common stock estimated to be issued for each
    outstanding share of Food 4 Less common stock in connection with the Fred
    Meyer/Food 4 Less Merger (8.6 million) by the number of shares of Food 4
    Less common stock outstanding (17.3 million).
 
                                       29
<PAGE>   38
 
                                 THE COMPANIES
 
FRED MEYER
 
     Fred Meyer, Inc. ("Fred Meyer") is a regional retailer of a wide range of
food and drug products and general merchandise including apparel, photo and
electronics, products for the home and fine jewelry. As of December 3, 1997,
subsidiaries of Fred Meyer operated 112 multi-department stores under the name
"Fred Meyer" in Alaska, Idaho, Montana, Oregon, Utah and Washington. The
multi-department stores are unique in the Pacific Northwest in combining food
with a wide range of nonfood merchandise under one roof. These stores average
approximately 145,000 square feet of retail space and emphasize
one-stop-shopping for necessities and items of everyday use. The principal
business strategy for the Fred Meyer stores is to operate one-stop-shopping
stores that provide convenient shopping for a broad selection of products in one
location. Fred Meyer stores are organized into distinct departments that
specialize in the sale of particular products. Multi-department stores that
include food, apparel and general merchandise are the primary focus of Fred
Meyer stores. Fred Meyer believes that its food departments increase the
shopping frequency of area residents, build customer loyalty and enable its
nonfood departments to generate higher levels of sales through increased
customer traffic. In more recent years, Fred Meyer added food to previously
nonfood multi-department stores and replaced some of its older nonfood stores
with new full-service stores which include food departments. Fred Meyer promotes
cross-shopping by providing convenient access between departments and sections,
by making each of these a strong competitor in the market for its products and
by facilitating easy customer checkout through a common cash register system
that allows customers to purchase merchandise from most departments at any
checkstand location. The strength of the individual departments and sections,
with their breadth and depth of product selection, national and private-label
brands and emphasis on products of everyday use, distinguishes Fred Meyer stores
from other retailers and enables Fred Meyer stores to compete with supermarkets,
drug stores, discount stores, mass merchandisers, department stores and
specialty stores, including category-dominant retailers.
 
     In September 1997, Fred Meyer acquired Smith's Food & Drug Centers, Inc.
("Smith's"), a regional supermarket and drug store chain operating in the
Intermountain and Southwestern regions of the United States. As of December 3,
1997, Smith's operated 155 stores in Arizona, Idaho, Nevada, New Mexico, Texas,
Utah and Wyoming. Smith's operates 150 combination food and drug centers which
offer one-stop shopping convenience through a full-line supermarket with drug
and pharmacy departments and some or all of the following specialty departments:
delicatessens, hot prepared food sections, in-store bakeries, video rental
shops, floral shops, one-hour photo processing labs, full-service banking and
frozen yogurt shops. In addition, Smith's operates five warehouse stores. The
food and drug combination stores range in size from 33,000 to 112,000 square
feet (with an average size of 66,000 square feet). Through its 49 years of
operations, Smith's has developed a valuable and strategically located store
base, strong name recognition, customer loyalty and a reputation for quality and
service.
 
     Subsidiaries of Fred Meyer also operate 164 specialty stores in 19 states.
All but five of the specialty stores are mall jewelry stores, which average
approximately 1,300 square feet of retail space and operate under the name "Fred
Meyer Jewelers," "Merksamer Jewelers" or "Fox's Jewelers."
 
     Fred Meyer was incorporated in Delaware in July 1997 as a successor to the
business of a company which opened its first store in downtown Portland, Oregon
in 1922 and was incorporated in Oregon in 1923. Fred Meyer's principal executive
offices are located at 3800 SE 22nd Avenue, Portland, Oregon 97202, and its
telephone number is (503) 232-8844. For further information concerning Fred
Meyer, see the Fred Meyer documents incorporated by reference herein as
described under "Where You Can Find More Information." Except where the context
otherwise requires, references to Fred Meyer are to Fred Meyer, Inc., its
subsidiaries and its predecessors.
 
QFC
 
     Quality Food Centers, Inc. ("QFC") is an operator of premium supermarkets
in the Seattle/Puget Sound region of Washington state and in Southern
California. Since commencing operations in 1954, QFC
 
                                       30
<PAGE>   39
 
has developed a modern store base in many prime locations, strong name
recognition and a reputation for superior quality and service. On February 14,
1997, QFC acquired the principal operations of Keith Uddenberg, Inc. ("KUI"),
including assets and liabilities related to 25 stores in the Seattle/Puget Sound
region. On March 19, 1997, QFC acquired Hughes Markets, Inc. ("Hughes"), a
supermarket company operator in Southern California. As of December 1, 1997, QFC
operated 89 stores in the Seattle/Puget Sound region and 56 "Hughes Family
Markets" stores in Southern California. In addition, Hughes owns a 50% interest
in Santee Dairies, Inc., which provides dairy and other products to Hughes, and
to certain other third parties, under the "Knudsen" label as well as under other
labels.
 
     QFC was founded in 1954 and is incorporated in Washington. Its principal
executive offices are located at 10112 NE 10th Street, Suite 201, Bellevue,
Washington 98004 (telephone (425) 462-2177). For further information concerning
QFC, see the QFC documents incorporated by reference herein as described under
"Where You Can Find More Information."
 
     On October 8, 1997, QFC sought and received approval by its shareholders to
reorganize its corporate structure. As a result of the Fred Meyer/QFC merger,
QFC will not be consummating the reorganization. If the Fred Meyer/QFC merger is
not consummated, however, QFC may elect to proceed with the reorganization.
 
FOOD 4 LESS
 
     Food 4 Less Holdings, Inc. ("Food 4 Less") is the largest supermarket
operator in Southern California. Food 4 Less operates the second largest
conventional supermarket chain in the region under the "Ralphs" name (264 stores
as of December 10, 1997, which average 36,775 square feet in size) and the
largest warehouse supermarket chain in the region under the "Food 4 Less" name
(80 stores as of December 10, 1997, which average 52,564 square feet in size).
Food 4 Less also operates in Northern California (27 stores as of December 10,
1997) and certain areas of the Midwest (38 stores as of December 10, 1997). Food
4 Less has achieved strong competitive positions in each of its marketing areas
by successfully tailoring its merchandising strategy to the particular needs of
the individual communities it serves. In addition, Food 4 Less is a vertically
integrated supermarket company with major manufacturing facilities, including a
bakery and creamery operations, and full-line warehouse and distribution
facilities servicing its Southern California operations.
 
     Food 4 Less operates in three geographic areas: Southern California,
Northern California and certain areas of the Midwest, under six different retail
formats. The following table sets forth by retail format the number of stores
operated by each of Food 4 Less' three geographical divisions as of December 10,
1997:
 
<TABLE>
<CAPTION>
                                                         SOUTHERN       NORTHERN
                                                        CALIFORNIA     CALIFORNIA     MIDWEST     TOTAL
                                                        ----------     ----------     -------     -----
<S>                                                     <C>            <C>            <C>         <C>
Ralphs................................................      264            --            --        264
Cala..................................................       --             8            --          8
Bell..................................................       --            13            --         13
Falley's..............................................       --            --             5          5
                                                                           --            --
                                                            ---                                   -----
          Total Conventional..........................      264            21             5        290
Food 4 Less...........................................       80            --            33        113
FoodsCo...............................................       --             6            --          6
                                                                           --            --
                                                            ---                                   -----
          Total Warehouse.............................       80             6            33        119
                                                                           --            --
                                                            ---                                   -----
          Total Stores................................      344            27            38        409
                                                        =======        =======        ======      ====
</TABLE>
 
     On June 14, 1995, Food 4 Less acquired all of the common stock of Ralphs
Supermarkets, Inc. ("RSI") in a transaction accounted for as a purchase by Food
4 Less Supermarkets, Inc. ("Food 4 Less Supermarkets"). Food 4 Less
Supermarkets, RSI and RSI's wholly owned subsidiary, Ralphs Grocery Company,
combined through mergers in which RSI remained as the surviving entity and
changed its name to Ralphs Grocery Company ("Ralphs").
 
                                       31
<PAGE>   40
 
     Food 4 Less was founded in 1987 and reincorporated in Delaware in December
1994 prior to its acquisition of Ralphs. Ralphs and its predecessors have
operated stores in Los Angeles since 1873. Food 4 Less' principal executive
offices are located at 1100 West Artesia Boulevard, Compton, California, and its
telephone number is (310) 884-9000. For further information concerning Food 4
Less, see the Food 4 Less documents incorporated by reference herein as
described under "Where You Can Find More Information."
 
THE COMBINED COMPANY
 
     Fred Meyer, QFC and Q-Acquisition Corp., a wholly owned subsidiary of Fred
Meyer ("QFC Sub"), have entered into an Agreement and Plan of Merger, dated as
of November 6, 1997, as amended on January 20, 1998 (the "FM/QFC Merger
Agreement"), which provides, among other things, that (i) QFC Sub will merge
into QFC with QFC surviving the merger and becoming a wholly owned subsidiary of
Fred Meyer (the "FM/QFC Merger") and (ii) outstanding shares of QFC common stock
will be converted into shares of Fred Meyer common stock, as described in this
Joint Proxy and Consent Solicitation Statement/ Prospectus. See "The FM/QFC
Merger Agreement." In addition, Fred Meyer, Food 4 Less and FFL Acquisition
Corp., a wholly owned subsidiary of Fred Meyer ("Food 4 Less Sub"), have entered
into an Agreement and Plan of Merger, dated as of November 6, 1997, as amended
on January 20, 1998 (the "FM/Food 4 Less Merger Agreement" and, together with
the FM/QFC Merger Agreement, the "Merger Agreements"), which provides, among
other things, that (i) Food 4 Less Sub will merge with Food 4 Less with Food 4
Less becoming a wholly owned subsidiary of Fred Meyer (the "FM/Food 4 Less
Merger" and, together with the FM/QFC Merger, the "Mergers") and (ii)
outstanding shares of Food 4 Less stock will be converted into shares of Fred
Meyer common stock, as described in this Joint Proxy and Consent Solicitation
Statement/Prospectus. See "The FM/Food 4 Less Merger Agreement." The FM/QFC
Merger and the FM/Food 4 Less Merger are independent transactions. The
consummation of the FM/QFC Merger is not a condition to the closing of the
FM/Food 4 Less Merger, and the consummation of the FM/Food 4 Less Merger is not
a condition to the closing of the FM/QFC Merger. The date and time that the
FM/QFC Merger becomes effective is referred to herein as the "FM/QFC Merger
Effective Time," and the date and time that the FM/Food 4 Less Merger becomes
effective is referred to herein as the "FM/Food 4 Less Merger Effective Time."
 
     If both Mergers are consummated, the Mergers will result in the creation of
one of the largest supermarket and general merchandise companies in the United
States, with leading competitive positions in the Pacific Northwest, Southern
California, Intermountain and Southwest regions of the United States. Upon
consummation of the Mergers, Fred Meyer will operate stores with approximately
$15 billion in estimated 1997 annual sales, on a pro forma basis.
 
     Fred Meyer, QFC and Food 4 Less regard the consummation of the Mergers as
an opportunity to increase profitability through significant cost savings,
operating efficiencies, economies of scale and other synergies stemming from the
strategic geographical fit of the combined company, the strong market position
of the combined company and reductions in financing costs. Based on a
preliminary review of their respective businesses, Fred Meyer estimates that the
Mergers will result in approximately $100 million in net annual cost savings and
improvements attributable to operating synergies. These savings are expected to
be realized over time and are expected to be achievable in full by the end of
2001. Fred Meyer expects additional savings attributable to reductions in
financing costs.
 
     Because of the complementary nature of Fred Meyer's, QFC's and Food 4 Less'
businesses, Fred Meyer expects to create substantial opportunities for
development of the combined company without the need for significant
restructuring. In addition, the Mergers will result in the combination of three
experienced management teams that are anticipated to provide a strong management
structure for the combined company.
 
     Estimated Cost Savings and Improvements from Operating Synergies. Fred
Meyer preliminarily estimates that consummation of both of the Mergers will
result in approximately $100 million in net annual cost savings and improvements
attributable to operating synergies. These savings are expected to be realized
over time and are expected to be achievable in full by the end of 2001. Among
the significant operating synergies identified by Fred Meyer that are expected
to be realized upon consummation of the Mergers are the
 
                                       32
<PAGE>   41
 
following: elimination of duplicative overhead and administrative expenses; the
consolidation of distribution centers and manufacturing facilities of Fred
Meyer, QFC and Food 4 Less; the benefits of combined purchasing and
merchandising operations; and the reduction of advertising expenses.
 
     If the FM/QFC Merger is consummated (and the FM/Food 4 Less Merger is not
consummated), Fred Meyer estimates that the net annual cost savings and
improvements attributable to operating synergies will be approximately $30
million (achievable over time) and if the FM/Food 4 Less Merger is consummated
(and the FM/QFC Merger is not consummated), Fred Meyer estimates that the net
annual cost savings and improvements attributable to operating synergies will be
approximately $15 million (achievable over time).
 
     Upon consummation of the Mergers, Fred Meyer intends to review the combined
company and its assets, businesses, operations, properties, policies, corporate
structures, capitalization and management to identify any additional synergies
and cost savings.
 
     Anticipated Reductions in Financing Costs. Fred Meyer expects the Mergers
will also result in annual savings attributable to reductions in financing
costs. In connection with the Mergers, Fred Meyer intends to refinance and
consolidate a majority of the existing indebtedness of the combined company.
Fred Meyer's, QFC's and Food 4 Less' current long-term debt to capitalization
ratios are approximately 60%, 55% and 120% respectively, and it is anticipated
that, following the effectiveness of the Mergers, the combined company's
long-term debt to capitalization ratio will be approximately 70%. See
"Refinancing Arrangements."
 
     THE FOREGOING ESTIMATES OF COST SAVINGS AND SYNERGIES ARE INHERENTLY
SUBJECT TO SIGNIFICANT UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND
THE CONTROL OF FRED MEYER, QFC AND FOOD 4 LESS. THERE IS NO ASSURANCE THAT SUCH
ESTIMATED COST SAVINGS AND SYNERGIES WILL BE ACHIEVED, AND ACTUAL SAVINGS AND
SYNERGIES MAY VARY MATERIALLY FROM THOSE ESTIMATED. THE INCLUSION OF SUCH
ESTIMATES HEREIN SHOULD NOT BE REGARDED AS AN INDICATION THAT FRED MEYER, QFC,
FOOD 4 LESS OR ANY OTHER PERSON CONSIDERS SUCH ESTIMATES AN ACCURATE PREDICTION
OF FUTURE EVENTS. SEE "FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE."
 
                           FRED MEYER SPECIAL MEETING
 
     This Joint Proxy and Consent Solicitation Statement/Prospectus is being
furnished to stockholders of Fred Meyer as part of the solicitation of proxies
by the Fred Meyer Board of Directors (the "Fred Meyer Board") for use at a
special meeting of stockholders to be held on March 5, 1998 at 10:00 a.m. local
time, at The DoubleTree Hotel Downtown, 310 S.W. Lincoln, Portland, Oregon, or
any adjournment or postponement (the "Fred Meyer Special Meeting"). This Joint
Proxy and Consent Solicitation Statement/Prospectus and the enclosed form of
proxy are first being mailed to stockholders of Fred Meyer on or about February
2, 1998.
 
     The purpose of the Fred Meyer Special Meeting is: (a) to consider and vote
on a proposal to approve the issuance of common stock, $.01 par value per share,
of Fred Meyer ("Fred Meyer Common Stock") pursuant to the FM/QFC Merger
Agreement; (b) to consider and vote on a proposal to approve the issuance of
Fred Meyer Common Stock pursuant to the FM/Food 4 Less Merger Agreement; (c) to
consider and vote on a proposal to amend the Certificate of Incorporation of
Fred Meyer (the "Fred Meyer Certificate") to increase the maximum size of the
Fred Meyer Board; and (d) to transact such other business that may properly come
before the Fred Meyer Special Meeting. Each copy of this Joint Proxy and Consent
Solicitation Statement/ Prospectus mailed to holders of Fred Meyer Common Stock
is accompanied by a form of proxy for use at the Fred Meyer Special Meeting.
 
     Pursuant to the FM/QFC Merger Agreement, among other things, (i) QFC Sub, a
wholly owned subsidiary of Fred Meyer, will merge with and into QFC, with QFC
surviving the FM/QFC Merger and becoming a wholly owned subsidiary of Fred Meyer
and (ii) each share of common stock, $.001 par value per share, of QFC (the "QFC
Common Stock") outstanding as of the FM/QFC Merger Effective Time (except shares
with respect to which dissenters' rights have been asserted and not waived or
terminated) will be converted into the right to receive the greater of either
(A) 1.9 shares of Fred Meyer Common Stock, or (B) the lesser of (x) 2.3 shares
of Fred Meyer Common Stock or (y) a number of shares of Fred Meyer Common Stock
equal to $55.00 divided by the average closing price of Fred Meyer Common Stock
on the New York Stock Exchange (the "NYSE") for 15 randomly selected days out of
the 35 trading days ending on
 
                                       33
<PAGE>   42
 
the second trading day preceding the FM/QFC Merger Effective Time, subject to
reduction under certain circumstances as a result of store divestitures in
California which may be required by state or federal regulatory authorities.
 
     Pursuant to the FM/Food 4 Less Merger Agreement, among other things, (i)
Food 4 Less Sub, a wholly owned subsidiary of Fred Meyer, will merge with Food 4
Less, with Food 4 Less becoming a wholly owned subsidiary of Fred Meyer and (ii)
holders of (a) common stock, $.01 par value, of Food 4 Less (the "Food 4 Less
Common Stock), (b) Series A preferred stock, $.01 par value, of Food 4 Less (the
"Food 4 Less Series A Preferred Stock") and (c) Series B preferred stock, $.01
par value, of Food 4 Less (the "Food 4 Less Series B Preferred Stock" and,
together with the Food 4 Less Series A Preferred Stock, the "Food 4 Less
Preferred Stock" and, together with the Food 4 Less Common Stock, the "Food 4
Less Stock") will receive an aggregate of the greater of (A) 22.5 million shares
of Fred Meyer Common Stock or (B) the lesser of (x) the number of shares of Fred
Meyer Common Stock equal to $600 million divided by the average closing price of
Fred Meyer Common Stock on the NYSE for 15 randomly selected days out of the 35
trading days ending on the second trading day preceding the FM/Food 4 Less
Merger Effective Time or (y) 24 million shares of Fred Meyer Common Stock;
provided, however, that such aggregate number of shares of Fred Meyer Common
Stock will be reduced by (A) the number of shares of Fred Meyer Common Stock
having a value equal to net cash amounts that will be paid to retire all options
outstanding under the Food 4 Less 1995 Stock Option Plan, (B) the number of
shares of Fred Meyer Common Stock required to be reserved for issuance upon the
exercise of any warrants to purchase Food 4 Less Common Stock (the "Food 4 Less
Warrants") which remain outstanding at the FM/Food 4 Less Merger Effective Time
and (C) the number of shares of Fred Meyer Common Stock issued to Yucaipa to
cancel its warrant to purchase Food 4 Less Common Stock dated June 14, 1995 (the
"Yucaipa Warrant"), and subject to further reduction under certain circumstances
as a result of store divestitures in California which may be required by state
or federal regulatory authorities. The number of shares of Fred Meyer Common
Stock to be issued to holders of Food 4 Less Stock will be increased by the
number of shares of Fred Meyer Common Stock having a value equal to cash amounts
received by Food 4 Less for new issuances of Food 4 Less Common Stock to
employee stock ownership plans prior to the FM/Food 4 Less Merger.
 
     If the Mergers are consummated, after the closing of the Mergers
shareholders of QFC will own approximately 27% of the Fred Meyer Common Stock,
stockholders of Food 4 Less will own approximately 14% of the Fred Meyer Common
Stock and current stockholders of Fred Meyer will own the balance. If the FM/QFC
Merger is consummated but the FM/Food 4 Less Merger is not consummated, after
the closing of the FM/QFC Merger, shareholders of QFC will own approximately 31%
of the Fred Meyer Common Stock and current stockholders of Fred Meyer will own
the balance. If the Fred Meyer/Food 4 Less merger is consummated but the FM/QFC
Merger is not consummated, after the closing of the FM/Food 4 Less Merger,
stockholders of Food 4 Less will own approximately 19% of the Fred Meyer Common
Stock and current stockholders of Fred Meyer will own the balance. These
percentages assume that there are no store divestitures in California that would
result in an adjustment to the merger consideration. In addition, these
percentages are based on the number of shares of each company outstanding on the
applicable record date and the market price of the Fred Meyer Common Stock on
January 21, 1998. The actual percentages may vary from these estimates.
 
     The Mergers are subject to a number of conditions, including the receipt of
required regulatory and stockholder approvals. See "The FM/QFC Merger
Agreement," "The FM/QFC Merger -- Regulatory Approvals," "The FM/Food 4 Less
Merger Agreement" and "The FM/Food 4 Less Merger -- Regulatory Approvals."
 
     The FM/QFC Merger and the FM/Food 4 Less Merger are independent
transactions. The consummation of the FM/QFC Merger is not a condition to the
closing of the FM/Food 4 Less Merger, and the consummation of the FM/Food 4 Less
Merger is not a condition to the closing of the FM/QFC Merger.
 
                                       34
<PAGE>   43
 
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
 
     The close of business on January 26, 1998 has been fixed by the Fred Meyer
Board as the record date for determination of the stockholders of Fred Meyer
entitled to notice of, and to vote at, the Fred Meyer Special Meeting (the "Fred
Meyer Record Date"). Stockholders of Fred Meyer as of the Fred Meyer Record Date
are entitled to notice of, and to vote at, the Fred Meyer Special Meeting.
Accordingly, only holders of record of shares of Fred Meyer Common Stock at the
close of business on such date will be entitled to notice of and to vote at the
Fred Meyer Special Meeting. Each holder of Fred Meyer Common Stock on the Fred
Meyer Record Date is entitled to one vote per share held on all matters properly
presented at the Fred Meyer Special Meeting. As of the close of business on the
Fred Meyer Record Date, there were           shares of Fred Meyer Common Stock
outstanding and entitled to vote, held by           holders of record. The
presence in person or by proxy at the Fred Meyer Special Meeting of the holders
of at least a majority of the votes entitled to be cast at the Fred Meyer
Special Meeting is necessary to constitute a quorum for the transaction of
business. Approval of the issuance of shares of Fred Meyer Common Stock pursuant
to each Merger Agreement requires the approval of a majority of votes cast on
each matter, provided that the total votes cast on the matter represent over 50%
of the Fred Meyer Common Stock entitled to vote thereon. Approval of the
amendment to the Fred Meyer Certificate requires the approval of holders of at
least 75% of the outstanding Fred Meyer Common Stock.
 
     Simultaneously with the execution of the FM/QFC Merger Agreement, The
Yucaipa Companies ("Yucaipa") and Fred L. Smith and Jeffrey P. Smith (and
certain of their affiliates), who together own in the aggregate approximately
11% of the shares of Fred Meyer Common Stock outstanding as of the Fred Meyer
Record Date, entered into a voting agreement (the "Voting Agreement") with QFC
pursuant to which such stockholders agreed, among other things, to vote their
shares of Fred Meyer Common Stock in favor of the issuance of Fred Meyer Common
Stock pursuant to the FM/QFC Merger Agreement.
 
     If an executed proxy card is returned and the stockholder has explicitly
abstained from voting on any matter, the shares represented by such proxy will
be considered present at the Fred Meyer Special Meeting for purposes of
determining a quorum and will count as votes cast on the matter but will not
count as votes cast in favor of any proposal and, therefore, will have the same
effect as a vote against the matter. Broker non-votes will be counted for
purposes of determining whether a quorum exists at the Fred Meyer Special
Meeting, but will not be considered to have been voted on any matter and, with
respect to the proposal to amend the Fred Meyer Certificate, will have the
effect of a vote against the matter.
 
     If the enclosed proxy card is properly executed and returned to Fred Meyer
in time to be voted at the Fred Meyer Special Meeting, the shares represented
thereby will be voted in accordance with the instructions marked thereon.
EXECUTED BUT UNMARKED PROXIES WILL BE VOTED FOR APPROVAL AND ADOPTION OF EACH OF
THE PROPOSALS. The Fred Meyer Board does not know of any matters other than
those described in the Notice of the Fred Meyer Special Meeting that are to come
before the Fred Meyer Special Meeting. If any other business is properly brought
before the Fred Meyer Special Meeting, including, among other things, a motion
to adjourn or postpone the Fred Meyer Special Meeting to another time and/or
place for the purpose of soliciting additional proxies in favor of the proposal
to approve and adopt each of the proposals or to permit dissemination of
information regarding material developments relating to the proposals or
otherwise germane to the Fred Meyer Special Meeting, one or more of the persons
named in the proxy card will vote the shares represented by such proxy upon such
matters as determined in their discretion.
 
     If the Fred Meyer Special Meeting is adjourned for any reason, the approval
of any of the proposals may be considered and voted upon by stockholders at the
subsequent reconvened meeting, if any.
 
     The presence of a stockholder at the Fred Meyer Special Meeting will not
automatically revoke such stockholder's proxy. Any proxy given pursuant to this
solicitation may be revoked by the person giving it by giving written notice of
such revocation to the Secretary of Fred Meyer at any time before it is voted,
by delivering to Fred Meyer a duly executed, later-dated proxy or by attending
the Fred Meyer Special Meeting and voting in person. All written notices of
revocation and other communications with respect to revocation of Fred Meyer
proxies should be addressed to Fred Meyer, Inc., 3800 SE 22nd Avenue, Portland,
Oregon 97202, Attention: Roger A. Cooke, Secretary.
 
                                       35
<PAGE>   44
 
     The cost of soliciting proxies for the Fred Meyer Special Meeting will be
borne by Fred Meyer, except that the cost of preparing and mailing this Joint
Proxy and Consent Solicitation Statement/Prospectus will be borne equally by
QFC, Food 4 Less and Fred Meyer. In addition to use of the mail, proxies may be
solicited personally or by telephone, telegraph, facsimile or other means of
communication by directors, officers and employees of Fred Meyer, who will not
be specifically compensated for such activities, but who may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation. Fred
Meyer will also request persons, firms and companies holding shares in their
names or in the name of their nominees, which are beneficially owned by others,
to send proxy materials to and obtain proxies from such beneficial owners. Fred
Meyer will reimburse such persons for their reasonable expenses incurred in
connection therewith. Fred Meyer has retained D.F. King & Co., Inc. to assist in
the solicitation of proxies by Fred Meyer for a customary fee (estimated to be
approximately $6,000), plus reasonable out of pocket expenses.
 
RECOMMENDATIONS OF THE FRED MEYER BOARD
 
     The Fred Meyer Board has unanimously approved each of the FM/QFC Merger
Agreement and the FM/Food 4 Less Merger Agreement, except that Ronald W. Burkle,
Chairman of the Board of Fred Meyer, abstained with respect to the FM/Food 4
Less Merger Agreement because of his interest in Food 4 Less. See "The FM/Food 4
Less Merger -- Interests of Certain Persons in the FM/Food 4 Less Merger." The
Fred Meyer Board believes that the transactions contemplated by each of the
Merger Agreements are in the best interests of the stockholders of Fred Meyer
and recommends that stockholders of Fred Meyer vote FOR approval of the issuance
of shares of Fred Meyer Common Stock pursuant to the Merger Agreements. In
making that determination, the Fred Meyer Board took into account, among other
things, the oral opinions, dated as of November 5, 1997, of Salomon Brothers Inc
("Salomon") and Goldman, Sachs & Co. ("Goldman Sachs"), financial advisors to
Fred Meyer, that the exchange ratios in the Merger Agreements were fair from a
financial point of view to Fred Meyer. See "The FM/QFC Merger -- Reasons of Fred
Meyer for the Merger" and "The FM/Food 4 Less Merger -- Reasons of Fred Meyer
for the Merger."
 
                              QFC SPECIAL MEETING
 
GENERAL
 
     This Joint Proxy and Consent Solicitation Statement/Prospectus is being
furnished to shareholders of QFC as part of the solicitation of proxies by the
Board of Directors of QFC (the "QFC Board") for use at a special meeting of
shareholders to be held on March 6, 1998 at 2:00 p.m. local time, at the
Sheraton Hotel and Towers, 1400 6th Avenue, Seattle, Washington, or any
adjournment or postponement of it (the "QFC Special Meeting"). This Joint Proxy
and Consent Solicitation Statement/Prospectus and the enclosed form of proxy are
first being mailed to shareholders of QFC on or about February 2, 1998.
 
     The purpose of the QFC Special Meeting is: (i) to consider and vote on a
proposal to approve and adopt the FM/QFC Merger Agreement pursuant to which,
among other things, (a) QFC Sub will merge with and into QFC, with QFC surviving
the FM/QFC Merger and becoming a wholly owned subsidiary of Fred Meyer and (b)
all issued and outstanding shares of QFC Common Stock (except those with respect
to which dissenters' rights have been asserted and not waived or terminated)
will be converted into shares of Fred Meyer Common Stock and (ii) to transact
such other business as may properly come before the QFC Special Meeting. See
"The FM/QFC Merger Agreement -- Conversion of Shares" and "-- Exchange of
Certificates." Each copy of this Joint Proxy and Consent Solicitation
Statement/Prospectus mailed to holders of QFC Common Stock is accompanied by a
form of proxy for use at the QFC Special Meeting.
 
     Pursuant to the FM/QFC Merger Agreement, all outstanding shares of QFC
Common Stock (except those with respect to which dissenters' rights have been
asserted and not waived or terminated) that are outstanding immediately prior to
the FM/QFC Merger Effective Time will be converted into that number of fully
paid and nonassessable shares of Fred Meyer Common Stock (rounded to the nearest
ten-thousandth of a share) equal to the greater of (i) 1.9 and (ii) the number
equal to the lesser of (A) 2.3 and (B) the number determined by dividing $55.00
by the average price of Fred Meyer Common Stock (as determined below) (as
 
                                       36
<PAGE>   45
 
qualified by the following proviso, the "QFC Exchange Ratio"); provided, that
the QFC Exchange Ratio may be reduced if the aggregate lost earnings before
interest, taxes, corporate allocation costs for administration (including costs
for management information systems), depreciation and amortization from the
continuing operations of stores located in California required to be divested by
state or federal regulatory authorities exceed $15 million for the twelve-month
period ending on the second most recent month-end prior to the earlier of (A)
the date on which agreement is reached with such authorities regarding such
divestitures and (B) the FM/QFC Merger Effective Time. The average price of Fred
Meyer Common Stock will be equal to the average of the closing prices of the
Fred Meyer Common Stock on the NYSE for 15 randomly selected days out of the 35
trading days ending on the second trading day preceding the FM/QFC Merger
Effective Time. See "The FM/QFC Merger Agreement -- Conversion of Shares."
 
     The FM/QFC Merger is subject to a number of conditions, including the
receipt of required regulatory and shareholder approvals. See "The FM/QFC Merger
Agreement" and "The FM/QFC Merger -- Regulatory Approvals."
 
     The FM/QFC Merger and the FM/Food 4 Less Merger are independent
transactions. The consummation of the FM/QFC Merger is not a condition to the
closing of the FM/Food 4 Less Merger, and the consummation of the FM/Food 4 Less
Merger is not a condition to the closing of the FM/QFC Merger.
 
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
 
     The close of business on January 26, 1998 has been fixed by the QFC Board
as the record date for determination of the shareholders of QFC entitled to
notice of, and to vote at, the QFC Special Meeting (the "QFC Record Date").
Shareholders of QFC as of the QFC Record Date are entitled to notice of, and to
vote at, the QFC Special Meeting. Accordingly, only holders of record of shares
of QFC Common Stock at the close of business on such date will be entitled to
vote at the QFC Special Meeting. Each holder of QFC Common Stock on the QFC
Record Date will be entitled to one vote per share held on all matters properly
presented at the QFC Special Meeting. As of the close of business on the QFC
Record Date, there were             shares of QFC Common Stock outstanding and
entitled to vote, held by             holders of record. The presence in person
or by proxy at the QFC Special Meeting of the holders of at least a majority of
the votes entitled to be cast at the QFC Special Meeting is necessary to
constitute a quorum for the transaction of business. Approval and adoption of
the FM/QFC Merger Agreement requires the approval of the holders of a majority
of the outstanding shares of QFC Common Stock.
 
     Simultaneously with the execution of the FM/QFC Merger Agreement,
Zell/Chilmark Fund, L.P. ("Zell/Chilmark") and Stuart M. Sloan, who together
owned in the aggregate approximately 26% of the shares of QFC Common Stock
outstanding as of the QFC Record Date, entered into shareholders agreements (the
"Shareholders Agreements") with Fred Meyer pursuant to which such shareholders
agreed, among other things, to vote the shares of QFC Common Stock owned by them
(i) in favor of approval and adoption of the FM/QFC Merger Agreement and (ii)
against any other merger agreement or other takeover proposal. See "Other
Agreements -- FM/QFC Merger -- Shareholders Agreements."
 
     Abstentions and broker non-votes will be counted for purposes of
determining whether a quorum exists at the QFC Special Meeting, but will be
counted as votes against the approval and adoption of the FM/QFC Merger
Agreement.
 
     If the enclosed form of proxy is properly executed and returned to QFC in
time to be voted at the QFC Special Meeting, the shares represented thereby will
be voted in accordance with the instructions marked thereon. EXECUTED BUT
UNMARKED PROXIES WILL BE VOTED FOR APPROVAL AND ADOPTION OF THE FM/QFC MERGER
AGREEMENT. The QFC Board does not know of any matters other than those described
in the notice of the QFC Special Meeting that are to come before the QFC Special
Meeting. If any other business is properly brought before the QFC Special
Meeting, including, among other things, a motion to adjourn or postpone the QFC
Special Meeting to another time and/or place for the purpose of soliciting
additional proxies in favor of the proposal to approve and adopt the FM/QFC
Merger Agreement or to permit dissemination of information regarding material
developments relating to the FM/QFC Merger or otherwise germane to the QFC
Special
 
                                       37
<PAGE>   46
 
Meeting, one or more of the persons named in the proxy card will vote the shares
represented by such proxy upon such matters as determined in their discretion.
 
     If the QFC Special Meeting is adjourned for any reason, the approval of the
FM/QFC Merger Agreement will be considered and voted upon by shareholders at the
subsequent reconvened meeting, if any.
 
     The presence of a shareholder at the QFC Special Meeting will not
automatically revoke such shareholder's proxy. Any proxy given pursuant to this
solicitation may be revoked by the person giving it by giving written notice of
such revocation to the Secretary of QFC at any time before it is voted, by
delivering to QFC a duly executed, later-dated proxy or by attending the QFC
Special Meeting and voting in person. All written notices of revocation and
other communications with respect to revocation of QFC proxies should be
addressed to Quality Food Centers, Inc., 10112 N.E. 10th Street, Suite 201,
Bellevue, Washington 98004, Attention: Susan Obuchowski, Secretary.
 
     The cost of soliciting proxies for the QFC Special Meeting will be borne by
QFC, except that the cost of preparing and mailing this Joint Proxy and Consent
Solicitation Statement/Prospectus will be borne equally by QFC, Food 4 Less and
Fred Meyer. In addition to use of the mail, proxies may be solicited personally
or by telephone, telegraph, facsimile or other means of communication by
directors, officers and employees of QFC, who will not be specifically
compensated for such activities, but who may be reimbursed for reasonable
out-of-pocket expenses in connection with such solicitation. QFC will also
request persons, firms and companies holding shares in their names or in the
name of their nominees, which are beneficially owned by others, to send proxy
materials to and obtain proxies from such beneficial owners. QFC will reimburse
such persons for their reasonable expenses incurred in connection therewith. QFC
has retained D.F. King & Co., Inc. to assist in the solicitation of proxies by
QFC for a customary fee (estimated to be approximately $5,000), plus reasonable
out-of-pocket expenses.
 
RECOMMENDATIONS OF THE QFC BOARD
 
     The QFC Board has unanimously approved and adopted the FM/QFC Merger
Agreement. The QFC Board believes that the transactions contemplated by the
FM/QFC Merger Agreement are in the best interests of QFC and its shareholders
and unanimously recommends that the shareholders of QFC vote FOR approval and
adoption of the FM/QFC Merger Agreement. In making that determination, the QFC
Board took into account, among other things, the opinion, dated November 6,
1997, of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
financial advisor to QFC. See "The FM/QFC Merger -- Reasons of QFC for the
Merger."
 
                        FOOD 4 LESS CONSENT SOLICITATION
 
PURPOSE OF THE FOOD 4 LESS CONSENT SOLICITATION
 
     Food 4 Less is undertaking a consent solicitation (the "Food 4 Less Consent
Solicitation") at the direction of the Food 4 Less Board of Directors (the "Food
4 Less Board") for purposes of obtaining written consents ("Consents") from the
holders of Food 4 Less Stock (i) to approve the FM/Food 4 Less Merger Agreement,
pursuant to which Food 4 Less Sub will merge with Food 4 Less, with Food 4 Less
becoming a wholly owned subsidiary of Fred Meyer, subject to certain conditions
being satisfied or waived and (ii) to terminate certain existing stockholders
agreements and registration rights agreements upon the conversion of Food 4 Less
Stock into Fred Meyer Common Stock at the FM/Food 4 Less Merger Effective Time.
Upon consummation of the FM/Food 4 Less Merger, holders of Food 4 Less Stock
will receive an aggregate of the greater of (i) 22.5 million shares of Fred
Meyer Common Stock or (ii) the lesser of (A) the number of shares of Fred Meyer
Common Stock equal to $600 million divided by the average closing price of the
Fred Meyer Common Stock on the NYSE for 15 days (randomly selected) out of the
35 trading days ending on the second trading day preceding the FM/Food 4 Less
Merger Effective Time or (B) 24 million shares of Fred Meyer Common Stock;
provided, however, that such aggregate number of shares of Fred Meyer Common
Stock will be reduced by (x) a number of shares of Fred Meyer Common Stock
having a value equal to the net cash amounts that will be paid to retire all
options outstanding under the Food 4 Less 1995 Stock Option
 
                                       38
<PAGE>   47
 
Plan, (y) the number of shares of Fred Meyer Common Stock required to be
reserved for issuance upon the exercise of the Food 4 Less Warrants which remain
outstanding at the FM/Food 4 Less Merger Effective Time (although it is expected
that substantially all Food 4 Less Warrants, other than the Yucaipa Warrant,
will be exercised for shares of Food 4 Less Common Stock prior to the FM/Food 4
Less Merger Effective Time) and (z) the number of shares of Fred Meyer Common
Stock issued to Yucaipa to cancel the Yucaipa Warrant. In addition, the
aggregate number of shares of Fred Meyer Common Stock to be received by the
holders of Food 4 Less Stock may be reduced under certain circumstances as a
result of store divestitures in California which may be required by state or
federal regulatory authorities. If, by the FM/Food 4 Less Merger Effective Time,
no settlement has been reached with regulatory authorities relating to store
divestitures that may be required, Fred Meyer will place in escrow a portion of
the shares to be issued to Food 4 Less stockholders (up to 10% of the total) to
cover any eventual purchase price reduction. The aggregate number of shares of
Fred Meyer Common Stock to be received by the holders of Food 4 Less Stock will
be increased by the number of shares of Fred Meyer Common Stock having a value
equal to the cash amounts received by Food 4 Less for new issuances of Food 4
Less Common Stock to employee stock ownership plans prior to the FM/Food 4 Less
Merger Effective Time. In December 1997, Food 4 Less completed the sale of
342,028 shares of Food 4 Less Common Stock to certain of its employee stock
ownership plans for a total cash purchase price of $2,213,000. Food 4 Less does
not expect to make any additional issuances of common stock prior to the FM/Food
4 Less Merger Effective Time other than in connection with the exercise of its
Warrants as described above.
 
     The respective obligations of Fred Meyer and Food 4 Less to effect the
FM/Food 4 Less Merger are subject to the satisfaction or waiver on or prior to
the FM/Food 4 Less Merger Effective Time of certain conditions. The consummation
of the FM/QFC Merger is not a condition to the effectiveness of the FM/Food 4
Less Merger. See "The FM/Food 4 Less Merger Agreement -- Conditions to Each
Party's Obligation to Effect the FM/Food 4 Less Merger."
 
RECOMMENDATION OF THE FOOD 4 LESS BOARD
 
     After careful consideration, the Food 4 Less Board has determined that the
transactions contemplated by the FM/Food 4 Less Merger Agreement are in the best
interests of the stockholders of Food 4 Less and has unanimously approved the
terms of the FM/Food 4 Less Merger Agreement. See "The FM/Food 4 Less
Merger -- Reasons of Food 4 Less for the FM/Food 4 Less Merger." In making that
determination, the Food 4 Less Board took into account, among other things, the
written opinions, dated as of November 6, 1997, of Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") and Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), financial advisors to Food 4 Less, that the consideration to be
received by Food 4 Less common stockholders in the FM/Food 4 Less Merger is fair
from a financial point of view. THE FOOD 4 LESS BOARD UNANIMOUSLY RECOMMENDS
THAT ALL FOOD 4 LESS STOCKHOLDERS CONSENT (i) TO APPROVE THE FM/FOOD 4 LESS
MERGER AGREEMENT AND (ii) TO TERMINATE CERTAIN EXISTING STOCKHOLDERS AND
REGISTRATION RIGHTS AGREEMENTS AT THE FM/FOOD 4 LESS MERGER EFFECTIVE TIME. In
considering the recommendations of the Food 4 Less Board, Food 4 Less
stockholders should be aware that Ronald W. Burkle, Chairman of the Board of
Food 4 Less, and George G. Golleher, the Chief Executive Officer and a director
of Food 4 Less, as well as certain other directors of Food 4 Less, have
substantial personal interests in the consummation of the FM/Food 4 Less Merger
and related transactions that are in addition to the interests of the
stockholders of Food 4 Less generally. See "The FM/Food 4 Less
Merger -- Interests of Certain Persons in the FM/Food 4 Less Merger."
 
CONSENTS REQUIRED
 
     General. Under Section 228 of the Delaware General Corporation Law ("the
DGCL"), stockholder approvals required for actions such as the FM/Food 4 Less
Merger may be taken without a stockholders meeting if written consents to such
action are signed by a majority of the outstanding shares, and if prompt notice
of such action is given to the stockholders who have not executed consents.
Consents are being solicited hereby from the holders of Food 4 Less Stock in
lieu of any meeting of such stockholders. This Joint Proxy and Consent
Solicitation Statement/Prospectus and accompanying form of consent ("Consent
Form") are
 
                                       39
<PAGE>   48
 
being sent to all persons who are holders of record of Food 4 Less Stock as of
the close of business on January 16, 1998 (the "Food 4 Less Record Date").
Although the shares of Food 4 Less Series B Preferred Stock are non-voting
shares pursuant to the Restated Certificate of Incorporation of Food 4 Less (the
"Food 4 Less Certificate"), Food 4 Less is seeking Consents from the holders of
Food 4 Less Series B Preferred Stock for the purpose of waiving all appraisal
rights with respect thereto. See "The FM/Food 4 Less Merger -- Appraisal
Rights." Holders of Food 4 Less Preferred Stock should note that, pursuant to
the terms of the Food 4 Less Certificate, such holders have a right to request
that shares of non-voting stock be issued by the surviving or parent corporation
in any merger, in lieu of voting shares otherwise issuable. Fred Meyer has no
plans to issue any non-voting shares in connection with the FM/Food 4 Less
Merger. Accordingly, holders of Food 4 Less Preferred Stock who deliver Consents
to the FM/Food 4 Less Merger will be deemed to have waived their right to
receive non-voting shares in the FM/Food 4 Less Merger.
 
     The FM/Food 4 Less Merger. In order to consummate the FM/Food 4 Less
Merger, Food 4 Less must receive from the holders of at least a majority of the
combined voting power of the outstanding Food 4 Less Stock, as of the Food 4
Less Record Date, properly completed and executed Consents approving the FM/Food
4 Less Merger. As of the Food 4 Less Record Date, there were outstanding
17,984,145 shares of Food 4 Less Common Stock held by approximately 120 holders
of record and 16,683,244 shares of Food 4 Less Series A Preferred Stock held by
11 holders of record entitled to voting rights. Each share of Food 4 Less Series
A Preferred Stock carries a number of votes equal to the number of shares of
Food 4 Less Common Stock into which such share of Food 4 Less Series A Preferred
Stock is convertible. As of January 16, 1998, each share of Food 4 Less Series A
Preferred Stock was convertible into 1.197 shares of Food 4 Less Common Stock.
Holders of shares of Food 4 Less Series B Preferred Stock are not entitled to
voting rights in connection with the FM/Food 4 Less Merger. Upon the receipt by
Food 4 Less of Consents approving the FM/Food 4 Less Merger from the holders of
at least a majority of the combined voting power of the outstanding Food 4 Less
Stock, such Consents will be effective to authorize the FM/Food 4 Less Merger.
Fred Meyer has entered into stockholders agreements (the "Stockholders
Agreements") with certain stockholders of Food 4 Less owning in the aggregate
approximately 66% of the current voting power of the outstanding capital stock
of Food 4 Less, pursuant to which such stockholders have each agreed, among
other things, to execute a Consent with respect to all shares of Food 4 Less
Stock owned by each of them in favor of such matters submitted to the
stockholders of Food 4 Less in connection with the FM/Food 4 Less Merger. As a
result, the requisite approval for the adoption of the FM/Food 4 Less Merger and
the other transactions contemplated by the FM/Food 4 Less Merger Agreement is
assured. See "Other Agreements -- FM/Food 4 Less Merger -- Stockholders
Agreements."
 
     Termination of Stockholders Agreements and Registration Rights
Agreements. Holders of Food 4 Less Stock, options and warrants are parties to
certain existing stockholders agreements and registration rights agreements that
set forth certain restrictions on transfer, voting agreements, preemptive
rights, registration rights, and other terms governing such Food 4 Less Stock,
options and warrants. These agreements include: (i) the Stockholders Agreement
of Food 4 Less Holdings, Inc. dated as of June 14, 1995, (ii) the Registration
Rights Agreement dated as of June 14, 1995, (iii) certain Management
Stockholders Agreements dated as of a variety of dates, and (iv) the Warrant
Registration Rights Agreement dated as of December 31, 1992 (collectively, the
"Existing Agreements"). Because Food 4 Less Stock will be converted into shares
of Fred Meyer Common Stock in connection with the FM/Food 4 Less Merger, and
because an active public trading market exists for Fred Meyer Common Stock, Food
4 Less does not believe that it is necessary or appropriate for any of the
rights or obligations set forth in the Existing Agreements to continue in effect
following the FM/Food 4 Less Merger Effective Time. Food 4 Less believes that
none of the Existing Agreements by their terms would continue to apply to Fred
Meyer Common Stock following the conversion of Food 4 Less Stock into Fred Meyer
Common Stock at the FM/Food 4 Less Merger Effective Time. However, to eliminate
any doubt regarding the matter, Food 4 Less is seeking consents from the holders
of Food 4 Less Stock, options and warrants expressly to terminate all of the
Existing Agreements, effective upon the FM/Food 4 Less Merger Effective Time.
The Existing Agreements (other than the Management Stockholders Agreements)
generally can be terminated or amended by the holders of a majority of shares or
warrants belonging to certain classes or groups of holders as described therein.
Accordingly, receipt of Consents to the termination of the Existing Agreements
(other than the Management Stockholders Agreements) from such majorities
generally
 
                                       40
<PAGE>   49
 
will serve to terminate the rights and obligations of all holders who are
parties to such Existing Agreements, whether or not they deliver Consents.
 
PROCEDURES FOR DELIVERING CONSENTS
 
     In responding to the Food 4 Less Consent Solicitation, holders of shares of
Food 4 Less Stock should complete, sign and date the Consent Form (or a
facsimile thereof) in accordance with the instructions set forth therein and
deliver the same to Food 4 Less at the address set forth below.
 
     Executed Consent Forms as well as all inquiries or correspondence relating
to the Food 4 Less Consent Solicitation should be directed to: Food 4 Less
Holdings, Inc., 1100 West Artesia Boulevard, Compton, California 90220,
Attention: Terrence J. Wallock, Esq., Telephone: (310) 884-9000, Telecopy: (310)
884-2610.
 
     IT IS NOT NECESSARY IN CONNECTION WITH THE FOOD 4 LESS CONSENT SOLICITATION
FOR ANY HOLDER OF FOOD 4 LESS STOCK TO TENDER OR DELIVER CERTIFICATES EVIDENCING
HIS, HER OR ITS SHARES OF FOOD 4 LESS STOCK. UPON EFFECTIVENESS OF THE FM/FOOD 4
LESS MERGER, HOLDERS OF FOOD 4 LESS STOCK WILL BE ASKED TO SUBMIT THEIR FOOD 4
LESS SHARE CERTIFICATES TO FRED MEYER SO THAT SUCH HOLDERS MAY BE ISSUED
CERTIFICATES REPRESENTING THE SHARES OF FRED MEYER COMMON STOCK INTO WHICH THEIR
FOOD 4 LESS SHARES HAVE BEEN CONVERTED.
 
     Only registered holders of shares of Food 4 Less Stock (or their legal
representatives or attorneys-in-fact) may deliver a Consent. Any beneficial
owner of Food 4 Less Stock who is not the registered holder of such Food 4 Less
Stock must arrange with the registered holder to execute and deliver the Consent
on his, her or its behalf. The Consent Form must be executed by the registered
holder(s) in exactly the same manner as the name(s) appear(s) on the share
certificate representing the Food 4 Less Stock. If the shares of Food 4 Less
Stock to which the Consent Form relates are held of record by two or more joint
holders, all such holders must sign the Consent Form. If the signature is by a
trustee, executor, administrator, guardian, attorney-in-fact or other person
acting in a fiduciary or representative capacity, such person should indicate so
when signing the Consent.
 
     All Consent Forms that are properly completed, signed, dated and delivered
to Food 4 Less at the address set forth above will be given effect in accordance
with the specifications thereon. IF NO SPECIFICATION IS MADE THEREON, THE HOLDER
OF FOOD 4 LESS STOCK WILL BE DEEMED TO HAVE CONSENTED TO THE FM/FOOD 4 LESS
MERGER. Failure to deliver a Consent will be treated as a nonapproval of the
FM/Food 4 Less Merger.
 
     Fred Meyer, Food 4 Less and QFC will bear the expense of preparing and
mailing this Joint Proxy and Consent Solicitation Statement/Prospectus and the
accompanying proxy or Consent Form, as applicable, including legal, accounting
and other expenses. In addition to solicitation by use of the mails, Consents
may be solicited by directors, officers and employees of Food 4 Less and its
affiliates in person or by telephone, telecopy or by other means of
communication. Such directors, officers and employees will not be additionally
compensated for their services in connection with the Food 4 Less Consent
Solicitation.
 
                                       41
<PAGE>   50
 
                           BACKGROUND OF THE MERGERS
 
     Over the last several years, the food retailing industry has undergone
increasing consolidation. A number of competitive factors underlie this trend,
including benefits from self distribution and economies of scale from improved
vendor purchasing power, and increasing capital required to develop and maintain
a modern store base and information systems and benefits of geographic
diversity. Each of Fred Meyer, QFC and Food 4 Less has responded to these
factors by completing significant acquisition transactions in the industry and
continuing to explore consolidation opportunities.
 
     During the spring and summer of 1997, QFC undertook a review of strategic
alternatives in the food retailing industry, including analysis of potential
acquisitions or combinations. As part of its review, QFC held various
discussions and negotiations with representatives of Yucaipa concerning possible
transactions with certain Yucaipa-affiliated entities, including possible
combinations of QFC with Food 4 Less and QFC's Hughes Markets operations with
Food 4 Less. In the course of its review, QFC conferred with Merrill Lynch with
respect to various alternative transactions. Commencing in August 1997 and
continuing through September 1997, Merrill Lynch contacted a limited number of
persons whom Merrill Lynch determined to be likely to have a significant
interest in entering into a business combination with QFC. QFC also had
discussions with Goldman Sachs regarding a possible Food 4 Less/Hughes
transaction. In the course of its review of such transaction, Goldman Sachs
conferred with QFC with respect to a possible business combination of QFC with
Fred Meyer and Food 4 Less. Although QFC had not retained, and ultimately did
not retain, Goldman Sachs, in early September 1997, Goldman Sachs contacted Fred
Meyer to determine its interest in considering such a transaction.
 
     Thereafter, in separate meetings, Goldman Sachs and Salomon met with senior
management of Fred Meyer to discuss, among other things, the potential
advantages of merger transactions to combine each of QFC and Food 4 Less with
the operations of Fred Meyer. Following these meetings, senior management of
Fred Meyer began to evaluate each of the potential transactions.
 
     In mid-September 1997, a large supermarket company (the "Supermarket
Company"), which had been contacted by Merrill Lynch on behalf of QFC, informed
Merrill Lynch that it would be interested in discussions with QFC regarding a
possible transaction. Thereafter, the Supermarket Company conducted legal and
financial due diligence with respect to QFC, and representatives of QFC and the
Supermarket Company met to discuss a possible transaction. During this time,
representatives of Fred Meyer contacted representatives of QFC to discuss the
possibility of a combination with Fred Meyer.
 
     On October 3, 1997, Fred Meyer representatives conveyed orally to QFC an
indication of interest in a stock-for-stock merger. Thereafter, QFC and Fred
Meyer commenced legal and financial due diligence with respect to each other.
Also on October 3, QFC received a written indication of interest from the
Supermarket Company for the possible purchase for cash of all the outstanding
stock of QFC. In its indication of interest, the Supermarket Company requested
that QFC (and its major shareholders) agree to a 30-day period of exclusive
negotiations.
 
     On October 5, 1997, representatives of Salomon, Goldman Sachs, DLJ and
Morgan Stanley met with Fred Meyer management, Food 4 Less management and
representatives of Yucaipa to begin an exchange of information and views
regarding a possible transaction between Fred Meyer and Food 4 Less. After
considering the transaction further, Robert G. Miller, the Chief Executive
Officer of Fred Meyer, and Ronald W. Burkle, the Chairman of the Food 4 Less
Board, tentatively discussed an acquisition by Fred Meyer of all of the
outstanding equity of Food 4 Less for $600 million in Fred Meyer Common Stock.
In light of Fred Meyer management's interest in a possible separate business
combination transaction involving QFC and the potential overlap of QFC's Hughes
operations with Food 4 Less' operations, Mr. Miller and Mr. Burkle discussed a
possible pricing structure in which the consideration of the Food 4 Less
transaction would be reduced under certain circumstances to reflect the loss of
EBITDA that might result from store divestitures in California in connection
with the transaction. It was also proposed that the consulting agreement between
Food 4 Less and Yucaipa (the "Consulting Agreement") be terminated for a payment
of $20 million and that Robert Beyer and another individual would join the Fred
Meyer Board. On October 7, 1997, Mr. Miller sent a letter to Mr. Burkle
confirming the proposed terms for an FM/Food 4 Less transaction
 
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<PAGE>   51
 
and stating that he would recommend the transaction to the Fred Meyer Board.
Later that day, after a meeting among Morgan Stanley and DLJ and certain members
of the Food 4 Less Board, Food 4 Less decided to pursue additional discussions
with Fred Meyer regarding the terms set forth in such letter.
 
     The QFC Board met on October 9, 1997. At the meeting, senior management of
QFC and QFC's financial and legal advisors reviewed, among other things, the
status of discussions with the Supermarket Company with respect to its
indication of interest. In addition, Mr. Burkle and a representative of DLJ, a
financial advisor to Food 4 Less, who had requested the opportunity to make a
presentation to the QFC Board at such meeting, made a presentation to the QFC
Board with respect to a possible combination of Fred Meyer and QFC and a
possible combination of Fred Meyer and Food 4 Less in separate transactions. The
presentation contemplated (a) a merger of QFC with a subsidiary of Fred Meyer in
a tax-free, stock-for-stock transaction at a fixed exchange ratio of 1.9 shares
of Fred Meyer Common Stock for each outstanding share of QFC Common Stock and
(b) the acquisition of Food 4 Less for 22.5 million shares of Fred Meyer Common
Stock, or approximately $600 million in Fred Meyer Common Stock. The
presentation contemplated that the two transactions would not be conditioned
upon one another. At the conclusion of the meeting, the QFC Board authorized
QFC's management and financial advisor to continue discussions with both the
Supermarket Company and Fred Meyer.
 
     The QFC Board directed that the Supermarket Company be told that the QFC
Board had deferred action on the indication of interest submitted by the
Supermarket Company until the following week. In addition, the QFC Board
requested that Merrill Lynch communicate to Fred Meyer that any proposal or
indication of interest that Fred Meyer should desire for the QFC Board to
consider should be delivered to QFC as soon as possible and before the QFC Board
meeting early in the following week.
 
     The Executive Committee of the QFC Board met on October 14, 1997. Based on,
among other things, the status of discussions with each of the Supermarket
Company and Fred Meyer and after conferring with its legal and financial
advisors, the QFC Executive Committee determined that it would recommend to the
QFC Board that QFC enter into an agreement with the Supermarket Company
providing for a period of 14 calendar days (rather than the 30 days requested by
the Supermarket Company) during which QFC would negotiate exclusively with the
Supermarket Company with respect to a possible transaction if the Supermarket
Company would raise the consideration contemplated by its October 3, 1997
indication of interest to a level specified by QFC. A special meeting of the QFC
Board was held later in the day on October 14, 1997 at which the QFC Board,
after conferring with its legal and financial advisors, concurred with the
recommendation of the Executive Committee. On October 15, 1997, QFC and the
Supermarket Company entered into a preliminary, nonbinding indication of
interest with respect to a possible cash merger at the increased price specified
by QFC (the "October 15 Revised Supermarket Proposal") and entered into a
binding agreement providing for a 14-day period of exclusive negotiations (the
"Limited Exclusivity Agreement"). In addition, Zell/Chilmark and Stuart M. Sloan
entered into agreements with the Supermarket Company similar to the Limited
Exclusivity Agreement.
 
     On October 15, 1997, Mr. Miller sent a letter to QFC (the "October 15 Fred
Meyer Proposal") proposing a merger of QFC with a subsidiary of Fred Meyer in a
tax-free, stock-for-stock transaction at a fixed exchange ratio of 1.9 shares of
Fred Meyer Common Stock for each outstanding share of QFC Common Stock. Mr.
Miller indicated in his letter that he would support the proposed transaction
described in the October 15 Fred Meyer Proposal at a meeting of the Fred Meyer
Board to be held on October 17, 1997. Due to the Limited Exclusivity Agreement,
QFC made no response to the October 15 Fred Meyer Proposal.
 
     On October 17, 1997, Fred Meyer's senior management and financial advisors
attended a special meeting of the Fred Meyer Board to discuss the strategic
benefits of the transactions with QFC and Food 4 Less, as well as information on
the finances, operations and valuations of such companies, and to update the
Board on the status of discussions and due diligence with respect to the
potential transactions with both QFC and Food 4 Less. Among other things, the
Fred Meyer Board discussed increasing the consideration that was proposed in the
October 15 Fred Meyer Proposal. Mr. Burkle left the meeting after this
discussion in order to permit further discussion among the board members,
management and Fred Meyer's financial and legal advisors of the proposed Food 4
Less transaction. After these discussions, the Fred Meyer Board approved
 
                                       43
<PAGE>   52
 
management's further exploration of alternatives with respect to QFC, including
at increased price levels (subject to further board consideration).
 
     During the period commencing on October 17, 1997 and ending on October 29,
1997, the Supermarket Company continued its due diligence investigation and
negotiated with QFC on an exclusive basis with respect to the October 15 Revised
Supermarket Proposal.
 
     On October 19, 1997, Salomon outlined to certain members of the Fred Meyer
Board and management, including Mr. Miller and Mr. Burkle, the range of possible
exchange ratios for a stock-for-stock transaction with QFC. Goldman Sachs also
discussed such exchange ratios with Mr. Miller. After those discussions and
considering, among other things, the advice of Salomon and Goldman Sachs,
management decided that the offer for each QFC share should be increased to the
greater of (i) 1.9 shares of Fred Meyer Common Stock and (ii) $55 in value of
shares of Fred Meyer Common Stock, subject to a limit of 2.3 shares of Fred
Meyer Common Stock. Later that day, Mr. Miller sent a letter to QFC stating that
Fred Meyer, subject to approval by the Fred Meyer Board, was prepared to
increase its offer. Again, due to the Limited Exclusivity Agreement, QFC made no
response.
 
     On October 29, 1997, the QFC Board met and considered the status of
negotiations with the Supermarket Company and its request for an extension of
the Limited Exclusivity Agreement. The QFC Executive Committee met on October
30, and the legal and financial advisors to QFC updated it on the status of
discussions with the Supermarket Company and informed the QFC Executive
Committee that there remained a number of unresolved substantive issues and that
the 14-day exclusivity period had ended. The QFC Executive Committee directed
its legal and financial advisors to continue negotiations on a nonexclusive
basis with the Supermarket Company. At the same time, the QFC Executive
Committee determined that it should contact Fred Meyer to inquire whether the
amended proposal set forth in the October 19 Fred Meyer letter had been approved
by the Fred Meyer Board and to reinitiate discussions.
 
     Later in the day on October 30, 1997, representatives of QFC informed
representatives of Fred Meyer that, while the revised offer set forth in the
October 19 letter was attractive, the Fred Meyer Board would have to approve the
revised offer before meaningful discussions between the parties could begin. The
Fred Meyer Board convened that day and ratified the terms of the October 19
letter. Later that day, Mr. Miller sent to QFC a letter (the "October 30 Fred
Meyer Proposal") confirming that the Fred Meyer Board had approved the revised
offer and stating that, as a condition to Fred Meyer proceeding further in the
discussions, QFC and Zell/Chilmark would be required to enter into an
exclusivity agreement with Fred Meyer. The letter also stated that Fred Meyer
would like to begin to negotiate a definitive agreement as soon as possible.
 
     Also, later in the day on October 30, the chief executive officer of the
Supermarket Company telephoned Samuel Zell, a principal of Zell/Chilmark and a
director of QFC, to discuss the breakdown of discussions between QFC and the
Supermarket Company and the possible resumption of discussions. Following the
telephone conversation, the discussions were resumed and continued through
November 5, 1997.
 
     On October 31, 1997, Mr. Burkle, Mr. Miller and representatives of Salomon
met with Mr. Sloan and Mr. Zell and Sheli Rosenberg, representatives of
Zell/Chilmark, to discuss Fred Meyer's new proposal of an exchange ratio between
1.9 to 2.3 shares of Fred Meyer Common Stock for each share of QFC Common Stock.
The parties tentatively agreed that the loss of EBITDA above a certain level
from store divestitures in California, as contemplated by the letter to Food 4
Less from Fred Meyer dated October 7, 1997, should be shared between Food 4 Less
and QFC on a basis to be agreed upon. Mr. Sloan and Mr. Zell stated that QFC was
prepared to proceed immediately to negotiate definitive agreements with Fred
Meyer but, in light of the ongoing discussions with another party (i.e., the
Supermarket Company), it was not willing to limit the ability of QFC to
negotiate with other parties before the signing of a definitive agreement.
 
     Thereafter, Fred Meyer and QFC, assisted by their respective financial
advisors, legal counsel and accountants, exchanged information and continued due
diligence with respect to each other.
 
     During the weekend of November 1, 1997, representatives of Fred Meyer and
QFC discussed the principal terms of a definitive agreement between Fred Meyer
and QFC, and between November 3 and November 6, the parties met in Chicago to
negotiate the terms of the definitive agreements for the FM/QFC
 
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<PAGE>   53
 
Merger. Simultaneously, representatives of Fred Meyer and Food 4 Less discussed
the principal terms of definitive agreements between Fred Meyer and Food 4 Less
and between November 3 and November 6 met in Los Angeles to negotiate the terms
of the definitive agreements.
 
     On November 5, 1997, at a special meeting of the Fred Meyer Board, Fred
Meyer's management, financial advisors and legal counsel made a presentation as
to the status of negotiations of definitive agreements with QFC and Food 4 Less.
In addition, Salomon and Goldman Sachs reviewed with the Fred Meyer Board
various financial and other information, and each such financial advisor
delivered its oral opinion that the exchange ratios in each of the FM/QFC Merger
Agreement and the FM/Food 4 Less Merger Agreement were fair from a financial
point of view to Fred Meyer. (These opinions were confirmed by delivery of
written opinions dated November 6, 1997 and were based upon and subject to the
matters stated therein.) Legal counsel summarized the terms of the then current
drafts of the Merger Agreements and related agreements. The Fred Meyer Board
unanimously (with Mr. Burkle abstaining with respect to the FM/Food 4 Less
Merger Agreement) approved each Merger Agreement and the transactions
contemplated thereby and delegated authority to a special committee consisting
of Mr. Miller and Mr. Gleason, Fred Meyer directors, to approve any final
changes or additions to the documentation.
 
     Also on November 5, 1997, at a special meeting, Food 4 Less' management,
financial advisors and legal counsel made presentations to the Food 4 Less Board
as to the events that had transpired in connection with the proposed
transaction. Legal counsel summarized the terms of the then current drafts of
the Merger Agreements and related agreements. DLJ and Morgan Stanley presented
their respective evaluations of the transaction and each financial advisor
indicated that it was prepared to issue an opinion stating that the
consideration to be received by the stockholders of Food 4 Less was fair to such
stockholders from a financial point of view. Management presented its evaluation
of Fred Meyer and QFC and summarized results of due diligence conducted thereon.
The special meeting was adjourned and was reconvened later that day, at which
time the Food 4 Less Board was updated as to the status of negotiations and
unanimously approved the FM/ Food 4 Less Merger Agreement.
 
     The QFC Board met on November 5 to review the status of the two proposed
transactions. At the meeting, (a) QFC's legal advisors made a presentation to
the QFC Board regarding the fiduciary duties of the QFC Board, (b) QFC's legal
and financial advisors reviewed the status of negotiations with each of Fred
Meyer and the Supermarket Company with the QFC Board, (c) QFC's legal advisors
reviewed with the QFC Board the terms of the respective proposed merger
agreements with the Supermarket Company and Fred Meyer and the requisite
regulatory filings and approvals that would be required in connection with each
of the proposed transactions and (d) Merrill Lynch made a financial presentation
to the QFC Board. At the meeting, the QFC Board, based on, among other things,
the advice of Merrill Lynch, determined that the October 30 Fred Meyer Proposal
represented a superior proposal to the transaction proposed by the Supermarket
Company. In addition, Zell/Chilmark and Mr. Sloan each informed the QFC Board of
its decision as a shareholder of QFC to support the October 30 Fred Meyer
Proposal. The QFC Board directed that negotiations with Fred Meyer be continued
with a goal of concluding such negotiations by the end of the following day.
 
     The QFC Board met again in the late afternoon of November 6. At the
meeting, the legal advisors to QFC updated the QFC Board on the status of
negotiations with Fred Meyer and informed the QFC Board that all substantive
issues had been resolved. Merrill Lynch rendered its opinion to the effect that,
as of November 6, 1997, and based upon and subject to the matters stated
therein, the QFC Exchange Ratio was fair to the QFC shareholders from a
financial point of view. Thereafter, the QFC Board, by a unanimous vote,
determined that the FM/QFC Merger was fair to, and in the best interests of, QFC
and its shareholders, approved and adopted the terms of the FM/QFC Merger
Agreement and the transactions contemplated thereby and authorized the execution
of the FM/QFC Merger Agreement.
 
     On November 6, 1997, Mr. Miller and Mr. Gleason conferred and thereafter
Fred Meyer and QFC executed and delivered the FM/QFC Merger Agreement, and Fred
Meyer and certain shareholders of QFC executed and delivered the Shareholders
Agreements. In addition, QFC and certain stockholders of Fred Meyer executed and
delivered the Voting Agreement.
 
                                       45
<PAGE>   54
 
     On November 6, 1997, DLJ and Morgan Stanley rendered their respective
opinions. Thereafter, Fred Meyer and Food 4 Less executed and delivered the
FM/Food 4 Less Merger Agreement, and Fred Meyer and certain stockholders of Food
4 Less executed and delivered Stockholders Agreements.
 
     On November 7, 1997, Fred Meyer, QFC and Food 4 Less publicly announced the
signing of the Merger Agreements.
 
                               THE FM/QFC MERGER
 
REASONS OF FRED MEYER FOR THE MERGER
 
     The Fred Meyer Board believes that the terms of the FM/QFC Merger Agreement
and the transactions contemplated thereby are in the best interests of Fred
Meyer and its stockholders. Accordingly, the Fred Meyer Board has unanimously
approved the issuance of shares of Fred Meyer Common Stock in the FM/ QFC Merger
and recommends approval thereof by the stockholders of Fred Meyer.
 
     Enhanced Franchise and Resources. The Fred Meyer Board considered the
current trend toward consolidation in the supermarket retailing industry, the
prospect for further changes in the industry and the importance of operational
scale, financial resources and geographic diversity to remaining competitive in
the long term. In that connection, the Fred Meyer Board took into account that
Fred Meyer and QFC combined will have approximately $9 billion in estimated
annual sales for 1997 on a pro forma basis and, together with Food 4 Less, will
have approximately $15 billion in estimated annual sales for 1997 on a pro forma
basis and will be one of the largest supermarket chains in the United States.
The Fred Meyer Board also considered that the FM/QFC Merger will enhance Fred
Meyer's leading presence in the Pacific Northwest and, if the FM/ Food 4 Less
Merger is completed, Food 4 Less' leading presence in Southern California.
 
     Long-Term Strategic Issues. The Fred Meyer Board considered that the FM/QFC
Merger, on a stand-alone basis as well as together with the FM/Food 4 Less
Merger, will assist Fred Meyer in addressing certain long-term strategic issues
faced by Fred Meyer, in particular a lack of presence in key geographical
markets and opportunities to leverage its cost structure. The Fred Meyer Board
also considered the possibility that the multiple of price to earnings ratio of
Fred Meyer Common Stock would be higher in view of, among other things, the
makeup and expected growth of the combined company.
 
     Opportunities for Efficiencies and Cost Savings. The Fred Meyer Board
considered that Fred Meyer together with QFC, and to a greater extent together
with both QFC and Food 4 Less, will be capable of increasing its profitability
through significant cost savings, operating efficiencies, economies of scale,
stronger market position and other synergies stemming from the strategic
geographical fit of such companies. The Fred Meyer Board was advised by
management that, excluding the effect of one-time merger-related expenses, Fred
Meyer was estimated to achieve annual savings and improvements attributable to
such operating factors of approximately $30 million from the FM/QFC Merger and
approximately $100 million from the FM/QFC Merger and the FM/Food 4 Less Merger
together. These savings are expected to be realized over time and are expected
to be achievable in full by the end of 2001.
 
     Financing Costs Savings. The Fred Meyer Board also considered annual cost
savings attributable to reductions in financing costs that it expects will
result from the FM/QFC Merger. It also took into account the uncertainties and
risks associated with achieving such potential savings.
 
     Financial Considerations. The Fred Meyer Board considered its evaluation of
the financial terms of the FM/QFC Merger, on a stand-alone basis as well as
together with the FM/Food 4 Less Merger, and their effect on holders of Fred
Meyer Common Stock. The Fred Meyer Board considered the financial performance
and condition, businesses and prospects of the three companies, including, but
not limited to, information with respect to the respective recent and historical
stock prices of Fred Meyer and QFC and the respective earnings history and
performance of each of the three companies, as well as the results of Fred
Meyer's due diligence review of QFC and Food 4 Less. The Fred Meyer Board also
took into account the detailed financial analyses and pro forma and other
information with respect to the FM/QFC Merger, on a stand-alone basis as well as
together with the FM/Food 4 Less Merger, presented to it by its financial
advisors, including the projected
 
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<PAGE>   55
 
effects on earnings per share, earnings per share growth and cash flow. The Fred
Meyer Board also considered that the expected financial effects of the FM/QFC
Merger together with the FM/Food 4 Less Merger were more attractive than that of
the FM/QFC Merger on a stand-alone basis.
 
     Advice of Financial Advisors and Fairness Opinions. The Fred Meyer Board
considered the financial advice of Salomon and Goldman Sachs (including the
assumptions and methodologies underlying their analyses in connection therewith)
and the November 5, 1997 oral opinion, subsequently confirmed in writing, of
each such financial advisor that the QFC Exchange Ratio was fair, from a
financial point of view, to Fred Meyer. The written opinions of Salomon and
Goldman Sachs and the analyses underlying such opinions are summarized below,
and complete copies of the written opinions dated November 6, 1997, setting
forth the procedures followed, the matters considered, the scope of the review
undertaken and the assumptions made by the financial advisors are included as
Appendices C and D, respectively. See "-- Opinions of Fred Meyer Financial
Advisors Regarding the FM/QFC Merger." These opinions do not constitute a
recommendation as to how any holder of Fred Meyer Common Stock should vote with
respect to the FM/QFC Merger.
 
     Complementary Nature of Businesses. The Fred Meyer Board considered the
complementary nature of QFC's business with that of both Fred Meyer and Food 4
Less and the creation of significant opportunities for development of the
companies on a combined basis without the need for significant restructuring or
redirection. The Fred Meyer Board also took into account the challenges of
combining the businesses of large corporations and the attendant diversion of
management's focus and resources from other operational matters and other
strategic opportunities for an extended period of time.
 
     Regulatory Approval. The Fred Meyer Board considered that QFC's stores
share certain geographic market positions with Fred Meyer and Food 4 Less. The
Fred Meyer Board also considered that Fred Meyer, QFC and Food 4 Less have
agreed to divest any stores necessary to obtain regulatory approval of the
Mergers and that the Merger Agreements provide that the consideration to be paid
in connection with the Mergers will be reduced to a certain extent to reflect
the loss of cash flow above a specified level from such stores.
 
     Terms of FM/QFC Merger Agreement and Related Agreements. The Fred Meyer
Board took into consideration the terms of the FM/QFC Merger Agreement and the
agreements contemplated thereby (the "FM/QFC Related Agreements"), including the
form and amount of consideration and the representations, warranties, covenants
and conditions contained in such agreements.
 
     Accounting Treatment. The Fred Meyer Board considered that the FM/QFC
Merger was expected to be accounted for as a pooling of interests for financial
accounting purposes. The Fred Meyer Board also considered that the pooling of
interest accounting treatment is not a condition to the FM/QFC Merger and that
purchase accounting would make the FM/QFC Merger less attractive financially.
 
     The foregoing discussion of the information and factors considered by the
Fred Meyer Board is not intended to be exhaustive but includes all material
factors considered by the Fred Meyer Board. In reaching its determination to
approve the FM/QFC Merger Agreement, the FM/QFC Related Agreements, the FM/ QFC
Merger and the other transactions contemplated thereby, the Fred Meyer Board did
not assign any relative or specific weights to the foregoing factors, and
individual directors may have given differing weights to different factors.
 
REASONS OF QFC FOR THE MERGER
 
     At a meeting of the QFC Board held on November 6, 1997, the QFC Board, by a
unanimous vote, determined that the FM/QFC Merger is fair to, and in the best
interests of, QFC and its shareholders and approved and adopted the FM/QFC
Merger Agreement. In reaching its determination to approve and adopt the FM/QFC
Merger Agreement, the QFC Board considered a number of factors, including,
without limitation, the factors listed below. In view of the number and wide
variety of factors considered in connection with its evaluation of the FM/QFC
Merger, the QFC Board did not consider it practicable to, nor did it attempt to,
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determination. See "Background of the Mergers."
 
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<PAGE>   56
 
     In reaching its determination, the QFC Board consulted with QFC senior
management with respect to strategic and operational matters. It also consulted
with legal counsel with respect to the legal duties of the QFC Board, regulatory
matters, tax matters and the FM/QFC Merger Agreement, Shareholders Agreements,
Voting Agreement and issues related thereto. The Board of Directors of QFC also
consulted with Merrill Lynch, financial advisor to QFC, with respect to the
financial aspects and fairness from a financial point of view of the proposed
FM/QFC Merger to shareholders of QFC, and QFC's independent accountants, with
respect to the appropriate accounting treatment of the proposed FM/QFC Merger.
 
     Financial Performance and Business. The QFC Board considered information
concerning the business, earnings, operations, financial condition and prospects
of QFC, Fred Meyer and Food 4 Less, both individually and on a combined basis,
including, but not limited to, information with respect to QFC's and Fred
Meyer's respective recent and historic stock and earnings performance. The QFC
Board also considered the financial analyses and other information with respect
to QFC, Fred Meyer and Food 4 Less presented to the QFC Board by Merrill Lynch,
as well as the QFC Board's own knowledge of QFC, Fred Meyer, Food 4 Less and
their respective businesses.
 
     Strategic Combination. The QFC Board considered that the FM/QFC Merger will
create a premier multi-regional supermarket and general merchandise retailing
company with stores concentrated in the Pacific Northwest, Intermountain,
Southwestern and Southern California regions of the United States, with
estimated 1997 annual sales of approximately $9 billion, on a pro forma basis.
The QFC Board also considered that if the proposed FM/Food 4 Less Merger is also
consummated, the three merged entities will have estimated 1997 annual sales of
approximately $15 billion, on a pro forma basis. The QFC Board considered that
the proposed FM/QFC Merger affords the shareholders of QFC the opportunity, as
equity holders of Fred Meyer, to participate in the future growth of a larger
and more diversified supermarket company having greater financial resources,
competitive strengths and business opportunities than would be possible for QFC
as a stand-alone entity.
 
     Complementary Business. The QFC Board considered the complementary
strengths of QFC, Fred Meyer and Food 4 Less and the opportunities for greater
efficiencies and cost savings by the combination of QFC and Fred Meyer, and if
the FM/Food 4 Less Merger is consummated, by the combination of all three
companies.
 
     Independence of Transactions. The QFC Board considered the fact that
consummation of the FM/QFC Merger is independent of and not contingent upon
consummation of the FM/Food 4 Less Merger.
 
     Consideration To Be Received by QFC Shareholders. The QFC Board considered
the amount and form of the consideration to be received by QFC shareholders in
the FM/QFC Merger and reviewed information on the historical and anticipated
trading ranges of Fred Meyer Common Stock and QFC Common Stock. The QFC Board
considered the value to be received per share of QFC Common Stock, which, as of
November 5, 1997, was in the high reference range of multiples paid in
acquisitions of other grocery store companies. The QFC Board also took into
account that the FM/QFC Merger Agreement provides that (i) unless Fred Meyer
Common Stock falls below $23.91, QFC shareholders will receive $55 per share in
Fred Meyer Common Stock and (ii) QFC may terminate the FM/QFC Merger Agreement
and not proceed with the FM/QFC Merger in the event the price of Fred Meyer
Common Stock dropped to $20 or less during the five trading days ending two days
prior to the FM/QFC Merger Effective Time.
 
     Opinion of Financial Advisor. The QFC Board considered the financial advice
provided by Merrill Lynch and the opinion of Merrill Lynch that, as of November
6, 1997, the QFC Exchange Ratio was fair from a financial point of view to the
shareholders of QFC and that Merrill Lynch's opinion was not contingent upon
consummation of the FM/Food 4 Less Merger. A copy of Merrill Lynch's written
opinion to the QFC Board dated November 6, 1997 is attached hereto as Appendix E
and is incorporated herein by reference. See "-- Opinion of QFC Financial
Advisor."
 
     Regulatory Approvals; Likelihood of Consummation. The QFC Board took into
account the likelihood that the proposed FM/QFC Merger would be consummated,
including the likelihood of obtaining the regulatory approvals required pursuant
to, and the other conditions to consummation of, the FM/QFC Merger
 
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<PAGE>   57
 
Agreement, the experience, reputation and financial condition of Fred Meyer and
the risks to QFC if the FM/ QFC Merger were not consummated.
 
     Terms of Agreements. The QFC Board reviewed and considered the terms,
conditions and course of negotiations relating to the FM/QFC Merger Agreement,
the Shareholders Agreements and the Voting Agreement as well as the material
terms of the FM/Food 4 Less Merger Agreement.
 
     Tax Free Treatment. The QFC Board considered the expectation that the
FM/QFC Merger will generally be a tax-free transaction to QFC and its
shareholders for federal income tax purposes. See "-- Certain United States
Federal Income Tax Consequences."
 
     Accounting Treatment. The QFC Board considered the expectation, but not the
requirement, that the FM/QFC Merger will be accounted for as a pooling of
interests under generally accepted accounting principles. See "-- Accounting
Treatment."
 
     Dissenters' Rights. The QFC Board took into account the fact that QFC
shareholders have the right to exercise dissenters' rights under Washington law.
 
     Strategic Alternatives. The QFC Board was advised by QFC senior management
and Merrill Lynch about consolidation within the industry and the reasons
therefor. The QFC Board also considered, on a comparative basis, the terms and
conditions of the proposal from the Supermarket Company and reviewed the results
of the solicitation of interests from other entities to engage in a business
combination with QFC in connection with the evaluation of the best available
alternative for QFC shareholders.
 
OPINIONS OF FRED MEYER FINANCIAL ADVISORS REGARDING THE FM/QFC MERGER
 
     Salomon. Fred Meyer engaged Salomon to act as its financial advisor in
connection with the transactions contemplated by the FM/QFC Merger Agreement
based upon Salomon's qualifications, expertise and reputation as well as
Salomon's prior investment banking relationship and familiarity with Fred Meyer.
On November 5, 1997, Salomon rendered to the Fred Meyer Board an oral opinion,
which was confirmed by delivery of its written opinion dated November 6, 1997
(the "Salomon QFC Opinion"), to the effect that, as of such date, and based upon
and subject to the assumptions, limitations and qualifications set forth in such
opinion, the QFC Exchange Ratio was fair, from a financial point of view, to
Fred Meyer.
 
     THE FULL TEXT OF THE SALOMON QFC OPINION IS SET FORTH IN APPENDIX C TO THIS
JOINT PROXY AND CONSENT SOLICITATION STATEMENT/PROSPECTUS AND SHOULD BE READ
CAREFULLY IN ITS ENTIRETY, INCLUDING WITHOUT LIMITATION, THE DESCRIPTIONS OF THE
PROCEDURES FOLLOWED, ASSUMPTIONS MADE, OTHER MATTERS CONSIDERED AND LIMITATIONS
OF THE REVIEW UNDERTAKEN IN ARRIVING AT SUCH OPINION. THE OPINION OF SALOMON
REFERRED TO HEREIN WAS PROVIDED FOR THE INFORMATION AND ASSISTANCE OF THE FRED
MEYER BOARD IN CONNECTION WITH ITS CONSIDERATION OF THE FM/ QFC MERGER. THE
SALOMON QFC OPINION ADDRESSES ONLY THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW,
OF THE QFC EXCHANGE RATIO TO FRED MEYER AND DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY STOCKHOLDER OF FRED MEYER OR QFC AS TO HOW SUCH STOCKHOLDER SHOULD VOTE
AT THE RESPECTIVE SPECIAL MEETINGS. THE SUMMARY OF THE SALOMON QFC OPINION SET
FORTH IN THIS JOINT PROXY AND CONSENT SOLICITATION STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE SALOMON QFC
OPINION.
 
     The Salomon QFC Opinion does not constitute an opinion as to the price at
which the Fred Meyer Common Stock will actually trade at any time. No
restrictions or limitations were imposed upon Salomon with respect to the
investigations made or procedures followed by Salomon in rendering its opinion.
In arriving at its opinion, Salomon reviewed, among other things, the FM/QFC
Merger Agreement and the FM/Food 4 Less Merger Agreement, including exhibits
thereto, as well as certain publicly available information concerning Fred
Meyer, QFC and Food 4 Less, respectively, and certain internal information,
primarily financial in nature, concerning the business and operations of each of
Fred Meyer, QFC and Food 4 Less provided to it by Fred Meyer, QFC and Food 4
Less, respectively, for purposes of analysis, including information provided
during discussions with their respective managements regarding their businesses
and prospects. Included in the information provided during discussions with the
respective managements were certain financial forecasts and other information
including forecasts and pro forma financial information giving effect to the
FM/QFC Merger and the FM/Food 4 Less Merger, relating to the past and current
business
 
                                       49
<PAGE>   58
 
operations, financial condition and prospects of Fred Meyer, QFC and Food 4 Less
prepared by their respective managements. In addition, Salomon compared certain
financial and securities data of QFC and Fred Meyer with various other companies
whose securities are traded in public markets, reviewed the historical stock
prices and trading volumes of QFC Common Stock and Fred Meyer Common Stock,
reviewed prices and premiums paid in certain other business combinations and
conducted such other financial studies, analyses and investigations as Salomon
deemed appropriate for purposes of rendering its opinion. Salomon also
considered such other information, financial studies, analyses, investigations
and financing, economic and market criteria that Salomon deemed relevant.
 
     In rendering its opinion, Salomon did not attempt to independently verify
or assume responsibility for verifying any of the information reviewed by it and
assumed the accuracy and completeness of all of the financial and other
information reviewed by it. Salomon did not conduct a physical inspection of the
properties or facilities, nor make or obtain or assume responsibility for
obtaining any independent evaluation or appraisal of any assets (including
properties and facilities) or liabilities, of Fred Meyer, QFC or Food 4 Less.
Salomon relied upon the estimates of the respective managements of Fred Meyer,
QFC and Food 4 Less of the operating savings and other benefits and cost
reductions and synergies achievable as a result of the FM/QFC Merger and the
FM/Food 4 Less Merger. Salomon also assumed that the financial forecasts
(including pro forma financial information) and supporting assumptions
(including anticipated synergies and cost savings resulting from the combination
of Fred Meyer, QFC and Food 4 Less) were reasonably prepared on bases reflecting
the best currently available estimates and judgments of the respective
managements of Fred Meyer, QFC and Food 4 Less as to their respective future
financial performance. Salomon expressed no opinion with respect to such
forecasts or the assumptions on which they are based. In addition, with the
consent of Fred Meyer, Salomon took into account the advice of Fred Meyer's
independent accountants with respect to the likely accounting treatment of the
FM/QFC Merger. Salomon also assumed that the conditions precedent to the FM/QFC
Merger Agreement would be satisfied and the FM/QFC Merger would be consummated
in accordance with the terms of the FM/QFC Merger Agreement. The opinion of
Salomon does not imply any conclusion as to the likely trading range for Fred
Meyer Common Stock following the consummation of the FM/QFC Merger, which may
vary depending upon, among other factors, changes in interest rates, dividend
rates, market conditions, general economic conditions and other factors that
generally influence the price of securities. The Salomon QFC Opinion is limited
to the fairness, from a financial point of view, of the QFC Exchange Ratio and
does not address Fred Meyer's underlying business decision to effect the FM/QFC
Merger or constitute a recommendation concerning how holders of Fred Meyer
Common Stock should vote with respect to the FM/QFC Merger. While Salomon
believes that its review as described herein is an adequate basis for the
Salomon QFC Opinion, the Salomon QFC Opinion is necessarily based upon
financial, economic, monetary, political, market and other conditions that
existed and could be evaluated as of the date of the Salomon QFC Opinion.
Salomon does not have any obligation to update, revise or reaffirm its opinion
as a result of any such change in such conditions or otherwise.
 
     Salomon is not affiliated with Fred Meyer, QFC or Food 4 Less. Salomon has
previously rendered certain financial advisory and investment banking services
to Fred Meyer and QFC, for which Salomon received customary compensation. Since
January 1996, Salomon has received compensation from Fred Meyer for such
services of approximately $9.3 million, other than fees payable to Salomon in
connection with Salomon's opinions regarding the Mergers. Salomon has also
provided investment banking, lending and broker-dealer-related services to
affiliates of Food 4 Less, for which Salomon received customary compensation. In
the ordinary course of its business, Salomon actively trades the securities of
Fred Meyer, QFC, Food 4 Less and Ralphs for its own account and the accounts of
its customers and, accordingly, may at any time hold a long or short position in
such securities. Pursuant to an engagement letter dated November 1, 1997 (the
"Salomon Engagement Letter"), Fred Meyer engaged Salomon to provide financial
advisory and investment banking services to Fred Meyer in connection with the
possible acquisition of one or both of QFC and Food 4 Less. Pursuant to the
terms of the Salomon Engagement Letter, Fred Meyer has paid Salomon $750,000 and
has agreed to pay Salomon (i) $5.0 million upon the consummation of an
acquisition transaction in which QFC is the subject company, (ii) $8.0 million
upon the consummation of an acquisition transaction in which Food 4 Less is the
subject company, or (iii) $11.0 million upon the consummation of a simultaneous
acquisition transaction involving both QFC and Food 4 Less. Fred Meyer also
agreed to pay to Salomon a fee equal to
 
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<PAGE>   59
 
15% (but in no event more than $4.0 million) of any break-up or similar fee
received by Fred Meyer in connection with the termination of the FM/QFC Merger
Agreement and/or the FM/Food 4 Less Merger Agreement. In addition, Fred Meyer
agreed to reimburse Salomon for reasonable travel and out-of-pocket expenses
incurred by Salomon in connection with its engagement (including reasonable
travel expenses and fees and expenses of Salomon's counsel). Fred Meyer further
agreed to indemnify Salomon and certain related persons against certain
liabilities, including liabilities under the federal securities laws, relating
to or arising out of its engagement.
 
     Goldman Sachs. On November 5, 1997, Goldman Sachs rendered to the Fred
Meyer Board an oral opinion which was confirmed by delivery of its written
opinion dated November 6, 1997 (the "Goldman Sachs QFC Opinion") that as of such
date, the QFC Exchange Ratio pursuant to the FM/QFC Merger Agreement was fair
from a financial point of view to Fred Meyer.
 
     THE FULL TEXT OF THE GOLDMAN SACHS QFC OPINION DATED NOVEMBER 6, 1997,
WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS SET FORTH IN APPENDIX D TO
THIS JOINT PROXY AND CONSENT SOLICITATION STATEMENT/PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. THE GOLDMAN SACHS QFC OPINION REFERRED TO
HEREIN WAS PROVIDED FOR THE INFORMATION AND ASSISTANCE OF THE FRED MEYER BOARD
IN CONNECTION WITH ITS CONSIDERATION OF THE FM/QFC MERGER. SUCH OPINION
ADDRESSES ONLY THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE QFC EXCHANGE
RATIO TO FRED MEYER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF
FRED MEYER COMMON STOCK AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE FRED MEYER
SPECIAL MEETING. THE SUMMARY OF THE GOLDMAN SACHS QFC OPINION SET FORTH HEREIN
IS QUALIFIED BY THE FULL TEXT OF SUCH OPINION, AND FRED MEYER STOCKHOLDERS ARE
URGED TO, AND SHOULD, READ THE GOLDMAN SACHS QFC OPINION IN ITS ENTIRETY.
 
     In connection with the Goldman Sachs QFC Opinion, Goldman Sachs reviewed,
among other things, (i) the FM/QFC Merger Agreement; (ii) the Registration
Statement on Form S-4 of QFC dated July 23, 1997; (iii) the Annual Reports to
Stockholders and Annual Reports on Form 10-K of QFC for the five fiscal years
ended December 28, 1996; (iv) certain interim reports to shareholders and
Quarterly Reports on Form 10-Q of QFC; (v) certain other communications from QFC
to its shareholders; and (vi) certain internal financial analyses and forecasts
for QFC prepared by its management. Goldman Sachs also reviewed (i) the FM/Food
4 Less Merger Agreement, including the Stockholders Agreements; (ii) the Annual
Reports on Form 10-K of Food 4 Less for the five fiscal years ended February 2,
1997; (iii) certain Quarterly Reports on Form 10-Q of Food 4 Less; (iv) the
Registration Statement on Form S-4 of Ralphs, dated October 6, 1997; (v) Annual
Reports on Form 10-K of Ralphs for the five fiscal years ended February 2, 1997;
(vi) certain Quarterly Reports on Form 10-Q of Ralphs; and (vii) certain
internal financial analyses and forecasts for Food 4 Less prepared by its
management. Furthermore, Goldman Sachs also reviewed (i) the Registration
Statement on Form S-4, including the Joint Proxy Statement/Prospectus, dated
August 6, 1997 relating to the Special Meetings of Stockholders of Fred Meyer
and Smith's held on September 8, 1997; (ii) Annual Reports to Stockholders and
Annual Reports on Form 10-K of Fred Meyer for the five fiscal years ended
February 1, 1997; (iii) certain interim reports to stockholders and Quarterly
Reports on Form 10-Q of Fred Meyer; (iv) certain other communications from Fred
Meyer to its stockholders; and (v) certain internal financial analyses and
forecasts for Fred Meyer prepared by its management without, and after giving
effect to, the FM/QFC Merger and the FM/Food 4 Less Merger. Goldman Sachs also
held discussions with members of the senior management of Fred Meyer, QFC and
Food 4 Less regarding the strategic rationale for, and the potential benefits
of, the FM/QFC Merger and the FM/Food 4 Less Merger and the past and current
business operations, financial condition and future prospects of their
respective companies. In addition, Goldman Sachs reviewed the reported price and
trading activity for the Fred Meyer Common Stock and the QFC Common Stock,
compared certain financial information for Fred Meyer, QFC and Food 4 Less with
similar information for certain other companies the securities of which are
publicly traded, compared certain stock market information for Fred Meyer and
QFC with similar information for certain other companies the securities of which
are publicly traded, reviewed the financial terms of certain recent business
combinations in the supermarket industry specifically and in other industries
generally and performed such other studies and analyses as Goldman Sachs
considered appropriate.
 
                                       51
<PAGE>   60
 
     Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and assumed such accuracy and
completeness for purposes of rendering its opinion and neither attempted to
independently verify nor assumed responsibility for verifying any of such
information. In that regard, Goldman Sachs assumed, with the Fred Meyer Board's
consent, that the financial forecasts, including the underlying assumptions,
provided to it and discussed with it with respect to Fred Meyer, QFC and Food 4
Less after giving effect to the FM/QFC Merger and the FM/Food 4 Less Merger,
including, without limitation, the projected cost savings and operating
synergies resulting from the FM/QFC Merger and the FM/Food 4 Less Merger, were
reasonably prepared on a basis reflecting the best currently available judgments
and estimates of Fred Meyer, QFC and Food 4 Less. Goldman Sachs expressed no
opinion with respect to such forecasts or the assumptions on which they were
based. In addition, with the Fred Meyer Board's consent, Goldman Sachs has taken
into account the advice of Fred Meyer's independent accountants with respect to
the likely accounting treatment of the FM/QFC Merger. In addition, Goldman Sachs
did not make an independent evaluation or appraisal of the assets and
liabilities of Fred Meyer or QFC or any of their subsidiaries and was not
furnished with any such evaluation or appraisal. The opinion of Goldman Sachs
referred to herein was provided for the information and assistance of the Fred
Meyer Board in connection with its consideration of the FM/QFC Merger and such
opinion does not constitute a recommendation as to how any holder of Fred Meyer
Common Stock should vote with respect to the FM/QFC Merger. The opinion of
Goldman Sachs was necessarily based upon conditions as they existed and could be
evaluated by it on the date of such opinion and Goldman Sachs assumed no
responsibility to update or revise its opinion based upon circumstances and
events occurring after the date of such opinion. The opinion of Goldman Sachs
does not imply any conclusion as to the likely trading range of Fred Meyer
Common Stock following consummation of the FM/QFC Merger, which may vary
depending upon, among other factors, changes in interest rates, dividend rates,
market conditions, general economic conditions and other factors that generally
influence the price of securities. The opinion of Goldman Sachs is limited to
the fairness, from a financial point of view, of the QFC Exchange Ratio to Fred
Meyer and does not address Fred Meyer's underlying business decision to effect
the FM/QFC Merger.
 
     Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Fred Meyer selected
Goldman Sachs as its financial advisor because it is an internationally
recognized investment banking firm that has substantial experience in
transactions similar to the FM/QFC Merger. Goldman Sachs is familiar with Fred
Meyer, having acted as managing underwriter of its public offering of 3,850,000
shares of Fred Meyer Common Stock in September 1996 and having acted as its
financial advisor in connection with, and having participated in certain of the
negotiations leading to, the FM/QFC Merger Agreement and the FM/Food 4 Less
Merger Agreement. Since January 1996; Goldman Sachs has received compensation
from Fred Meyer for such services of approximately $2,478,400 other than fees
payable to Goldman Sachs in connection with Goldman Sachs' opinions with respect
to the Mergers. Goldman Sachs has also provided certain investment banking
services to QFC from time to time, having acted as its financial advisor in
connection with its recapitalization in 1995, which included acting as
dealer-manager of QFC's self-tender for 7,000,000 shares of QFC Common Stock.
 
     Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of Fred Meyer and/or QFC for its own account and for the account of
customers. As of November 6, 1997, Goldman Sachs held for its own account a long
position of 1,427,680 shares of Fred Meyer Common Stock and a short position of
$3,500,000 principal amount of 8.70% Series B Senior Subordinated Notes due 2007
of QFC.
 
     Pursuant to a letter agreement dated November 1, 1997 (the "Goldman Sachs
Engagement Letter"), Fred Meyer engaged Goldman Sachs to render financial
advisory and investment banking services to Fred Meyer in connection with the
possible acquisition of either or both of QFC or Food 4 Less. Pursuant to the
terms of the Goldman Sachs Engagement Letter, Fred Meyer has paid Goldman Sachs
$750,000 and has agreed to pay Goldman Sachs (i) $5.0 million upon consummation
of an acquisition transaction in which
 
                                       52
<PAGE>   61
 
QFC is the subject company, (ii) $8.0 million upon consummation of an
acquisition transaction in which Food 4 Less is the subject company, or (iii)
$11.0 million upon consummation of a simultaneous acquisition transaction
involving both QFC and Food 4 Less. Fred Meyer also agreed to pay Goldman Sachs
a fee equal to 15% (but in no event more than $4.0 million) of any break-up or
similar fee received by Fred Meyer in connection with the termination of the
FM/QFC Merger Agreement or the FM/Food 4 Less Merger Agreement. In addition,
Fred Meyer has agreed to reimburse Goldman Sachs for its reasonable
out-of-pocket expenses, including attorneys' fees, and to indemnify Goldman
Sachs against certain liabilities, including certain liabilities under the
federal securities laws.
 
     Financial Analyses used by Salomon and Goldman Sachs. The following is a
summary of certain of the financial analyses used by Salomon and Goldman Sachs
in connection with providing their respective written opinions to the Fred Meyer
Board on November 6, 1997. The analyses were prepared solely for purposes of
Salomon and Goldman Sachs providing their opinions to the Fred Meyer Board as to
the fairness to Fred Meyer from a financial point of view of the QFC Exchange
Ratio pursuant to the FM/QFC Merger Agreement, and such opinions were only one
of many factors taken into consideration by the Fred Meyer Board in making its
determination to approve the FM/QFC Merger Agreement. The summary set forth
below does not purport to be a complete description of the analyses performed by
Salomon and Goldman Sachs, but describes, in summary form, the principal
elements of the analyses made by Salomon and Goldman Sachs in arriving at the
Salomon QFC Opinion and the Goldman Sachs QFC Opinion. The preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of these methods to
the particular circumstances and, therefore, such an opinion is not readily
summarized. Each of the analyses conducted by Salomon and Goldman Sachs was
carried out in order to provide a different perspective on the transaction and
add to the total mix of information available. Salomon and Goldman Sachs did not
form a conclusion as to whether any individual analysis, considered in
isolation, supported or failed to support an opinion as to fairness from a
financial point of view. Rather, in reaching their conclusions, Salomon and
Goldman Sachs considered the results of the analyses in light of each other and
ultimately reached their opinions based on the results of the analyses taken as
a whole. Further, Salomon's and Goldman Sachs' conclusions involved significant
elements of judgment and qualitative analyses as well as the financial and
quantitative analyses. Salomon and Goldman Sachs did not place particular
reliance or weight on any individual factor, but instead concluded that their
analyses, taken as a whole, supported their determinations. Accordingly,
notwithstanding the separate factors summarized above, Salomon and Goldman Sachs
believe that their analyses must be considered as a whole and that selecting
portions of their analyses and the factors considered by them, without
considering all analyses and factors, could create an incomplete or misleading
view of the evaluation process underlying their opinions. In performing their
analyses, Salomon and Goldman Sachs made numerous assumptions with respect to
industry performance, general business, financial, economic and market
conditions and other matters, many of which are beyond the control of Fred
Meyer, QFC and Food 4 Less. No company or transaction used in the analyses as a
comparison is directly comparable to Fred Meyer, Food 4 Less, QFC or the
contemplated transaction. In addition, analyses relating to the value of the
businesses or securities do not purport to be appraisals, or to reflect the
prices at which such businesses or securities can actually be sold. The analyses
performed by Salomon and Goldman Sachs are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
suggested by such analyses. Because such analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control of
the parties or their respective advisors, none of Fred Meyer, Food 4 Less, QFC,
Salomon, Goldman Sachs or any other person assumes responsibility if future
results are materially different from those forecast.
 
          (i) Historical Stock Trading and Exchange Ratio Analysis. Salomon and
     Goldman Sachs reviewed the historical trading prices for the QFC Common
     Stock for the period from October 31, 1996 through November 4, 1997 (the
     "QFC Historical Stock Prices"). Such analysis indicated that (i) the QFC
     Historical Stock Prices ranged from a low of $33.00 to a high of $49.44;
     (ii) the QFC Historical Stock Prices plus a 30% control premium ranged from
     a low of $42.90 to a high of $64.27; and (iii) the QFC Historical Stock
     Prices plus a 50% control premium ranged from a low of $49.50 to a high of
     $74.16. Salomon and Goldman Sachs also calculated the exchange ratio of the
     market price of a share of QFC Common Stock to the market price of a share
     of Fred Meyer Common Stock for each day during
 
                                       53
<PAGE>   62
 
     the period from October 31, 1996 to November 4, 1997 and found that such
     exchange ratio ranged from a low of 1.38 to a high of 2.52.
 
          (ii) Selected Companies Analysis. Salomon and Goldman Sachs reviewed
     and compared certain financial information relating to Fred Meyer and QFC
     to corresponding financial information, ratios and public market multiples
     for six publicly traded corporations: Albertson's, Inc.; American Stores
     Company; Food Lion, Inc.; The Kroger Co.; Safeway Inc.; and Winn-Dixie
     Stores, Inc. (the "Selected Companies"). Salomon and Goldman Sachs
     calculated and compared various financial multiples and ratios. The
     multiples of the Selected Companies, Fred Meyer and QFC were calculated
     using closing stock prices as of November 4, 1997. The multiples and ratios
     for Fred Meyer, QFC and for each of the Selected Companies were based on
     the most recent publicly available information. The analysis showed, among
     other things, that the ratio of firm value (i.e. market value of common
     equity plus book value of debt less cash) as a multiple of EBITDA for the
     Selected Companies, (i) using estimated 1997 EBITDA, ranged from a low of
     6.7x to a high of 9.8x (with a median of 8.5x), compared to 7.3x for Fred
     Meyer and 10.5x for QFC and (ii) using estimated 1998 EBITDA, ranged from a
     low of 6.2x to a high of 8.2x (with a median 7.5x), compared to 7.0x for
     Fred Meyer and 8.4x for QFC. This analysis also showed, among other things,
     that the price/earnings ratio for the Selected Companies, (i) using
     estimated 1997 earnings, ranged from a low of 15.6x to a high of 25.5x
     (with a median of 19.3x), compared to 22.8x for Fred Meyer and 25.6x for
     QFC and (ii) using estimated 1998 earnings, ranged from a low of 13.5x to a
     high of 22.3x (with a median of 17.1x), compared to 18.9x for Fred Meyer
     and 20.2x for QFC. Earnings estimates used in the foregoing analysis were
     based on Institutional Brokers Estimates System ("IBES") earnings
     estimates. IBES is a data service that monitors and publishes compilations
     of earnings estimates by selected research analysts regarding companies of
     interest to institutional investors. EBITDA estimates used in the foregoing
     analysis were based upon research estimates of Goldman Sachs and Salomon
     Equity Research.
 
          (iii) Selected Transactions Analysis. Salomon and Goldman Sachs
     reviewed and analyzed firm value as a multiple of the latest twelve months
     ("LTM") EBITDA in selected merger or acquisition transactions involving
     other companies in the supermarket chain industries that they deemed
     relevant (the "QFC Selected Transactions"). Among other matters, such
     review by Salomon and Goldman Sachs indicated that the merger and
     acquisition transaction environment varies over time because of
     macroeconomic factors such as interest rate and equity market fluctuations
     and microeconomic factors such as industry results and growth expectations.
     Salomon and Goldman Sachs noted that no transaction reviewed was identical
     to the FM/QFC Merger and that, accordingly, an assessment of the results of
     the following analysis necessarily involves considerations and judgments
     concerning differences in financial and operating characteristics of QFC
     and other factors that would affect the acquisition value of the companies
     to which it is being compared. Such analysis indicated that, for the QFC
     Selected Transactions, firm value as a multiple of LTM EBITDA, ranged from
     a low of 7.0x to a high of 9.5x. Salomon and Goldman Sachs also calculated
     firm value as a multiple of EBITDA for the FM/QFC Merger using two
     scenarios (i) a base case price of $55.00 per share of QFC Common Stock
     (the "QFC Base Case") and (ii) a price of $58.43 per share of QFC Common
     Stock, calculated based upon a 1.9 exchange ratio and a Fred Meyer Common
     Stock price of $30.75 per share (the closing price of Fred Meyer Common
     Stock on November 4, 1997) (the "QFC Current Case"). In each case, Salomon
     and Goldman Sachs used conservative case forecasts from Fred Meyer
     management based upon forecasts provided by QFC management in September
     1997 (the "Fred Meyer-QFC Conservative Forecasts") and firm value multiples
     based upon estimated 1997 year-end debt balances. The analysis indicated
     that the firm value/EBITDA ratio (i) without any of the cost savings
     expected to be realized as a result of the FM/QFC Merger, (A) using 1997
     estimated EBITDA, was 10.2x for the QFC Base Case and 10.7x for the QFC
     Current Case; (B) using estimated 1998 EBITDA, was 9.2x for the QFC Base
     Case and 9.6x for the QFC Current Case; (ii) with $30 million of cost
     savings (equal to the cost savings expected to be realized as a result of
     the FM/QFC Merger as estimated by Fred Meyer management) (A) using
     estimated 1997 EBITDA, was 8.6x for the QFC Base Case and 9.0x for the QFC
     Current Case, (B) using estimated 1998 EBITDA, was 7.8x for the QFC Base
     Case and 8.2x for the QFC Current Case; and (iii) with $57.5 million cost
     savings (equal to (1) the cost savings expected to be realized as a
 
                                       54
<PAGE>   63
 
     result of the FM/QFC Merger, plus (2) one-half of the cost savings expected
     to be realized as a result of the combination of Food 4 Less and Hughes, as
     estimated by Fred Meyer management) (A) using estimated 1997 EBITDA, was
     7.4x for the QFC Base Case and 7.8x for the QFC Current Case and (B) using
     estimated 1998 EBITDA, was 6.9x for the QFC Base Case and 7.2x for the QFC
     Current Case. Under the QFC Base Case, Salomon and Goldman Sachs calculated
     the equity value of QFC to be $1,218 million and the firm value to be
     $1,572 million. Under the QFC Current Case, Salomon and Goldman Sachs
     calculated the equity value of QFC to be $1,294 million and the firm value
     to be $1,648 million.
 
          (iv) Discounted Cash Flow Analysis. Salomon and Goldman Sachs
     performed a discounted cash flow analysis under the following two
     scenarios, in each case based on Fred Meyer-QFC Conservative Forecasts: (a)
     assuming $30 million of cost savings (equal to the cost savings expected to
     be realized as a result of the FM/QFC Merger as estimated by Fred Meyer
     management) (the "QFC First Case") and (b) assuming $57.5 million cost
     savings equal to (1) the cost savings expected to be realized as a result
     of the FM/QFC Merger, plus (2) one-half of the cost savings expected to be
     realized as a result of the combination of Food 4 Less and Hughes, as
     estimated by Fred Meyer management) (the "QFC Second Case"). Salomon and
     Goldman Sachs calculated a net present value of free cash flows for the
     years 1998 through 2007 using discount rates ranging from 10% to 12%.
     Salomon and Goldman Sachs calculated terminal values in the year 2007 based
     on multiples ranging from 8.00x LTM EBITDA to 9.25x LTM EBITDA and then
     discounted these terminal values to present value using discount rates from
     10% to 12%. This analysis showed that the implied per share values for the
     QFC Common Stock ranged from a low of $50.35 to a high of $64.01 in the QFC
     First Case and from a low of $70.94 to a high of $85.91 in the QFC Second
     Case. The various ranges for discount rates and terminal value multiples
     were chosen to reflect, respectively, the theoretical weighted average cost
     of capital for companies in the supermarket industry and multiples of LTM
     EBITDA paid in selected recent supermarket transactions.
 
          (v) Pro Forma Merger Analysis -- FM/QFC Merger and FM/Food 4 Less
     Merger. Salomon and Goldman Sachs prepared pro forma analyses of the
     financial impact of the Mergers using earnings estimates for Fred Meyer,
     Food 4 Less and QFC for the years 1998 through 2002. These analyses were
     based, in each case, upon (i) for Fred Meyer, Fred Meyer management
     forecasts (the "Fred Meyer Forecasts"); (ii) for QFC, the Fred Meyer-QFC
     Conservative Forecasts; and (iii) for Food 4 Less, Food 4 Less management
     forecasts as adjusted by Fred Meyer management (the "Fred Meyer-Food 4 Less
     Conservative Forecasts"); such analyses also assumed cost savings resulting
     from the combination of Fred Meyer, QFC and Food 4 Less, as provided by
     Fred Meyer management, of $50 million in 1998, $70 million in 1999, $90
     million in 2000, and $100 million in each of 2001 and 2002. For each of
     these years, Salomon and Goldman Sachs compared (A) the reported earnings
     per share ("EPS") of the Fred Meyer Common Stock, on a stand-alone basis,
     to the reported EPS of the common stock of the combined companies on a pro
     forma basis (the "Reported EPS Analysis") and (B) the pre-goodwill EPS of
     the Fred Meyer Common Stock, on a stand-alone basis, to the pre-goodwill
     EPS of the common stock of the combined companies on a pro forma basis (the
     "Pre-Goodwill EPS Analysis"). Furthermore, in each instance, Salomon and
     Goldman Sachs analyzed two scenarios: (i) using an exchange ratio based on
     a price of $30.75 per share of Fred Meyer Common Stock (the closing price
     on November 4, 1997) (the "Current Price Scenario") and (ii) using an
     exchange ratio of 2.3 for each share of QFC Common Stock and 24 million
     shares issued to Food 4 Less (the "Highest Exchange Ratio Scenario"). The
     Reported EPS Analysis indicated that the proposed transaction (i) for the
     Current Price Scenario, would be dilutive to Fred Meyer stockholders on an
     EPS basis in 1998, and would be accretive to such holders in the years
     1999, 2000, 2001 and 2002; and (ii) for the Highest Exchange Ratio
     Scenario, would be dilutive to Fred Meyer stockholders on an EPS basis in
     1998 and 1999, and would be accretive to such holders in the years 2000,
     2001 and 2002. The Pre-Goodwill Analysis indicated that the proposed
     transaction (i) for the Current Price Scenario, would be accretive to the
     Fred Meyer stockholders on an EPS basis in each year from 1998 through
     2002; and (ii) for the Highest Exchange Ratio Scenario, would be minimally
     dilutive to Fred Meyer stockholders on an EPS basis in 1998, and would be
     accretive to such holders in the years 1999, 2000, 2001 and 2002.
 
                                       55
<PAGE>   64
 
          (vi) Pro Forma Merger Analysis -- FM/QFC Merger Only. Salomon and
     Goldman Sachs also prepared pro forma analyses of the financial impact of
     the FM/QFC Merger using earnings estimates for Fred Meyer and QFC for the
     years 1998 through 2002. These analyses assumed the FM/QFC Merger was
     accounted for as a pooling of interests and assumed cost savings resulting
     from the FM/QFC Merger, as provided by Fred Meyer management, of $25
     million in 1998 and $30 million in each of 1999, 2000, 2001 and 2002. For
     each of these years, Salomon and Goldman Sachs compared the EPS of the Fred
     Meyer Common Stock, on a stand-alone basis, to the EPS of the common stock
     of the combined company on a pro forma basis based upon (i) the Fred
     Meyer-QFC Conservative Forecasts (the "QFC Conservative Case") and (ii)
     projections provided by QFC management in November 1997 (the "QFC Case").
     Furthermore, in each instance, Salomon and Goldman Sachs analyzed two
     scenarios: (i) using the Current Price Scenario and (ii) using an exchange
     ratio of 2.3 for QFC (the "Highest QFC Exchange Ratio Scenario"). The QFC
     Conservative Case indicated that the FM/QFC Merger (i) for the Current
     Price Scenario, would be accretive to Fred Meyer stockholders on an EPS
     basis in each year from 1998 through 2002; and (ii) for the Highest QFC
     Exchange Ratio Scenario, would be dilutive to Fred Meyer stockholders on an
     EPS basis in each year from 1998 through 2002. The QFC Case indicated that
     the FM/QFC Merger (i) for the Current Price Scenario, would be accretive to
     Fred Meyer stockholders on an EPS basis in each year from 1998 through
     2002; and (ii) for the Highest QFC Exchange Ratio Scenario, would be
     dilutive to Fred Meyer stockholders on an EPS basis in 1998, 1999 and 2000,
     but would be accretive to such holders in the years 2001 and 2002.
 
          (vii) Contribution Analysis -- Simultaneous FM/QFC Merger and FM/Food
     4 Less Merger. Salomon and Goldman Sachs reviewed certain historical and
     estimated future operating and financial information (including, among
     other things, net income (before transaction goodwill) determined before
     and after cost savings, and ownership) for Fred Meyer, Food 4 Less, QFC and
     the pro forma combined entity resulting from the Mergers based, in each
     case, upon (i) for Fred Meyer, the Fred Meyer Forecasts; (ii) for QFC, the
     Fred Meyer-QFC Conservative Forecasts; and (iii) for Food 4 Less, the Fred
     Meyer-Food 4 Less Conservative Forecasts. The analysis indicated that (A)
     assuming an exchange ratio of 1.9 for QFC and 22.5 million shares issued to
     Food 4 Less, the Fred Meyer stockholders would own 58.3% of the outstanding
     common stock of the combined company after the proposed transactions, while
     Food 4 Less' stockholders would own 14.5% and the QFC shareholders would
     own 27.2%, and (B) assuming an exchange ratio of 2.3 for QFC and 24 million
     shares for Food 4 Less, the Fred Meyer stockholders would own 54.7% of the
     outstanding shares of the combined company after the proposed transactions,
     while the Food 4 Less stockholders would own 14.5% and the QFC shareholders
     would own 30.8%. Salomon and Goldman Sachs also analyzed the relative net
     income contribution of Fred Meyer, Food 4 Less and QFC to the combined
     company on a pro forma basis before taking into account any of the cost
     savings that may be realized following the proposed transactions based on
     estimated years 1998, 1999 and 2000. This analysis indicated that Fred
     Meyer, Food 4 Less and QFC would contribute, respectively, 60.2%, 16.3% and
     23.5% in 1998; 56.1%, 22.7% and 21.2% in 1999; and 53.9%, 26.3% and 19.8%
     in 2000. Furthermore, Salomon and Goldman Sachs analyzed the relative net
     income contribution of Fred Meyer, Food 4 Less and QFC, assuming cost
     savings resulting from the combination of $50 million in 1998, $70 million
     in 1999 and $90 million in 2000. This analysis indicated that Fred Meyer,
     Food 4 Less and QFC would contribute, respectively, 52.8%, 20.4% and 26.7%
     in 1998; 48.9%, 24.4% and 26.8% in 1999; and 46.5%, 27.3% and 26.3% in
     2000.
 
          (viii) Contribution Analysis -- FM/QFC Merger Only. Salomon and
     Goldman Sachs also reviewed certain historical and estimated future
     operating and financial information (including, among other things, net
     income (before transaction goodwill) determined before and after cost
     savings, and ownership) for Fred Meyer, QFC and the pro forma combined
     entity resulting from the FM/QFC Merger based, in each case, upon (i) for
     Fred Meyer, the Fred Meyer Forecasts and (ii) for QFC, the Fred Meyer-QFC
     Conservative Forecasts. The analysis indicated that (A) assuming an
     exchange ratio of 1.9 for QFC, the Fred Meyer stockholders would own 68.2%
     of the outstanding common stock of the combined company after the proposed
     transaction, while the QFC shareholders would own 31.8%, and (B) assuming
     an exchange ratio of 2.3 for QFC, the Fred Meyer stockholders would own
     63.9% of the outstanding shares of the combined company after the FM/QFC
     Merger, while the QFC shareholders
 
                                       56
<PAGE>   65
 
     would own 36.1%. Salomon and Goldman Sachs also analyzed the relative net
     income contribution of Fred Meyer and QFC to the combined company on a pro
     forma basis before taking into account any of the cost savings that may be
     realized following the FM/QFC Merger based on estimated net income for the
     years 1998, 1999 and 2000. This analysis indicated that Fred Meyer and QFC
     would contribute, respectively, 73.8% and 26.2% in 1998; 74.1% and 25.9% in
     1999; and 74.6% and 25.4% in 2000. Furthermore, Salomon and Goldman Sachs
     analyzed the relative net income contribution of Fred Meyer and QFC,
     assuming cost savings resulting from the combination of $20 million in 1998
     and $30 million in 1999 and 2000 were allocated to QFC. This analysis
     indicated that Fred Meyer and QFC would contribute, respectively, 68.7% and
     31.3% in 1998; 66.6% and 33.4% in 1999; and 65.8% and 34.2% in 2000.
 
OPINION OF QFC FINANCIAL ADVISOR REGARDING THE FM/QFC MERGER
 
     General. Merrill Lynch acted as financial advisor to QFC in connection with
the proposed FM/QFC Merger. On November 6, 1997, Merrill Lynch rendered its
written opinion (the "Merrill Lynch Opinion") to the effect that, as of such
date and based upon the assumptions made, matters considered and limits of the
reviews undertaken by Merrill Lynch set forth in the Merrill Lynch Opinion, the
QFC Exchange Ratio was fair, from a financial point of view, to the holders of
shares of QFC Common Stock, other than Fred Meyer and its affiliates. The
opinion of Merrill Lynch is not contingent upon the consummation of the FM/Food
4 Less Merger.
 
     THE FULL TEXT OF THE MERRILL LYNCH OPINION IS INCLUDED IN APPENDIX E TO
THIS JOINT PROXY AND CONSENT SOLICITATION STATEMENT/PROSPECTUS. THE MERRILL
LYNCH OPINION IS ADDRESSED TO THE QFC BOARD AND DOES NOT ADDRESS THE MERITS OF
THE UNDERLYING DECISION OF QFC TO ENGAGE IN THE FM/QFC MERGER AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF QFC COMMON STOCK AS TO HOW SUCH
HOLDER SHOULD VOTE ON THE PROPOSED FM/QFC MERGER OR AS TO ANY OTHER MATTER IN
CONNECTION WITH THE PROPOSED FM/QFC MERGER. THE SUMMARY OF THE MERRILL LYNCH
OPINION SET FORTH IN THIS JOINT PROXY AND CONSENT SOLICITATION
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE MERRILL LYNCH OPINION. HOLDERS OF SHARES OF QFC COMMON STOCK ARE URGED TO
READ THE MERRILL LYNCH OPINION IN ITS ENTIRETY FOR THE PROCEDURES FOLLOWED,
ASSUMPTIONS MADE, MATTERS CONSIDERED AND QUALIFICATIONS AND LIMITATIONS OF THE
REVIEW UNDERTAKEN BY MERRILL LYNCH IN CONNECTION THEREWITH.
 
     Merrill Lynch is an internationally recognized investment banking firm and,
as part of its investment banking business, is continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, underwritings, distributions of securities and similar activities.
Merrill Lynch was retained by the QFC Board on the basis of its qualifications,
reputation and experience.
 
     In connection with its engagement by QFC, Merrill Lynch contacted a limited
number of persons whom Merrill Lynch determined to be likely to have a
significant interest in entering into a business combination with QFC. Merrill
Lynch was not authorized to conduct, and did not conduct, a solicitation of a
broad group of potentially interested parties. Except for the foregoing, no
limitations were placed on Merrill Lynch by QFC with respect to the
investigations made or the procedures followed by Merrill Lynch in preparing and
rendering its opinion.
 
     Merrill Lynch did not express any opinion as to the prices at which shares
of QFC Common Stock or shares of Fred Meyer Common Stock will trade following
the announcement or consummation of the FM/QFC Merger.
 
     The Merrill Lynch Opinion is necessarily based upon market, economic and
other conditions as they exist and can be evaluated on, and on the information
made available to Merrill Lynch as of, the date of such opinion. Although
subsequent developments may affect the opinion, Merrill Lynch does not have any
obligation to update, revise or reaffirm the opinion.
 
     QFC has agreed to pay Merrill Lynch a fee in the amount of $4,000,000 for
its services, which fee is contingent upon the consummation of the FM/QFC
Merger, as described below. In addition, QFC has agreed to indemnify Merrill
Lynch for certain liabilities arising out of its engagement as financial
advisor.
 
                                       57
<PAGE>   66
 
     In arriving at the Merrill Lynch Opinion, Merrill Lynch, among other
things: (i) reviewed certain publicly available business and financial
information relating to QFC, Fred Meyer and Food 4 Less that Merrill Lynch
deemed to be relevant; (ii) reviewed certain information, including financial
forecasts, relating to the business, earnings, cash flow, assets, liabilities
and prospects of QFC, Fred Meyer and Food 4 Less furnished to Merrill Lynch by
QFC, Fred Meyer and Food 4 Less, as the case may be; (iii) conducted discussions
with members of senior management of QFC, Fred Meyer and Food 4 Less concerning
the matters described in clauses (i) and (ii) above; (iv) reviewed the market
prices and valuation multiples for shares of QFC Common Stock and shares of Fred
Meyer Common Stock and compared them with those of certain publicly traded
companies that Merrill Lynch deemed to be relevant; (v) reviewed the results of
operations of QFC, Fred Meyer and Food 4 Less and compared them with those of
certain publicly traded companies that Merrill Lynch deemed to be relevant; (vi)
compared the proposed financial terms of the FM/QFC Merger and the FM/Food 4
Less Merger with the financial terms of certain other transactions that Merrill
Lynch deemed to be relevant; (vii) participated in certain discussions and
negotiations among representatives of QFC, Fred Meyer and Food 4 Less and their
financial and legal advisors; (viii) reviewed a draft of the FM/QFC Merger
Agreement and a draft of the FM/Food 4 Less Merger Agreement; (ix) conducted
discussions with antitrust counsel to QFC relating to the possibility of
divestitures that may be required in connection with antitrust approval; and (x)
reviewed such other financial studies and analyses and took into account such
other matters as Merrill Lynch deemed necessary, including Merrill Lynch's
assessment of general economic, market and monetary conditions.
 
     In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to it,
discussed with or reviewed by or for it, or publicly available, and did not
assume any responsibility for independently verifying such information or
undertake an independent evaluation or appraisal of any of the assets or
liabilities of QFC, Fred Meyer or Food 4 Less, and was not furnished with any
such evaluation or appraisal. In addition, Merrill Lynch did not assume any
obligation to conduct any physical inspection of the properties or facilities of
QFC, Fred Meyer or Food 4 Less. With respect to the financial forecast
information furnished to or discussed with Merrill Lynch by QFC, Fred Meyer and
Food 4 Less, Merrill Lynch assumed that such financial forecast information had
been reasonably prepared and reflected the best currently available estimates
and judgment of the management of QFC, Fred Meyer and Food 4 Less, as the case
may be, as to the expected future financial performance of QFC, Fred Meyer and
Food 4 Less, as the case may be. Merrill Lynch also assumed that the final forms
of the FM/QFC Merger Agreement and the FM/Food 4 Less Merger Agreement would be
substantially similar to the last drafts thereof reviewed by Merrill Lynch. In
connection with its analysis, Merrill Lynch took into account the advice of
QFC's independent accountants with respect to the likely accounting treatment of
the FM/QFC Merger.
 
     Summary of Material Analyses. Set forth below is a summary setting forth
the material analyses presented by Merrill Lynch to the QFC Board on November 5,
1997 in connection with its written opinion as to the fairness, from a financial
point of view, of the QFC Exchange Ratio on the date the QFC Board approved the
FM/QFC Merger Agreement.
 
          (i) Comparable Public Company Trading Analysis. Merrill Lynch
     performed an analysis in which it compared certain financial and valuation
     information of selected publicly traded companies in the food retailing
     industry considered by Merrill Lynch to be reasonably comparable to QFC for
     purposes of this analysis. Such comparable companies included: Dominick's
     Supermarkets, Inc. ("Dominicks"), Fred Meyer, Giant Food Inc., Hannaford
     Bros. Co. (the "Regional Comparable Companies"), Albertsons, Inc., American
     Stores Company, Food Lion, Inc., The Great Atlantic & Pacific Tea Co.,
     Inc., The Kroger Co., Safeway Inc. and Winn-Dixie Stores, Inc. (the
     "Multi-Regional Comparable Companies" and together with the Regional
     Comparable Companies, the "Comparable Companies"). Merrill Lynch calculated
     the market capitalization (defined to be the market value of the common
     stock plus preferred equity at liquidation value, total debt and minority
     interest less cash and marketable securities) of the Comparable Companies
     as multiples of EBITDA for such companies' 1997 and 1998 fiscal years.
     Merrill Lynch also derived multiples of common stock prices per share
     relative to estimated 1997 and 1998 fiscal year earnings per share for each
     of QFC and the Comparable Companies. This analysis indicated that
 
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<PAGE>   67
 
     (A) market capitalization as a multiple of estimated 1997 EBITDA ranged
     from 6.8x to 8.2x with a mean of 7.6x for the Regional Comparable Companies
     and ranged from 4.9x to 9.9x with a mean of 7.6x for the Multi-Regional
     Comparable Companies; (B) market capitalization as a multiple of estimated
     1998 EBITDA ranged from 6.4x to 7.1x with a mean of 6.9x for the Regional
     Comparable Companies and ranged from 4.5x to 8.1x with a mean of 6.8x for
     the Multi-Regional Comparable Companies; (C) common stock prices as a
     multiple of estimated 1997 earnings per share ranged from 19.7x to 37.4x
     with a mean (excluding a multiple of 37.4x for Dominicks) of 22.4x for the
     Regional Comparable Companies and ranged from 13.9x to 24.0x with a mean of
     19.1x for the Multi-Regional Comparable Companies; and (D) common stock
     prices as a multiple of estimated 1998 earnings per share ranged from 17.2x
     to 21.3x with a mean of 18.7x for the Regional Comparable Companies and
     ranged from 12.0x to 22.9x with a mean of 16.8x for the Multi-Regional
     Comparable Companies. Based on the foregoing analysis, Merrill Lynch
     derived implied equity values per share of QFC Common Stock ranging from
     (A) $39 to $46 per share of QFC Common Stock based on estimated 1998
     earnings per share multiples of 15.0x to 18.0x and (B) $37 to $45 per share
     of QFC Common Stock based on estimated 1998 EBITDA multiples of 6.5x to
     7.5x.
 
          (ii) Comparable Acquisition Analysis. Using publicly available
     information, Merrill Lynch reviewed selected business combinations that
     occurred since January 1, 1996 involving companies in the food retailing
     industry (the "Acquisition Comparables"). The Acquisition Comparables
     included: Fred Meyer/Smith's; Giant Eagle, Inc./Riser Foods, Inc.; Jitney
     Jungle Stores of America, Inc./Delchamps, Inc.; Kohlberg Kravis Roberts &
     Co./Randalls Food Markets, Inc.; Koninklijke Ahold nv/Stop & Shop
     Companies, Inc.; QFC/Hughes; Richfood Holdings, Inc./Farm Fresh, Inc.;
     Safeway Inc./The Vons Companies, Inc.; Shamrock Holdings, Inc./The Grand
     Union Company; and Smith's/Smitty's Supermarkets, Inc. For the Acquisition
     Comparables, Merrill Lynch compared transaction values as a multiple of the
     LTM EBITDA of the acquired companies. This analysis indicated that
     transaction values as a multiple of LTM EBITDA ranged from 6.3x to 9.7x,
     with a mean of 7.5x. Applying multiples ranging from 8.0x to 9.5x to QFC's
     estimated 1997 EBITDA, Merrill Lynch derived an implied equity value per
     share of QFC Common Stock ranging from $41 to $51 per share.
 
          (iii) Leveraged Buyout Analysis. Merrill Lynch performed a leveraged
     buyout analysis to determine the range of potential implied equity values
     per share of QFC Common Stock that could be achieved in the acquisition of
     QFC in a leveraged buyout transaction based upon current market conditions.
     To conduct this analysis, Merrill Lynch utilized financial forecasts
     provided to Merrill Lynch by the management of QFC (the "QFC Management
     Case Forecasts") and assumed (A) a minimum ratio of 1997 EBITDA to interest
     expense of 1.6x, (B) a maximum ratio of total debt to EBITDA of 6.5x, (C) a
     maximum bank debt repayment period of eight years, (D) a minimum of 20%
     equity as a percentage of total capitalization, (E) a minimum five year
     return to the equity sponsor of 25% to 35% and (F) terminal year EBITDA
     multiples ranging from 7.0x to 8.0x. This analysis resulted in an implied
     equity value per share of QFC Common Stock ranging from $42 to $48 per
     share.
 
          (iv) Discounted Cash Flow Analysis. Merrill Lynch performed a
     discounted cash flow analysis of the projected unlevered free cash flows of
     QFC (defined as operating cash flow available after working capital,
     capital spending and tax requirements) for the period 1997 through 2002,
     based upon (A) the QFC Management Case Forecasts and (B) financial
     forecasts based on reductions provided by the management of QFC to the QFC
     Management Case Forecasts (the "QFC Reduced Case Forecasts"). Utilizing
     such financial forecasts, Merrill Lynch calculated a range of present
     values for QFC based upon the discounted present value of the sum of (A)
     the projected stream of after-tax unlevered free cash flows of QFC from
     1998 through 2002 and (B) the projected terminal value of QFC in 2002 based
     upon a range of multiples of QFC's projected EBITDA in such year. Applying
     discount rates ranging from 10.5% to 11.5% and terminal value multiples of
     estimated EBITDA in 2002 ranging from 7.0x to 8.0x, Merrill Lynch
     calculated the implied equity value per share of QFC Common Stock to range
     from $48 to $57 per share for the QFC Management Case Forecasts and to
     range from $42 to $49 per share for the QFC Reduced Case Forecasts.
 
                                       59
<PAGE>   68
 
          Merrill Lynch compared the results of the foregoing analyses to (A)
     $55, which represents the fixed price within the collar range (per share
     prices of Fred Meyer Common Stock from $23.91 to $28.95), and (B) $58.43,
     which represents $30.75 (the closing stock price of shares of Fred Meyer
     Common Stock on November 4, 1997) multiplied by 1.9 (the applicable QFC
     Exchange Ratio at such closing stock price).
 
          (v) Comparative Offer Price Analysis. Using the QFC Management Case
     Forecasts, Merrill Lynch calculated the offer value of the FM/QFC Merger as
     a multiple of QFC's estimated 1997 and 1998 earnings per share multiples
     based upon offer prices of (A) $55 and (B) $58.43. These calculations
     indicated that (A) at an offer price of $55, the offer value of the FM/QFC
     Merger as a multiple of QFC's estimated 1997 and 1998 earnings per share
     was 28.2x and 21.4x, respectively, and (B) at an offer price of $58.43, the
     offer value of the FM/QFC Merger as a multiple of QFC's estimated 1997 and
     1998 earnings per share was 29.9x and 22.7x, respectively. Comparing the
     results of such calculations to the previously derived multiples of common
     stock prices per share relative to estimated 1997 and 1998 earnings per
     share for the Regional Comparable Companies, Merrill Lynch noted that
     common stock prices as a multiple of estimated 1997 earnings per share for
     the Regional Comparable Companies ranged from 19.7x to 24.7x with a mean of
     22.4x (excluding Dominicks), and common stock prices as a multiple of
     estimated 1998 earnings per share for the Regional Comparable Companies
     ranged from 17.2x to 18.9x with a mean of 17.8x (excluding Dominicks). In
     addition, using the QFC Management Case Forecasts, Merrill Lynch calculated
     the transaction value of the FM/QFC Merger as a multiple of QFC's LTM and
     estimated 1997 and 1998 EBITDA based upon offer prices of $55 and $58.43.
     These calculations indicated that (A) at an offer price of $55, the
     transaction value of the FM/QFC Merger as a multiple of QFC's LTM and
     estimated 1997 and 1998 EBITDA was 11.9x, 10.2x and 8.9x, respectively, and
     (B) at an offer price of $58.43, the transaction value of the FM/QFC Merger
     as a multiple of QFC's LTM and estimated 1997 and 1998 EBITDA was 12.5x,
     10.7x and 9.4x, respectively. Comparing the results of such calculations to
     the market capitalization as a multiple of LTM and estimated 1997 and 1998
     EBITDA for the Regional Comparable Companies, Merrill Lynch noted that
     market capitalization (A) as a multiple of LTM EBITDA for the Regional
     Comparable Companies ranged from 8.2x to 9.5x with a mean of 8.7x, (B) as a
     multiple of estimated 1997 EBITDA for the Regional Comparable Companies
     ranged from 6.8x to 8.2x with a mean of 7.6x, and (C) as a multiple of 1998
     EBITDA for the Regional Companies ranged from 6.4x to 7.1x with a mean of
     6.9x.
 
          Merrill Lynch also compared the results of such transaction value
     analysis to the results of the analysis of transaction values of the
     Acquisition Comparables as a multiple of LTM EBITDA of the acquired
     companies (with the LTM EBITDA of all such acquired companies representing
     LTM EBITDA of such companies prior to the announcement of each
     transaction). Merrill Lynch noted that such Acquisition Comparable
     transaction values as a multiple of the LTM EBITDA of the acquired
     companies ranged from 6.0x to 9.7x with a mean of 7.5x.
 
          (vi) Implied Exchange Ratio Analysis. Merrill Lynch performed an
     analysis of implied exchange ratios of average trading prices of shares of
     Fred Meyer Common Stock to a $55 offer price per share of QFC Common Stock
     over periods of 30, 60, 90, 120, 150 and 180 trading days preceding the
     date of the FM/QFC Merger Agreement. Merrill Lynch noted that at no time
     during these periods did the implied exchange ratio based on the average
     per share price of Fred Meyer Common Stock exceed 2.3.
 
          (vii) Comparative Valuation Analysis -- FM/QFC Merger and FM/Food 4
     Less Merger. Merrill Lynch performed an analysis of the implied equity
     values per share of QFC Common Stock, assuming the consummation of both the
     FM/QFC Merger and the FM/Food 4 Less Merger, based upon Exchange Ratios of
     1.9 (the "1.9 Exchange Ratio") and 2.3 (the "2.3 Exchange Ratio"), which
     represent the minimum and maximum QFC Exchange Ratios, respectively,
     applicable under the FM/ QFC Merger Agreement. The analysis performed by
     Merrill Lynch was based upon financial forecasts for QFC, Fred Meyer and
     Food 4 Less provided by the management of QFC, Fred Meyer and Food 4 Less,
     respectively, as adjusted by the management of QFC (collectively, the
     "Management Forecasts"). The financial forecasts for the combined company
     resulting from the consummation of the FM/QFC Merger and the FM/Food 4 Less
     Merger (the "FQF Combined Company") were based upon the Management
 
                                       60
<PAGE>   69
 
     Forecasts and reflect an estimate of synergies prepared by the management
     of QFC (the "Estimated Synergies").
 
          Based on multiples of estimated 1998 earnings per share for the FQF
     Combined Company ranging from 16.0x to 18.0x, Merrill Lynch derived implied
     equity values ranging from $42 to $49 per share of QFC Common Stock with
     respect to the 1.9 Exchange Ratio and $48 to $56 per share of QFC Common
     Stock with respect to the 2.3 Exchange Ratio. Based on multiples of
     estimated 1998 EBITDA for the FQF Combined Company ranging from 6.5x to
     7.0x, Merrill Lynch derived implied equity values ranging from $44 to $53
     per share of QFC Common Stock with respect to the 1.9 Exchange Ratio and
     $50 to $60 per share of QFC Common Stock with respect to the 2.3 Exchange
     Ratio. Based on the discounted present value (utilizing a 14.0% discount
     rate) of the 1998 share price for the FQF Combined Company estimated by
     applying multiples ranging from 16.0x to 18.0x to estimated 1999 earnings
     per share for the FQF Combined Company, Merrill Lynch derived implied
     equity values ranging from $51 to $60 per share of QFC Common Stock with
     respect to the 1.9 Exchange Ratio and $58 to $68 per share of QFC Common
     Stock with respect to the 2.3 Exchange Ratio. By calculating the present
     value (utilizing discount rates ranging from 10.5% to 11.5%) of the FQF
     Combined Company's (A) projected unlevered free cash flow from 1998 through
     2002 and (B) terminal value based on multiples of projected 2002 EBITDA
     ranging from 7.0x to 7.5x, Merrill Lynch derived implied equity values
     ranging from $54 to $65 per share of QFC Common Stock with respect to the
     1.9 Exchange Ratio and $61 to $74 per share of QFC Common Stock with
     respect to the 2.3 Exchange Ratio.
 
          (viii) Pro Forma EPS Analysis -- FM/QFC Merger and FM/Food 4 Less
     Merger. Merrill Lynch analyzed the estimated pro forma effect of the FM/QFC
     Merger and the FM/Food 4 Less Merger on the earnings per share of Fred
     Meyer. Based upon QFC Exchange Ratios ranging from 1.9 to 2.3, Merrill
     Lynch estimated that the FM/QFC Merger and the FM/Food 4 Less Merger would
     have accretive or dilutive effects, as applicable, on the earnings per
     share of Fred Meyer ranging from approximately (A) (12.9%) to (17.7%) in
     1998, (B) 0.6% to (5.1%) in 1999, (C) 9.7% to 3.3% in 2000, (D) 15.7% to
     8.9% in 2001 and (E) 20.7% to 13.5% in 2002.
 
          (ix) Pro Forma Contribution Analysis -- FM/QFC Merger and FM/Food 4
     Less Merger. Merrill Lynch performed an analysis of the pro forma equity
     ownership of the FQF Combined Company following the consummation of the
     FM/QFC Merger and the FM/Food 4 Less Merger of the shareholders of each of
     Fred Meyer, QFC and Food 4 Less. On a pro forma basis, Merrill Lynch noted
     that the former shareholders of QFC would own approximately 27.3% of the
     equity of the FQF Combined Company and QFC would represent approximately
     17.5% of the enterprise value of the FQF Combined Company (as measured by
     equity ownership plus net debt) before giving effect to fees, expenses and
     refinancing of debt.
 
          Based on the Management Forecasts, Merrill Lynch noted that for the
     fiscal years of 1998 through 2001, QFC's contributions to revenues, EBITDA,
     EBIT and net income of the FQF Combined Company would range from 14.2% to
     15.9%, 13.9% to 16.0%, 15.3% to 17.3% and 27.7% to 26.0%, respectively.
 
          (x) Implied Exchange Ratio Analysis -- FM/QFC Merger and FM/Food 4
     Less Merger. Merrill Lynch performed an implied exchange ratio analysis
     based upon relative discounted cash flow valuations of QFC and the
     combination of Fred Meyer and Food 4 Less utilizing discount rates ranging
     from 10.5% to 11.5% and multiples of estimated 2002 EBITDA ranging from
     7.0x to 8.0x. Based upon a comparison of low to high estimated equity
     values per share for each of QFC and the combination of Fred Meyer and Food
     4 Less, the implied exchange ratios ranged from 1.28 to 2.07 as compared to
     a range of exchange ratios pursuant to the FM/QFC Merger Agreement of 1.90
     to 2.30.
 
          (xi) Comparative Valuation Analysis -- FM/QFC Merger Only. Merrill
     Lynch performed an analysis of the implied equity values per share of QFC
     Common Stock, assuming the FM/QFC Merger is consummated and the FM/Food 4
     Less Merger is not consummated, based upon the 1.9 Exchange Ratio and the
     2.3 Exchange Ratio, which represent the minimum and maximum QFC Exchange
     Ratios, respectively, applicable under the FM/QFC Merger Agreement. The
     analysis performed by Merrill
 
                                       61
<PAGE>   70
 
     Lynch was based upon the Management Forecasts. The financial forecasts for
     the combined company resulting from the consummation of the FM/QFC Merger
     (assuming that the FM/Food 4 Less Merger is not consummated) (the "FQ
     Combined Company") were based upon the Management Forecasts and reflect the
     Estimated Synergies.
 
          Based on multiples of estimated 1998 earnings per share for the FQ
     Combined Company ranging from 16.0x to 18.0x, Merrill Lynch derived implied
     equity values ranging from $51 to $58 per share of QFC Common Stock with
     respect to the 1.9 Exchange Ratio and $57 to $65 per share of QFC Common
     Stock with respect to the 2.3 Exchange Ratio. Based on multiples of
     estimated 1998 EBITDA for the FQ Combined Company ranging from 6.5x to
     7.0x, Merrill Lynch derived implied equity values ranging from $47 to $54
     per share of QFC Common Stock with respect to the 1.9 Exchange Ratio and
     $54 to $61 per share of QFC Common Stock with respect to the 2.3 Exchange
     Ratio. Based on the discounted present value (utilizing a 14.0% discount
     rate) of the 1998 share price for the FQ Combined Company estimated by
     applying multiples ranging from 16.0x to 18.0x to estimated 1999 earnings
     per share for the FQ Combined Company, Merrill Lynch derived implied equity
     values ranging from $53 to $61 per share of QFC Common Stock with respect
     to the 1.9 Exchange Ratio and $60 to $70 per share of QFC Common Stock with
     respect to the 2.3 Exchange Ratio. By calculating the present value
     (utilizing discount rates ranging from 10.5% to 11.5%) of the FQ Combined
     Company's (a) projected unlevered free cash flow from 1998 through 2002 and
     (b) terminal value based on multiples of projected 2002 EBITDA ranging from
     7.0x to 7.5x, Merrill Lynch derived implied equity values ranging from $48
     to $56 per share of QFC Common Stock with respect to the 1.9 Exchange Ratio
     and $54 to $64 per share of QFC Common Stock with respect to the 2.3
     Exchange Ratio.
 
          (xii) Pro Forma EPS Analysis -- FM/QFC Merger Only. Merrill Lynch
     analyzed the estimated pro forma effect of the FM/QFC Merger on the
     earnings per share of Fred Meyer. Based upon QFC Exchange Ratios ranging
     from 1.9 to 2.3, Merrill Lynch estimated that the FM/QFC Merger would have
     accretive or dilutive effects, as applicable, on the earnings per share of
     Fred Meyer ranging from approximately (a) 3.1% to (3.3%) in 1998, (b) 4.6%
     to (2.0%) in 1999, (c) 5.7% to (1.0%) in 2000, (d) 7.7% to 1.0% in 2001 and
     (e) 8.1% to 1.3% in 2002.
 
          (xiii) Pro Forma Contribution Analysis -- FM/QFC Merger Only. Merrill
     Lynch performed an analysis of the pro forma equity ownership of the FQ
     Combined Company following the consummation of the FM/QFC Merger of the
     shareholders of each of Fred Meyer and QFC. On a pro forma basis, Merrill
     Lynch noted that the former shareholders of QFC would own approximately
     31.9% of the equity of the FQ Combined Company and QFC would represent
     approximately 26.2% of the enterprise value of the FQ Combined Company (as
     measured by equity ownership plus net debt) before giving effect to fees,
     expenses and refinancing of debt.
 
          Based on the Management Forecasts, Merrill Lynch noted that for the
     fiscal years of 1998 through 2001, QFC's contributions to revenues, EBITDA,
     EBIT and net income of the FQ Combined Company would range from 22.6% to
     25.0%, 21.1% to 24.2%, 22.9% to 25.9% and 27.6% to 31.3%, respectively.
 
          (xiv) Implied Exchange Ratio Analysis -- FM/QFC Merger Only. Merrill
     Lynch performed an implied exchange ratio analysis based upon relative
     discounted cash flow valuations of QFC and Fred Meyer utilizing discount
     rates ranging from 10.5% to 11.5% and multiples of estimated 2002 EBITDA
     ranging from 7.0x to 8.0x. Based upon a comparison of low to high estimated
     equity values per share for each of QFC and Fred Meyer, the implied
     exchange ratios ranged from 1.47 to 2.26 as compared to a range of exchange
     ratios pursuant to the FM/QFC Merger Agreement of 1.90 to 2.30.
 
     The information above summarizes the material analyses prepared by Merrill
Lynch in connection with its opinion. This summary does not purport to be a
complete description of the analyses performed by Merrill Lynch in connection
with the rendering of its fairness opinion. The preparation of a fairness
opinion is a complex process and is not susceptible to partial analysis or
summary description. Merrill Lynch believes that its analyses and the summary
set forth above must be considered as a whole and that selecting portions of its
analyses, without considering all analyses, or selecting part or all of the
above summary, without considering
 
                                       62
<PAGE>   71
 
all factors and analyses, would create an incomplete view of the process
underlying the Merrill Lynch Opinion. In addition, Merrill Lynch considered the
results of every portion of its analysis and did not assign relative weights to
any portion of its analysis, so that the ranges of valuations resulting from any
particular analysis described above should not be taken to be Merrill Lynch's
view of the actual value of QFC, which may be significantly more or less
favorable than as set forth herein. The fact that any specific analysis has been
referred to in the summary above is not meant to indicate that such analysis was
given more weight than any other analyses.
 
     In performing its analyses, Merrill Lynch made numerous assumptions with
respect to industry performance, general business and economic conditions, and
other matters, many of which are beyond the control of QFC, Fred Meyer or Food 4
Less. The analysis performed by Merrill Lynch is not necessarily indicative of
actual values, trading values or actual future results that might be achieved,
all of which may be significantly more or less favorable than suggested by such
analysis. No public company utilized as a comparison is identical to QFC and
none of the comparable acquisition transactions or other business combinations
utilized as a comparison is identical to the transactions contemplated by the
FM/QFC Merger Agreement and the FM/Food 4 Less Merger Agreement. Accordingly, an
analysis of publicly traded comparable companies and comparable business
combinations resulting from the transactions is not mathematical; rather such
analysis involves complex considerations and judgments concerning differences in
financial and operating characteristics of the comparable companies or the
company, or transaction, and other factors that could affect the public trading
values of such comparable companies or company to which they are being compared.
In connection with its analyses, Merrill Lynch utilized estimates and forecasts
of future operating results and estimated synergies provided by the respective
managements of QFC, Fred Meyer and Food 4 Less. Analyses based upon forecasts of
future results are not necessarily indicative of actual future results, which
may be significantly more or less favorable than suggested by such analyses.
Because such analyses are inherently subject to uncertainty, being based upon
numerous factors or events beyond the control of QFC, Fred Meyer and Food 4
Less, none of Merrill Lynch, QFC, Fred Meyer or Food 4 Less assumes
responsibility if future results or actual values are materially different from
these forecasts or assumptions. Such analyses were prepared solely as part of
Merrill Lynch's analysis of the fairness of the QFC Exchange Ratio, from a
financial point of view, to the shareholders of QFC, and were provided to the
QFC Board in connection with the delivery of the Merrill Lynch Opinion. Merrill
Lynch's analysis does not purport to be an appraisal or to reflect the prices at
which a company might actually be sold or the prices at which any securities may
be traded in the future. In addition, as described above, the Merrill Lynch
Opinion was one of many factors taken into consideration by the QFC Board in
making its determination to approve the FM/QFC Merger. Consequently, the
analysis described above should not be viewed as determinative of the opinion of
either the QFC Board or management of QFC with respect to the value of QFC or a
combination of QFC with Fred Meyer and Food 4 Less or whether either the QFC
Board or management of QFC would have been willing to agree to a different
exchange ratio.
 
     Pursuant to a letter agreement dated October 16, 1997, QFC has agreed that,
if during the period Merrill Lynch is engaged by QFC or within one year
thereafter, (a) a business combination involving QFC is consummated or (b) QFC
enters into an agreement that subsequently results in a business combination
involving QFC, Merrill Lynch shall be paid by QFC a fee in the amount of
$4,000,000, payable in cash upon the closing of such business combination or, in
the case of a tender offer or exchange offer, upon the first purchase or
exchange of shares pursuant to such tender offer or exchange offer, as the case
may be. Notwithstanding the foregoing, any fee for a business combination
consummated within twelve months after termination of Merrill Lynch's engagement
by QFC shall be payable only if (a) termination of the engagement is not for
cause and (b)such business combination is consummated within such twelve-month
period with any entity or person (i) identified and proposed by Merrill Lynch to
QFC or (ii) with which QFC held discussions regarding a business combination
during the term of Merrill Lynch's engagement by QFC. QFC has also agreed to
reimburse Merrill Lynch for its reasonable out-of-pocket expenses, including,
without limitation, reasonable attorneys' fees and disbursements, and to
indemnify Merrill Lynch and certain related parties from and against certain
liabilities, including certain liabilities under the federal securities laws
arising out of their engagement.
 
                                       63
<PAGE>   72
 
     Merrill Lynch has been engaged from time to time by QFC to provide
investment banking services to QFC and certain of its affiliates. Since December
10, 1995, Merrill Lynch has received compensation from QFC for such services of
approximately $4.6 million, other than fees payable to Merrill Lynch in
connection with the Merrill Lynch Opinion. Merrill Lynch has advised QFC that in
the ordinary course of its business it may actively trade shares of QFC Common
Stock and other securities of QFC, as well as securities of Fred Meyer and Food
4 Less, for Merrill Lynch's own account and for the accounts of its customers.
Accordingly, Merrill Lynch may at any time hold a long or short position in such
securities.
 
INTERESTS OF CERTAIN PERSONS IN THE FM/QFC MERGER
 
     In considering the recommendations of the QFC Board with respect to the
FM/QFC Merger Agreement, QFC shareholders should be aware that certain members
of the management of QFC and the QFC Board have interests in the FM/QFC Merger
that are different from, or in addition to, the interests of the shareholders of
QFC generally. The QFC Board was aware of these interests and considered them,
among other matters, in approving the FM/QFC Merger Agreement.
 
     Directors of QFC. Following the FM/QFC Merger, Samuel Zell and Stuart M.
Sloan, current directors of QFC, will become directors of the Fred Meyer Board.
 
     QFC Stock Option Plans. QFC's 1997 Stock Option Plan, its 1987 Incentive
Stock Option Plan, its 1993 Executive Stock Option Plan and its Directors'
Nonqualified Stock Option Plan provide for the granting of options to purchase
shares of QFC Common Stock. Generally, the options vest ratably over a period of
three to five years and expire, with certain exceptions, 10 years from the date
of grant.
 
     Upon the consummation of the FM/QFC Merger, all outstanding QFC stock
options will be assumed by Fred Meyer and converted automatically into options
to purchase shares of Fred Meyer Common Stock. The number of shares of Fred
Meyer Common Stock to be subject to each converted option will be equal to the
product of the number of shares of QFC Common Stock remaining subject to the
original QFC option multiplied by the QFC Exchange Ratio, rounding down to the
nearest share. The exercise price per share of Fred Meyer Common Stock after the
conversion will be equal to the exercise price per share of the QFC Common Stock
under the original QFC stock option divided by the QFC Exchange Ratio, rounding
down to the nearest cent. The actual net value will depend on the market price
of QFC Common Stock at the consummation of the FM/QFC Merger. See "FM/QFC Merger
Agreement -- Effect on Stock Options and Stock Plans."
 
     1993 Executive Stock Option Plan. The 1993 Executive Stock Option Plan
provides for the granting of options to certain key executive officers for the
purpose of purchasing shares of QFC Common Stock. The options vest ratably over
five years and terminate, with certain exceptions, 10 years from the date of
grant. Options issued under the 1993 Executive Stock Option Plan automatically
become fully vested and exercisable upon a change of control. The consummation
of the FM/QFC Merger will constitute a change of control under the 1993
Executive Stock Option Plan. The following table sets forth information with
respect to the number and approximate net value of accelerated options held by
executive officers of QFC under the 1993 Executive Stock Option Plan (the
"Accelerated QFC Executive Options"):
 
<TABLE>
<CAPTION>
                                               APPROXIMATE NUMBER OF
                                                UNVESTED OPTIONS TO       APPROXIMATE NET VALUE
                                                        BE                         OF
                    NAME                            ACCELERATED          ACCELERATED OPTIONS(1)
---------------------------------------------  ---------------------     -----------------------
<S>                                            <C>                       <C>
Stuart M. Sloan..............................          308,900                 $12,150,369
Dan Kourkoumelis.............................          262,493                  10,055,898
Christopher A. Sinclair......................          570,130                  19,428,007
Marc W. Evanger..............................          151,039                   6,262,152
William T. Ketcham...........................           39,115                   1,068,719
Frederick S. Meils...........................           62,187                   1,881,580
Michael E. Huse..............................           21,039                     587,777
                                               ---------------------     -----------------------
          Total..............................        1,414,903                 $51,434,502
                                               =====================     =====================
</TABLE>
 
                                       64
<PAGE>   73
 
---------------
 
(1) The amounts in this column have been determined by multiplying (i) the
    number of shares of QFC Common Stock subject to the Accelerated QFC
    Executive Options by (ii) the excess of the $66.4375 share price of QFC
    Common Stock on January 21, 1998 over the exercise price of each Accelerated
    QFC Executive Option, such exercise prices range between $20.25 and $39.75
    per share of QFC Common Stock. The actual net value of the Accelerated QFC
    Executive Options will depend on the market price of QFC Common Stock at the
    consummation of the FM/QFC Merger.
 
     Directors' Stock Unit Plan. Pursuant to the terms of the QFC Directors'
Stock Unit Plan, each non-employee QFC director receives, on January 1st of each
year, that number of stock units equal to $45,000 (less the amount, if any,
which the director elects to receive in cash) divided by the fair market value
of QFC Common Stock on the date of the award. Stock units vest in equal
quarterly installments and may be exercised and converted on a one-for-one basis
into shares of QFC Common Stock on a date designated by each director prior to
grant. For fiscal year 1996, the award value was prorated to $30,000, resulting
in 967 stock units being awarded to each of six directors (for a total of 5,802
units). In 1997, 1,334 stock units were awarded to each of six directors (for a
total of 8,004 units). Each vested stock unit outstanding immediately prior to
the consummation of the FM/QFC Merger will be converted into that number of
shares of Fred Meyer Common Stock as would have been received by the holder if
such stock unit had been exercised and converted into shares of QFC Common Stock
immediately prior to the consummation of the FM/QFC Merger and the QFC Common
Stock that would have been received upon such exercise had been converted to
Fred Meyer Common Stock pursuant to the FM/QFC Merger. Any unvested stock units
remaining prior to the consummation of the FM/QFC Merger will be canceled prior
to the FM/QFC Merger. See "The FM/QFC Merger Agreement -- Effect on Stock
Options and Stock Plans."
 
     Employment Agreements. QFC currently has Employment Agreements with
Christopher A. Sinclair, Dan Kourkoumelis and Marc W. Evanger that, under
certain circumstances, provide for the issuance of severance pay upon
termination. In the case of Mr. Sinclair, if his employment is terminated under
certain circumstances prior to September 16, 1999 (including within 90 days
after a change in control of QFC) he would be entitled to severance payments
equal to his base salary through September 16, 1999 plus any target bonus
applicable to the period during which termination occurred. In the case of Mr.
Kourkoumelis, if his employment is terminated under certain circumstances prior
to September 1, 1999 (including within 180 days after a change in control of
QFC) he would be entitled to severance payments equal to the sum of his base
salary plus bonus and benefits for a period of two years from the date of
termination, and all options to purchase shares of QFC Common Stock held by him
would immediately vest. In the case of Mr. Evanger, if his employment is
terminated under certain circumstances prior to September 1, 1999 (including
within 180 days after a change in control of QFC) he would be entitled to
severance payments equal to the sum of his base salary plus bonus and benefits
for a period of two years from the date of termination, and all options to
purchase shares of QFC Common Stock held by him would immediately vest.
Consummation of the FM/QFC Merger would constitute a change of control.
 
     Indemnification Arrangements with QFC Officers and Directors. Pursuant to
the articles of incorporation of QFC (the "QFC Charter") and the bylaws of QFC
(the "QFC Bylaws"), QFC is obligated to indemnify its current and former
directors and officers (the "QFC Indemnified Parties") to the fullest extent
permitted under applicable law. QFC also maintains directors' and officers'
liability insurance covering the QFC Indemnified Parties in their capacities as
directors and officers of QFC. Upon consummation of the FM/QFC Merger, QFC, as
the surviving corporation of the FM/QFC Merger, will continue to be obligated to
indemnify the QFC Indemnified Parties to an extent no less favorable than the
QFC Indemnified Parties are currently indemnified by QFC. In addition, for a
period of six years after the consummation of the FM/QFC Merger, Fred Meyer will
maintain officers' and directors' liability insurance covering the QFC
Indemnified Parties. See "The FM/QFC Merger Agreement -- Directors' and
Officers' Indemnification; Insurance" for a description of provisions of the
FM/QFC Merger Agreement relating to the indemnification of current and former
directors, officers and employees of QFC.
 
     Registration Rights Agreement. Pursuant to the FM/QFC Merger Agreement, at
or prior to the consummation of the FM/QFC Merger, Fred Meyer will enter into a
registration rights agreement with Zell/
 
                                       65
<PAGE>   74
 
Chilmark and Stuart M. Sloan (the "QFC Registration Rights Agreement"). Under
the terms of the QFC Registration Rights Agreement, if requested by
Zell/Chilmark or Mr. Sloan, Fred Meyer will prepare and file with the Securities
and Exchange Commission (the "Commission") a shelf registration statement. In
addition, if requested by Zell/Chilmark or Mr. Sloan, Fred Meyer will prepare
and file with the Commission a registration statement with respect to a
secondary underwritten offering on an appropriate form relating to the
registrable securities as to which Zell/Chilmark or Mr. Sloan requests
registration. See "Other Agreements -- FM/QFC Merger -- Registration Rights
Agreement."
 
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
 
     General. The obligations of Fred Meyer and QFC to consummate the FM/QFC
Merger are conditioned on the receipt by Fred Meyer of an opinion from Simpson
Thacher & Bartlett, its counsel, and the receipt by QFC of an opinion from
Sidley & Austin, its counsel, respectively, that for United States federal
income tax purposes:
 
          (1) The FM/QFC Merger will constitute a reorganization within the
     meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
     (the "Code"), and QFC, QFC Sub, and Fred Meyer will each be a party to such
     reorganization within the meaning of Section 368(b) of the Code;
 
          (2) No gain or loss will be recognized by Fred Meyer, QFC Sub, or QFC
     as a result of the FM/QFC Merger;
 
          (3) No gain or loss will be recognized by the shareholders of QFC upon
     the exchange of their QFC Common Stock solely for shares of Fred Meyer
     Common Stock pursuant to the FM/QFC Merger, except with respect to cash, if
     any, received in lieu of fractional shares of Fred Meyer Common Stock;
 
          (4) The aggregate tax basis of the shares of Fred Meyer Common Stock
     received solely in exchange for QFC Common Stock pursuant to the FM/QFC
     Merger (including fractional shares of Fred Meyer Common Stock for which
     cash is received) will be the same as the aggregate tax basis of the QFC
     Common Stock exchanged therefor;
 
          (5) The holding period for shares of Fred Meyer Common Stock received
     solely in exchange for QFC Common Stock pursuant to the FM/QFC Merger will
     include the holding period of the QFC Common Stock exchanged therefor,
     provided such QFC Common Stock was held as a capital asset by the
     shareholder at the FM/QFC Merger Effective Time; and
 
          (6) A shareholder of QFC who receives cash in lieu of a fractional
     share of Fred Meyer Common Stock will recognize gain or loss equal to the
     difference, if any, between such shareholder's tax basis in such fractional
     share (as described in clause (4) above) and the amount of cash received.
 
     The opinions of counsel will be based in part upon representations made as
of the FM/QFC Merger Effective Time by QFC, Fred Meyer and certain shareholders,
which counsel will assume to be true, correct and complete. If the
representations are inaccurate, the opinions of counsel could be adversely
affected. No ruling has been sought from the Internal Revenue Service as to the
United States federal income tax consequences of the FM/QFC Merger, and the
opinions of counsel will not be binding upon the Internal Revenue Service or any
court.
 
     Dissenting QFC Shareholders. A shareholder of QFC who exercises dissenters'
rights as described below under "-- Dissenters' Rights" should, in general,
treat the difference between the tax basis of the QFC Common Stock held by such
shareholder with respect to which such rights are exercised and the amount
received through the exercise of such rights as capital gain or loss for United
States federal income tax purposes.
 
     Backup Withholding; Information Reporting; Records. Certain noncorporate
QFC shareholders may be subject to backup withholding at a rate of 31% on cash
payments received in lieu of a fractional share interest in Fred Meyer Common
Stock. Backup withholding will not apply, however, to a shareholder who (i)
furnishes a correct taxpayer identification number ("TIN") and certifies that he
or she is not subject to backup withholding on the substitute Form W-9 included
in the QFC Transmittal Letter (as defined below),
 
                                       66
<PAGE>   75
 
(ii) provides a certificate of foreign status on Form W-8, or (iii) is otherwise
exempt from backup withholding. A shareholder who fails to provide the correct
TIN on Form W-9 may be subject to a $50 penalty imposed by the Internal Revenue
Service.
 
     Each QFC shareholder will be required to retain records and file with such
holder's United States federal income tax return a statement setting forth
certain facts relating to the FM/QFC Merger.
 
     Limitations. The foregoing discussion is intended only as a summary of
certain United States federal income tax consequences of the FM/QFC Merger. The
discussion does not address the tax consequences that may be relevant to a
particular QFC shareholder subject to special treatment under certain United
States federal income tax laws, such as dealers in securities, financial
institutions, insurance companies, certain retirement plans, tax-exempt
organizations, persons that hold shares of QFC as part of a position in a
"straddle" or as part of a "hedging" transaction for United States federal
income tax purposes or persons with a "functional currency" (as defined in the
Code) other than the U.S. dollar and does not address any consequences arising
under the laws of any state, local or foreign jurisdiction. Moreover, the tax
consequences to holders of QFC options and director stock units are not
discussed.
 
     In particular, the foregoing discussion may not be applicable to non-United
States persons or to shareholders who acquired QFC Common Stock pursuant to the
exercise of QFC options or otherwise as compensation.
 
     The discussion is based upon the Code, Treasury regulations thereunder,
administrative rulings and court decisions as of the date hereof. All of the
foregoing are subject to change, and any such change could affect the continuing
validity of this discussion. QFC SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS CONCERNING FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM
OF THE FRED MEYER/QFC MERGER.
 
ACCOUNTING TREATMENT
 
     The FM/QFC Merger is expected to be accounted for as a pooling-of-interests
in accordance with generally accepted accounting principles ("GAAP") but this
accounting treatment is not a condition to consummation of the FM/QFC Merger.
Under the pooling-of-interests method of accounting, the recorded assets and
liabilities of Fred Meyer and QFC will be carried forward to Fred Meyer's
consolidated financial statements at their historical amounts and the
consolidated earnings of Fred Meyer will include the earnings of Fred Meyer and
QFC for the entire fiscal year in which the FM/QFC Merger occurs and for all
prior years presented and the reported retained earnings of Fred Meyer and QFC
for prior periods will be combined and restated as consolidated retained
earnings of Fred Meyer. See "The FM/QFC Merger Unaudited Pro Forma Condensed
Combined Financial Statements."
 
     Pooling-of-interests accounting treatment requires the sharing of rights
and risks among the affiliates of each of the parties to a business combination
such that sales of stock by affiliates cannot occur in the period commencing 30
days prior to the consummation of the combination and ending on the date on
which the combined company publicly announces financial results covering at
least 30 days of combined operations. To ensure that such pooling requirements
are satisfied, each of Fred Meyer and QFC agreed in the FM/QFC Merger Agreement
to use its reasonable best efforts to obtain written agreements from their
respective affiliates relating to these trading restrictions, among other
things.
 
REGULATORY APPROVALS
 
     Transactions such as those contemplated by the FM/QFC Merger Agreement are
reviewed under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), by the Antitrust Division of the United States
Department of Justice (the "DOJ") and the United States Federal Trade Commission
(the "FTC") and by applicable state antitrust authorities to determine whether
they comply with applicable antitrust laws. Under the provisions of the HSR Act,
the FM/QFC Merger may not be consummated until such time as the applicable
waiting period requirements of the HSR Act have expired or been terminated. Each
of Fred Meyer and QFC has filed notification reports with the DOJ and the FTC
under
 
                                       67
<PAGE>   76
 
the HSR Act and, unless sooner terminated or extended by a request for
additional information, the waiting period with respect to such filings will
expire at 11:59 pm on February 12, 1998.
 
     At any time before or after the FM/QFC Merger Effective Time, the DOJ, the
FTC, applicable state antitrust authorities or a private person or entity could
seek, under applicable federal or state antitrust laws, among other things, to
enjoin the FM/QFC Merger or to cause the divestiture of certain assets of Fred
Meyer or QFC. There is no assurance that a challenge to the FM/QFC Merger will
not be made or that, if such a challenge is made, Fred Meyer and QFC will
prevail. Since announcement of the proposed Mergers, the parties have received
inquiries from antitrust authorities in California, Washington and Oregon. The
parties have been in discussions with the staff of the California Attorney
General's office with respect to certain concerns about the possible competitive
impact of the proposed Mergers in Southern California raised by the California
Attorney General. Those discussions have resulted in a preliminary understanding
that, following completion of both Mergers, Fred Meyer will cause the
divestiture to other supermarket operators of 19 specified stores in Southern
California. The parties are continuing negotiations to finalize the terms upon
which such divestitures will be made. The FTC has advised the parties that it is
reviewing the competitive impact of the proposed Mergers in Southern California
and Washington. In connection with that review, the parties have voluntarily
provided information concerning the food retailing industry and their respective
supermarket operations in those areas to the FTC. In addition, the parties have
apprised the FTC of the preliminary understanding reached with the California
Attorney General to divest 19 supermarkets in Southern California following
completion of both Mergers. That preliminary understanding is not binding on the
FTC. The FTC may have concerns regarding the potential competitive impact of the
proposed Mergers in addition to those raised by the California Attorney General,
and may require additional divestitures in California or elsewhere. No
assurances can be made that the FTC will not require additional divestitures in
California that would result in a reduction of the exchange ratio in the FM/QFC
Merger or a reduction in the number of shares of Fred Meyer Common Stock to be
received by Food 4 Less stockholders and warrant holders in the FM/Food 4 Less
Merger. If the preliminary understanding with the California Attorney General's
office with respect to store divestitures is finalized and if the FTC does not
require additional divestitures in California, there would be no reduction in
the exchange ratio in the FM/QFC Merger and no reduction in the number of shares
of Fred Meyer Common Stock to be issued to Food 4 Less stockholders and warrant
holders in the FM/Food 4 Less Merger. See "The FM/QFC Merger
Agreement -- Antitrust Clearance; Estimated Gain."
 
     Except for approvals otherwise described in this Joint Proxy and Consent
Solicitation Statement/ Prospectus, neither Fred Meyer nor QFC is aware of any
other significant government or regulatory approvals required as a condition to
the consummation of the transactions contemplated by the FM/QFC Merger
Agreement.
 
DISSENTERS' RIGHTS
 
     Under the Washington Business Corporations Act ("WBCA"), holders of QFC
Common Stock have the right to dissent from the FM/QFC Merger and to receive
payment in cash for the fair value of their shares of QFC Common Stock. To
preserve their rights, shareholders who wish to exercise their statutory
dissenters' rights must (i) deliver to QFC before the QFC Special Meeting
written notice of their intent to demand payment for their shares of QFC Common
Stock if the FM/QFC Merger is effected and (ii) not vote their shares in favor
of the FM/QFC Merger.
 
     CHAPTER 13 OF THE WBCA IS REPRINTED IN ITS ENTIRETY IN APPENDIX J TO THIS
JOINT PROXY AND CONSENT SOLICITATION STATEMENT/PROSPECTUS. THE FOLLOWING
DISCUSSION IS NECESSARILY A SUMMARY OF THE LAW RELATING TO DISSENTERS' RIGHTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO APPENDIX J. THIS DISCUSSION AND
APPENDIX J SHOULD BE REVIEWED CAREFULLY BY ANY SHAREHOLDER WHO WISHES TO
EXERCISE STATUTORY DISSENTERS' RIGHTS, OR WHO WISHES TO PRESERVE THE RIGHT TO DO
SO, AS FAILURE TO COMPLY WITH THE PROCEDURES SET FORTH HEREIN OR THEREIN WILL
RESULT IN THE LOSS OF DISSENTERS' RIGHTS.
 
     A shareholder who wishes to exercise dissenters' rights generally must
dissent with respect to all the shares such shareholder owns or over which such
shareholder has power to direct the vote. However, if a
 
                                       68
<PAGE>   77
 
record shareholder is a nominee for several beneficial shareholders, some of
whom wish to dissent and some of whom do not, then the record shareholder may
dissent with respect to all the shares beneficially owned by any one person by
notifying QFC in writing of the name and address of each person on whose behalf
the record shareholder asserts dissenters' rights. A beneficial shareholder may
assert dissenters' rights directly by submitting to QFC the record shareholder's
written consent to the dissent and by dissenting with respect to all the shares
of which such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote.
 
     A shareholder who does not deliver to QFC prior to the vote being taken at
the QFC Special Meeting a written notice of such shareholder's intent to demand
payment for the fair value of the shares will lose the right to exercise
dissenters' rights. Notice must be sent to Quality Food Centers, Inc., 10112 NE
10th Street, Suite 201, Bellevue, Washington 98004, Attention: Susan Obuchowski,
Secretary. In addition, any shareholder electing to exercise dissenters' rights
must not vote in favor of the FM/QFC Merger.
 
     If the FM/QFC Merger is effected, QFC will, within 10 days after the FM/QFC
Merger Effective Time, deliver a written notice to all shareholders who properly
perfected their dissenters' rights. Such notice will, among other things, (i)
state where the payment demand must be sent and where and when certificates must
be deposited; (ii) supply a form for demanding payment, which requires
shareholders to certify that they acquired beneficial ownership of the shares
before the date on which the FM/QFC Merger was first announced; and (iii) set a
date by which QFC must receive the payment demand, which date will be between 30
and 60 days after QFC delivers such notice to dissenting shareholders.
 
     A shareholder wishing to exercise dissenters' rights must file the payment
demand, certify as to whether beneficial ownership of the shares was acquired
before the FM/QFC Merger was announced, and deliver share certificates, in the
manner and by the time set forth in the notice. Failure to do so will cause such
person to lose his or her dissenters' rights.
 
     Within 30 days after the later of the FM/QFC Merger Effective Time and the
date the payment demand is received by QFC, QFC shall pay each dissenter with
properly perfected dissenters' rights QFC's estimate of the fair value of the
shareholder's shares, plus accrued interest from the FM/QFC Merger Effective
Time. QFC will provide, along with such payment, certain financial information
relating to QFC, including QFC's balance sheet, income statement and statement
of changes in shareholders' equity for or as of a fiscal year ending not more
than 16 months before the date of payment and its latest available interim
financial statements, if any, an explanation of how QFC estimated the fair value
of the shares, an explanation of how the accrued interest was calculated and
certain other information. With respect to a dissenter who did not beneficially
own QFC shares prior the public announcement of the FM/QFC Merger, QFC is
required to send an offer to make payment to the dissenter, conditioned upon the
dissenter's agreement to accept the payment in full satisfaction of the
dissenter's demands.
 
     A dissenter dissatisfied with QFC's estimate of the fair value may, within
30 days of payment or offer for payment by QFC of QFC's estimate of the fair
value of such shareholder's shares, notify QFC in writing of such shareholder's
estimate of fair value of his or her shares and the amount of interest due, and
demand payment thereof. If QFC does not accept the dissenter's estimate and the
parties do not otherwise settle on a fair value, the WBCA requires that the
corporation commence a proceeding in King County Superior Court, and petition
the court to determine the fair value of the shares and accrued interest, naming
all the QFC dissenting shareholders whose demands remain unsettled as parties to
the proceeding. The court may appoint one or more persons as appraisers to
receive evidence and recommend the fair value of the QFC shares. The dissenters
will be entitled to the same discovery rights as parties in the other civil
actions. Each dissenter made a party to the proceeding will be entitled to
judgment for the amount, if any, by which the court finds the fair value of his
or her shares, plus accrued interest, exceeds the amount, if any, previously
paid to the dissenter by QFC.
 
     Court costs and appraisers' fees will be assessed against QFC, except that
the court may assess such costs against some or all of the dissenters to the
extent that the court finds the dissenters acted arbitrarily, vexatiously or not
in good faith in demanding payment. The court may also assess the fees and
expenses of counsel and experts of the respective parties in amounts that the
court finds equitable (i) against QFC, if the
 
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<PAGE>   78
 
court finds that QFC did not substantially comply with certain provisions of the
WBCA concerning dissenters' rights and (ii) against either the dissenter or QFC,
if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously or not in good faith. If the court finds
that services of counsel for any dissenter were of substantial benefit to other
dissenters similarly situated, and that the fees should not be assessed against
QFC, the court may award to such counsel reasonable fees to be paid out of the
amounts awarded to all dissenters who benefited from the proceedings.
 
     A shareholder entitled to dissent and obtain payment for such shareholder's
shares of QFC Common Stock under Chapter 13 of the WBCA may not challenge the
FM/QFC Merger unless QFC fails to comply with the procedural requirements
imposed by the WBCA, the QFC Charter or the QFC Bylaws or is fraudulent with
respect to the shareholder or QFC.
 
     QFC shareholders who dissent from the FM/QFC Merger will generally
recognize taxable gain or loss for federal income tax purposes. See "-- Certain
United States Federal Income Tax Consequences -- Dissenting QFC Shareholders,"
above.
 
     In view of the complexity of Chapter 13 of the WBCA, QFC shareholders who
may wish to dissent from the FM/QFC Merger and pursue dissenters' rights should
consult their legal advisors.
 
STOCK EXCHANGE LISTING OF FRED MEYER COMMON STOCK
 
     Application will be made for the listing on the NYSE of the shares of Fred
Meyer Common Stock to be issued in the FM/QFC Merger. This listing is a
condition to the obligation of QFC to effect the FM/QFC Merger. So long as QFC
continues to meet applicable listing requirements, QFC Common Stock will
continue to be listed on the NYSE until consummation of the FM/QFC Merger. See
"The FM/QFC Merger Agreement -- Conditions to Each Party's Obligation to Effect
the FM/QFC Merger."
 
FEDERAL SECURITIES LAW CONSEQUENCES
 
     All shares of Fred Meyer Common Stock received by QFC shareholders in
connection with the FM/QFC Merger will be freely transferable, except that
shares of Fred Meyer Common Stock received by persons who are deemed to be
"affiliates" (as that term is defined under the Securities Act of 1933, as
amended (the "Securities Act")) of QFC prior to the FM/QFC Merger may be resold
by them only in transactions permitted by the resale provisions of Rule 145
promulgated under the Securities Act (or Rule 144, in the case of such persons
who become affiliates of Fred Meyer) or as otherwise permitted under the
Securities Act. Persons who may be deemed to be affiliates of QFC generally
include individuals or entities that control, are controlled by, or are under
common control with, QFC, and may include certain officers and directors as well
as principal shareholders of QFC. The FM/QFC Merger Agreement requires QFC to
use its reasonable efforts to cause each of its affiliates to execute a written
agreement to the effect that the affiliate will not sell, assign or transfer any
shares of Fred Meyer Common Stock received in connection with the FM/QFC Merger
except (i) pursuant to an effective registration statement under the Securities
Act, (ii) by a sale made in conformity with the volume and other limitations of
Rule 145 promulgated under the Securities Act (and otherwise in accordance with
Rule 144 promulgated under the Securities Act if the person is an affiliate of
Fred Meyer and if so required at the time) or (iii) in a transaction that, in
the opinion of the general counsel of Fred Meyer or other counsel reasonably
satisfactory to Fred Meyer or as described in a "no action" or interpretative
letter from the staff of the Commission, is not required to be registered under
the Securities Act. Affiliates of Fred Meyer and QFC will also be subject to
trading restrictions imposed by the pooling-of-interests accounting rules. See
"-- Accounting Treatment."
 
     This Joint Proxy and Consent Solicitation Statement/Prospectus does not
cover resales of Fred Meyer Common Stock received by any person who may be
deemed to be an affiliate of Fred Meyer or QFC.
 
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<PAGE>   79
 
                          THE FM/QFC MERGER AGREEMENT
 
     The following summary of certain terms and provisions of the FM/QFC Merger
Agreement, which describes all material terms and provisions thereof, is
qualified in its entirety by reference to the other information contained
elsewhere in this Joint Proxy and Consent Solicitation Statement/Prospectus
including the Appendices hereto and the documents incorporated herein by
reference. A copy of the FM/QFC Merger Agreement (excluding the Exhibits and
Schedules thereto) is set forth in Appendix A to this Joint Proxy and Consent
Solicitation Statement/Prospectus and is incorporated herein by reference, and
reference is made thereto for a complete description of the terms of the FM/QFC
Merger. Holders of QFC Common Stock and holders of Fred Meyer Common Stock are
urged to read the FM/QFC Merger Agreement and each of the other Appendices
hereto carefully.
 
THE MERGER
 
     The FM/QFC Merger Agreement provides that, following the approval by the
Fred Meyer stockholders and QFC shareholders and the satisfaction or waiver of
the other conditions to the FM/QFC Merger, the FM/QFC Merger will be effected by
the merger of a newly formed subsidiary of Fred Meyer, QFC Sub, with and into
QFC, in which QFC will be the surviving corporation and will be wholly owned by
Fred Meyer.
 
     The consummation of the FM/QFC Merger (the "FM/QFC Merger Closing") will
take place on the second business day following the date on which the last of
the conditions is satisfied or waived, or at such other time and date to which
Fred Meyer and QFC mutually agree (such date of FM/QFC Merger Closing, the
"FM/QFC Merger Closing Date"). On the FM/QFC Merger Closing Date, Fred Meyer and
QFC will cause articles of merger to be filed with the Secretary of State of the
State of Washington, at which time and date, or at such later time or date
specified in the articles of merger, the FM/QFC Merger will become effective.
 
CONVERSION OF SHARES
 
     At the FM/QFC Merger Effective Time, each share of QFC Common Stock (other
than shares as to which dissenters' rights have been properly exercised as
described herein) will be converted into and represent a number (rounded to the
nearest ten-thousandth of a share) of fully paid and nonassessable shares of
Fred Meyer Common Stock, equal to the greater of (i) 1.9 and (ii) the number
equal to the lesser of (A) 2.3 and (B) the number determined by dividing $55 by
the Average Fred Meyer Price (as defined below); provided, that the QFC Exchange
Ratio will be reduced by the Exchange Ratio Adjustment Amount (as defined
below), if any. The "Average Fred Meyer Price" will be equal to the average of
the closing prices of the Fred Meyer Common Stock on the NYSE as reported on the
NYSE Composite Transaction Tape for 15 randomly selected trading days by lot out
of the 35 trading days ending on the second trading day preceding the FM/QFC
Merger Effective Time.
 
     The "Exchange Ratio Adjustment Amount" will be equal to (i) the Total
Deduction Amount (as defined below) divided by (ii) the product of (x) the
Average Fred Meyer Price and (y) the aggregate number of shares of QFC Common
Stock outstanding on a fully diluted basis immediately prior to the FM/QFC
Merger Effective Time. The "Total Deduction Amount" will be equal to (i) the
product of (A) four and (B) the Lost EBITDA (as defined below) in excess of $15
million, minus (ii) 50% of the Estimated Gain (as defined below under
"-- Antitrust Clearance; Estimated Gain"). The "Lost EBITDA" will be equal to
the aggregate earnings before interest, taxes, corporate allocation costs for
administration (including costs for management information systems),
depreciation and amortization from the continuing operations of any store,
office, plant or warehouse (collectively, "Facilities") of QFC or Food 4 Less to
be divested as described under "-- Antitrust Clearance; Estimated Gain" (each a
"Divested Facility") and located in the State of California during the
twelve-month period ending on the second most recent month-end prior to the
earlier of (i) the agreement of Fred Meyer with the applicable governmental or
regulatory authority to divest such Divested Facilities and (ii) the FM/QFC
Merger Effective Time; provided, that, for any new Divested Facility to be
divested which has not been in operation for such twelve-month period (each a
"New Facility"), Lost EBITDA for such New Facility will be an amount equal to
80%
 
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<PAGE>   80
 
of the Average Facility EBITDA. "Average Facility EBITDA" is equal to the
aggregate Lost EBITDA of all Facilities (other than New Facilities) owned by the
company which is divesting such New Facility, assuming all such Facilities are
to be divested as described under "-- Antitrust Clearance; Estimated Gain,"
divided by the total number of such Facilities (other than New Facilities).
 
     Any share of QFC Common Stock that is held in the treasury of QFC or owned
by Fred Meyer, QFC Sub or any other direct or indirect subsidiary of Fred Meyer
or of QFC will be canceled. Each share of common stock of QFC Sub issued and
outstanding immediately prior to the FM/QFC Merger Effective Time will remain
outstanding and will be unchanged after the FM/QFC Merger and will thereafter
constitute all of the issued and outstanding capital stock of QFC.
 
     Consequently, as a result of the FM/QFC Merger, QFC will become a wholly
owned direct subsidiary of Fred Meyer, and holders of QFC Common Stock will
become holders of Fred Meyer Common Stock.
 
FRACTIONAL SHARES
 
     No fractional shares of Fred Meyer Common Stock will be issued in
connection with the FM/QFC Merger. In lieu of any such fractional shares, each
holder of shares of QFC Common Stock who would otherwise have been entitled to
receive a fraction of a share of Fred Meyer Common Stock (after taking into
account all shares of QFC Common Stock then held of record by such holder) will
receive cash (without interest) in an amount equal to the product of such
fractional part of a share of Fred Meyer Common Stock multiplied by the Average
Fred Meyer Price.
 
EXCHANGE OF CERTIFICATES
 
     Promptly after the FM/QFC Merger Effective Time, Fred Meyer will cause the
Bank of New York, in its capacity as exchange agent (the "Exchange Agent"), to
mail to each record holder of outstanding certificates which immediately prior
to the FM/QFC Merger Effective Time represented shares of QFC Common Stock (the
"QFC Certificates"), a letter of transmittal (the "QFC Letter of Transmittal")
and instructions for use in effecting the surrender of the QFC Certificates in
exchange for certificates representing shares of Fred Meyer Common Stock. Upon
surrender to the Exchange Agent of a QFC Certificate, together with such QFC
Letter of Transmittal duly executed and any other required documents, the holder
of such QFC Certificate will be entitled to receive (i) a certificate
representing that number of whole shares of Fred Meyer Common Stock which such
holder has the right to receive, (ii) cash in lieu of any fractional shares of
Fred Meyer Common Stock to which such holder is entitled, after giving effect to
any required tax withholdings, and (iii) any dividends or distributions to which
such holder is entitled, and the QFC Certificate so surrendered will forthwith
be canceled.
 
     If the exchange of certificates representing shares of Fred Meyer Common
Stock is to be made to a person other than the person in whose name the
surrendered QFC Certificate is registered, it will be a condition of exchange
that the QFC Certificate so surrendered will be properly endorsed or will be
otherwise in proper form for transfer and that the person requesting such
exchange will have paid any transfer and other taxes required by reason of the
exchange of certificates representing shares of Fred Meyer Common Stock to a
person other than the registered holder of the QFC Certificate surrendered or
will have established that such tax either has been paid or is not applicable.
 
     No dividends or other distributions declared or made after the FM/QFC
Merger Effective Time with respect to shares of Fred Meyer Common Stock will be
paid to the holder of any unsurrendered QFC Certificate, and no cash payment in
lieu of fractional shares will be paid, until such QFC Certificate has been
surrendered to the Exchange Agent. Upon such surrender, such dividends and
distributions and such cash payment in lieu of fractional shares will be paid
without interest.
 
     HOLDERS OF QFC COMMON STOCK SHOULD NOT FORWARD QFC CERTIFICATES TO THE
EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS. HOLDERS OF QFC COMMON
STOCK SHOULD NOT RETURN QFC CERTIFICATES WITH THE ENCLOSED PROXY.
 
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<PAGE>   81
 
EFFECT ON STOCK OPTIONS AND STOCK PLANS
 
     At the FM/QFC Merger Effective Time, all the outstanding stock options (the
"QFC Stock Rights") heretofore granted under QFC's option plans and those of its
subsidiaries (the "QFC Stock Plans") shall be assumed by Fred Meyer and
converted automatically into options to purchase shares of Fred Meyer Common
Stock (collectively, "New Stock Rights") in an amount and, if applicable, at an
exercise price determined as provided below:
 
          (i) The number of shares of Fred Meyer Common Stock to be subject to
     the New Stock Right shall be equal to the product of the number of shares
     of QFC Common Stock remaining subject (as of immediately prior to the
     FM/QFC Merger Effective Time) to the original QFC Stock Right and the QFC
     Exchange Ratio, provided that any fractional shares of Fred Meyer Common
     Stock resulting from such multiplication shall be rounded down to the
     nearest share; and
 
          (ii) The exercise price per share of Fred Meyer Common Stock under the
     New Stock Right shall be equal to the exercise price per share of QFC
     Common Stock under the original QFC Stock Right divided by the QFC Exchange
     Ratio, provided that such exercise price shall be rounded down to the
     nearest cent;
 
provided that in the case of incentive stock options, the option price, number
of shares purchasable and other terms and conditions of such option will be
determined in order to comply with the applicable provisions of the Code. After
the FM/QFC Merger Effective Time, each New Stock Right shall be exercisable and
shall vest upon the same terms and conditions as were applicable to the related
QFC Stock Right immediately prior to the FM/QFC Merger Effective Time.
 
     At the FM/QFC Merger Effective Time, each vested stock unit ("Stock Unit")
outstanding under QFC's Directors' Stock Unit Plan shall be converted into that
number of shares of Fred Meyer Common Stock and such other property as would
have been received by the holder of such Stock Unit if such Stock Unit had been
exercised and converted into shares of QFC Common Stock immediately prior to the
FM/QFC Merger Effective Time and QFC Common Stock that would have been received
upon such exercise had been converted as described under "-- Conversion of
Shares." Unvested Stock Units will be canceled prior to the FM/QFC Merger
Effective Time. See "FM/QFC Merger -- Interests of Certain Persons in the FM/QFC
Merger."
 
REPRESENTATIONS AND WARRANTIES
 
     The FM/QFC Merger Agreement contains customary reciprocal representations
and warranties by Fred Meyer and QFC relating to, among other things, (a) their
respective organizations, the organizations of their respective subsidiaries and
similar corporate matters; (b) authorization, execution, delivery, performance
and enforceability of the FM/QFC Merger Agreement and related matters; (c) their
respective capital structures; (d) compliance with applicable laws and
agreements; (e) the accuracy of certain reports and financial statements filed
with the Commission; (f) the absence of adverse material suits, claims or
proceedings and other litigation; (g) the absence of any material adverse
changes to their respective business, operations, condition (financial or
otherwise), results of operations, assets or liabilities; (h) tax matters; (i)
employee benefit plans; (j) the delivery of fairness opinions by their
respective financial advisors; (k) their respective assets; (l) their respective
material contracts and commitments; (m) labor matters; (n) insurance matters;
(o) environmental matters; (p) brokers' and finders' fees; (q) the required vote
of their respective shareholders; and (r) the absence of any action that would
prevent the FM/QFC Merger from qualifying as a tax-free reorganization. The
FM/QFC Merger Agreement also contains additional customary representations and
warranties of QFC relating to, among other things, (a) the absence of other
agreements to sell the company; (b) affiliate transactions; (c) the
inapplicability of Chapter 23B.19 of the WBCA relating to business combinations
with interested shareholders to the FM/QFC Merger Agreement and related
agreements and transactions; and (d) the absence of any action that would
prevent using the pooling-of-interests method to account for the FM/QFC Merger.
 
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<PAGE>   82
 
CONDUCT OF BUSINESS OF QFC PENDING THE FM/QFC MERGER
 
     Pursuant to the FM/QFC Merger Agreement, QFC has agreed that, during the
period from the date of the FM/QFC Merger Agreement until the consummation of
the FM/QFC Merger, it will, subject to certain exceptions specified therein,
conduct its business and the business of its subsidiaries only in the ordinary
course of business and in a manner consistent with past practice and it will
not, among other things: (a) make any capital expenditures in excess of $500,000
in the aggregate, other than expenditures for routine maintenance and repair or
pursuant to existing contracts or commitments or expenditures reflected in
capital expenditure budgets disclosed in the recent reports of QFC filed with
the Commission or supplied to Fred Meyer prior to the date of the FM/QFC Merger
Agreement; (b) incur any indebtedness for borrowed money or guarantee such
indebtedness of another person or make any loans, or advances of borrowed money
or capital contributions to, or equity investments in, any other person or issue
or sell any debt securities, other than borrowings under existing lines of
credit in the ordinary course of business consistent with past practice; (c) (i)
amend its articles of incorporation or bylaws or the charter or bylaws of any of
its subsidiaries, (ii) split, combine or reclassify the outstanding shares of
its capital stock or declare, set aside or pay any dividend or make any other
distribution with respect to such shares of capital stock, (iii) redeem,
purchase or otherwise acquire any shares of its capital stock or (iv) sell or
pledge any stock of any of its subsidiaries; (d) (i) subject to certain
exceptions, issue or sell any additional shares of, or grant, confer or award
any options, warrants or rights of any kind to acquire any shares of, its
capital stock, (ii) enter into any agreement out of the ordinary course of its
business to dispose of or acquire a segment of its business, (iii) sell, pledge,
dispose of or encumber any material assets, except in the ordinary course of
business consistent with past practice, or (iv) acquire any corporation,
partnership or other business organization or division thereof or any material
assets (other than inventory in the ordinary course of business consistent with
past practice) or make any material investment in any other person; (e) grant
any new severance or termination pay or increase the benefits payable under its
severance or termination pay policies or agreements or enter into any new
employment or severance agreement with any officer, director or employee; (f)
adopt or amend any bonus, profit sharing, compensation, stock option, pension,
retirement, deferred compensation, employment or other employee benefit plan,
agreement, trust, fund or other arrangement for the benefit of any director,
officer or employee or increase in any manner the compensation or fringe
benefits of any director, officer or employee or grant, confer, award or pay any
forms of cash incentive, bonuses or other benefit not required by any existing
plan, arrangement or agreement except as required by law; (g) enter into or
amend any contract for the purchase of inventory which is not cancelable within
one year without penalty, cost or liability, or any other contract involving
annual expenditures or liabilities in excess of $400,000 which is not cancelable
within two years without penalty, cost or liability; (h) enter into or modify
any material collective bargaining agreements; (i) make any material change in
its tax or accounting policies or any material reclassification of assets or
liabilities except as required by law or GAAP; (j) satisfy any claims,
liabilities or obligations, except in the ordinary course of business consistent
with past practice or in accordance with the existing terms thereof, or waive,
release, grant or transfer any rights of material value or modify or change in
any material respect any existing contract, except in the ordinary course of
business consistent with past practice; (k) settle or compromise material
litigation; (l) take any action (without regard to any action taken or agreed to
be taken by Fred Meyer or any of its affiliates) with knowledge that such action
would prevent (i) Fred Meyer from accounting for the FM/QFC Merger as a
pooling-of-interests or (ii) the FM/QFC Merger from qualifying as a tax-free
reorganization; (m) consummate certain acquisitions except in accordance with
the terms of the agreement disclosed to Fred Meyer prior to the date of the
FM/QFC Merger Agreement; or (n) take any action which would result in any
condition to the FM/QFC Merger not being satisfied.
 
CONDUCT OF BUSINESS OF FRED MEYER PENDING THE FM/QFC MERGER
 
     Pursuant to the FM/QFC Merger Agreement, Fred Meyer has agreed that, during
the period from the date of the FM/QFC Merger Agreement until the consummation
of the FM/QFC Merger, it will, subject to certain exceptions specified therein,
conduct its business and the business of its subsidiaries only in the ordinary
course of business and in a manner consistent with past practice and it will
not, among other things: (a) amend its certificate of incorporation; (b) issue,
deliver, sell, pledge, dispose of or encumber, or authorize any shares of
capital stock, or any options, warrants, convertible securities or other rights
of any kind to acquire
 
                                       74
<PAGE>   83
 
any shares of capital stock, of Fred Meyer or any of its subsidiaries (except
for the issuance of shares of Fred Meyer Common Stock issuable in accordance
with the terms of Fred Meyer's employee benefit plans and arrangements or other
stock-based contractual requirements existing as of the date of the FM/QFC
Merger Agreement, directors deferred compensation plan and the Yucaipa Warrant
and except for the issuance of shares of Fred Meyer Common Stock pursuant to the
FM/Food 4 Less Merger Agreement), other than in connection with acquisitions
having a value (on a per-acquisition basis) of not more than $50 million or (on
an aggregate basis) of not more than $200 million; (c) (i) split, combine or
reclassify or otherwise alter Fred Meyer Common Stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of Fred Meyer Common Stock or (ii) redeem, purchase or otherwise
acquire any shares of Fred Meyer Common Stock; (d) acquire (other than pursuant
to the FM/Food 4 Less Merger Agreement) any corporation, partnership or other
business organization or division thereof, if any such action could reasonably
be expected to (i) materially delay obtaining the antitrust clearances
referenced under "-- Antitrust Clearance; Estimated Gain," (ii) increase the
Exchange Ratio Adjustment Amount or (iii) require an amendment of this Joint
Proxy and Consent Solicitation Statement/Prospectus; (e) take any action with
knowledge that such action would prevent (i) Fred Meyer from accounting for the
FM/QFC Merger as a pooling-of-interests or (ii) the FM/QFC Merger from
qualifying as a tax-free reorganization; (f) consummate certain acquisitions
except in accordance with the terms of the agreement disclosed to QFC prior to
the date of the FM/QFC Merger Agreement; or (g) take any action which would
result in any condition to the FM/QFC Merger not being satisfied.
 
ANTITRUST CLEARANCE; ESTIMATED GAIN
 
     Each of Fred Meyer and QFC has agreed to use its reasonable best efforts to
take all appropriate action and to do all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by the FM/QFC Merger Agreement, including, without
limitation, (i) in the case of Fred Meyer, promptly, if required by the FTC or
its staff, the Assistant Attorney General in charge of the Antitrust Division of
the DOJ or his staff, any state attorney general or its staff or any other
similar governmental entity, in each case in order to consummate the FM/QFC
Merger, taking all steps and making all undertakings to secure antitrust
clearance (including steps to effect the sale or other disposition of particular
Facilities of Fred Meyer, its subsidiaries, Food 4 Less, its subsidiaries and/or
QFC and its subsidiaries and to hold separate such Facilities pending such sale
or other disposition), (ii) cooperating in all respects with each other in
connection with any investigation or other inquiry, including any proceeding
initiated by a private party, in connection with the transactions pursuant
thereto, (iii) keeping the other party informed in all material respects of any
material communication received by such party from, or given by such party to,
the FTC, the Antitrust Division of the DOJ or any other governmental authority
and of any material communication received or given in connection with any
proceeding by a private party, in each case regarding any of the transactions
contemplated thereby, and (iv) permitting the other party to review any material
communication given by it to, and consult with each other in advance of any
meeting or conference with, the FTC, the DOJ or any such other governmental
authority or, in connection with any proceeding by a private party, with any
other person, and to the extent permitted by the other person, give the other
party the opportunity to attend and participate in such meetings and
conferences. In case at any time after the FM/QFC Merger Effective Time any
further action is necessary or desirable to carry out the purposes of the FM/QFC
Merger Agreement, the proper officers and directors of each party shall use
their reasonable best efforts to take all such necessary action. For purposes of
meeting, holding discussions and entering into any proposed settlement with any
such governmental authority, Fred Meyer shall appoint a committee consisting of
Ronald W. Burkle (or his designee), Roger A. Cooke (or his designee), a
representative of Food 4 Less and a representative of QFC.
 
     QFC shall make, subject to the condition that the FM/QFC Merger actually
occurs, any undertakings (including undertakings to make sales or other
dispositions), provided that such divestitures need not themselves be made until
after the FM/QFC Merger actually occurs), required in order to obtain the
antitrust clearances for the FM/QFC Merger.
 
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<PAGE>   84
 
     Within five business days after such time as any agreement is reached by
Fred Meyer with the FTC or its staff, the Assistant Attorney General in charge
of the Antitrust Division or his staff, any state attorney general or its staff
or any other similar governmental entity to sell or dispose of any Divested
Facilities, Fred Meyer shall furnish or cause to be furnished to QFC a report
(the "Preliminary Report"), based on such information as Fred Meyer shall
determine to be relevant, stating in reasonable detail Fred Meyer's good faith
determination of the Estimated Gain and Lost EBITDA with respect to the real
estate and other assets comprising such Divested Facilities. Unless QFC provides
specific written notice to Fred Meyer of an objection to any aspect of the
Preliminary Report before the close of business on the tenth business day after
QFC's receipt thereof, the Preliminary Report shall then become binding upon
Fred Meyer and QFC, and shall be the "Final Report". If QFC, by delivering its
own report (the "QFC Report") stating in reasonable detail QFC's good faith
determination of the Estimated Gain and Lost EBITDA to Fred Meyer before the
close of business on such business day, makes any good faith objection to any
aspect of Fred Meyer's proposed Estimated Gain set forth in the Preliminary
Report, then those aspects as to which the objection was made shall not become
binding, Fred Meyer and QFC shall discuss such objection in good faith and, if
they reach written agreement amending the Preliminary Report (or portions
thereof), the Preliminary Report, as amended by such written agreement, shall
become binding upon Fred Meyer and QFC, and shall be the "Final Report". If Fred
Meyer and QFC do not reach such written agreement within five days after QFC
gives such notices of objection, those aspects as to which such objection was
made (relating to Estimated Gain, and not Lost EBITDA) and as to which written
agreement has not been reached shall be submitted for arbitration to one or more
independent business and/or real estate appraisal firm(s) of recognized national
standing with expertise in the valuation of businesses and/or properties
comparable to the Facilities chosen by agreement of Fred Meyer and QFC. Such
firm shall prepare a valuation report with respect to the real estate and other
assets comprising the Divested Facilities, which report, when delivered to Fred
Meyer and QFC, shall become binding upon Fred Meyer and QFC for purposes of
determining the Estimated Gain, and shall (unless a determination made in such
report is higher or lower than both the determination set forth in the
Preliminary Report and the determination set forth in the QFC Report, in which
case the determination set forth in the Preliminary Report or the QFC Report,
whichever is closer to such firm's determination, shall), together with those
aspects of the Preliminary Report as to which no objection was made or as to
which written agreement has been reached, be the "Final Report".
 
     The "Estimated Gain" is the amount set forth in the Final Report and is
equal to the aggregate net proceeds estimated to be realized by Fred Meyer or
any of its subsidiaries on the sale or other disposition of the real estate and
other assets comprising the Divested Facilities in excess of the book value of
the real estate and other assets comprising the Divested Facilities to be so
divested as of the date of determination thereof. The book value of the Divested
Facilities shall be based on the depreciated historical cost of fixtures,
equipment, and leasehold improvements (on land and buildings, if owned, plus
inventory at cost). The foregoing notwithstanding, if within three days of the
issuance of the Final Report, QFC shall produce a signed bona-fide offer from a
qualified buyer to purchase all or any of the Facilities to be disposed of at a
price higher than that contained in the Final Report, then, in such event, the
Estimated Gain shall be increased by the amount which such offer exceeds the
valuation in the Final Report for such Facility or Facilities.
 
NO SOLICITATION
 
     In the FM/QFC Merger Agreement, QFC has agreed that it would, and would
cause its subsidiaries and their respective officers, directors, management
employees, and representatives and agents engaged by the company in connection
with the FM/QFC Merger to, immediately cease any existing discussions or
negotiations, if any, with any parties conducted prior to the date of the FM/QFC
Merger Agreement with respect to any direct or indirect acquisition of or
exchange for (i) all or any material portion of the assets of QFC or its
subsidiaries, (ii) more than 15% of the outstanding material equity interest in
QFC, (iii) any material equity interest in any of the subsidiaries of QFC, or
(iv) any merger, consolidation or other business combination transaction with or
involving QFC or any of its subsidiaries (each, a "QFC Transaction"). The FM/QFC
Merger Agreement provides that neither QFC nor any of its subsidiaries, nor any
of its or their respective officers, directors, management employees or such
representatives and agents, will, directly or indirectly, encourage, solicit,
participate in, facilitate or initiate discussions or negotiations with, or
provide any
 
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<PAGE>   85
 
information to, any person or group (other than Fred Meyer and QFC Sub or any
designees of Fred Meyer or QFC Sub) concerning any QFC Transaction; provided,
that, QFC (and its subsidiaries and its and their respective officers,
directors, employees, representatives or agents) may participate in negotiations
or discussions with, and provide information to, any person concerning a
Transaction submitted in writing by such person to the QFC Board after the date
of the FM/QFC Merger Agreement if (A) such transaction was not solicited,
initiated, facilitated or encouraged in violation of the FM/QFC Merger
Agreement, (B) the QFC Board, in its good faith judgment, believes that such QFC
Transaction is reasonably likely to result in a Superior Transaction (as defined
below) and (C) QFC complies with the other provisions of this paragraph. Nothing
contained in this paragraph shall prohibit the QFC Board from complying with
Rule 14e-2 promulgated under the Exchange Act with regard to a tender or
exchange offer. Unless prohibited from doing so pursuant to a confidentiality
letter in effect on the date of the FM/QFC Merger Agreement, QFC shall notify
Fred Meyer immediately if it receives any unsolicited proposal concerning a QFC
Transaction, the identity of the person making any such proposal and all the
terms and conditions thereof and shall keep Fred Meyer promptly advised of all
developments relating thereto. If QFC is so prohibited, it shall promptly advise
the person making the proposal that it will not participate in negotiations or
discussions with or provide information to such person unless such person
authorizes QFC to comply with the preceding sentence as if such prohibition did
not exist.
 
     "Superior Transaction" is defined in the FM/QFC Merger Agreement to mean
any bona fide QFC Transaction proposal involving at least a majority of the
outstanding shares of QFC Common Stock on terms that the QFC Board determines in
its good faith judgment (based on the advice of a financial advisor of
nationally recognized reputation, taking into account all the terms and
conditions of the QFC Transaction proposal, including any break-up fees, expense
reimbursement provisions and conditions to consummation) are more favorable and
provide greater value to all shareholders of QFC than the FM/QFC Merger taken as
a whole.
 
EMPLOYEE BENEFIT MATTERS
 
     Pursuant to the FM/QFC Merger Agreement, QFC will, or Fred Meyer will cause
QFC to, promptly pay or provide when due all compensation and benefits earned
through or prior to the FM/QFC Merger Effective Time as provided pursuant to the
terms of any employee plans in existence as of the date of the FM/QFC Merger
Agreement for all current and former employees and directors of QFC. Fred Meyer
and QFC have agreed that QFC will pay promptly or provide when due all
compensation and benefits required to be paid pursuant to the terms of any
individual agreement with any employee, former employee, director or former
director in effect and disclosed to Fred Meyer as of the date of the FM/QFC
Merger Agreement.
 
DIRECTORS' AND OFFICERS' INDEMNIFICATION; INSURANCE
 
     The QFC Bylaws after the FM/QFC Merger Effective Time shall contain
provisions no less favorable with respect to indemnification and exculpation
from liability than are set forth in the QFC Charter and QFC Bylaws on the date
of the FM/QFC Merger Agreement, which provisions shall not be amended, repealed
or otherwise modified for a period of six years from the FM/QFC Merger Effective
Time in any manner that would adversely affect the rights thereunder of
individuals who at the FM/QFC Merger Effective Time were directors, officers,
employees or agents of QFC. Without limiting the generality of the foregoing, in
the event any person entitled to indemnification under such provisions becomes
involved in any claim, action, proceeding or investigation after the FM/QFC
Merger Effective Time, QFC shall periodically advance to such person his or her
reasonable legal and other reasonably incurred expenses (including the cost of
any investigation and preparation incurred in connection therewith), subject to
such person providing an undertaking to reimburse all amounts so advanced in the
event of a final non-appealable determination by a court of competent
jurisdiction that such person is not entitled thereto.
 
     For six years from the FM/QFC Merger Effective Time, Fred Meyer shall
maintain in effect the current directors' and officers' liability insurance
covering those persons who are currently covered by QFC's directors' and
officers' liability insurance policy to the extent that it provides coverage for
events occurring on or prior to the FM/QFC Merger Effective Time, so long as the
annual premium therefor would not be in excess of 150%
 
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<PAGE>   86
 
of the last annual premium paid prior to the date of the FM/QFC Merger Agreement
(the "Current Premium"). If such premiums for such insurance would at any time
exceed 150% of the Current Premium, then Fred Meyer shall cause to be maintained
policies of insurance which in Fred Meyer's good faith determination, provide
the maximum coverage available at an annual premium equal to 150% of the Current
Premium.
 
DIRECTORS
 
     The FM/QFC Merger Agreement provides that, promptly following the FM/QFC
Merger Effective Time, the Fred Meyer Board shall elect Samuel Zell and Stuart
M. Sloan, current directors of QFC, to be directors of Fred Meyer.
 
CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE FM/QFC MERGER
 
     The respective obligations of each party to effect the FM/QFC Merger will
be subject to the following conditions:
 
          (i) The FM/QFC Merger Agreement will have been approved by the QFC
     shareholders. The issuance of Fred Meyer Common Stock in the FM/QFC Merger
     will have been approved by the Fred Meyer stockholders.
 
          (ii) No statute, rule, regulation, executive order, decree, ruling,
     injunction or other order will have been enacted, entered, promulgated or
     enforced by any court or governmental authority of competent jurisdiction
     which prohibits, restrains, enjoins or restricts the consummation of the
     FM/QFC Merger.
 
          (iii) Any waiting period applicable to the FM/QFC Merger under the HSR
     Act will have terminated or expired.
 
          (iv) The Registration Statement on Form S-4 to which this Joint Proxy
     and Consent Solicitation Statement/Prospectus forms a part (the
     "Registration Statement") will have become effective under the Securities
     Act and will not be the subject of any stop order or proceedings seeking a
     stop order, and any material "blue sky" and other state securities laws
     applicable to the registration of Fred Meyer Common Stock to be exchanged
     for QFC Common Stock will have been complied with.
 
          (v) The shares of Fred Meyer Common Stock issuable to the holders of
     QFC Common Stock pursuant to the FM/QFC Merger will have been approved for
     listing on the NYSE, subject to official notice of issuance.
 
CONDITIONS TO OBLIGATIONS OF QFC TO EFFECT THE FM/QFC MERGER
 
     The obligation of QFC to effect the FM/QFC Merger will be subject to the
following additional conditions:
 
          (i) Fred Meyer and QFC Sub will have performed or complied with in all
     material respects their agreements and covenants contained in the FM/QFC
     Merger Agreement required to be performed or complied with at or prior to
     the FM/QFC Merger Closing Date, and the representations and warranties of
     Fred Meyer and QFC Sub contained in the FM/QFC Merger Agreement qualified
     as to materiality will be true in all respects, and those not so qualified
     will be true in all material respects, in each case when made and on and as
     of the FM/QFC Merger Closing Date with the same force and effect as if made
     on and as of such date except as contemplated or permitted by the FM/QFC
     Merger Agreement.
 
          (ii) QFC will have received an opinion of Sidley & Austin as described
     in "The FM/QFC Merger -- Certain United States Federal Income Tax
     Consequences."
 
          (iii) There will not be pending or threatened by any governmental
     entity any suit, action or proceeding, which could reasonably be expected,
     if adversely determined, to result in criminal or material uninsured and
     unindemnified or unindemnifiable personal liability on the part of one or
     more directors of QFC, (i) challenging or seeking to restrain or prohibit
     the consummation of the FM/QFC Merger or
 
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<PAGE>   87
 
     (ii) seeking to prohibit or limit the ownership or operation by QFC, Fred
     Meyer or any of their respective subsidiaries of any material portion of
     the business or assets of QFC, Fred Meyer or any of their respective
     subsidiaries, or to dispose of or hold separate any material portion of the
     business or assets of QFC, Fred Meyer or any of their respective
     subsidiaries, as a result of the FM/QFC Merger.
 
CONDITIONS TO OBLIGATIONS OF FRED MEYER AND QFC SUB TO EFFECT THE FM/QFC MERGER
 
     The obligations of Fred Meyer and QFC Sub to effect the FM/QFC Merger will
be subject to the following additional conditions:
 
          (i) QFC will have performed or complied with in all material respects
     its agreements and covenants contained in the FM/QFC Merger Agreement
     required to be performed or complied with at or prior to the FM/QFC Merger
     Closing Date, and the representations and warranties of QFC contained in
     the FM/QFC Merger Agreement qualified as to materiality will be true in all
     respects, and those not so qualified will be true in all material respects,
     in each case when made and on and as of the FM/QFC Merger Closing Date with
     the same force and effect as if made on and as of such date except as
     contemplated or permitted by the FM/QFC Merger Agreement.
 
          (ii) Fred Meyer will have received an opinion of Simpson Thacher &
     Bartlett as described in "The FM/QFC Merger -- Certain United States
     Federal Income Tax Consequences."
 
          (iii) Subject to Fred Meyer's compliance with provisions described
     under "-- Antitrust Clearance; Estimated Gain," there will not be pending
     or threatened by any governmental entity any suit, action or proceeding,
     (i) challenging or seeking to restrain or prohibit the consummation of the
     FM/QFC Merger or seeking to obtain from Fred Meyer or any of its
     subsidiaries any damages that are material in relation to Fred Meyer and
     its subsidiaries taken as a whole, (ii) seeking to prohibit or limit the
     ownership or operation by QFC, Fred Meyer or any of their respective
     subsidiaries of any material portion of the business or assets of QFC, Fred
     Meyer or any of their respective subsidiaries, to dispose of or hold
     separate any material portion of the business or assets of QFC, Fred Meyer
     or any of their respective subsidiaries, as a result of the FM/QFC Merger,
     or (iii) seeking to prohibit Fred Meyer or any of its subsidiaries from
     effectively controlling in any material respect the business or operations
     of QFC or its subsidiaries.
 
TERMINATION
 
     The FM/QFC Merger Agreement may be terminated and the FM/QFC Merger may be
abandoned at any time prior to the FM/QFC Merger Effective Time:
 
          (i) By mutual written consent of Fred Meyer and QFC;
 
          (ii) By either Fred Meyer or QFC, if the FM/QFC Merger shall not have
     been consummated on or before August 31, 1998 (other than due to the
     failure of the party seeking to terminate the FM/QFC Merger Agreement to
     perform its obligations required to be performed at or prior to the FM/QFC
     Merger Effective Time);
 
          (iii) By Fred Meyer or QFC, if any required approval of the QFC
     shareholders for the FM/QFC Merger shall not have been obtained by reason
     of the failure to obtain the required vote upon a vote held at a duly held
     meeting of shareholders or at any adjournment thereof;
 
          (iv) By QFC or Fred Meyer, if the required approval of the Fred Meyer
     stockholders for the issuance of Fred Meyer Common Stock pursuant to the
     FM/QFC Merger shall not have been obtained by reason of the failure to
     obtain the required vote upon a vote held at a duly held meeting of
     stockholders or at any adjournment thereof;
 
          (v) By Fred Meyer (subject to Fred Meyer's compliance with the
     provisions described under "-- Antitrust Clearance; Estimated Gain") or
     QFC, if any court or other governmental body of competent jurisdiction
     shall have issued a final order, decree or ruling or taken any other final
     action
 
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<PAGE>   88
 
     restraining, enjoining or otherwise prohibiting the FM/QFC Merger and such
     order, decree, ruling or other action is or shall have become final and
     nonappealable;
 
          (vi) By QFC, if (a) there shall have been a breach of any
     representation or warranty on the part of Fred Meyer which could reasonably
     be expected to have a material adverse effect with respect to Fred Meyer or
     which could reasonably be expected to materially adversely affect (or
     materially delay) the consummation of the FM/QFC Merger or (b) there shall
     have been a breach of any covenant or agreement on the part of Fred Meyer
     which could reasonably be expected to have a material adverse effect with
     respect to Fred Meyer or which could reasonably be expected to materially
     adversely affect (or materially delay) the consummation of the FM/QFC
     Merger, which breach shall not have been cured prior to 10 days following
     notice thereof;
 
          (vii) By Fred Meyer, if (a) there shall have been a breach of any
     representation or warranty on the part of QFC which could reasonably be
     expected to have a material adverse effect with respect to QFC or which
     could reasonably be expected to materially adversely affect (or materially
     delay) the consummation of the FM/QFC Merger or (b) there shall have been a
     breach of any covenant or agreement on the part of QFC which could
     reasonably be expected to have a material adverse effect with respect to
     QFC or which could reasonably be expected to materially adversely affect
     (or materially delay) the consummation of the FM/QFC Merger, which breach
     shall not have been cured prior to 10 days following notice thereof;
 
          (viii) By Fred Meyer, if the QFC Board shall have (a) withdrawn,
     modified or amended in any respect adverse to Fred Meyer its approval or
     recommendation of the FM/QFC Merger Agreement, the FM/QFC Merger or any of
     the other transactions contemplated therein or resolved to do so (provided
     that the disclosure of the receipt of an Alternative Transaction (as
     defined below under "-- Termination Fee and Expenses") and the fact that
     the QFC Board is considering such Alternative Transaction or reviewing it
     with its advisors shall not by itself constitute such a withdrawal,
     modification or amendment), or (b) recommended an Alternative Transaction
     (other than from Fred Meyer) or resolved to do so;
 
          (ix) By QFC (but only prior to approval by the QFC shareholders of the
     FM/QFC Merger Agreement and the FM/QFC Merger), if any person (other than
     Fred Meyer) shall have proposed a Superior Transaction, such proposal is
     pending and QFC shall have notified Fred Meyer of such Superior Transaction
     at least 5 business days prior to such termination; provided that such
     termination shall not be effective until QFC has made payment of the Fee
     and the Expenses as described below; or
 
          (x) By QFC, if the average of the closing prices of the Fred Meyer
     Common Stock on the NYSE as reported on the NYSE Composite Transaction Tape
     for the 5 trading days ending on the second trading day preceding the
     FM/QFC Merger Effective Time is $20.00 or less.
 
TERMINATION FEE AND EXPENSES
 
     QFC has agreed to pay to Fred Meyer a fee in cash of $40 million (the
"Fee") and Fred Meyer's actual expenses of up to $5 million ("Expenses")
incurred in connection with the transactions contemplated by the FM/QFC Merger
Agreement upon the occurrence of either of the following events:
 
          (i) The FM/QFC Merger Agreement is terminated as described in clause
     (viii) or (ix) set forth under "-- Termination" above; or
 
          (ii) (x) Fred Meyer terminates the FM/QFC Merger Agreement (A) as
     described in clause (iii) set forth under "-- Termination" above and, prior
     to the QFC Special Meeting giving rise to Fred Meyer's right of
     termination, the issuance of Fred Meyer Common Stock pursuant to the
     FM/Food 4 Less Merger Agreement will have been approved by a vote held at a
     duly held meeting of the Fred Meyer stockholders or at any adjournment
     thereof and the FM/Food 4 Less Merger Agreement will be in full force and
     effect; or (B) as described in clause (vii) set forth under
     "-- Termination" above (as a result of a willful breach of representation,
     warranty, covenant or agreement on the part of QFC) and, (y) in the case of
     (A) or (B), within nine months thereafter, QFC enters into an agreement
     with respect to an
 
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<PAGE>   89
 
     Alternative Transaction (as defined below) or an Alternative Transaction
     contemplated by any of clauses (i), (ii), or (iii) of the definition of
     such term occurs.
 
     "Alternative Transaction" means any of the following events: (i) the
acquisition of QFC by merger, tender offer or otherwise by any person other than
Fred Meyer, QFC Sub or any affiliate thereof (a "Third Party"); (ii) the
acquisition by a Third Party of 30% or more of the assets of QFC and its
subsidiaries, taken as a whole; (iii) the acquisition by a Third Party of 30% or
more of the outstanding shares of QFC Common Stock; (iv) the adoption by QFC of
a plan of liquidation or the declaration or payment of an extraordinary
dividend; or (v) the repurchase by QFC or any of its subsidiaries of 30% or more
of the outstanding shares of QFC Common Stock.
 
AMENDMENT AND WAIVER
 
     The FM/QFC Merger Agreement may be amended by the parties by action taken
by or on behalf of their respective Boards of Directors at any time before or
after any required approval of matters presented in connection with the FM/QFC
Merger by the shareholders of either QFC or Fred Meyer; provided, however, that
after any such approval, there will be made no amendment that by law requires
further approval by such shareholders without the further approval of such
shareholders. In addition, either party may waive, by written instrument signed
on its behalf, any provision of the FM/QFC Merger Agreement.
 
                       OTHER AGREEMENTS -- FM/QFC MERGER
 
SHAREHOLDERS AGREEMENTS
 
     As an inducement and condition to the willingness of Fred Meyer to enter
into the FM/QFC Merger Agreement, Zell/Chilmark and Stuart M. Sloan, the owners
as of the QFC Record Date of approximately 19% and 7%, respectively, of the
outstanding shares of QFC Common Stock (the "QFC Shareholders"), entered into
the Shareholders Agreements.
 
     In the Shareholders Agreements, each QFC Shareholder has agreed, at any
meeting of shareholders of QFC called to vote upon the FM/QFC Merger and the
FM/QFC Merger Agreement or at any adjournment thereof or in any other
circumstances upon which a vote, consent or other approval with respect to the
FM/QFC Merger and the FM/QFC Merger Agreement is sought, such QFC Shareholder
shall be present (in person or by proxy) and shall vote or cause to be voted all
of such QFC Shareholder's shares of QFC Common Stock (the "Subject QFC Shares")
(A) in favor of the FM/QFC Merger, the adoption by QFC of the FM/QFC Merger
Agreement and the approval of the terms thereof and each of the other
transactions contemplated by the FM/QFC Merger Agreement and (B) against (i) any
merger agreement or merger (other than the FM/QFC Merger Agreement and the
FM/QFC Merger), consolidation, combination, sale of substantial assets,
reorganization, recapitalization, dissolution, liquidation or winding-up of or
by QFC or any other takeover proposal (collectively, "Takeover Proposal") or
(ii) any amendment of the QFC Charter or QFC Bylaws or other proposal or
transaction involving QFC or any of its subsidiaries, which amendment or other
proposal or transaction would in any manner impede, frustrate, prevent or
nullify the FM/QFC Merger, the FM/QFC Merger Agreement or any of the other
transactions contemplated by the FM/QFC Merger Agreement or change in any manner
the voting rights of any class of capital stock of QFC.
 
     Additionally, in the Shareholders Agreements, each QFC Shareholder has
agreed, subject to certain limited exceptions, not to (a) sell, transfer,
pledge, assign or otherwise dispose of (including by gift) (collectively,
"Transfer"), or enter into any contract, option or other arrangement (including
any profit-sharing arrangement) with respect to the Transfer of, the Subject QFC
Shares to any person other than pursuant to the terms of the FM/QFC Merger or
(b) enter into any voting arrangement, whether by proxy, voting agreement or
otherwise, in connection with, directly or indirectly, any Takeover Proposal.
Each QFC Shareholder has also waived and agreed not to exercise any dissenters'
rights under the WBCA to which such QFC Shareholder might otherwise be entitled
in connection with the FM/QFC Merger or the FM/QFC Merger Agreement.
 
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<PAGE>   90
 
     Pursuant to the terms of the Shareholder Agreements, each QFC Shareholder
agreed that it shall not, and that it shall not permit any of its affiliates,
directors, officers, employees, investment bankers, attorneys and other advisers
or representatives to directly or indirectly, (i) solicit, initiate or encourage
the submission of, any Takeover Proposal, or (ii) participate in any discussions
or negotiations regarding, or furnishing to any person any information with
respect to, or take any other action to facilitate any inquiries or the making
of any proposal that constitutes or may reasonably be expected to lead to, any
Takeover Proposal; provided that such QFC Shareholder and all such other persons
shall be entitled to take all actions and to exercise all rights with respect to
any QFC Transaction as QFC may take or exercise pursuant to the provisions
described under "The FM/QFC Merger Agreement -- No Solicitation" so long as QFC
complies with such provisions.
 
     The Shareholders Agreements will terminate upon the earlier of (a) the
termination of the FM/QFC Merger Agreement, (b) the withdrawal, modification or
amendment by the QFC Board in any respect adverse to Fred Meyer or QFC Sub of
its approval or recommendation of the FM/QFC Merger Agreement, the FM/QFC Merger
or any of the transactions contemplated by the FM/QFC Merger Agreement or (c)
the FM/QFC Merger Effective Time.
 
VOTING AGREEMENT
 
     As an inducement and condition to the willingness of QFC to enter into the
FM/QFC Merger Agreement, certain stockholders of Fred Meyer (the "Fred Meyer
Stockholders") entered into the Voting Agreement. The Fred Meyer Stockholders
are (i) Yucaipa and certain of its affiliates and (ii) Jeffrey P. Smith, Fred L.
Smith and certain Smith family trusts for which they serve as trustee.
 
     Together, the Fred Meyer Stockholders held, at the Fred Meyer Record Date,
approximately 11% of the outstanding shares of Fred Meyer Common Stock.
 
     In the Voting Agreement, each Fred Meyer Stockholder has agreed, at any
meeting of stockholders of Fred Meyer or at any adjournment thereof or in any
other circumstances upon which such Fred Meyer Stockholder's vote, consent or
other approval is sought, such Fred Meyer Stockholder shall vote all of such
Fred Meyer Stockholder's shares of Fred Meyer Common Stock then held by such
Fred Meyer Stockholder in favor of the issuance of the Fred Meyer Common Stock
in the FM/QFC Merger. The Voting Agreement does not contain any restriction on
the ability of the Fred Meyer Stockholders to transfer any shares of Fred Meyer
Common Stock.
 
     The Voting Agreement will terminate upon the earlier of (a) the termination
of the FM/QFC Merger Agreement, (b) the date of termination of the Shareholders
Agreement with Zell/Chilmark or (c) the FM/QFC Merger Effective Time.
 
REGISTRATION RIGHTS AGREEMENT
 
     At or prior to the FM/QFC Merger Effective Time, Fred Meyer and the QFC
Shareholders shall enter into the QFC Registration Rights Agreement providing
for the "shelf" and "demand" registration rights described below.
 
     If requested by a QFC Shareholder or QFC Shareholders holding a majority in
interest in the Registrable Securities (as defined below) after the FM/QFC
Merger Effective Time, as soon as practicable (but in any event not more than 10
days following such request), Fred Meyer shall prepare and file with the
Commission a shelf registration statement on an appropriate form that shall
include all Registrable Securities, and may include securities of Fred Meyer for
sale for Fred Meyer's own account. Fred Meyer shall use its reasonable best
efforts to cause such shelf registration statement to be declared effective as
soon as practicable after such request and in the event of a request made prior
to a public release, within 5 days after the first public release by Fred Meyer
of 30 days of combined financial results of Fred Meyer and QFC. Fred Meyer shall
only be obligated to keep such shelf registration statement effective until the
one year anniversary date (the "Shelf Termination Date") of the date such shelf
registration statement has been declared effective. "Registrable Securities"
mean all shares of Fred Meyer Common Stock acquired by the QFC Shareholders
pursuant to the FM/QFC Merger or otherwise.
 
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<PAGE>   91
 
     In addition, if requested by a QFC Shareholder or QFC Shareholders holding
a majority in interest in the Registrable Securities after the FM/QFC Merger
Effective Time (but not later than 180 days after the Shelf Termination Date),
as soon as practicable (but in any event not more than 15 days following such
request), Fred Meyer shall prepare and file with the Commission a registration
statement with respect to a secondary underwritten offering on an appropriate
form including all of the Registrable Securities as to which such QFC
Shareholder requests registration. Fred Meyer shall use its reasonable best
efforts to cause such registration statement to be declared effective within the
later to occur of the first public release of Fred Meyer of 30 days of combined
financial results of Fred Meyer and QFC and 30 days after the filing of such
registration statement.
 
     Fred Meyer has agreed to pay its expenses associated with the registration
of Registrable Securities, regardless of whether any registration statement
required by the QFC Registration Rights Agreement becomes effective. In
addition, Fred Meyer will provide customary securities law indemnification to
any party who participates in any registration effected under the QFC
Registration Rights Agreement.
 
                           THE FM/FOOD 4 LESS MERGER
 
REASONS OF FRED MEYER FOR THE MERGER
 
     The Fred Meyer Board believes that the terms of the FM/Food 4 Less Merger
Agreement and the transactions contemplated thereby are in the best interests of
Fred Meyer and its stockholders. Accordingly, with the exception of Ronald W.
Burkle who abstained, the Fred Meyer Board has unanimously approved the issuance
of shares of Fred Meyer Common Stock pursuant to the FM/Food 4 Less Merger
Agreement and recommends approval thereof by the stockholders of Fred Meyer.
 
     In reaching its determination to recommend approval of the issuance of
shares of Fred Meyer Common Stock pursuant to the FM/Food 4 Less Merger
Agreement, the Fred Meyer Board consulted with Fred Meyer senior management, as
well as its legal counsel and financial advisors, and considered a number of
factors, including the following:
 
     Enhanced Franchise and Resources. The Fred Meyer Board considered the
current trend toward consolidation in the supermarket and general merchandise
retailing industries, the prospect for further changes in these industries and
the importance of operational scale, financial resources and geographic
diversity to remaining competitive in the long term. In that connection, the
Fred Meyer Board took into account that Fred Meyer and Food 4 Less combined will
have approximately $12.8 billion in estimated annual sales for 1997 and,
together with QFC, will have approximately $15 billion in estimated annual sales
for 1997 on a pro forma basis and will be one of the largest supermarket chains
in the United States. The Fred Meyer Board also considered that the FM/Food 4
Less Merger will add a strong Southern California presence which Fred Meyer
currently lacks and, if the FM/QFC Merger is completed, bolster Food 4 Less'
already leading presence in Southern California.
 
     Long-Term Strategic Issues. The Fred Meyer Board considered that the
FM/Food 4 Less Merger, on a stand-alone basis as well as together with the
FM/QFC Merger, will assist Fred Meyer in addressing certain long-term strategic
issues faced by Fred Meyer, in particular a lack of presence in key geographical
markets and opportunities to leverage its cost structure. The Fred Meyer Board
also considered the possibility that the multiple of price to earnings ratio of
Fred Meyer Common Stock would be higher in view of, among other things, the
makeup and expected growth of the combined company.
 
     Opportunities for Efficiencies and Cost Savings. The Fred Meyer Board
considered that Fred Meyer together with Food 4 Less, and to a greater extent
together with both Food 4 Less and QFC, will be capable of increasing its
profitability through significant cost savings, operating efficiencies,
economies of scale, stronger market position and other synergies stemming from
the strategic geographical fit of such companies. The Fred Meyer Board was
advised by management that, excluding the effect of one-time merger-related
expenses, Fred Meyer was estimated to achieve annual savings and improvements
attributable to such operating factors of approximately $15 million from the
FM/Food 4 Less Merger and approximately $100 million from the
 
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<PAGE>   92
 
FM/Food 4 Less Merger and the FM/QFC Merger. These savings are expected to be
realized over time and are expected to be achievable in full by the end of 2001.
See "Cautionary Statement Concerning Forward-Looking Information."
 
     Financing Cost Savings. The Fred Meyer Board considered annual cost savings
attributable to reductions in financing costs that it expects will result from
the FM/Food 4 Less Merger. It also took into account the uncertainties and risks
associated with achieving such potential savings. See "Cautionary Statement
Concerning Forward-Looking Information."
 
     Financial Considerations. The Fred Meyer Board considered its evaluation of
the financial terms of the FM/Food 4 Less Merger, on a stand-alone basis as well
as together with the FM/QFC Merger, and their effect on holders of Fred Meyer
Common Stock. The Fred Meyer Board considered the financial performance and
condition, businesses and prospects of the three companies, including, but not
limited to, information with respect to the respective recent and historical
stock prices of Fred Meyer and QFC and the respective earnings history and
performance of each of the three companies, as well as the results of Fred
Meyer's due diligence review of Food 4 Less and QFC. The Fred Meyer Board also
took into account the detailed financial analyses and pro forma and other
information with respect to the FM/Food 4 Less Merger, on a stand-alone basis as
well as together with the FM/QFC Merger, presented to it by its financial
advisors, including the projected effects on earnings per share, earnings per
share growth and cash flow. The Fred Meyer Board also considered that the
expected financial effects of the FM/QFC Merger together with the FM/Food 4 Less
Merger were more attractive than that of the FM/Food 4 Less Merger on a
stand-alone basis.
 
     Advice of Financial Advisors and Fairness Opinions. The Fred Meyer Board
considered the financial advice of Salomon and Goldman Sachs (including the
assumptions and methodologies underlying their analyses in connection therewith)
and the November 5, 1997 oral opinion, subsequently confirmed in writing, of
each such financial advisor that the Food 4 Less Exchange Ratio was fair, from a
financial point of view, to Fred Meyer. The written opinions of Salomon and
Goldman Sachs and the analyses underlying such opinions are summarized below,
and complete copies of the written opinions, dated November 6, 1997, setting
forth the procedures followed, the matters considered, the scope of the review
undertaken and the assumptions made by the financial advisors are attached
hereto as Appendices F and G, respectively. See "-- Opinions of Fred Meyer
Financial Advisors Regarding the FM/Food 4 Less Merger." These opinions do not
constitute a recommendation as to how any holder of Fred Meyer Common Stock
should vote with respect to the FM/Food 4 Less Merger.
 
     Complementary Nature of Businesses. The Fred Meyer Board considered the
complementary nature of Food 4 Less' business with that of both Fred Meyer and
QFC and the creation of significant opportunities for development of the
companies on a combined basis without the need for significant restructuring or
redirection. The Fred Meyer Board also took into account the challenges of
combining the businesses of large corporations and the attendant diversion of
management's focus and resources from other operational matters and other
strategic opportunities for an extended period of time.
 
     Regulatory Approval. The Fred Meyer Board considered that Food 4 Less'
stores share certain geographic market positions with QFC. The Fred Meyer Board
also considered that Fred Meyer, Food 4 Less and QFC have agreed to divest
stores to obtain regulatory approval of the Mergers and that the Merger
Agreements provide that the consideration to be paid in connection with the
Mergers will be reduced to a certain extent to reflect the loss of cash flow
above a specified level from such stores.
 
     Terms of FM/Food 4 Less Merger Agreement and Related Agreements. The Fred
Meyer Board took into consideration the terms of the FM/Food 4 Less Merger
Agreement and the agreements contemplated therein (the "FM/Food 4 Less Related
Agreements"), including the form and amount of consideration and the
representations, warranties, covenants and conditions contained in such
agreements.
 
     The foregoing discussion of the information and factors considered by the
Fred Meyer Board is not intended to be exhaustive but is believed to include all
material factors considered by the Fred Meyer Board. In reaching its
determination to approve the FM/Food 4 Less Merger Agreement, the FM/Food 4 Less
Related Agreements, the FM/Food 4 Less Merger and the other transactions
contemplated thereby, the Fred
 
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<PAGE>   93
 
Meyer Board did not assign any relative or specific weights to the foregoing
factors, and individual directors may have given differing weights to different
factors.
 
REASONS OF FOOD 4 LESS FOR THE MERGER
 
     The Food 4 Less Board believes that the terms of the FM/Food 4 Less Merger
Agreement and the transactions contemplated thereby are in the best interests of
Food 4 Less and its stockholders. Accordingly, the Food 4 Less Board has
unanimously approved the FM/Food 4 Less Merger Agreement and recommends approval
and adoption thereof by the stockholders of Food 4 Less. In evaluating the
proposed transactions, the Food 4 Less Board also considered the terms of the
FM/QFC Merger and the business and prospects of QFC. The Food 4 Less Board was
advised that the consummation of the FM/QFC Merger was not a condition to the
effectiveness of the FM/Food 4 Less Merger.
 
     In reaching its determination to recommend approval and adoption of the
FM/Food 4 Less Merger Agreement, the Food 4 Less Board consulted with Food 4
Less senior management, as well as its legal counsel and financial advisors, and
considered a number of factors, including the following:
 
     Strategic Combination. The Food 4 Less Board considered that the FM/Food 4
Less Merger will create a premier multi-regional supermarket and general
merchandise retailing company with stores concentrated in the Pacific Northwest,
Southern and Northern California, and the Intermountain and Southwestern regions
of the United States, with estimated 1997 annual sales of approximately $12.8
billion. The Food 4 Less Board also considered that if the proposed FM/QFC
Merger is also consummated, the three merged entities will have estimated 1997
annual sales of approximately $15 billion. The Food 4 Less Board considered that
the proposed FM/Food 4 Less Merger affords the stockholders of Food 4 Less the
opportunity, as equity holders of Fred Meyer, to participate in the future
growth of a larger and more diversified supermarket company having greater
financial resources, competitive strengths and business opportunities than would
be possible for Food 4 Less as a stand-alone entity.
 
     Implementation of Long-Term Strategy. The Food 4 Less Board considered the
benefits of the FM/Food 4 Less Merger in implementing and accelerating Food 4
Less' basic long-term growth strategy of expanding its presence in the Southern
California region.
 
     Financial Performance and Business. In evaluating the terms of the FM/Food
4 Less Merger, the Food 4 Less Board reviewed, among other things, information
with respect to the financial performance and condition, businesses, assets,
capital structure and prospects of Food 4 Less and Fred Meyer, as well as QFC,
including, but not limited to, information with respect to their respective
recent and historical stock prices and earnings performance, as well as recent
improvements in Food 4 Less' financial results and Fred Meyer's strong same
store sales trends and earnings growth rate. The members of the Food 4 Less
Board were generally familiar with and knowledgeable about Food 4 Less' affairs
and the businesses of Fred Meyer and QFC and further reviewed these matters in
the course of their deliberations. The Food 4 Less Board considered the detailed
financial analyses and pro forma and other information with respect to Food 4
Less, Fred Meyer and QFC presented to it by DLJ and Morgan Stanley.
 
     Opportunities for Efficiencies and Cost Savings. The Food 4 Less Board
considered that, if the FM/QFC Merger is consummated, the combined company will
be capable of increasing its profitability through significant cost savings,
operating efficiencies, economies of scale and other synergies stemming from the
strategic geographical fit of the combined company, the strong market position
of the combined company and the opportunity to participate with other companies
affiliated with Yucaipa in its Best Practices program, as well as substantial
refinancing opportunities. The Food 4 Less Board considered DLJ's and Morgan
Stanley's presentations that, excluding the effect of one-time merger-related
expenses, the combined company is estimated to achieve in excess of $90 million
in annual savings and improvements attributable to such operating factors by the
end of 2001. The Food 4 Less Board also took into account the uncertainties and
risks associated with achieving such potential savings. See "Cautionary
Statement Concerning Forward-Looking Information."
 
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<PAGE>   94
 
     Complementary Nature of Businesses. The Food 4 Less Board considered the
complementary nature of the three companies' businesses and the creation of
significant opportunities for development of the companies on a combined basis
without the need for significant restructuring, redirection or asset
dispositions. The Food 4 Less Board considered Fred Meyer's strength in the
general merchandise area and the contribution that expertise will make to
certain of Food 4 Less' stores. The Food 4 Less Board also took into account the
challenges of combining the businesses of two large corporations and the
attendant diversion of management's focus and resources from other operational
matters and other strategic opportunities for an extended period of time.
 
     Reduced Leverage. The Food 4 Less Board considered the anticipated leverage
and credit rating of the combined company. The Food 4 Less Board considered that
Food 4 Less' current long-term debt to capitalization is approximately 120% and
that it is anticipated, assuming consummation of the FM/QFC Merger, that the
combined company's long-term debt to capitalization would be approximately 70%.
 
     Management Team. The Food 4 Less Board considered that the combination of
three experienced management teams will create a strong management structure for
the combined company.
 
     Consideration to be Received by Stockholders. The Food 4 Less Board
considered the amount and form of the consideration to be received by the
stockholders of Food 4 Less in the FM/Food 4 Less Merger. The Food 4 Less Board
specifically considered the historical and anticipated trading ranges of Fred
Meyer Common Stock, and the fact that holders of Food 4 Less Stock will receive
publicly traded shares in exchange for their Food 4 Less shares (for which there
is no public trading market) in a transaction structured to qualify as a
tax-free exchange. The Food 4 Less Board also considered the opinions of DLJ and
Morgan Stanley (discussed below) and supporting data, including comparative
market information, and concluded that the amount of Fred Meyer Common Stock to
be received by Food 4 Less stockholders represented an attractive valuation for
Food 4 Less Stock. The Food 4 Less Board took into account that the
consideration to be received by the stockholders of Food 4 Less is not fixed and
is subject to adjustment in the event of fluctuations in the market price of
Fred Meyer Common Stock. The Food 4 Less Board recognized that an adjustment
mechanism minimizes the exposure of holders of Food 4 Less Stock to market risk.
 
     The FM/Food 4 Less Merger Agreement and Stockholders Agreements. The Food 4
Less Board considered the terms of the FM/Food 4 Less Merger Agreement. In
addition, the Food 4 Less Board considered the terms of the FM/QFC Merger
Agreement and the Stockholders Agreements entered into between Fred Meyer and
holders of shares of Food 4 Less Stock aggregating approximately 64% of the
current voting power of the outstanding capital stock of Food 4 Less pursuant to
which such holders have agreed to approve of the FM/Food 4 Less Merger Agreement
and to vote against, among other things, any other merger agreement or
acquisition proposal.
 
     Structure of FM/Food 4 Less Merger. The Food 4 Less Board considered the
structure of the FM/Food 4 Less Merger and the management structure and
operations of the combined company following the FM/Food 4 Less Merger, and that
Fred Meyer is, and following consummation of the Mergers will continue to be, a
widely held public company. The Food 4 Less Board also took into account the
interests of Food 4 Less' officers and directors in the FM/Food 4 Less Merger
and the impact of the FM/Food 4 Less Merger on customers and employees of each
of the companies. See "The FM/Food 4 Less Merger -- Interests of Certain Persons
in the FM/Food 4 Less Merger."
 
     Regulatory Approval. The Food 4 Less Board considered that Food 4 Less and
Fred Meyer have strong market positions in contiguous geographic regions but
with limited overlap within geographic regions. The Food 4 Less Board also
considered the issues raised in Southern California as a result of the FM/QFC
Merger. Based on these facts, the Food 4 Less Board reviewed the relevant
provisions of the Merger Agreements and considered the likelihood of obtaining
required regulatory approvals, as well as the possibility that regulatory
authorities may impose conditions to the grant of such approvals.
 
     Financing and Other Contingencies. The Food 4 Less Board considered that
the FM/Food 4 Less Merger is not conditioned on the availability of financing or
the consummation of the FM/QFC Merger.
 
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<PAGE>   95
 
     Financial Advisors' Opinions. The Food 4 Less Board considered as favorable
to its determination the opinions of DLJ and Morgan Stanley, financial advisors
to Food 4 Less, as of November 5, 1997, that the consideration to be received by
holders of Food 4 Less Common Stock pursuant to the terms of the FM/Food 4 Less
Merger Agreement was fair from a financial point of view to such holders. In
addition, the Food 4 Less Board considered the opinion of Morgan Stanley that if
the FM/QFC Merger is consummated, the consideration to be received by holders of
Food 4 Less Common Stock pursuant to the terms of the FM/Food 4 Less Merger
Agreement was fair from a financial point of view to such holders. The Food 4
Less Board also considered the oral and written presentations made to it by DLJ
and Morgan Stanley. A copy of DLJ's and Morgan Stanley's written opinions to the
Food 4 Less Board dated as of November 6, 1997 are attached hereto as Appendices
H and I, respectively, and are incorporated herein by reference. See
"-- Opinions of Food 4 Less Financial Advisors."
 
     The foregoing discussion of the information and factors considered by the
Food 4 Less Board is not intended to be exhaustive but is believed to include
all material factors considered by the Food 4 Less Board. In reaching its
determination to approve the transactions contemplated by the FM/Food 4 Less
Merger Agreement, the Food 4 Less Board did not assign any relative or specific
weights to the foregoing factors, and individual directors may have given
differing weights to different factors.
 
OPINIONS OF FRED MEYER FINANCIAL ADVISORS REGARDING THE FM/FOOD 4 LESS MERGER
 
     Salomon. Fred Meyer engaged Salomon to act as its financial advisor in
connection with the transactions contemplated by the FM/Food 4 Less Merger
Agreement based upon Salomon's qualifications, expertise and reputation as well
as Salomon's prior investment banking relationship and familiarity with Fred
Meyer. On November 5, 1997, Salomon rendered to the Fred Meyer Board an oral
opinion, which was confirmed by delivery of its written opinion dated November
6, 1997 (the "Salomon Food 4 Less Opinion"), to the effect that, as of such
date, and based upon and subject to the assumptions, limitations and
qualifications set forth in such opinion, the Food 4 Less Exchange Ratio was
fair, from a financial point of view, to Fred Meyer.
 
     THE FULL TEXT OF THE SALOMON FOOD 4 LESS OPINION IS SET FORTH IN APPENDIX F
TO THIS JOINT PROXY AND CONSENT SOLICITATION STATEMENT/PROSPECTUS AND SHOULD BE
READ CAREFULLY IN ITS ENTIRETY, INCLUDING WITHOUT LIMITATION, THE DESCRIPTIONS
OF THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, OTHER MATTERS CONSIDERED AND
LIMITATIONS OF THE REVIEW UNDERTAKEN IN ARRIVING AT SUCH OPINION. THE OPINION OF
SALOMON REFERRED TO HEREIN WAS PROVIDED FOR THE INFORMATION AND ASSISTANCE OF
THE FRED MEYER BOARD IN CONNECTION WITH ITS CONSIDERATION OF THE FM/FOOD 4 LESS
MERGER. THE SALOMON FOOD 4 LESS OPINION ADDRESSES ONLY THE FAIRNESS, FROM A
FINANCIAL POINT OF VIEW, OF THE FOOD 4 LESS EXCHANGE RATIO TO FRED MEYER AND
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF FRED MEYER AS TO HOW
SUCH STOCKHOLDER SHOULD VOTE AT THE FRED MEYER SPECIAL MEETING OR TO
STOCKHOLDERS OF FOOD 4 LESS AS TO WHETHER TO CONSENT. THE SUMMARY OF THE SALOMON
FOOD 4 LESS OPINION SET FORTH IN THIS JOINT PROXY AND CONSENT SOLICITATION
STATEMENT/ PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE SALOMON FOOD 4 LESS OPINION.
 
     The Salomon Food 4 Less Opinion does not constitute an opinion as to the
price at which the Fred Meyer Common Stock will actually trade at any time. No
restrictions or limitations were imposed upon Salomon with respect to the
investigations made or procedures followed by Salomon in rendering its opinion.
In arriving at its opinion, Salomon, among other things, reviewed each of the
FM/Food 4 Less Merger Agreement and the FM/QFC Merger Agreement, including
exhibits thereto, as well as certain publicly available information concerning
Fred Meyer, QFC and Food 4 Less, respectively, and certain internal information,
primarily financial in nature, concerning the business and operations of each of
Fred Meyer, QFC and Food 4 Less provided to it by Fred Meyer, QFC and Food 4
Less, respectively, for purposes of its analysis, including information provided
during discussions with their respective managements regarding their businesses
and prospects. Included in the information provided during discussions with the
respective managements were certain financial forecasts and other information
including forecasts and pro forma financial information giving effect to the
FM/Food 4 Less Merger and the FM/QFC Merger, relating to the past and current
business operations, financial condition and prospects of Fred Meyer, QFC and
Food 4 Less prepared by their respective managements. In addition, Salomon
compared certain financial and securities data of QFC and
 
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<PAGE>   96
 
Fred Meyer with various other companies whose securities are traded in public
markets, reviewed the historical stock prices and trading volumes of Fred Meyer
Common Stock, reviewed prices and premiums paid in certain other business
combinations and conducted such other financial studies, analyses and
investigations as Salomon deemed appropriate for purposes of rendering its
opinion. Salomon also considered such other information, financial studies,
analyses, investigations and financing, economic and market criteria that
Salomon deemed relevant.
 
     In rendering its opinion, Salomon did not attempt to independently verify
or assume responsibility for verifying any of the information reviewed by it and
assumed the accuracy and completeness of all of the financial and other
information reviewed by it. Salomon did not conduct a physical inspection of the
properties or facilities, nor make or obtain or assume responsibility for
obtaining any independent evaluation or appraisal of any assets (including
properties and facilities) or liabilities of Fred Meyer, QFC or Food 4 Less.
Salomon relied upon the estimates of the respective managements of Fred Meyer,
QFC and Food 4 Less of the operating savings and other benefits and cost
reductions and synergies achievable as a result of the FM/Food 4 Less Merger.
Salomon also assumed that the financial forecasts (including pro forma financial
information) and supporting assumptions (including anticipated synergies and
cost savings resulting from the combination of Fred Meyer, QFC and Food 4 Less)
were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the respective managements of Fred Meyer, QFC and
Food 4 Less as to their respective future financial performance. Salomon
expressed no opinion with respect to such forecasts or the assumptions on which
they are based. Salomon also assumed that the conditions precedent to the
FM/Food 4 Less Merger Agreement would be satisfied and the FM/Food 4 Less Merger
would be consummated in accordance with the terms of the FM/Food 4 Less Merger
Agreement. The opinion of Salomon does not imply any conclusion as to the likely
trading range for Fred Meyer Common Stock following the consummation of the
FM/Food 4 Less Merger, which may vary depending upon, among other factors,
changes in interest rates, dividend rates, market conditions, general economic
conditions and other factors that generally influence the price of securities.
The Salomon Food 4 Less Opinion is limited to the fairness, from a financial
point of view, of the Food 4 Less Exchange Ratio and does not address Fred
Meyer's underlying business decision to effect the FM/Food 4 Less Merger or
constitute a recommendation concerning how holders of Fred Meyer Common Stock
should vote with respect to the FM/Food 4 Less Merger. While Salomon believes
that its review as described herein is an adequate basis for the Salomon Food 4
Less Opinion, the Salomon Food 4 Less Opinion is necessarily based upon
financial, economic, monetary, political, market and other conditions that
existed and could be evaluated as of the date of the Salomon Food 4 Less
Opinion. Salomon does not have any obligation to update, revise or reaffirm its
opinion as a result of any such change in such conditions or otherwise.
 
     Salomon is not affiliated with Fred Meyer, QFC or Food 4 Less. Salomon has
previously rendered certain financial advisory and investment banking services
to Fred Meyer and QFC, for which Salomon received customary compensation.
Salomon has also provided investment banking, lending and broker-dealer-related
services to affiliates of Food 4 Less, for which Salomon received customary
compensation. In the ordinary course of its business, Salomon actively trades
the securities of Fred Meyer, QFC and Food 4 Less for its own account and the
accounts of its customers and, accordingly, may at any time hold a long or short
position in such securities. Pursuant to the Salomon Engagement Letter, Fred
Meyer engaged Salomon to provide financial advisory and investment banking
services to Fred Meyer in connection with the possible acquisition of one or
both of QFC and Food 4 Less. Pursuant to the terms of the Salomon Engagement
Letter, Fred Meyer has paid Salomon $750,000 and has agreed to pay Salomon (i)
$5.0 million upon the consummation of an acquisition transaction in which QFC is
the subject company, (ii) $8.0 million dollars upon the consummation of an
acquisition transaction in which Food 4 Less is the subject company, or (iii)
$11.0 million upon the consummation of a simultaneous acquisition transaction
involving both QFC and Food 4 Less. Fred Meyer also agreed to pay to Salomon a
fee equal to 15% (but in no event more than $4.0 million) of any break-up or
similar fee received by Fred Meyer in connection with the termination of the
FM/QFC Merger Agreement and/or the FM/Food 4 Less Merger Agreement. In addition,
Fred Meyer agreed to reimburse Salomon for reasonable travel and out-of-pocket
expenses incurred by Salomon in connection with its engagement (including
reasonable travel expenses and fees and expenses of Salomon's
 
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<PAGE>   97
 
counsel). Fred Meyer further agreed to indemnify Salomon and certain related
persons against certain liabilities, including liabilities under the federal
securities laws, relating to or arising out of its engagement.
 
     Goldman Sachs. On November 5, 1997, Goldman Sachs rendered to the Fred
Meyer Board an oral opinion, which was confirmed by delivery of its written
opinion dated November 6, 1997 (the "Goldman Sachs Food 4 Less Opinion"), that
as of that date, the Food 4 Less Exchange Ratio pursuant to the FM/Food 4 Less
Merger Agreement was fair from a financial point of view to Fred Meyer.
 
     THE FULL TEXT OF THE GOLDMAN SACHS FOOD 4 LESS OPINION, WHICH SETS FORTH
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN
CONNECTION WITH THE OPINION, IS INCLUDED IN APPENDIX G TO THIS JOINT PROXY AND
CONSENT SOLICITATION STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY
REFERENCE. THE GOLDMAN SACHS FOOD 4 LESS OPINION REFERRED TO HEREIN WAS PROVIDED
FOR THE INFORMATION AND ASSISTANCE OF THE FRED MEYER BOARD IN CONNECTION WITH
ITS CONSIDERATION OF THE FM/FOOD 4 LESS MERGER. SUCH OPINION ADDRESSES ONLY THE
FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE FOOD 4 LESS EXCHANGE RATIO TO
FRED MEYER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF FRED MEYER
STOCK AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE FRED MEYER SPECIAL MEETING.
THE SUMMARY OF THE GOLDMAN SACHS FOOD 4 LESS OPINION SET FORTH HEREIN IS
QUALIFIED BY THE FULL TEXT OF SUCH OPINION, AND STOCKHOLDERS OF FRED MEYER ARE
URGED TO, AND SHOULD, READ THE GOLDMAN SACHS FOOD 4 LESS OPINION IN ITS
ENTIRETY.
 
     In connection with the Goldman Sachs Food 4 Less Opinion, Goldman Sachs
reviewed, among other things, (i) the FM/Food 4 Less Merger Agreement, including
the Stockholders Agreements; (ii) the Annual Reports on Form 10-K of Food 4 Less
for the five fiscal years ended February 2, 1997; (iii) certain Quarterly
Reports on Form 10-Q of Food 4 Less; (iv) the Registration Statement on Form S-4
of Ralphs, dated September 5, 1997; (v) Annual Reports on Form 10-K of Ralphs
for the five fiscal years ended February 2, 1997; (vi) certain Quarterly Reports
on Form 10-Q of Ralphs; and (vii) certain internal financial analyses and
forecasts for Food 4 Less prepared by its management. Goldman Sachs also
reviewed (i) the Registration Statement on Form S-4, including the Joint Proxy
Statement/Prospectus, dated August 6, 1997 relating to the Special Meetings of
Stockholders of Fred Meyer and Smith's held on September 8, 1997; (ii) Annual
Reports to Stockholders and Annual Reports on Form 10-K of Fred Meyer for the
five fiscal years ended February 1, 1997; (iii) certain interim reports to
stockholders and Quarterly Reports on Form 10-Q of Fred Meyer; (iv) certain
other communications from Fred Meyer to its stockholders; and (v) certain
internal financial analyses and forecasts for Fred Meyer prepared by its
management without, and after giving effect to, the FM/Food 4 Less Merger.
Goldman Sachs also held discussions with members of the senior management of
Fred Meyer and Food 4 Less regarding the strategic rationale for, and the
potential benefits of, the FM/Food 4 Less Merger and the past and current
business operations, financial condition and future prospects of their
respective companies. In addition, Goldman Sachs reviewed the reported price and
trading activity for the Fred Meyer Common Stock, compared certain financial
information for Fred Meyer and Food 4 Less with similar information for certain
other companies the securities of which are publicly traded, compared certain
stock market information for Fred Meyer with similar information for certain
other companies the securities of which are publicly traded, reviewed the
financial terms of certain recent business combinations in the supermarket
industry specifically and in other industries generally and performed such other
studies and analyses as Goldman Sachs considered appropriate.
 
     Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and assumed such accuracy and
completeness for purposes of rendering its opinion and neither attempted to
independently verify nor assumed responsibility for verifying any of such
information. In that regard, Goldman Sachs assumed with the Fred Meyer Board's
consent that the financial forecasts, including the underlying assumptions,
provided to it and discussed with it with respect to Fred Meyer and Food 4 Less
after giving effect to the FM/Food 4 Less Merger, including, without limitation,
the projected cost savings and operating synergies resulting from the FM/Food 4
Less Merger, were reasonably prepared on a basis reflecting the best currently
available judgments and estimates of Fred Meyer and Food 4 Less and that such
forecasts would be realized in the amounts and at the times contemplated
thereby. Goldman Sachs expressed no opinion with respect to such forecasts or
the assumptions on which they were based. In addition, Goldman Sachs did not
make an independent evaluation or appraisal of the assets and liabilities of
Fred Meyer or Food 4 Less or any of their subsidiaries and Goldman Sachs was not
furnished with any such evaluation or
 
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<PAGE>   98
 
appraisal. The opinion of Goldman Sachs referred to herein was provided for the
information and assistance of the Fred Meyer Board in connection with its
consideration of the FM/Food 4 Less Merger and such opinion does not constitute
a recommendation as to how any holder of Fred Meyer Common Stock should vote
with respect to the FM/Food 4 Less Merger. The opinion of Goldman Sachs was
necessarily based upon conditions as they existed and could be evaluated by it
on the date of such opinion and Goldman Sachs assumed no responsibility to
update or revise its opinion based upon circumstances and events occurring after
the date of such opinion. The opinion of Goldman Sachs does not imply any
conclusion as to the likely trading range of Fred Meyer Common Stock following
consummation of the FM/Food 4 Less Merger, which may vary depending upon, among
other factors, changes in interest rates, dividend rates, market conditions,
general economic conditions and other factors that generally influence the price
of securities. The opinion of Goldman Sachs is limited to the fairness, from a
financial point of view, of the Food 4 Less Exchange Ratio to Fred Meyer and
does not address Fred Meyer's underlying business decision to effect the FM/Food
4 Less Merger.
 
     Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Fred Meyer selected
Goldman Sachs as its financial advisor because it is an internationally
recognized investment banking firm that has substantial experience in
transactions similar to the FM/Food 4 Less Merger. Goldman Sachs is familiar
with Fred Meyer, having acted as managing underwriter of its public offering of
3,850,000 shares of Fred Meyer Common Stock in September 1996 and having acted
as its financial advisor in connection with, and having participated in certain
of the negotiations leading to, the FM/Food 4 Less Merger Agreement.
 
     Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of Fred Meyer and/or Food 4 Less for its own account and for the
account of customers. As of November 6, 1997, Goldman Sachs held for its own
account a long position of 1,427,680 shares of Fred Meyer Common Stock and a
short position of $5,000,000 principal amount of 11.00% Senior Subordinated
Notes due 2005 of Ralphs.
 
     Pursuant to the Goldman Sachs Engagement Letter, Fred Meyer engaged Goldman
Sachs to render financial advisory and investment banking services to Fred Meyer
in connection with the possible acquisition of either or both of QFC or Food 4
Less. Pursuant to the terms of the Goldman Sachs Engagement Letter, Fred Meyer
has paid Goldman Sachs $750,000 and has agreed to pay Goldman Sachs (i) $5.0
million upon consummation of an acquisition transaction in which QFC is the
subject company, (ii) $8.0 million upon consummation of an acquisition
transaction in which Food 4 Less is the subject company, or (iii) $11.0 million
upon consummation of a simultaneous acquisition transaction involving both QFC
and Food 4 Less. Fred Meyer also agreed to pay Goldman Sachs a fee equal to 15%
(but in no event more than $4.0 million) of any break-up or similar fee received
by Fred Meyer in connection with the termination of the FM/QFC Merger Agreement
or the FM/Food 4 Less Merger Agreement. In addition, Fred Meyer has agreed to
reimburse Goldman Sachs for its reasonable out-of-pocket expenses, including
attorney's fees, and to indemnify Goldman Sachs against certain liabilities,
including certain liabilities under the federal securities laws.
 
     Financial Analyses Used by Salomon and Goldman Sachs. The following is a
summary of certain of the financial analyses used by Salomon and Goldman Sachs
in connection with providing their respective written opinions to the Fred Meyer
Board on November 6, 1997. The analyses were prepared solely for purposes of
Salomon and Goldman Sachs providing their opinions to the Fred Meyer Board as to
the fairness to Fred Meyer from a financial point of view of the Food 4 Less
Exchange Ratio pursuant to the FM/Food 4 Less Merger Agreement, and such
opinions were only one of many factors taken into consideration by the Fred
Meyer Board in making its determination to approve the FM/Food 4 Less Merger
Agreement. The summary set forth below does not purport to be a complete
description of the analyses performed by Salomon and Goldman Sachs, but
describes, in summary form, the principal elements of the analyses made by
Salomon and Goldman Sachs in arriving at the Salomon Food 4 Less Opinion and the
Goldman Sachs Food 4 Less Opinion. The preparation of a fairness opinion
involves various determinations as to the most appropriate and
 
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<PAGE>   99
 
relevant methods of financial analysis and the application of these methods to
the particular circumstances and, therefore, such an opinion is not readily
summarized. Each of the analyses conducted by Salomon and Goldman Sachs was
carried out in order to provide a different perspective on the transaction and
add to the total mix of information available. Salomon and Goldman Sachs did not
form a conclusion as to whether any individual analysis, considered in
isolation, supported or failed to support an opinion as to fairness from a
financial point of view. Rather, in reaching their conclusions, Salomon and
Goldman Sachs considered the results of the analyses in light of each other and
ultimately reached their opinions based on the results of the analyses taken as
a whole. Further, Salomon's and Goldman Sachs' conclusions involved significant
elements of judgment and qualitative analyses as well as the financial and
quantitative analyses. Salomon and Goldman Sachs did not place particular
reliance or weight on any individual factor, but instead concluded that their
analyses, taken as a whole, supported their determinations. Accordingly,
notwithstanding the separate factors summarized above, Salomon and Goldman Sachs
believe that their analyses must be considered as a whole and that selecting
portions of their analyses and the factors considered by them, without
considering all analyses and factors, could create an incomplete or misleading
view of the evaluation process underlying their opinions. In performing their
analyses, Salomon and Goldman Sachs made numerous assumptions with respect to
industry performance, general business, financial, economic and market
conditions and other matters, many of which are beyond the control of Fred
Meyer, QFC and Food 4 Less. No company or transaction used in the analyses as a
comparison is directly comparable to Fred Meyer or Food 4 Less or the
contemplated transaction. In addition, analyses relating to the value of the
businesses or securities do not purport to be appraisals, or to reflect the
prices at which such businesses or securities can actually be sold. The analyses
performed by Salomon and Goldman Sachs are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
suggested by such analyses. Because such analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control of
the parties or their respective advisors, none of Fred Meyer, Food 4 Less, QFC,
Salomon, Goldman Sachs or any other person assumes responsibility if future
results are materially different from those forecast.
 
          (i) Selected Companies Analysis. Salomon and Goldman Sachs reviewed
     and compared certain financial information relating to Fred Meyer and Food
     4 Less to corresponding financial information, ratios and public market
     multiples for the Selected Companies. Salomon and Goldman Sachs calculated
     and compared various financial multiples and ratios. The multiples of the
     Selected Companies and Fred Meyer were calculated using closing stock
     prices on November 4, 1997 and the most recent publicly available
     information. The analysis showed, among other things, that the ratio of
     firm value (i.e. market value of common equity plus book value of debt less
     cash) as a multiple of EBITDA for the Selected Companies, (i) using
     estimated 1997 EBITDA, ranged from a low of 6.7x to a high of 9.8x (with a
     median of 8.5x), compared to 7.3x for Fred Meyer and 7.7x (assuming an
     equity value of $600 million for Food 4 Less (the "Food 4 Less Base Case"))
     and 7.9x (assuming a purchase price of $692 million for Food 4 Less based
     upon a Fred Meyer Common Stock price of $30.75 per share (the "Food 4 Less
     Current Case")) for Food 4 Less and (ii) using estimated 1998 EBITDA,
     ranged from a low of 6.2x to a high of 8.2x (with a median of 7.5x),
     compared to 7.0x for Fred Meyer and 6.8x (assuming the Food 4 Less Base
     Case) and 7.0x (assuming the Food 4 Less Current Case) for Food 4 Less.
     This analysis also showed, among other things, that the price/earnings
     ratio for the Selected Companies, (i) using estimated 1997 earnings, ranged
     from a low of 15.6x to a high of 25.5x (with a median of 19.3x), compared
     to 22.8x for Fred Meyer and (ii) using estimated 1998 earnings, ranged from
     a low of 13.5x to a high of 22.3x (with a median of 17.1x), compared to
     18.9x for Fred Meyer. Earnings estimates used in the foregoing analysis
     were based on IBES earnings estimates. EBITDA estimates used in the
     foregoing analysis were based upon research estimates of Goldman Sachs and
     Salomon Equity Research, except for Food 4 Less, which were based on the
     Fred Meyer-Food 4 Less Conservative Forecasts.
 
          (ii) Selected Transactions Analysis. Salomon and Goldman Sachs
     reviewed and analyzed firm value as a multiple of LTM EBITDA in selected
     merger or acquisition transactions involving other companies in the
     supermarket chain industries that they deemed relevant (the "Food 4 Less
     Selected Transactions"). Among other matters, such review by Salomon and
     Goldman Sachs indicated that the merger and acquisition transaction
     environment varies over time because of macroeconomic factors such as
     interest rate and equity market fluctuations and microeconomic factors such
     as industry results and
 
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     growth expectations. Salomon and Goldman Sachs noted that no transaction
     reviewed was identical to the FM/Food 4 Less Merger and that, accordingly,
     an assessment of the results of the following analysis necessarily involves
     considerations and judgments concerning differences in financial and
     operating characteristics of Food 4 Less and other factors that would
     affect the acquisition value of the companies to which it is being
     compared. Such analysis indicated that for the Food 4 Less Selected
     Transactions, firm value as a multiple of LTM EBITDA, ranged from a low of
     7.0x to a high of 9.5x. Salomon and Goldman Sachs also calculated firm
     value as a multiple of EBITDA for the FM/Food 4 Less Merger using two
     scenarios (i) the Food 4 Less Base Case and (ii) the Food 4 Less Current
     Case. In each case, Salomon and Goldman Sachs used Fred Meyer-Food 4 Less
     Conservative Forecasts and firm value multiples based upon estimated 1997
     year-end debt balances. The analysis indicated that the firm value/EBITDA
     ratio (i) without cost savings expected to be realized as a result of the
     FM/Food 4 Less Merger, (A) using 1997 estimated EBITDA, was 7.7x for the
     Food 4 Less Base Case and 7.9x for the Food 4 Less Current Case; (B) using
     estimated 1998 EBITDA, was 6.8x for the Food 4 Less Base Case and 7.0x for
     the Food 4 Less Current Case; and (ii) with $15 million of cost savings
     (equal to cost savings expected to be realized as a result of the FM/Food 4
     Less Merger, as estimated by Fred Meyer management) (A) using estimated
     1997 EBITDA, was 7.4x for the Food 4 Less Base Case and 7.6x for the Food 4
     Less Current Case; (B) using estimated 1998 EBITDA, was 6.5x for the Food 4
     Less Base Case and 6.7x for the Food 4 Less Current Case and (iii) with
     $42.5 million of cost savings (equal to (1) the cost savings expected to be
     realized as a result of the FM/Food 4 Less Merger, plus (2) one-half of
     cost savings expected to be realized as a result of the merger of Ralphs
     and Hughes, as estimated by Fred Meyer management) (A) using estimated 1997
     EBITDA, was 6.3x for the Food 4 Less Base Case and 6.5x for the Food 4 Less
     Current Case and (B) using estimated 1998 EBITDA, was 5.7x for the Food 4
     Less Base Case and 5.8x for the Food 4 Less Current Case. Based on the Fred
     Meyer-Food 4 Less Conservative Forecasts, Salomon and Goldman Sachs
     calculated the firm value to be $3,004 million in the Food 4 Less Base Case
     and $3,096 million in the Food 4 Less Current Case.
 
          (iii) Discounted Cash Flow Analysis. Salomon and Goldman Sachs
     performed a discounted cash flow analysis under the following two
     scenarios, in each case based on Fred Meyer-Food 4 Less Conservative
     Forecasts, (A) assuming $15 million of cost savings, equal to the cost
     savings expected to be realized as a result of the FM/Food 4 Less Merger,
     as estimated by Fred Meyer management (the "Food 4 Less First Case") and
     (B) assuming $42.5 million of cost savings, equal to (i) the cost savings
     expected to be realized as a result of the FM/Food 4 Less Merger, plus (ii)
     one-half of cost savings expected to be realized as a result of the merger
     of Ralphs and Hughes, as estimated by Fred Meyer management (the "Food 4
     Less Second Case"). Salomon and Goldman Sachs calculated a net present
     value of free cash flows for the years 1998 through 2007 using discount
     rates from 10% to 12%. Salomon and Goldman Sachs calculated terminal values
     based on multiples ranging from 6.50x LTM EBITDA to 8.00x LTM EBITDA and
     then discounted these terminal values using discount rates from 10% to 12%.
     This analysis showed that the implied equity value of Food 4 Less ranged
     from a low of $965 to a high of $1,736 in the Food 4 Less First Case and
     from a low of $1,289 to a high of $2,102 in the Food 4 Less Second Case.
     The various ranges for discount rates and terminal value multiples were
     chosen to reflect, respectively, the theoretical weighted average cost of
     capital for companies in the supermarket industry and multiples of LTM
     EBITDA paid in selected recent supermarket transactions.
 
          (iv) Pro Forma Merger Analysis -- FM/QFC Merger and FM/Food 4 Less
     Merger. Salomon and Goldman Sachs prepared pro forma analyses of the
     financial impact of the Mergers using earnings estimates for Fred Meyer,
     Food 4 Less and QFC for the years 1998 through 2002. These analyses were
     based, in each case, upon (i) for Fred Meyer, the Fred Meyer Forecasts;
     (ii) for QFC, the Fred Meyer-QFC Conservative Forecasts; and (iii) for Food
     4 Less, the Fred Meyer-Food 4 Less Conservative Forecasts; such analyses
     also assumed cost savings resulting from the combination of Fred Meyer, QFC
     and Food 4 Less, as provided by Fred Meyer management, of $50 million in
     1998, $70 million in 1999, $90 million in 2000, and $100 million in 2001
     and 2002. For each of these years, Salomon and Goldman Sachs compared (A)
     the Reported EPS Analysis and (B) the Pre-Goodwill EPS Analysis.
     Furthermore, in each instance, Salomon and Goldman Sachs analyzed two
     scenarios: (i) Current Price Scenario and (ii) the Highest Exchange Ratio
     Scenario. The Reported EPS Analysis indicated that the proposed
 
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<PAGE>   101
 
     transaction (i) for the Current Price Scenario, would be dilutive to Fred
     Meyer's stockholders on an EPS basis in 1998, and would be accretive to
     such holders in the years 1999, 2000, 2001 and 2002; and (ii) for the
     Highest Exchange Ratio Scenario, would be dilutive to Fred Meyer's
     stockholders on an EPS basis in 1998 and 1999, and would be accretive on
     such basis to such holders in the years 2000, 2001 and 2002. Under the
     Pre-Goodwill Analysis, the proposed transaction (i) for the Current Price
     Scenario, would be accretive to the Fred Meyer's stockholders on an EPS
     basis in each year from 1998 through 2002; and (ii) for the Highest
     Exchange Ratio Scenario, would be minimally dilutive to Fred Meyer's
     stockholders on an EPS basis in 1998, and would be accretive on such basis
     to such holders in the years 1999, 2000, 2001 and 2002.
 
          (v) Pro Forma Merger Analysis -- FM/Food 4 Less Merger Only. Salomon
     and Goldman Sachs also prepared pro forma analyses of the financial impact
     of the FM/Food 4 Less Merger using earnings estimates for Fred Meyer and
     Food 4 Less for the years 1998 through 2002 based upon (i) Fred Meyer-Food
     4 Less Conservative Forecasts (the "Food 4 Less Conservative Case") and
     (ii) forecasts provided by Food 4 Less management (the "Food 4 Less Case").
     These analyses assumed cost savings resulting from the FM/Food 4 Less
     Merger, as provided by Fred Meyer management, of $10 million in 1998 and
     $15 million in each of 1999, 2000, 2001 and 2002. For each of these years,
     Salomon and Goldman Sachs compared (i) the Reported EPS Analysis and (ii)
     the Pre-Goodwill EPS Analysis. Furthermore, in each instance, Salomon and
     Goldman Sachs analyzed two scenarios (i) the Current Price Scenario and
     (ii) assuming that 24 million shares of Fred Meyer Common Stock were issued
     in connection with the FM/Food 4 Less Merger (the "Highest Food 4 Less
     Exchange Ratio Scenario"). Based upon the Food 4 Less Conservative Case,
     (A) the Reported EPS Analysis indicated that the FM/Food 4 Less Merger (i)
     for the Current Price Scenario, would be dilutive to Fred Meyer
     stockholders in 1998 and 1999 and accretive to such holders in 2000, 2001
     and 2002 and (ii) for the Highest Food 4 Less Exchange Ratio Scenario,
     would be dilutive to Fred Meyer stockholders in 1998 and 1999 and accretive
     to such holders in 2000, 2001 and 2002 and (B) the Pre-Goodwill Analysis
     indicated that the FM/Food 4 Less Merger, (i) for the Current Price
     Scenario, would be accretive to Fred Meyer stockholders in each of the
     years from 1998 through 2002 and (ii) for the Highest Food 4 Less Exchange
     Ratio Scenario, would be accretive to Fred Meyer stockholders for each of
     the years from 1998 through 2002. Based upon the Food 4 Less Case, (A) the
     Reported EPS Analysis indicated that the FM/Food 4 Less Merger (i) for the
     Current Price Scenario, would be dilutive to Fred Meyer stockholders in
     1998, neutral to such holders in 1999 and accretive to such holders in
     2000, 2001 and 2002 and (ii) for the Highest Food 4 Less Exchange Ratio
     Scenario, would be dilutive to Fred Meyer stockholders in 1998, neutral to
     such holders in 1999, and accretive to such holders in 2000, 2001 and 2002
     and (B) the Pre-Goodwill Analysis indicated that the FM/Food 4 Less Merger,
     (i) for the Current Price Scenario, would be accretive to Fred Meyer
     stockholders in each of the years from 1998 through 2002 and (ii) for the
     Highest Food 4 Less Exchange Ratio Scenario, would be accretive to Fred
     Meyer stockholders for each of the years from 1998 through 2002.
 
          (vi) Contribution Analysis -- FM/QFC Merger and FM/Food 4 Less
     Merger. Salomon and Goldman Sachs reviewed certain historical and estimated
     future operating and financial information (including, among other things,
     net income (before transaction goodwill) determined before and after cost
     savings, and ownership) for Fred Meyer, Food 4 Less, QFC and the pro forma
     combined entity resulting from the Mergers based, in each case, upon (i)
     for Fred Meyer, the Fred Meyer Forecasts; (ii) for QFC, the Fred Meyer-QFC
     Conservative Forecasts; and (iii) for Food 4 Less, the Fred Meyer-Food 4
     Less Conservative Forecasts. The analysis indicated that (A) assuming an
     exchange ratio of 1.9 for QFC and 22.5 million shares issued for Food 4
     Less, the Fred Meyer stockholders would own 58.3% of the outstanding common
     stock of the combined company after the proposed transactions, while the
     Food 4 Less stockholders would own 14.5% and the QFC shareholders would own
     27.2%, and (B) assuming an exchange ratio of 2.3 for QFC and 24 million
     shares for Food 4 Less, the Fred Meyer stockholders would own 54.7% of the
     outstanding shares of the combined company after the proposed transactions,
     while the Food 4 Less stockholders would own 14.5% and the QFC shareholders
     would own 30.8%. Salomon and Goldman Sachs also analyzed the relative net
     income contribution of Fred Meyer, Food 4 Less and QFC to the combined
     company on a pro forma basis before taking into account any of
 
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<PAGE>   102
 
     the cost savings that may be realized following the proposed transactions
     based on estimated years 1998, 1999 and 2000. This analysis indicated that
     Fred Meyer, Food 4 Less and QFC would contribute, respectively, 60.2%,
     16.3% and 23.5% in 1998; 56.1%, 22.7% and 21.2% in 1999; and 53.9%, 26.3%
     and 19.8% in 2000. Furthermore, Salomon and Goldman Sachs analyzed the
     relative net income contribution of Fred Meyer, Food 4 Less and QFC,
     assuming cost savings resulting from the combination of $50 million in
     1998, $70 million in 1999 and $90 million in 2000. This analysis indicated
     that Fred Meyer, Food 4 Less and QFC would contribute, respectively, 52.8%,
     20.4% and 26.7% in 1998; 48.9%, 24.4% and 26.8% in 1999; and 46.5%, 27.3%
     and 26.3% in 2000.
 
          (vii) Contribution Analysis -- FM/Food 4 Less Merger Only. Salomon and
     Goldman Sachs also reviewed certain historical and estimated future
     operating and financial information (including, among other things, net
     income (before transaction goodwill) determined before and after cost
     savings, and ownership) for Fred Meyer, Food 4 Less and the pro forma
     combined entity resulting from the FM/Food 4 Less Merger based, in each
     case, upon (i) for Fred Meyer, the Fred Meyer Forecasts and (ii) for Food 4
     Less, the Fred Meyer-Food 4 Less Conservative Forecasts. The analysis
     indicated that (A) assuming 22.5 million shares issued to Food 4 Less, the
     Fred Meyer stockholders would own 80.0% of the outstanding common stock of
     the combined company after the proposed transaction, while the Food 4 Less
     stockholders would own 20.0%, and (B) assuming 24 million shares issued to
     Food 4 Less, the Fred Meyer stockholders would own 79.0% of the outstanding
     shares of the combined company after the merger, while the Food 4 Less
     stockholders would own 21.0%. Salomon and Goldman Sachs also analyzed the
     relative net income contribution of Fred Meyer and Food 4 Less to the
     combined company on a pro forma basis before taking into account any of the
     cost savings that may be realized following the FM/Food 4 Less Merger based
     on estimated net income for the years 1998, 1999 and 2000. This analysis
     indicated that Fred Meyer and Food 4 Less would contribute, respectively,
     81.0% and 19.0% in 1998, 73.5% and 26.5% in 1999, and 69.4% and 30.6% in
     2000. Furthermore, Salomon and Goldman Sachs analyzed the relative net
     income contribution of Fred Meyer and Food 4 Less, assuming cost savings
     resulting from the combination of $10 million in 1998 and $15 million in
     1999 and 2000 were allocated to Food 4 Less. This analysis indicated that
     Fred Meyer and Food 4 Less would contribute, respectively, 79.6% and 20.4%
     in 1998, 71.6% and 28.4% in 1999, and 67.2% and 32.8% in 2000.
 
OPINIONS OF FOOD 4 LESS FINANCIAL ADVISORS REGARDING THE FM/FOOD 4 LESS MERGER
 
     DLJ.  Food 4 Less engaged DLJ to act as its financial advisor in connection
with the transaction contemplated by the FM/Food 4 Less Merger Agreement. On
November 5, 1997, DLJ rendered an oral opinion to the Food 4 Less Board, which
was confirmed by delivery of its written opinion dated November 6, 1997 (the
"DLJ Opinion"), to the effect that, as of such date, and based upon and subject
to the assumptions, limitations and qualifications set forth in such opinion,
the consideration to be received by the Food 4 Less stockholders in the FM/Food
4 Less Merger pursuant to the FM/Food 4 Less Merger Agreement was fair from a
financial point of view.
 
     THE FULL TEXT OF THE DLJ OPINION IS SET FORTH AS APPENDIX H TO THIS JOINT
PROXY AND CONSENT SOLICITATION STATEMENT/PROSPECTUS AND SHOULD BE READ CAREFULLY
IN ITS ENTIRETY, INCLUDING WITHOUT LIMITATION, THE DESCRIPTIONS OF THE
PROCEDURES FOLLOWED, ASSUMPTIONS MADE, OTHER MATTERS CONSIDERED AND LIMITATIONS
OF THE REVIEW UNDERTAKEN IN ARRIVING AT SUCH OPINION. THE DLJ OPINION ADDRESSES
ONLY THE FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY THE FOOD 4 LESS
STOCKHOLDERS FROM A FINANCIAL POINT OF VIEW AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER OF FOOD 4 LESS, QFC OR FRED MEYER AS TO HOW
SUCH STOCKHOLDER SHOULD VOTE IN THE FOOD 4 LESS CONSENT SOLICITATION OR AT THE
RESPECTIVE SPECIAL MEETINGS. THE SUMMARY OF THE DLJ OPINION SET FORTH IN THIS
JOINT PROXY AND CONSENT SOLICITATION STATEMENT/PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE DLJ OPINION.
 
     The DLJ Opinion does not constitute an opinion as to the price at which
Fred Meyer Common Stock will actually trade at any time. DLJ was not requested
to and did not recommend the amount of consideration to be received by the
stockholders of Food 4 Less; it was requested to evaluate, from a financial
point of view, the fairness of the consideration to be received by the Food 4
Less stockholders, the type and amount of which was determined in arm's-length
negotiations between Food 4 Less and Fred Meyer. No restrictions or limitations
 
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were imposed upon DLJ with respect to the investigations made or procedures
followed by DLJ in rendering its opinion. In addition, DLJ received no
instructions to, and did not, seek or solicit alternative transactions. In
arriving at its opinion, DLJ, among other things, reviewed the FM/Food 4 Less
Merger Agreement as well as the FM/QFC Merger Agreement, including exhibits
thereto, as well as financial and other information that was publicly available
or furnished to it by Food 4 Less, QFC and Fred Meyer including information
provided during discussions with their respective managements regarding their
businesses and prospects. Included in the information provided during
discussions with the respective managements were certain financial forecasts and
other information relating to the business operations, financial condition and
prospects of Food 4 Less, QFC and Fred Meyer, respectively, prepared by their
respective managements. In addition, DLJ compared certain financial and
securities data of Fred Meyer and QFC with various other companies whose
securities are traded in public markets, reviewed the historical stock prices
and trading volumes of Fred Meyer Common Stock and QFC Common Stock, reviewed
prices paid in certain other business combinations and conducted such other
financial studies, analyses and investigations as DLJ deemed appropriate for
purposes of rendering its opinion.
 
     In rendering its opinion, DLJ did not independently verify the information
provided to it or available from public sources and assumed the accuracy and
completeness of all of the financial and other information provided to it or
available from public sources. DLJ did not conduct a physical inspection of the
properties or facilities, or make an independent evaluation or appraisal of the
assets or liabilities, of Food 4 Less, QFC or Fred Meyer, nor was DLJ furnished
with any such evaluation or appraisal. DLJ relied upon the estimates of the
respective managements of Food 4 Less, QFC and Fred Meyer of the operating
savings and other benefits and cost reductions achievable as a result of the
Mergers (collectively, the "Synergies"). DLJ also assumed that the financial
forecasts and other information relating to the prospects of Food 4 Less, QFC
and Fred Meyer were reasonably prepared on bases reflecting the best currently
available estimates and good faith judgments of the management of Food 4 Less,
QFC and Fred Meyer, respectively, as to the likely future financial performance
of Food 4 Less, QFC and Fred Meyer, respectively, and DLJ expressed no opinion
with respect to such forecasts or the assumptions on which they are based. DLJ
did not make any independent investigation of any legal matters affecting Food 4
Less, QFC or Fred Meyer, and assumed the correctness of all legal advice given
to each of them and to the Food 4 Less Board, including advice as to the tax
consequences of the Mergers. While DLJ believes that its review as described
herein is an adequate basis for the DLJ Opinion, the DLJ Opinion is necessarily
based upon financial, economic, monetary, political, market and other conditions
that existed and could be evaluated as of the date of the DLJ Opinion and does
not speak to any date other than the date on which the DLJ Opinion was
delivered. DLJ does not have any obligation to update, revise or reaffirm its
opinion as a result of changes in such conditions or otherwise.
 
     The following is a brief summary of the analyses performed by DLJ in
connection with the DLJ Opinion and included in its presentations to the Food 4
Less Board. All analyses discussed below have assumed the Fred Meyer Common
Stock closing price on November 4, 1997 of $30.75 and, unless otherwise
indicated, exclude the Synergies.
 
          (i) Common Stock Performance Analysis. DLJ reviewed the historical
     closing prices and trading volumes of Fred Meyer Common Stock on a daily
     basis for the last twelve months ended November 4, 1997. In the twelve
     month period ended November 4, 1997, Fred Meyer Common Stock reached a high
     of $30.75 per share and a low of $15.07 per share.
 
          (ii) Earnings Per Share Impact Analysis. DLJ analyzed the pro forma
     effect of the FM/Food 4 Less Merger on the projected earnings per share of
     Fred Meyer, compared to the stand-alone Fred Meyer EPS as forecasted by the
     management of Fred Meyer. This analysis was based on a number of
     assumptions, including, among other things, the projected financial
     performance of Food 4 Less and Fred Meyer, estimated Synergies and
     prevailing interest rates. The analysis indicated that (accounting for the
     FM/Food 4 Less Merger as a purchase and assuming $25.0 million, $35.0
     million and $45.0 million of Synergies in fiscal years 1998, 1999 and 2000,
     respectively) the pro forma EPS for Fred Meyer is anticipated to be lower
     than Fred Meyer's stand-alone earnings per share estimates for fiscal years
     1998 and 1999 and higher than Fred Meyer's stand-alone earnings per share
     estimate for fiscal year 2000.
 
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<PAGE>   104
 
          DLJ also analyzed the pro forma effect of the Mergers on the projected
     earnings per share of Fred Meyer, compared to the stand-alone Fred Meyer
     EPS as forecasted by the management of Fred Meyer. This analysis was based
     on a number of assumptions, including, among other things, the projected
     financial performance of Food 4 Less, QFC and Fred Meyer, estimated
     Synergies and prevailing interest rates. The analysis indicated that
     (accounting for the FM/Food 4 Less Merger as a purchase and the FM/QFC
     Merger as a pooling-of-interests and assuming $50.0 million, $70.0 million
     and $90.0 million of Synergies in fiscal years 1998, 1999 and 2000,
     respectively) the pro forma EPS for Fred Meyer is anticipated to be lower
     than Fred Meyer's stand-alone earnings per share estimates for fiscal years
     1998 and 1999 and higher than Fred Meyer's stand-alone earnings per share
     estimate for fiscal year 2000.
 
          (iii) Relative Contribution Analysis. DLJ analyzed the relative
     contributions of Food 4 Less and Fred Meyer to the revenues and EBITDA of
     the combined entity in the FM/Food 4 Less Merger for the projected fiscal
     years 1998, 1999 and 2000, in each case using the financial information
     provided by Food 4 Less and Fred Meyer's respective managements and
     excluding Synergies. Food 4 Less provided 39.8% of the combined enterprise
     value and contributed 44.2%, 44.8% and 45.4% of combined revenue and 41.0%,
     42.4% and 43.3% of combined EBITDA for the fiscal years 1998, 1999 and
     2000, respectively. On a corresponding basis, Fred Meyer provided 60.2% of
     the combined enterprise value and contributed 55.8%, 55.2% and 54.6% of
     combined revenue and 59.0%, 57.6% and 56.7% of combined EBITDA for the
     fiscal years 1998, 1999 and 2000, respectively.
 
          DLJ also analyzed the relative contributions of Food 4 Less, QFC and
     Fred Meyer to the revenues and EBITDA of the combined entity in the Mergers
     for the projected fiscal years 1998, 1999 and 2000, in each case using the
     financial information provided by Food 4 Less, QFC and Fred Meyer's
     respective managements and excluding Synergies. Food 4 Less provided 33.0%
     of the combined enterprise value and contributed 38.0%, 38.6% and 39.2% of
     combined revenue and 35.6%, 36.8% and 37.6% of combined EBITDA for the
     fiscal years 1998, 1999 and 2000, respectively. On a corresponding basis,
     QFC provided 17.1% of the combined enterprise value and contributed 14.0%,
     13.8% and 13.6% of combined revenue and 13.3%, 13.4% and 13.3% of combined
     EBITDA for the fiscal years 1998, 1999 and 2000, respectively, and Fred
     Meyer provided 49.9% of the combined enterprise value and contributed
     48.0%, 47.6% and 47.2% of combined revenue and 51.1%, 49.8% and 49.1% of
     combined EBITDA for the fiscal years 1998, 1999 and 2000, respectively.
 
          (iv) Comparable Company Analysis. To provide contextual data and
     comparative market information, DLJ compared the operating performance of
     Food 4 Less to certain market trading statistics of five regional
     supermarket companies whose securities are publicly traded (the "Comparable
     Companies"). The Comparable Companies consisted of: Dominick's, Food Lion,
     Inc., Giant Food Inc., Hannaford Bros. Co. and QFC. Historical financial
     information used in connection with the ratios provided below with respect
     to the Comparable Companies is as of the most recent financial statements
     publicly available for each company as of November 4, 1997.
 
          DLJ examined certain publicly available financial data of the
     Comparable Companies including enterprise value (defined as market value of
     common equity (equity value) plus book value of total debt and preferred
     stock less cash) as a multiple of LTM revenue and EBITDA. DLJ also analyzed
     price to earnings ratios and equity value to book value ratios for the
     Comparable Companies, neither of which were applicable to Food 4 Less due
     to Food 4 Less' negative net income and negative stockholders' equity. DLJ
     analyzed the implied multiples for Food 4 Less at the merger consideration
     without including the projected Synergies. As of November 4, 1997, this
     analysis resulted in (i) enterprise value to LTM revenue ratios for the
     Comparable Companies ranging from 0.5x to 0.8x, as compared to the 0.6x
     multiple for Food 4 Less implied by the merger consideration and (ii)
     enterprise value to LTM EBITDA for the Comparable Companies ranging from
     6.8x to 11.3x, as compared to the 8.3x multiple for Food 4 Less implied by
     the consideration that would have been received by Food 4 Less Stockholders
     based on share amounts and price as of November 4, 1997.
 
          No company utilized in the comparable company analysis is identical to
     Food 4 Less. Accordingly, an analysis of the results of the foregoing
     necessarily involves complex considerations and judgments
 
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<PAGE>   105
 
     concerning differences in financial and operating characteristics of Food 4
     Less and other factors that could affect the public trading value of the
     Comparable Companies or Company to which it is being compared. Mathematical
     analysis (such as determining the mean or median) is not in itself a
     meaningful method of using comparable company data.
 
          (v) Comparable Transaction Analysis. DLJ reviewed publicly available
     information on 47 merger and acquisition transactions in the regional
     supermarket industry completed since 1985 (the "Selected Supermarket
     Transactions"). DLJ reviewed the consideration paid in the Selected
     Supermarket Transactions in terms of (i) enterprise value as a multiple of
     LTM revenues and EBITDA and (ii) equity value to LTM net income, in each
     case, of the acquired entity prior to its acquisition. The range of
     multiples of the ratio of enterprise value to LTM revenues computed for the
     Selected Supermarket Transactions was 0.1x to 0.6x as compared to the 0.6x
     multiple for Food 4 Less implied by the merger consideration. The range of
     multiples of the ratio of enterprise value to LTM EBITDA computed for the
     Selected Supermarket Transactions was 4.6x to 9.6x as compared to the 8.3x
     multiple for Food 4 Less implied by the merger consideration. Because Food
     4 Less has negative net income and negative stockholders' equity, an
     analysis of equity value to net income and equity value to book value is
     not meaningful.
 
          No transaction utilized in the comparable transaction analysis is
     identical to the FM/Food 4 Less Merger. Accordingly, an analysis of the
     results of the foregoing necessarily involves complex considerations and
     judgments concerning differences in financial and operating characteristics
     of Food 4 Less and other factors that could affect the acquisition value of
     the companies to which it is being compared. Mathematical analysis (such as
     determining the mean or median) is not itself a meaningful method of using
     comparable transaction data.
 
          (vi) Discounted Cash Flow Analysis. DLJ performed a discounted cash
     flow analysis for Food 4 Less on a stand-alone basis, for Fred Meyer pro
     forma for the FM/Food 4 Less Merger and for Fred Meyer pro forma for the
     Mergers, each for the three-year period ending with fiscal year 2000, which
     were based upon financial projections prepared by the management of each
     company. In performing its analysis, DLJ calculated the free cash flow for
     each company as the after-tax operating earnings of Food 4 Less and Fred
     Meyer, respectively, plus depreciation and amortization and other non-cash
     items, plus (or minus) net changes in working capital, minus projected
     capital expenditures. DLJ calculated the terminal value of each of Food 4
     Less, Fred Meyer pro forma for the FM/Food 4 Less Merger and Fred Meyer pro
     forma for the Mergers, at the end of the forecast period, by applying a
     range of estimated EBITDA multiples of 5.0x to 8.5x, such range of
     multiples being consistent with those exhibited by the Comparable Companies
     and the Selected Supermarket Transactions to the projected free cash flows
     of Food 4 Less, Fred Meyer pro forma for the FM/Food 4 Less Merger and Fred
     Meyer pro forma for the Mergers, respectively, in fiscal year 2000. The
     free cash flows and terminal values were then discounted to the present
     using a range of discount rates of 9.0% to 15.0% representing an estimated
     range of the weighted average cost of capital of Food 4 Less, QFC and Fred
     Meyer. This analysis implied equity values for Food 4 Less stand-alone
     ranging from ($281.7) million to $1.6 billion, Food 4 Less' share of Fred
     Meyer pro forma for the FM/Food 4 Less Merger ranging from $108.1 million
     to $1.1 billion, and Food 4 Less' share of Fred Meyer pro forma for the
     Mergers ranging from $171.3 million to $1.0 billion.
 
          (vii) Certain Assumptions. In performing the discounted cash flow
     valuation, pro forma combination analysis and contribution analysis
     described above, DLJ relied on projections prepared by the management of
     each of Food 4 Less, QFC and Fred Meyer as to cash flows and certain other
     performance measures. DLJ was informed by the managements of Food 4 Less,
     QFC and Fred Meyer that their projections were based on certain assumptions
     with respect to same store sales, new stores, new store sales and store
     remodels, conversions and the costs related thereto. In rendering its
     opinion, DLJ did not independently verify the projections provided to it by
     the management of Food 4 Less, QFC and Fred Meyer, respectively, or the
     assumptions underlying such projections.
 
     The summary set forth above does not purport to be a complete description
of the analyses performed by DLJ, but describes, in summary form, the principal
elements of the analyses made by DLJ in arriving at the
 
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<PAGE>   106
 
DLJ Opinion. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and, therefore, such an opinion is not readily summarized. Each of the analyses
conducted by DLJ was carried out in order to provide a different perspective on
the transaction and add to the total mix of information available. DLJ did not
form a conclusion as to whether any individual analysis, considered in
isolation, supported or failed to support an opinion as to fairness from a
financial point of view. Rather, in reaching its conclusion, DLJ considered the
results of the analyses in light of each other and ultimately reached its
opinion based on the results of the analyses taken as a whole. Further, DLJ's
conclusion involved significant elements of judgment and qualitative analyses as
well as the financial and quantitative analyses. DLJ did not place particular
reliance or weight on any individual factor, but instead concluded that its
analyses, taken as a whole supported its determination. Accordingly,
notwithstanding the separate factors summarized above, DLJ believes that its
analyses must be considered as a whole and that selecting portions of its
analysis and the factors considered by it, without considering all analyses and
factors, could create an incomplete or misleading view of the evaluation process
underlying its opinions. In performing its analyses, DLJ made numerous
assumptions with respect to industry performance, business and regulatory,
financial, economic, monetary, political and market conditions and other
matters, many of which are beyond the control of Food 4 Less, QFC or Fred Meyer.
In addition, analyses relating to the value of the businesses or securities do
not purport to be appraisals, or to reflect the prices at which such businesses
or securities can actually be sold. The analyses performed by DLJ are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
 
     DLJ was selected to render an opinion in connection with the FM/Food 4 Less
Merger based upon DLJ's qualifications, expertise and reputation, including the
fact that DLJ, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
 
     Pursuant to a letter agreement between Food 4 Less and DLJ dated November
3, 1997 (the "DLJ Engagement Letter"), DLJ is entitled to (i) a retainer fee of
$500,000 earned upon execution of the DLJ Engagement Letter, (ii) a fee of
$2,000,000 earned at the time DLJ notifies the Food 4 Less Board that it is
prepared to deliver its opinion to the Food 4 Less Board, and (iii) a fee of
$9,000,000 (less any amounts paid pursuant to clauses (i) and (ii)) in each case
payable in cash promptly upon consummation of a business combination between
Food 4 Less and Fred Meyer in one or a series of transactions, by merger,
consolidation, or any other business combination, by purchase involving all or a
substantial amount of the business securities or assets of Food 4 Less or
otherwise (including the FM/Food 4 Less Merger) (a "Combination Transaction").
Food 4 Less has agreed to reimburse DLJ for its out-of-pocket expenses,
including reasonable fees and expenses of its counsel, and to indemnify DLJ for
liabilities and expenses arising out of a Combination Transaction, including
liabilities under federal securities laws. The terms of the fee arrangement with
DLJ, which DLJ and Food 4 Less believe are customary in transactions of this
nature, were negotiated at arm's length between Food 4 Less and DLJ and the Food
4 Less Board was aware of such arrangement, including the fact that a
significant portion of the aggregate fee payable to DLJ is contingent upon
consummation of the FM/Food 4 Less Merger.
 
     DLJ provides a full range of financial, advisory and brokerage services and
in the course of its normal trading activities may from time to time effect
transactions and hold positions in the securities or options on securities of
Fred Meyer, Food 4 Less and/or QFC for its own account and for the accounts of
customers. DLJ and its affiliates own approximately 1,000,000 shares of Food 4
Less Series A Preferred Stock which was acquired in June 1995 in connection with
the merger between Ralphs Grocery Company and Food 4 Less Supermarkets, Inc.
Over the past twelve months, DLJ has co-managed a $155 million public offering
of Food 4 Less Notes, for which it received customary fees, and advised Smith's
on its merger with Fred Meyer.
 
     Morgan Stanley. The Food 4 Less Board retained Morgan Stanley to act as its
financial advisor in connection with the FM/Food 4 Less Merger and related
matters based upon Morgan Stanley's qualifications, expertise and reputation. On
November 5, 1997, Morgan Stanley delivered its oral opinion to the Food 4 Less
Board that, as of such date and subject to certain considerations set forth in
the written opinion of Morgan
 
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<PAGE>   107
 
Stanley dated November 5, 1997, (i) assuming that the FM/QFC Merger is not
consummated, the consideration to be received by the holders of the Food 4 Less
Common Stock pursuant to the FM/Food 4 Less Merger Agreement was fair from a
financial point of view to such holders, and (ii) assuming the FM/QFC Merger is
consummated, the consideration to be received by the holders of the Food 4 Less
Common Stock pursuant to the FM/Food 4 Less Merger Agreement was fair from a
financial point of view to such holders.
 
     THE FULL TEXT OF MORGAN STANLEY'S WRITTEN OPINION DATED AS OF NOVEMBER 5,
1997 WHICH SETS FORTH THE ASSUMPTIONS MADE, THE MATTERS CONSIDERED, THE SCOPE
AND LIMITATIONS ON THE REVIEW UNDERTAKEN AND THE PROCEDURES FOLLOWED BY MORGAN
STANLEY IN RENDERING SUCH OPINION IS INCLUDED IN APPENDIX I TO THIS JOINT PROXY
STATEMENT/PROSPECTUS (THE "MORGAN STANLEY OPINION") AND IS INCORPORATED HEREIN
BY REFERENCE. HOLDERS OF FOOD 4 LESS COMMON STOCK ARE URGED TO, AND SHOULD, READ
THE MORGAN STANLEY OPINION CAREFULLY AND IN ITS ENTIRETY. THE MORGAN STANLEY
OPINION IS DIRECTED TO THE FOOD 4 LESS BOARD AND ADDRESSES THE FAIRNESS OF THE
CONSIDERATION, FROM A FINANCIAL POINT OF VIEW, TO BE RECEIVED BY THE HOLDERS OF
FOOD 4 LESS COMMON STOCK PURSUANT TO THE FM/FOOD 4 LESS MERGER AND IT DOES NOT
ADDRESS ANY OTHER ASPECT OF THE MERGERS NOR DOES IT CONSTITUTE A RECOMMENDATION
TO ANY HOLDER OF FOOD 4 LESS, QFC OR FRED MEYER COMMON STOCK AS TO HOW TO VOTE
AT THE RESPECTIVE SPECIAL MEETINGS OR AS TO HOW TO RESPOND TO THE CONSENT
SOLICITATION. THE SUMMARY OF THE MORGAN STANLEY OPINION SET FORTH IN THIS JOINT
PROXY AND CONSENT SOLICITATION STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
 
     In arriving at its opinion, Morgan Stanley (i) reviewed certain publicly
available financial statements and other information of Food 4 Less, Fred Meyer
and QFC; (ii) reviewed certain internal financial statements and other financial
and operating data concerning Food 4 Less, Fred Meyer and QFC prepared by the
respective management of the companies; (iii) analyzed certain financial
projections prepared by the managements of Food 4 Less, Fred Meyer and QFC; (iv)
discussed the past and current operations and financial condition and the
prospects of Food 4 Less, Fred Meyer and QFC with the senior executives of each
of the respective companies; (v) reviewed the pro forma financial impact of the
FM/Food 4 Less Merger and the FM/QFC Merger on Fred Meyer; (vi) reviewed the
reported prices and trading activity for the Fred Meyer Common Stock and QFC
Common Stock; (vii) compared the financial performance of Fred Meyer and QFC and
the prices and trading activity of Fred Meyer Common Stock and QFC Common Stock
with that of certain other comparable publicly-traded companies and their
securities; (viii) compared the financial performance of Food 4 Less with that
of certain comparable publicly-traded companies and their securities; (ix)
reviewed and discussed with the managements of Food 4 Less, Fred Meyer and QFC
their estimates of the strategic, operational and financial benefits of the
FM/Food 4 Less Merger and the FM/QFC Merger; (x) reviewed the financial terms,
to the extent publicly available, of certain comparable acquisition
transactions; (xi) participated in discussions and negotiations among
representatives of Food 4 Less and Fred Meyer and their financial and legal
advisors; (xii) reviewed the FM/Food 4 Less Merger Agreement and the FM/QFC
Merger Agreement and certain related documents; and (xiii) performed such other
analyses and considered such other factors as Morgan Stanley deemed appropriate.
 
     In rendering its opinion, Morgan Stanley assumed and relied upon without
independent verification the accuracy and completeness of the information
reviewed by Morgan Stanley for the purposes of the Morgan Stanley Opinion. With
respect to the financial projections, Morgan Stanley assumed that such
projections were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of Food 4
Less, QFC and Fred Meyer. Morgan Stanley did not make any independent valuation
or appraisal of the assets or liabilities of Food 4 Less, QFC or Fred Meyer nor
was Morgan Stanley furnished with any such appraisals. The Morgan Stanley
opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to it as of, the date of the
opinion. In arriving at its opinion, Morgan Stanley was not authorized to
solicit, and did not solicit, interest from any party with respect to the
acquisition of Food 4 Less or any of its assets.
 
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<PAGE>   108
 
     The following is a brief summary of certain analyses performed by Morgan
Stanley and reviewed with the Food 4 Less Board on November 5, 1997 in
connection with the preparation of the Morgan Stanley Opinion and with its oral
presentation to the Food 4 Less Board on such date:
 
          (i) Fred Meyer Common Stock Performance. Morgan Stanley's analysis of
     Fred Meyer Common Stock performance consisted of a historical analysis of:
     closing prices from January 1, 1997 through November 3, 1997, Fred Meyer's
     indexed price performance from January 1, 1997 through November 3, 1997,
     relative to the indexed price performance of (i) the Standard and Poor's
     industrial average of 500 stocks (the "S&P 500"), and (ii) a comparable
     company index which was comprised of Dominicks, Food Lion, Inc., Giant Food
     Inc., Hannaford Bros. Co., Penn Traffic Company, QFC and Weis Markets, Inc.
     Fred Meyer outperformed the comparable company index by 127.5% and the S&P
     500 by 111.8% during the January 1, 1997 to November 3, 1997 period.
 
          (ii) QFC Common Stock Performance. Morgan Stanley's analysis of QFC
     Common Stock performance consisted of a historical analysis of: closing
     prices from January 1, 1997 through November 3, 1997, QFC's indexed price
     performance from January 1, 1997 through November 3, 1997, relative to the
     indexed price performance of (i) the S&P 500, and (ii) a comparable company
     index which was comprised of Dominicks, Food Lion, Inc., Giant Food Inc.,
     Hannaford Bros. Co., Penn Traffic Company, Fred Meyer, Weis Markets, Inc.
     QFC outperformed the comparable company index by 69.5% and the S&P 500 by
     66.6% during the January 1, 1997 to November 3, 1997 period.
 
          (iii) Comparable Public Company Analysis. As part of its analysis,
     Morgan Stanley compared certain financial information of Food 4 Less with
     corresponding publicly available information of Dominicks, Penn Traffic
     Company, Food Lion, Inc., Giant Food Inc., Hannaford Bros. Co., QFC and
     Fred Meyer (the "Comparable Public Companies") which were publicly traded
     companies that Morgan Stanley chose based principally upon the type of
     business conducted by such companies and/or the size of such businesses. In
     performing its analysis, such financial information included aggregate
     value to forecasted 1998 and 1999 EBITDA multiple. Morgan Stanley noted
     that, based on a compilation of earnings projections by securities research
     analysts as of November 3, 1997, the Comparable Public Companies traded in
     a range of 5.8x to 7.8x projected 1998 EBITDA and 5.4x to 7.2x projected
     1999 EBITDA. Morgan Stanley also reviewed the 1998 and 1999 Price to
     Earnings ("P/E") multiple of the Comparable Public Companies excluding Penn
     Traffic Company. Morgan Stanley noted that as of November 3, 1997 the
     Comparable Public Companies excluding Penn Traffic Company traded in a
     range of 13.3x to 20.1x projected 1998 earnings and 11.7x to 17.3x
     projected 1999 earnings. This analysis implied equity values for Food 4
     Less of $404 million to $634 million.
 
          No company utilized in the Comparable Public Company analysis as a
     comparison is identical to Food 4 Less. Accordingly, an analysis of the
     results of the foregoing necessarily involves complex considerations and
     judgments concerning financial and operating characteristics of Food 4 Less
     and other factors that could affect the public trading value of the
     Comparable Public Companies or company to which it is being compared.
     Mathematical analysis (such as determining the average or the median) is
     not itself a meaningful method of using comparable public company data.
 
          (iv) Precedent Transaction Analysis. Using publicly available
     information, Morgan Stanley performed an analysis of 16 precedent
     transactions in the retail food ("Selected Food Retail Transactions")
     business segment that Morgan Stanley deemed comparable to the FM/Food 4
     Less Merger in order to calculate a valuation range for Food 4 Less Common
     Stock. Such analysis indicated that the Selected Food Retail Transactions
     aggregate value as a multiple of EBITDA ranged from 5.8x to 9.0x, with a
     mean of 7.1x. Based on this analysis, Morgan Stanley calculated equity
     values of Food 4 Less ranging from $444 million to $834 million.
 
          No transaction utilized in the precedent transaction analysis as a
     comparison is identical to the FM/Food 4 Less Merger. Accordingly, an
     analysis of the results of the foregoing necessarily involves complex
     considerations and judgments concerning financial and operating
     characteristics of Food 4 Less and other factors that could affect the
     acquisition value of the companies to which Food 4 Less and Fred
 
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<PAGE>   109
 
     Meyer are being compared. Mathematical analysis (such as determining the
     average or the median) is not itself a meaningful method of using
     comparable public company data.
 
          (v) Discounted Cash Flow Analysis. Morgan Stanley performed discounted
     cash flow analyses of Food 4 Less based on certain financial projections
     provided by the managements of each company and a sensitivity case thereon
     for the period 1997 through 2001. Unlevered free cash flows were calculated
     as net income available to common stockholders plus the aggregate of
     preferred stock dividends, depreciation and amortization, deferred taxes,
     and other non-cash expenses and after-tax net interest expense less the sum
     of capital expenditures and investment in non-cash working capital. Morgan
     Stanley calculated terminal value by applying a range of multiples of 7.0x
     to 7.5x to EBITDA in fiscal 2000 and the cash-flow streams and terminal
     values were then discounted to the present using a range of discount rates
     of 10.0% to 11.0% representing an estimated range of the weighted average
     cost of capital for Food 4 Less based upon the weighted average cost of
     capital of certain public companies deemed comparable for purposes of this
     analysis. Based on this analysis, Morgan Stanley calculated theoretical
     equity values for Food 4 Less ranging from $524 million to $1,094 million.
 
          (vi) Relative Contribution Analysis. Morgan Stanley analyzed the
     relative contributions of Food 4 Less and Fred Meyer, assuming the FM/QFC
     Merger is not consummated, to the revenues, EBITDA, EBIT and earnings of
     the combined entity in the FM/Food 4 Less Merger for the projected fiscal
     years 1999, 2000 and 2001, in each case using the financial information
     provided by Food 4 Less and Fred Meyer's respective managements and
     excluding Synergies. Food 4 Less will receive 20.0% of the combined equity
     value and contributed 43.6%, 44.4% and 44.9% of combined revenue; 41.0%,
     42.1% and 43.0% of combined EBITDA; and 40.8%, 42.3% and 43.5% of combined
     EBIT for the fiscal years 1999, 2000 and 2001, respectively. Food 4 Less
     contributed 6.0% and 14.5% of combined earnings for the fiscal years 2000
     and 2001, respectively. On a corresponding basis, Fred Meyer will receive
     80% of the combined equity value and contributed 56.4%, 55.6% and 55.1% of
     combined revenue; 59.0%, 57.9% and 57.0% of combined EBITDA; and 59.2%,
     57.7% and 56.5% of combined EBIT for the fiscal years 1999, 2000 and 2001,
     respectively. Fred Meyer contributed 94.0% and 85.5% of combined earnings
     for the fiscal years 2000 and 2001 respectively.
 
          Morgan Stanley also analyzed the relative contributions of Food 4
     Less, QFC and Fred Meyer, assuming the FM/QFC Merger is consummated, to the
     revenues, EBITDA, EBIT and earnings of the combined entity in the Mergers
     for the projected fiscal years 1999, 2000 and 2001, in each case using the
     financial information provided by Food 4 Less, QFC and Fred Meyer's
     respective managements and excluding Synergies. Food 4 Less will receive
     14.7% of the combined equity value and contributed 37.4%, 38.2% and 38.8%
     of combined revenue; 35.5%, 36.4% and 37.2% of combined EBITDA; and 34.7%,
     36.1%, 37.2% of combined EBIT for the fiscal years 1999, 2000 and 2001,
     respectively. Food 4 Less contributed 4.4% and 10.8% of combined earnings
     for the fiscal years 2000 and 2001 respectively. On a corresponding basis,
     QFC will receive 26.5% of the combined equity value and contributed 14.1%,
     13.8% and 13.7% of combined revenue; 13.3%, 13.5% and 13.4% of combined
     EBITDA; and 14.9%, 14.7% and 14.5% of combined EBIT for the fiscal years
     1999, 2000 and 2001, respectively. QFC contributed 27.1% and 25.5% of
     combined earnings for the fiscal years 2000 and 2001 respectively. Fred
     Meyer will have 58.8% of the combined equity value and contributed 48.4%,
     47.9% and 47.5% of combined revenue; 51.2%, 50.1% and 49.4% of combined
     EBITDA; and 50.4%, 49.2% and 48.3% of combined EBIT for the fiscal years
     1999, 2000 and 2001, respectively. Fred Meyer contributed 68.5% and 63.7%
     of combined earnings for the fiscal years 2000 and 2001 respectively.
 
          (vii) Pro Forma Analysis of the Mergers. Morgan Stanley analyzed the
     pro forma effect of the FM/Food 4 Less Merger, assuming the FM/QFC Merger
     is not consummated, on the projected EPS of Fred Meyer, compared to the
     stand-alone Fred Meyer EPS as forecasted by the management of Fred Meyer.
     This analysis was based on a number of assumptions, including, among other
     things, the projected financial performance of Food 4 Less and Fred Meyer,
     estimated Synergies and prevailing interest rates. The analysis indicated
     that (accounting for the FM/Food 4 Less Merger as a purchase and assuming
     $35.0 million, $45.0 million and $50.0 million of Synergies in fiscal years
     1999, 2000 and 2001, respectively) the pro forma EPS for Fred Meyer is
     anticipated to be lower than Fred Meyer's stand-alone
 
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<PAGE>   110
 
     earnings per share estimates for fiscal year 1999 and higher than Fred
     Meyer's stand-alone earnings per share estimate for fiscal years 2000 and
     2001.
 
          Morgan Stanley also analyzed the pro forma effect of the FM/Food 4
     Less Merger, assuming the FM/QFC Merger is consummated, on the projected
     earnings per share of Fred Meyer, compared to the stand-alone Fred Meyer
     EPS as forecasted by the management of Fred Meyer. This analysis was based
     on a number of assumptions, including, among other things, the projected
     financial performance of Food 4 Less, QFC and Fred Meyer, estimated
     Synergies and prevailing interest rates. The analysis indicated that
     (accounting for the FM/Food 4 Less Merger as a purchase and the FM/QFC
     Merger as a pooling-of-interests and assuming $70 million, $90 million and
     $100 million of Synergies in fiscal years 1999, 2000 and 2001,
     respectively) the pro forma EPS for Fred Meyer is anticipated to be lower
     than Fred Meyer's stand-alone earnings per share estimates for fiscal year
     1999 and higher than Fred Meyer's stand-alone earnings per share estimate
     for fiscal years 2000 and 2001.
 
     The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of its analyses
as a whole and did not attribute any particular weight to any analysis or factor
considered by it. Morgan Stanley believes that its analyses must be considered
as a whole and that selecting portions of its analyses, without considering all
analyses, would create an incomplete view of the process underlying its opinion.
In addition, Morgan Stanley may have deemed various assumptions more or less
probable than other assumptions, so that the ranges of valuations resulting for
any particular analysis described above should not be taken to be Morgan
Stanley's view of the actual value of Food 4 Less.
 
     In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Food 4 Less, Fred Meyer
and QFC. The analyses performed by Morgan Stanley are not necessarily indicative
of the actual values of Food 4 Less, Fred Meyer or QFC, which may be
significantly more or less favorable than suggested by such analyses. Such
analyses were prepared solely as part of Morgan Stanley's analysis of the
fairness of the consideration, from a financial point of view, to be received by
the holders of the Food 4 Less Common Stock pursuant to the FM/Food 4 Less
Merger Agreement, and were provided to the Food 4 Less Board in connection with
the delivery of Morgan Stanley's written opinion dated November 5, 1997. The
analyses do not purport to be appraisals or to reflect the prices at which Food
4 Less, Fred Meyer or QFC might actually be sold. In addition, as described
above, Morgan Stanley's opinion and presentation to the Food 4 Less Board was
one of many factors taken into consideration by the Food 4 Less Board in making
its determination to approve the FM/Food 4 Less Merger. Consequently, the Morgan
Stanley analyses described above should not be viewed as determinative of the
opinion of the Food 4 Less Board or the view of the management of Food 4 Less
with respect to the value of Food 4 Less or of whether the Food 4 Less Board or
the management of Food 4 Less would have been willing to agree to a different
price.
 
     The Board of Directors of Food 4 Less retained Morgan Stanley based upon
its experience and expertise. Morgan Stanley is an internationally recognized
investment banking and advisory firm. Morgan Stanley, as part of its investment
banking business, is regularly engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuation for corporate and other
purposes. In the ordinary course of its trading, brokerage and financing
activities, Morgan Stanley or its affiliates may at any time hold long or short
positions, and may trade or otherwise effect transactions, for their own account
or for the accounts of customers in debt or equity securities or senior loans of
Food 4 Less, QFC or Fred Meyer. In the past, Morgan Stanley has provided
financial advisory and financing services to Food 4 Less, for which services
Morgan Stanley has received fees.
 
     Morgan Stanley has been retained by Food 4 Less to act as financial advisor
to Food 4 Less with respect to the FM/Food 4 Less Merger. Pursuant to a letter
agreement dated November 5, 1997 between Food 4 Less and Morgan Stanley, Morgan
Stanley is entitled to a transaction fee of $6,000,000, which is payable at the
closing of the transaction. Food 4 Less has also agreed to reimburse Morgan
Stanley for the expenses of its
 
                                       102
<PAGE>   111
 
counsel and other professional advisors, and to indemnify Morgan Stanley and its
affiliates against certain liabilities and expenses, including liabilities under
federal securities laws.
 
INTERESTS OF CERTAIN PERSONS IN THE FM/FOOD 4 LESS MERGER
 
     Interests of Ronald W. Burkle. In considering the recommendations of the
Fred Meyer Board with respect to the FM/Food 4 Less Merger Agreement, Fred Meyer
stockholders should be aware that Ronald W. Burkle, Chairman of the Board of
Fred Meyer, has interests in the FM/Food 4 Less Merger that are in addition to
the interests of the stockholders of Fred Meyer generally. The Fred Meyer Board
was aware of these interests and considered them, among other matters, in
approving the FM/Food 4 Less Merger Agreement. Mr. Burkle is Chairman of the
Board of Food 4 Less and founder, managing partner and a principal owner of
Yucaipa, which together with its affiliates beneficially owns approximately 27%
of the fully diluted Food 4 Less Common Stock, for which there is no active
trading market. If the FM/Food 4 Less Merger is consummated, Yucaipa and its
affiliates will receive approximately 26% of the Fred Meyer Common Stock to be
issued in the FM/Food 4 Less Merger, including Fred Meyer Common Stock to be
issued in settlement of the Yucaipa Warrant, as described below. In addition,
Yucaipa will receive $20 million in connection with termination of the
Consulting Agreement between Food 4 Less and Yucaipa and as consideration for
advisory services rendered by Yucaipa in connection with the FM/Food 4 Less
Merger. See "-- Interests of Yucaipa."
 
     Interests of Yucaipa. Ronald W. Burkle, Patrick L. Graham, Lawrence K.
Kalantari and Robert I. Bernstein, directors of Food 4 Less, are partners of
Yucaipa. Joe S. Burkle, a director and Executive Vice President of Food 4 Less,
is the father of Ronald W. Burkle. Food 4 Less, Ralphs and Yucaipa are parties
to a Consulting Agreement which provides for certain management and financial
services to be performed by Yucaipa for the benefit of Food 4 Less and its
subsidiaries. The services of Messrs. Burkle, Graham, Kalantari and Bernstein
acting in their capacities as directors of Food 4 Less and the services of other
Yucaipa personnel are provided to Food 4 Less pursuant to the Consulting
Agreement. The Consulting Agreement provides for an annual management fee
payable by Food 4 Less to Yucaipa in the amount of $4 million. In addition, Food
4 Less may retain Yucaipa in an advisory capacity in connection with acquisition
or sale transactions. The Consulting Agreement has a five year term, which is
automatically renewed each year for a five-year term unless ninety days' notice
is given by either party. Pursuant to the terms of the FM/Food 4 Less Merger
Agreement, upon consummation of the FM/Food 4 Less Merger, the Consulting
Agreement will be terminated and Food 4 Less or Fred Meyer will make a
termination payment to Yucaipa or its assignee in the amount of $20 million in
lieu of all other payments required thereunder, and as consideration for
advisory services rendered by Yucaipa in connection with the FM/Food 4 Less
Merger.
 
     In addition, the Yucaipa Warrant entitles Yucaipa to purchase up to 8
million shares of Food 4 Less Common Stock at an exercise price equal to $30.50
per share. Pursuant to the terms of the FM/Food 4 Less Merger Agreement, at the
FM/Food 4 Less Merger Effective Time, the Yucaipa Warrant will be terminated in
consideration for Fred Meyer's delivery to Yucaipa or its assignee of shares of
Fred Meyer Common Stock (and, if applicable, percentage interests of escrowed
shares of Fred Meyer Common Stock) equal to the number of shares of Fred Meyer
Common Stock (and, if applicable, percentage interests of escrowed shares of
Fred Meyer Common Stock) which the holder of two percent of the Food 4 Less
Stock, measured on a fully diluted basis (after giving effect to such two
percent of Food 4 Less Stock as though it were outstanding), would have received
in the FM/Food 4 Less Merger.
 
     Fred Meyer succeeded to the businesses of Fred Meyer Stores, Inc. and
Smith's Food & Drug Centers, Inc. on September 9, 1997 as a result of mergers
through which Fred Meyer Stores and Smith's have become wholly owned
subsidiaries of Fred Meyer. The merger, as contemplated by the Agreement and
Plan of Reorganization and Merger, dated May 11, 1997, between Fred Meyer and
Smith's, was approved by the stockholders of Fred Meyer and Smith's at separate
stockholders meetings held on September 8, 1997. At the time of the merger, The
Yucaipa Companies, an affiliate of Food 4 Less, owned a substantial percentage
of Smith's capital stock.
 
                                       103
<PAGE>   112
 
     On September 9, 1997, Fred Meyer and The Yucaipa Companies entered into a
Management Services Agreement as required by the merger agreement between Fred
Meyer and Smith's. Under the terms of the Management Services Agreement, Yucaipa
provides management consultation and advice to Fred Meyer for a term of five
years. Fred Meyer pays Yucaipa an annual management fee of $500,000 and has
agreed to reimburse Yucaipa for its reasonable out-of-pocket costs and expenses
incurred in connection with the performance of its obligations under the
Management Services Agreement. If during the term of the Management Services
Agreement, the Fred Meyer Board requests Yucaipa to provide (i) consulting
services in connection with any proposed acquisition or divestiture transaction
or any debt or equity financing, or (ii) any other services not otherwise
covered by the Management Services Agreement, Yucaipa will be entitled to such
additional compensation for such services as may be agreed upon by Yucaipa and
Fred Meyer (and approved by a majority of Fred Meyer's disinterested directors).
In connection with Yucaipa's services, Ronald W. Burkle serves as the Chairman
of the Fred Meyer Board and will have the right to do so during his initial
three year term as a director of Fred Meyer. Mr. Burkle does not receive any
compensation for serving in such capacity beyond the compensation paid to
Yucaipa under the Management Services Agreement. If the Management Services
Agreement is terminated under certain circumstances, Fred Meyer will pay or
cause to be paid to Yucaipa a termination payment equal to the greater of $2.5
million and twice the total consulting fees that would have been earned by
Yucaipa during the remaining term of the Management Services Agreement as if
such agreement had not been terminated, without regard to sums previously paid
by Fred Meyer to Yucaipa as part of its management fee.
 
     Food 4 Less Stock Option Plans. Immediately prior to the FM/Food 4 Less
Merger Effective Time, each outstanding option to purchase Food 4 Less Common
Stock (collectively, the "Food 4 Less Options") will be canceled in exchange for
the payments set forth below. With respect to such portion of a Food 4 Less
Option which is exercisable immediately prior to March 20, 1998, Food 4 Less
will pay to each holder of the Food 4 Less Option a cash payment equal to the
per share value of the Fred Meyer Common Stock into which the shares of Food 4
Less Common Stock subject to such vested Food 4 Less Option would be converted
in the FM/Food 4 Less Merger, less the per share exercise price of such Food 4
Less Option, subject to applicable income tax withholding and employer taxes.
With respect to such portion of an Food 4 Less Option which is not exercisable
immediately prior to March 20, 1998, if the holder thereof remains employed on
the first anniversary of the FM/Food 4 Less Merger Effective Time (each holder
who remains so employed, a "Qualifying Employee"), Food 4 Less will pay to the
Qualifying Employee a similar cash payment with respect to such unvested Food 4
Less Option. George G. Golleher, the Chief Executive Officer and a director of
Food 4 Less, holds 340,000 Food 4 Less Options that will be exercisable
immediately prior to March 20, 1998, and 160,000 Food 4 Less Options that will
vest thereafter. As a result, he is expected to receive cash payments for such
options currently estimated at an aggregate of approximately $3.4 million to be
paid at the FM/Food 4 Less Merger Effective Time and to be paid on the first
anniversary thereof.
 
     The following table sets forth information with respect to the number of
Food 4 Less Options held by executive officers of Food 4 Less and the estimated
cash payments to be received by each of them:
 
<TABLE>
<CAPTION>
                                                         NUMBER OF             ESTIMATED
                           NAME                     FOOD 4 LESS OPTIONS     CASH PAYMENTS(1)
        ------------------------------------------  -------------------     ----------------
        <S>                                         <C>                     <C>
        George G. Golleher........................        500,000              $3,350,000
        Greg Mays.................................        150,000                 945,000
        Harold McIntire...........................         50,000                 275,000
        John Standley.............................         30,000                 165,000
        Terrence J. Wallock.......................         20,000                 110,000
        Patrick Barber............................         20,000                 130,000
        Christopher S. Hall.......................         20,000                 130,000
                                                       ----------           ----------------
                  Total...........................        790,000              $5,105,000
                                                    ===============         =============
</TABLE>
 
---------------
 
(1) The amounts in this column have been determined by multiplying (i) the
    number of shares of Food 4 Less Common Stock subject to the Food 4 Less
    Options by (ii) an estimated $17.50 value of
 
                                       104
<PAGE>   113
 
    Fred Meyer Common Stock to be received for each share of Food 4 Less Common
    Stock in the FM/Food 4 Less Merger, and subtracting from such product the
    aggregate exercise price of the Food 4 Less Options, which range between
    $10.00 and $12.00 per share of Food 4 Less Common Stock. The actual cash
    payment to be made for Food 4 Less Options will depend on the number of
    shares of Food 4 Less Common Stock outstanding, the market price of Fred
    Meyer Common Stock, and certain other factors at the time of consummation of
    the FM/Food 4 Less Merger.
 
     Severance Agreements with Food 4 Less Officers. In connection with the
FM/Food 4 Less Merger, the Food 4 Less Board determined that it was in the best
interest of Food 4 Less to provide certain assurances to its senior management
to ensure management stability pending the consummation of the FM/Food 4 Less
Merger. As a result, Food 4 Less intends to enter into severance agreements with
approximately 15 executive officers and other senior managers. Upon consummation
of the Food 4 Less Merger, the severance agreements will provide benefits to
these employees who are employed by Food 4 Less as of the FM/Food 4 Less Merger
Effective Time.
 
     1. Payments Upon Termination. The severance agreements will provide that,
     if an employee is terminated without "cause" or such employee terminates
     his or her own employment for "good reason," the employee will be entitled
     to (i) a severance payment equal to (A) three times the employee's annual
     base pay if the employee is terminated on or before one year has elapsed
     from the date of the agreement, (B) two times the employee's annual base
     pay if the employee is terminated on or before two years have elapsed from
     the date of the agreement or (C) the employee's annual base pay if the
     employee is terminated after two years have elapsed from the date of the
     agreement (except that the payment would be two times the employee's annual
     base pay if he or she is terminated in connection with or following a
     "change of control"); (ii) a prorated portion of any annual cash incentive
     plans for the year in which the termination occurs; and (iii) prorated
     accelerated vesting of any outstanding stock options held by the employee
     that were granted after the closing of the FM/Food 4 Less Merger under Fred
     Meyer's stock option and stock incentive plans (except that all such
     options would accelerate following a "change in control" of Fred Meyer).
     Each severance agreement will have a term of five years.
 
     2. Gross-Up Payments. If the amount of the severance payment, plus the
     other amounts to which the terminated employee is entitled under the
     severance agreement, is subject to the tax imposed by Section 4999 of the
     Code, the employee will also be entitled to an additional amount (the
     "Additional Payment") equal to the amount of such tax incurred by the
     employee on a net basis after the deduction from the Additional Payment of
     all federal, state and local income taxes that would be imposed on the
     employee by reason of the employee's receipt of the Additional Payment.
 
     Indemnification Arrangements with Food 4 Less Officers and Directors. Food
4 Less maintains directors' and officers' liability insurance covering its
current and former directors and officers (the "Food 4 Less Indemnified
Parties") in their capacities as directors and officers of Food 4 Less. For a
period of six years after the FM/Food 4 Less Merger Effective Time, Fred Meyer
will maintain officers' and directors' liability insurance covering the Food 4
Less Indemnified Parties on terms substantially no less advantageous to the Food
4 Less Indemnified Parties than such existing insurance. Furthermore, the bylaws
of Food 4 Less in effect after the FM/Food 4 Less Merger Effective Time shall
contain provisions no less favorable with respect to indemnification and
exculpation of officers and directors from liability than those provisions set
forth in the Food 4 Less Certificate and the current bylaws of Food 4 Less (the
"Food 4 Less Bylaws"). See "The FM/Food 4 Less Merger Agreement -- Directors'
and Officers' Indemnification; Insurance."
 
     Registration Rights Agreement. Pursuant to the terms of the FM/Food 4 Less
Merger Agreement, Fred Meyer will enter into a registration rights agreement
that grants "shelf" and "demand" registration rights (the "Food 4 Less
Registration Rights Agreement") to certain stockholders of Food 4 Less,
including Yucaipa and Apollo Advisors II, L.P. ("Apollo") and their respective
affiliates (the "Food 4 Less Stockholders"). In addition to the Food 4 Less
directors who are partners of Yucaipa (as discussed above), the Food 4 Less
Board includes two members, John Kissick and Peter Copses, who are principals of
Apollo. As soon as practicable following the mailing of this Joint Proxy and
Consent Solicitation Statement/Prospectus, Fred Meyer will prepare and file with
the Commission a shelf registration statement on an appropriate form that
 
                                       105
<PAGE>   114
 
will include all shares of Fred Meyer Common Stock to be acquired by such Food 4
Less stockholders in the FM/Food 4 Less Merger. Fred Meyer has covenanted that
it will use its reasonable best efforts to cause such shelf registration
statement to be declared effective as soon as practicable after the FM/Food 4
Less Merger Effective Time and to keep such shelf registration statement
effective until the one year anniversary date of the date such shelf
registration statement has been declared effective (the "Shelf Termination
Date"), subject to certain limitations. In addition, upon written notice to Fred
Meyer from Apollo or its affiliates at any time after the Shelf Termination Date
(but not later than the date that is 180 days after the Shelf Termination Date),
Fred Meyer shall prepare and, within 60 days after such notice, file with the
Commission a registration statement with respect to all or a portion (as set
forth in such notice) of the Fred Meyer Common Stock owned by such Food 4 Less
Stockholder(s) and thereafter use its reasonable best efforts to cause such
registration statement to be declared effective under the Securities Act for
purposes of dispositions in accordance with the intended method(s) of
disposition set forth in such notice. In addition, Fred Meyer has agreed to
amend its existing registration rights agreement with Yucaipa to include shares
acquired by Yucaipa and its affiliates in the FM/Food 4 Less Merger as
registrable securities under that agreement. See "Other Agreements -- FM/Food 4
Less Merger -- Registration Rights Agreement."
 
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
 
     General. The following discusses the anticipated material United States
federal income tax consequences of the FM/Food 4 Less Merger:
 
          (1) The FM/Food 4 Less Merger will constitute a reorganization within
     the meaning of Section 368(a) of the Code for United States federal income
     tax purposes, and Food 4 Less, Food 4 Less Sub and Fred Meyer will each be
     a party to such reorganization within the meaning of Section 368(b) of the
     Code;
 
          (2) No gain or loss will be recognized by Fred Meyer, Food 4 Less Sub
     or Food 4 Less as a result of the FM/Food 4 Less Merger;
 
          (3) No gain or loss will be recognized by the stockholders of Food 4
     Less upon the exchange of their Food 4 Less Stock solely for shares of Fred
     Meyer Common Stock (including Escrowed Shares as defined under "The FM/Food
     4 Less Merger Agreement -- Escrowed Shares") pursuant to the FM/Food 4 Less
     Merger, except with respect to cash, if any, received in lieu of fractional
     shares of Fred Meyer Common Stock;
 
          (4) The aggregate tax basis of the shares of Fred Meyer Common Stock
     (including Escrowed Shares) received solely in exchange for Food 4 Less
     Stock pursuant to the FM/Food 4 Less Merger (including fractional shares
     for which cash is received) will be the same as the aggregate tax basis of
     the Food 4 Less Stock exchanged therefor, and the adjusted basis of any
     Escrowed Shares returned to Fred Meyer will be added to the adjusted basis
     of the remaining shares of Fred Meyer Common Stock received by the
     stockholders of Food 4 Less in the FM/Food 4 Less Merger;
 
          (5) The holding period for shares of Fred Meyer Common Stock
     (including Escrowed Shares), received solely in exchange for Food 4 Less
     Stock pursuant to the FM/Food 4 Less Merger will include the holding period
     of the Food 4 Less Stock exchanged therefor, provided such Food 4 Less
     Stock was held as a capital asset by the stockholder at the FM/Food 4 Less
     Merger Effective Time; and
 
          (6) A stockholder of Food 4 Less who receives cash in lieu of a
     fractional share of Fred Meyer Common Stock will recognize gain or loss
     equal to the difference, if any, between such stockholder's tax basis in
     such fractional share (as described in clause (4) above) and the amount of
     cash received.
 
     The obligation of Food 4 Less to consummate the FM/Food 4 Less Merger is
conditioned upon the receipt by Food 4 Less of an opinion from Latham & Watkins
that the Merger will be treated as a reorganization within the meaning of
Section 368(a) of the Code. The obligation of Fred Meyer to consummate the
FM/Food 4 Less Merger is conditioned upon the receipt by Fred Meyer of an
opinion from Simpson Thacher & Bartlett that Fred Meyer, Food 4 Less Sub and
Food 4 Less will not recognize income, gain or loss for United States federal
income tax purposes as a result of the Merger. The opinions of counsel
 
                                       106
<PAGE>   115
 
will be based in part upon representations, made as of the FM/Food 4 Less Merger
Effective Time, by Food 4 Less, Fred Meyer and certain stockholders, which
counsel will assume to be true, correct and complete. If the representations are
inaccurate, the opinions of counsel could be adversely affected. No ruling has
been sought from the Internal Revenue Service as to the United States federal
income tax consequences of the FM/Food 4 Less Merger, and the opinions of
counsel will not be binding upon the Internal Revenue Service or any court.
 
     Exercise of Appraisal Rights by Stockholders. A stockholder of Food 4 Less
who exercises appraisal rights as described below under "-- Appraisal Rights"
should, in general, treat the difference between the tax basis of the Food 4
Less Common Stock held by such stockholder with respect to which such rights are
exercised and the amount received through exercise of such rights as capital
gain or loss for United States federal income tax purposes.
 
     Backup Withholding; Information Reporting; Records. Certain noncorporate
Food 4 Less stockholders may be subject to backup withholding at a rate of 31%
on cash payments received in lieu of a fractional share interest in Fred Meyer
Common Stock. Backup withholding will not apply, however, to a stockholder who
(i) furnishes a correct TIN and certifies that he or she is not subject to
backup withholding on the substitute Form W-9 included in the Food 4 Less
Transmittal Letter (as defined below), (ii) provides a certificate of foreign
status on Form W-8, or (iii) is otherwise exempt from backup withholding. A
stockholder who fails to provide the correct TIN on Form W-9 may be subject to a
$50 penalty imposed by the Internal Revenue Service.
 
     Each Food 4 Less stockholder will be required to retain records and file
with such holder's United States federal income tax return a statement setting
forth certain facts relating to the FM/Food 4 Less Merger.
 
     Limitations. The foregoing discussion is intended only as a summary of
certain United States federal income tax consequences of the FM/Food 4 Less
Merger. The discussion does not address the tax consequences that may be
relevant to a particular Food 4 Less stockholder subject to special treatment
under certain United States federal income tax laws, such as dealers in
securities, financial institutions, insurance companies, certain retirement
plans, tax-exempt organizations, persons that hold shares of Food 4 Less as part
of a position in a "straddle" or as part of a "hedging" transaction for United
States federal income tax purposes or persons with a "functional currency" (as
defined in the Code) other than the U.S. dollar, and does not address any
consequences arising under the laws of any state, locality or foreign
jurisdiction. Moreover, the tax consequences to holders of Food 4 Less Options
and Food 4 Less Warrants are not discussed.
 
     In particular, the foregoing discussion may not be applicable to non-United
States persons or to stockholders who acquired Food 4 Less Common Stock pursuant
to the exercise of Food 4 Less Options or otherwise as compensation.
 
     This discussion is based upon the Code, Treasury regulations thereunder and
administrative rulings and court decisions as of the date hereof. All of the
foregoing are subject to change, and any such change could affect the continuing
validity of this discussion. FOOD 4 LESS STOCKHOLDERS ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE FM/FOOD 4 LESS MERGER TO THEM.
 
ACCOUNTING TREATMENT
 
     The FM/Food 4 Less Merger will be accounted for as a purchase of Food 4
Less by Fred Meyer in accordance with GAAP. Under purchase accounting, the
purchase price will be allocated to assets acquired and liabilities assumed
based on their estimated fair values. The consolidated earnings of Fred Meyer
will not include the earnings of Food 4 Less prior to the FM/Food 4 Less Merger
Effective Time. See "The FM/Food 4 Less Merger Unaudited Pro Forma Condensed
Combined Financial Statements."
 
                                       107
<PAGE>   116
 
REGULATORY APPROVALS
 
     Transactions such as those contemplated by the FM/Food 4 Less Merger
Agreement are reviewed under the HSR Act by the Antitrust Division of the DOJ
and the FTC and by applicable state antitrust authorities to determine whether
they comply with applicable antitrust laws. Under the provisions of the HSR Act,
the FM/Food 4 Less Merger may not be consummated until such time as the
applicable waiting period requirements of the HSR Act have expired or been
terminated. Each of Fred Meyer and Food 4 Less filed notification reports with
the DOJ and the FTC under the HSR Act and the waiting period expired at midnight
on December 19, 1997.
 
     At any time before or after the FM/Food 4 Less Merger Effective Time, the
DOJ, the FTC, applicable state antitrust authorities or a private person or
entity could seek, under applicable federal or state antitrust laws, among other
things, to enjoin the FM/Food 4 Less Merger or to cause the divestiture of
certain assets of Fred Meyer or Food 4 Less. There is no assurance that a
challenge to the FM/Food 4 Less Merger will not be made or that, if such a
challenge is made, Fred Meyer and Food 4 Less will prevail. Since announcement
of the proposed Mergers, the parties have received inquiries from antitrust
authorities in California, Washington and Oregon. The parties have been in
discussions with the staff of the California Attorney General's office with
respect to certain concerns about the possible competitive impact of the
proposed Mergers in Southern California raised by the California Attorney
General. Those discussions have resulted in a preliminary understanding that,
following completion of both Mergers, Fred Meyer will cause the divestiture to
other supermarket operators of 19 specified stores in Southern California. The
parties are continuing negotiations to finalize the terms upon which such
divestitures will be made. The FTC has advised the parties that it is reviewing
the competitive impact of the proposed Mergers in Southern California and
Washington. In connection with that review, the parties have voluntarily
provided information concerning the food retailing industry and their respective
supermarket operations in those areas to the FTC. In addition, the parties have
apprised the FTC of the preliminary understanding reached with the California
Attorney General to divest 19 supermarkets in Southern California following
completion of both Mergers. That preliminary understanding is not binding on the
FTC, and the FTC may have concerns regarding the potential competitive impact of
the proposed Mergers in addition to those raised by the California Attorney
General and may require additional divestitures in California or elsewhere. No
assurances can be made that the FTC will not have concerns regarding the
potential competitive impact of the proposed Mergers in addition to those raised
by the California Attorney General or that the FTC will not require additional
divestitures in California or Washington. No assurances can be made that the FTC
will not require additional divestitures in California that would result in a
reduction of the exchange ratio in the FM/QFC Merger or a reduction in the
number of shares of Fred Meyer Common Stock to be received by Food 4 Less
stockholders and warrant holders in the FM/Food 4 Less Merger. If the
preliminary understanding with the California Attorney General's office with
respect to store divestitures is finalized and if the FTC does not require
additional divestitures in California, there would be no reduction in the
exchange ratio in the FM/QFC Merger and no reduction in the number of shares of
Fred Meyer Common Stock to be issued to Food 4 Less stockholders and warrant
holders in the FM/Food 4 Less Merger. See "The FM/Food 4 Less Merger
Agreement -- Antitrust Clearance; Estimated Gain."
 
     Except for approvals otherwise described in this Joint Proxy and Consent
Solicitation Statement/Prospectus, neither Fred Meyer nor Food 4 Less is aware
of any other significant government or regulatory approvals required as a
condition to the consummation of the transactions contemplated by the FM/Food 4
Less Merger Agreement.
 
APPRAISAL RIGHTS
 
     Under the DGCL, holders of Fred Meyer Common Stock are not entitled to
appraisal rights in connection with the FM/Food 4 Less Merger because Fred Meyer
Common Stock is listed on a national securities exchange.
 
     Holders of Food 4 Less Stock who do not approve the FM/Food 4 Less Merger
Agreement and who have properly complied with Section 262 will be entitled to
appraisal rights. To preserve their rights, stockholders
 
                                       108
<PAGE>   117
 
who wish to exercise their statutory appraisal rights must submit a written
demand for appraisal within 20 days after the date of mailing of this Joint
Proxy and Consent Solicitation Statement/Prospectus and comply with the other
procedural requirements of Section 262 described below.
 
     SECTION 262 IS REPRINTED IN ITS ENTIRETY AS APPENDIX K TO THIS JOINT PROXY
AND CONSENT SOLICITATION STATEMENT/PROSPECTUS. THE FOLLOWING DISCUSSION IS
NECESSARILY A SUMMARY OF THE LAW RELATING TO APPRAISAL RIGHTS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO APPENDIX K. THIS DISCUSSION AND APPENDIX K
SHOULD BE REVIEWED CAREFULLY BY ANY STOCKHOLDER WHO WISHES TO EXERCISE STATUTORY
APPRAISAL RIGHTS, IF AVAILABLE, OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO, AS
FAILURE TO COMPLY WITH THE PROCEDURES SET FORTH HEREIN OR THEREIN WILL RESULT IN
THE LOSS OF APPRAISAL RIGHTS, IF AVAILABLE.
 
     A record holder of shares of Food 4 Less Stock who makes the demand
described below with respect to such shares, who continuously is the record
holder of such shares through the FM/Food 4 Less Merger Effective Time, who
otherwise complies with the statutory requirements of Section 262 and does not
approve the FM/Food 4 Less Merger Agreement may be entitled to an appraisal by
the Delaware Court of Chancery (the "Delaware Court") of the fair value of his,
her or its shares of Food 4 Less Stock. All references in this summary of
appraisal rights to a "stockholder" are to the record holder or holders of
shares of Food 4 Less Stock.
 
     Under Section 262, where a merger is submitted for approval by written
consent of stockholders, as in the Food 4 Less Consent Solicitation, either
before the effective date of the merger or within ten days thereafter, each
constituent corporation must notify each of the holders of its stock for which
appraisal rights are available that such appraisal rights are available and
include in each such notice a copy of Section 262. This Joint Proxy and Consent
Solicitation Statement/Prospectus shall constitute such notice to the record
holders of Food 4 Less Stock.
 
     Holders of shares of Food 4 Less Stock who desire to exercise their
appraisal rights must not approve the FM/Food 4 Less Merger Agreement and must
deliver a separate written demand for appraisal to Food 4 Less within 20 days
after the date of mailing of this Joint Proxy and Consent Solicitation
Statement/Prospectus. A stockholder who signs and returns a Consent Form without
expressly directing, by checking the applicable boxes on the reverse side of the
Consent Form enclosed herewith, that he or she does not approve the FM/Food 4
Less Merger Agreement will effectively have thereby waived his, her or its
appraisal rights as to those shares of Food 4 Less Stock because, in the absence
of express contrary instructions, such shares of Food 4 Less Stock will be
deemed to approve the proposal to approve the FM/Food 4 Less Merger Agreement.
Accordingly, a stockholder who desires to perfect appraisal rights with respect
to any of his, her or its shares of Food 4 Less Stock must, as one of the
procedural steps involved in such perfection, either (i) refrain from executing
and returning the enclosed Consent Form or (ii) check the "Withhold Consent" box
next to the proposal to approve the FM/Food 4 Less Merger Agreement on such
form. A demand for appraisal must be executed by or on behalf of the stockholder
of record and must reasonably inform Food 4 Less of the identity of the
stockholder of record and that such record stockholder intends thereby to demand
appraisal of his, her or its shares of Food 4 Less Stock. A person having a
beneficial interest in shares of Food 4 Less Stock that are held of record in
the name of another person, such as a broker, fiduciary or other nominee, must
act promptly to cause the record holder to follow the steps summarized herein
properly and in a timely manner to perfect whatever appraisal rights are
available. If the shares of Food 4 Less Stock are owned of record by a person
other than the beneficial owner, including a broker, fiduciary (such as a
trustee, guardian or custodian) or other nominee, such demand must be executed
by or for the record owner. If the shares of Food 4 Less Stock are owned of
record by more than one person, as in a joint tenancy or tenancy in common, such
demand must be executed by or for all joint owners. An authorized agent,
including an agent for two or more joint owners, may execute the demand for
appraisal for a stockholder of record; provided, however, the agent must
identify the record owner and expressly disclose the fact that, in exercising
the demand, such person is acting as agent for the record owner.
 
     A record owner, such as a broker, fiduciary or other nominee, who holds
shares of Food 4 Less Stock as a nominee for others, may exercise appraisal
rights with respect to the shares held for all or less than all beneficial
owners of shares as to which such person is the record owner. In such case, the
written demand must
 
                                       109
<PAGE>   118
 
set forth the number and type of shares covered by such demand. Where the number
of shares is not expressly stated, the demand will be presumed to cover all
shares of Food 4 Less Stock outstanding in the name of such record owner.
 
     A stockholder who elects to exercise appraisal rights, if available, should
mail or deliver his, her or its written demand to: Food 4 Less Holdings, Inc.,
1100 West Artesia Boulevard, Compton, California 90220, Attention: Terrence J.
Wallock, Esq., Telephone: (310) 884-9000, Telecopy: (310) 884-2610.
 
     The written demand for appraisal should specify the stockholder's name and
mailing address, the number of shares of Food 4 Less Common Stock, Food 4 Less
Series A Preferred Stock or Food 4 Less Series B Preferred Stock owned, and that
the stockholder is thereby demanding appraisal of his, her or its shares. A
Consent Form against the FM/Food 4 Less Merger Agreement will not by itself
constitute such a demand. Within ten days after the FM/Food 4 Less Merger
Effective Time, the surviving corporation must provide notice of such effective
time to all stockholders who have complied with Section 262.
 
     Within 120 days after the FM/Food 4 Less Merger Effective Time, either the
surviving corporation or any stockholder who has complied with the required
conditions of Section 262 may file a petition in the Delaware Court, with a copy
served on the surviving corporation in the case of a petition filed by a
stockholder, demanding a determination of the fair value of the shares of all
dissenting stockholders. There is no present intent on the part of Food 4 Less
to file an appraisal petition and stockholders seeking to exercise appraisal
rights should not assume that the surviving corporation will file such a
petition or that the surviving corporation will initiate any negotiations with
respect to the fair value of such shares. Accordingly, stockholders of Food 4
Less who desire to have their shares appraised should initiate any petitions
necessary for the perfection of their appraisal rights within the time period
and in the manner prescribed in Section 262. If appraisal rights are available,
within 120 days after the FM/Food 4 Less Merger Effective Time, any stockholder
who has theretofore complied with the applicable provisions of Section 262 will
be entitled, upon written request, to receive from the surviving corporation a
statement setting forth the aggregate number of shares of Food 4 Less Stock not
approving the FM/Food 4 Less Merger Agreement and with respect to which demands
for appraisal were received by Food 4 Less and the number of holders of such
shares. Such statement must be mailed within 10 days after the written request
therefor has been received by the surviving corporation or within 10 days after
the expiration of the period for delivery of demands for appraisal, whichever is
later.
 
     Upon the timely filing of a petition by a stockholder, service of a copy
thereof shall be made upon the surviving corporation, which shall within 20 days
after such service file in the Office of the Register in Chancery in which the
petition was filed a duly verified list containing the names and addresses of
all stockholders who have demanded appraisal of their shares. If a petition for
an appraisal is timely filed and assuming appraisal rights are available, at the
hearing on such petition, the Delaware Court will determine which stockholders,
if any, are entitled to appraisal rights. The Delaware Court may require the
stockholders who have demanded an appraisal for their shares and who hold stock
represented by certificates to submit their certificates of stock to the
Register in Chancery for notation thereon of the pendency of the appraisal
proceedings; and if any stockholder fails to comply with such direction, the
Delaware Court may dismiss the proceedings as to such stockholder. Where
proceedings are not dismissed, the Delaware Court will appraise the shares of
Food 4 Less Stock owned by such stockholders, determining the fair value of such
shares exclusive of any element of value arising from the accomplishment or
expectation of the FM/Food 4 Less Merger, together with a fair rate of interest,
if any, to be paid upon the amount determined to be the fair value. In
determining fair value, the Delaware Court is to take into account all relevant
factors. In Weinberger v. UOP Inc., the Delaware Supreme Court discussed the
factors that could be considered in determining fair value in an appraisal
proceeding, stating that "proof of value by any techniques or methods which are
generally considered acceptable in the financial community and otherwise
admissible in court" should be considered, and that "fair price obviously
requires consideration of all relevant factors involving the value of a
company." In Weinberger, the Delaware Supreme Court stated that "elements of
future value, including the nature of the enterprise, which are known or
susceptible of proof as of the date of the merger and not the product of
speculation, may be considered." Section 262, however, provides that fair value
is to be "exclusive of any element of value arising from the accomplishment or
expectation of the merger."
 
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<PAGE>   119
 
     Holders of shares of Food 4 Less Stock considering seeking appraisal should
recognize that the fair value of their shares determined under Section 262 could
be more than, the same as or less than the consideration they are entitled to
receive pursuant to the FM/Food 4 Less Merger Agreement if they do not seek
appraisal of their shares. The cost of the appraisal proceeding may be
determined by the Delaware Court and taxed against the parties as the Delaware
Court deems equitable in the circumstances. Upon application of a dissenting
stockholder of Food 4 Less, the Delaware Court may order that all or a portion
of the expenses incurred by any dissenting stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable attorney's fees
and the fees and expenses of experts, be charged pro rata against the value of
all shares of stock entitled to appraisal.
 
     Any holder of shares of Food 4 Less Stock who has duly demanded appraisal
in compliance with Section 262 will not, after the FM/Food 4 Less Merger
Effective Time, be entitled to vote for any purpose any shares subject to such
demand or to receive payment of dividends or other distributions on such shares,
except for dividends or distributions payable to stockholders of record at a
date prior to such effective time.
 
     At any time within 60 days after the FM/Food 4 Less Merger Effective Time,
any stockholder will have the right to withdraw such demand for appraisal and to
accept the terms offered in the FM/Food 4 Less Merger; after this period, the
stockholder may withdraw such demand for appraisal only with the consent of Food
4 Less. If no petition for appraisal is filed with the Delaware Court within 120
days after the FM/Food 4 Less Merger Effective Time, stockholders' rights to
appraisal shall cease, and all holders of shares of Food 4 Less Stock will be
entitled to receive the consideration offered pursuant to the FM/Food 4 Less
Merger Agreement. Inasmuch as Food 4 Less has no obligation to file such a
petition, and Food 4 Less has no present intention to do so, any holder of
shares of Food 4 Less Stock who desires such a petition to be filed is advised
to file it on a timely basis. Any stockholder may withdraw such stockholder's
demand for appraisal by delivering to Food 4 Less a written withdrawal of his,
her or its demand for appraisal and acceptance of the FM/Food 4 Less Merger,
except (i) that any such attempt to withdraw made more than 60 days after the
FM/Food 4 Less Merger Effective Time will require written approval of Food 4
Less and (ii) that no appraisal proceeding in the Delaware Court shall be
dismissed as to any stockholder without the approval of the Delaware Court, and
such approval may be conditioned upon such terms as the Delaware Court deems
just.
 
     Food 4 Less stockholders who exercise appraisal rights in connection with
the FM/Food 4 Less Merger will generally recognize taxable gain or loss for
federal income tax purposes. See "-- Certain United States Federal Income Tax
Consequences -- Exercise of Appraisal Rights by Stockholders."
 
STOCK EXCHANGE LISTING OF FRED MEYER COMMON STOCK
 
     Application will be made for the listing on the NYSE of the shares of Fred
Meyer Common Stock to be issued in the FM/Food 4 Less Merger. This listing is a
condition to the obligation of Food 4 Less to effect the FM/Food 4 Less Merger.
See "The FM/Food 4 Less Merger Agreement -- Conditions to Each Party's
Obligation to Effect the Merger."
 
FEDERAL SECURITIES LAW CONSEQUENCES
 
     All shares of Fred Meyer Common Stock received by stockholders of Food 4
Less in connection with the FM/Food 4 Less Merger will be freely transferable,
except that shares of Fred Meyer Common Stock received by persons who are deemed
to be "affiliates" (as that term is defined under the Securities Act) of Food 4
Less prior to the FM/Food 4 Less Merger may be resold by them only in
transactions permitted by the resale provisions of Rule 145 promulgated under
the Securities Act (or Rule 144, in the case of such persons who become
affiliates of Fred Meyer) or as otherwise permitted under the Securities Act.
Persons who may be deemed to be affiliates of Food 4 Less generally include
individuals or entities that control, are controlled by, or are under common
control with, Food 4 Less, and may include certain officers and directors as
well as principal stockholders of Food 4 Less. The FM/Food 4 Less Merger
Agreement requires Food 4 Less to use all reasonable efforts to cause each of
its affiliates to execute a written agreement to the effect that the affiliate
will not sell, assign or transfer any shares of Fred Meyer Common Stock received
in connection with the
 
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<PAGE>   120
 
FM/Food 4 Less Merger except (i) pursuant to an effective registration statement
under the Securities Act, (ii) by a sale made in conformity with the volume and
other limitations of Rule 145 promulgated under the Securities Act (and
otherwise in accordance with Rule 144 promulgated under the Securities Act if
the person is an affiliate of Fred Meyer and if so required at the time) or
(iii) in a transaction that, in the opinion of independent counsel to the
affiliate reasonably satisfactory to Fred Meyer or as described in a "no action"
or interpretative letter from the staff of the Commission, is not required to be
registered under the Securities Act.
 
     This Joint Proxy and Consent Solicitation Statement/Prospectus does not
cover resales of Fred Meyer Common Stock received by any person who may be
deemed to be an affiliate of Fred Meyer or Food 4 Less.
 
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<PAGE>   121
 
                      THE FM/FOOD 4 LESS MERGER AGREEMENT
 
     The following summary of certain terms and provisions of the FM/Food 4 Less
Merger Agreement, which describes all material terms and provisions thereof, is
qualified in its entirety by reference to the other information contained
elsewhere in this Joint Proxy and Consent Solicitation Statement/Prospectus
including the Appendices hereto and the documents incorporated herein by
reference. A copy of the FM/Food 4 Less Merger Agreement (excluding the Exhibits
and Schedules thereto) is set forth in Appendix B to this Joint Proxy and
Consent Solicitation Statement/Prospectus and is incorporated herein by
reference, and reference is made thereto for a complete description of the terms
of the FM/Food 4 Less Merger. Holders of Food 4 Less Stock and holders of Fred
Meyer Common Stock are urged to read the FM/Food 4 Less Merger Agreement and
each of the other Appendices hereto carefully. Capitalized terms not otherwise
defined herein shall have the meanings set forth in the FM/Food 4 Less Merger
Agreement and in "-- Certain Definitions."
 
THE MERGER
 
     The FM/Food 4 Less Merger Agreement provides that, following the approval
by the stockholders of Fred Meyer and Food 4 Less and the satisfaction or waiver
of the other conditions to the FM/Food 4 Less Merger, the FM/Food 4 Less Merger
will be effected by the merger of Food 4 Less Sub with Food 4 Less.
 
     The consummation of the FM/Food 4 Less Merger (the "FM/Food 4 Less Merger
Closing") will take place on the second business day following the date on which
the last of the conditions is satisfied or waived, or at such other time and
date to which Fred Meyer and Food 4 Less mutually agree (such date of the
FM/Food 4 Less Merger Closing, the "FM/Food 4 Less Merger Closing Date"). On the
FM/Food 4 Less Merger Closing Date, Fred Meyer and Food 4 Less will cause a
certificate of merger to be filed with the Secretary of State of the State of
Delaware, at which time and date of such filing the FM/Food 4 Less Merger will
become effective.
 
CONVERSION OF SHARES
 
     At the FM/Food 4 Less Merger Effective Time, each outstanding share of Food
4 Less Common Stock (other than shares as to which appraisal rights are
perfected as described below) will be converted into and represent the right to
receive (a) a number (rounded to the nearest ten-thousandth of a share) of
shares of Fred Meyer Common Stock equal to the quotient of (i) the Applicable
Percentage of the Per Share Value divided by (ii) the Average Fred Meyer Price
(the "Common Stock Consideration") and (b) if the Applicable Percentage is less
than 100% at the FM/Food 4 Less Merger Effective Time, a percentage interest
(the "Escrow Percentage Interest") in any Escrowed Shares (as defined under
"-- Escrowed Shares") equal to one divided by the Fully-Diluted Basis (the
Common Stock Consideration and any Escrow Percentage Interest described in (ii)
above referred to as the "Common Merger Consideration").
 
     At the FM/Food 4 Less Merger Effective Time, each outstanding share of Food
4 Less Preferred Stock will be converted into a number of shares of Fred Meyer
Common Stock equal to the Common Stock Consideration times the number of shares
of Food 4 Less Common Stock into which such share of Food 4 Less Preferred Stock
is convertible and if the Applicable Percentage is less than 100% at the FM/Food
4 Less Merger Effective Time, an Escrow Percentage Interest in any Escrowed
Shares equal to one divided by the Fully-Diluted Basis (the "Preferred Merger
Consideration").
 
     Any share of Food 4 Less Common Stock that is held in the treasury of Food
4 Less or owned by Fred Meyer, Food 4 Less Sub or any other subsidiary of Fred
Meyer or of Food 4 Less will be canceled. Each share of capital stock of Food 4
Less Sub outstanding immediately prior to the FM/Food 4 Less Merger Effective
Time will remain outstanding and will be unchanged after the FM/Food 4 Less
Merger and will thereafter constitute all of the issued and outstanding capital
stock of Food 4 Less.
 
     Consequently, as a result of the FM/Food 4 Less Merger, Food 4 Less will
become a wholly owned direct subsidiary of Fred Meyer, and holders of Food 4
Less Stock will become holders of Fred Meyer Common Stock.
 
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<PAGE>   122
 
ESCROWED SHARES
 
     If the Applicable Percentage is less than 100%, immediately prior to the
FM/Food 4 Less Merger Effective Time, (i) Fred Meyer, and Ronald W. Burkle,
George G. Golleher and John H. Kissick (the "Stockholders' Representatives") and
an escrow agent selected by Fred Meyer and reasonably acceptable to Food 4 Less
(the "Escrow Agent") shall enter into an escrow agreement (the "Escrow
Agreement") and (ii) Fred Meyer shall deposit with the Escrow Agent, in trust, a
number of shares of Fred Meyer Common Stock ("Escrowed Shares" and the
percentage interest in such shares, the "Escrow Percentage Interests") equal to
the quotient of (A) the product of (i) one minus the Applicable Percentage times
(ii) the product of the (a) Per Share Value times (b) the Fully-Diluted Basis
divided by (B) the Average Fred Meyer Price. The Stockholders' Representatives
shall have full power and authority to act on behalf of the holders of the
Escrow Percentage Interests with respect to all matters relating to the Escrowed
Shares and the Escrow Agreement.
 
     Pursuant to the Escrow Agreement, on or prior to the Distribution Date (as
defined below), the Escrowed Shares shall be distributed: (a) first to Fred
Meyer, a number of shares equal to the fees and expenses of the Escrow Agent
divided by the Average Fred Meyer Price, (b) second to Fred Meyer, a number of
shares equal to the Total Deduction Amount divided by the Average Fred Meyer
Price and (c) the remainder of such shares, if any, to the holders of the Escrow
Percentage Interests. "Distribution Date" means the fifth business day after the
earliest of (x) the termination of the FM/QFC Merger Agreement, (y) the
execution of the Settlement Agreement (as defined below under "-- Antitrust
Clearance; Estimated Gain") and (z) six months from the FM/Food 4 Less Merger
Effective Time.
 
     For so long as the Escrowed Shares remain in escrow, the holders of the
Escrow Percentage Interests will be entitled to receive cash dividends and other
taxable distributions in respect of such shares and will be entitled to vote
such shares, in each case in accordance with their respective Escrow Percentage
Interests.
 
FRACTIONAL SHARES
 
     No fractional shares of Fred Meyer Common Stock will be issued in
connection with the FM/Food 4 Less Merger. In lieu of any such fractional
shares, each holder of shares of Food 4 Less Stock who would otherwise have been
entitled to receive a fraction of a share of Fred Meyer Common Stock (after
taking into account all shares of Food 4 Less Stock then held of record by such
holder) will receive cash (without interest) in an amount equal to the product
of such fractional part of a share of Fred Meyer Common Stock multiplied by the
Average Fred Meyer Price.
 
EXCHANGE OF CERTIFICATES
 
     Promptly after the FM/Food 4 Less Merger Effective Time, Fred Meyer will
cause the Exchange Agent to mail to each record holder as of the FM/Food 4 Less
Merger Effective Time of outstanding certificates which immediately prior to the
FM/Food 4 Less Merger Effective Time represented shares of Food 4 Less Stock
(the "Food 4 Less Certificates"), a form of letter of transmittal (the "Food 4
Less Letter of Transmittal") and instructions for use in effecting the surrender
of the Food 4 Less Certificates in exchange for certificates representing shares
of Fred Meyer Common Stock. Upon surrender to the Exchange Agent of an Food 4
Less Certificate, together with an Food 4 Less Letter of Transmittal duly
executed and any other required documents, the holder of such Food 4 Less
Certificate will be entitled to receive (i) a certificate representing that
number of whole shares of Fred Meyer Common Stock which such holder has the
right to receive, (ii) cash in lieu of any fractional shares of Fred Meyer
Common Stock to which such holder is entitled, after giving effect to any
required tax withholdings, and (iii) any dividends or distributions to which
such holder is entitled, and the Food 4 Less Certificate so surrendered will
forthwith be canceled.
 
     If the exchange of certificates representing shares of Fred Meyer Common
Stock is to be made to a person other than the person in whose name the
surrendered Food 4 Less Certificate is registered, it will be a condition of
exchange that the Food 4 Less Certificate so surrendered will be properly
endorsed or will be otherwise in proper form for transfer and that the person
requesting such exchange will have paid any transfer and other taxes required by
reason of the exchange of certificates representing shares of Fred Meyer Common
 
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<PAGE>   123
 
Stock to a person other than the registered holder of the Food 4 Less
Certificate surrendered or will have established that such tax either has been
paid or is not applicable.
 
     No dividends or other distributions declared or made after the FM/Food 4
Less Merger Effective Time with respect to shares of Fred Meyer Common Stock
will be paid to the holder of any unsurrendered Food 4 Less Certificate, and no
cash payment in lieu of fractional shares will be paid, until such Food 4 Less
Certificate has been surrendered to the Exchange Agent. Upon such surrender,
such dividends and distributions and such cash payment in lieu of fractional
shares will be paid without interest.
 
     HOLDERS OF FOOD 4 LESS STOCK SHOULD NOT FORWARD CERTIFICATES TO THE
EXCHANGE AGENT UNTIL THEY HAVE RECEIVED AN FOOD 4 LESS LETTER OF TRANSMITTAL.
HOLDERS OF FOOD 4 LESS STOCK SHOULD NOT RETURN THEIR CERTIFICATES WITH THE
ENCLOSED CONSENT FORM.
 
EFFECT ON STOCK OPTIONS
 
     Immediately prior to the FM/Food 4 Less Merger Effective Time, each Food 4
Less Option under any stock option or equity incentive plan of Food 4 Less shall
be canceled in exchange for the payments set forth below. With respect to such
portion of an Food 4 Less Option which is exercisable immediately prior to March
20, 1998 (a "Vested Option Portion"), Food 4 Less shall pay to each holder of
the Food 4 Less Option a cash payment in an amount equal to the excess, if any,
of the Per Share Value minus the per share exercise price of such Food 4 Less
Option, multiplied by the number of shares of Food 4 Less Common Stock subject
to such Vested Option Portion, subject to applicable income tax withholding and
employer taxes. With respect to such portion of an Food 4 Less Option which is
not exercisable immediately prior to March 20, 1998 (an "Unvested Option
Portion"), subject to the following sentence, if a Qualifying Employee of the
Food 4 Less Option is employed by Food 4 Less on the first anniversary of the
FM/Food 4 Less Merger Effective Time, Food 4 Less shall pay to the Qualifying
Employee within 10 days after such first anniversary, a cash payment in an
amount equal to the excess, if any, of the Per Share Value minus the per share
exercise price of such Food 4 Less Option, multiplied by the number of shares of
Food 4 Less Common Stock subject to such Unvested Option Portion, plus a pro
rata portion (based on the ratio of the amounts payable to Qualifying Employees)
of any amounts which would have been payable to holders but who are not
Qualifying Employees, subject to applicable income tax withholding and employer
taxes. If Food 4 Less or any successor thereto terminates the employment of a
holder of a Food 4 Less Option after the FM/Food 4 Less Merger Effective Time
and prior to the first anniversary thereof without "cause" or such holder
terminates such employment for "good reason," such holder shall be a "Qualifying
Employee" and such holder shall be entitled to receive the payments set forth in
the preceding sentence with respect to the Unvested Option Portion of such
holder's Food 4 Less Options.
 
EFFECT ON WARRANTS
 
     Prior to the FM/Food 4 Less Merger Effective Time, the Fred Meyer Board
will adopt appropriate resolutions and take all other actions necessary to
provide that, effective at the FM/Food 4 Less Merger Effective Time, all the
Food 4 Less Warrants granted under the Warrant Agreement of Food 4 Less dated
December 31, 1992 (but not including the Yucaipa Warrant) will be assumed by
Fred Meyer and converted automatically into a warrant to purchase shares of Fred
Meyer Common Stock and Escrow Percentage Interests (collectively, a "New
Warrant") in an amount and, if applicable, at an exercise price determined as
follows: (i) the number of shares of Fred Meyer Common Stock to be subject to
the New Warrant will be equal to the product of the number of shares of Food 4
Less Common Stock remaining subject (as of immediately prior to the FM/Food 4
Less Merger Effective Time) to the Food 4 Less Warrants times the quotient of
(A) the Applicable Percentage of the Per Share Value divided by (B) the Average
Fred Meyer Price, provided that any fractional shares of Fred Meyer Common Stock
resulting from such multiplication shall be rounded down to the nearest share;
(ii) the Escrow Percentage Interest to be subject to the New Warrant will be
equal to the quotient of the number of shares of Food 4 Less Common Stock
remaining subject (as of immediately prior to the FM/Food 4 Less Merger
Effective Time) to the Food 4 Less Warrants divided by the Fully-Diluted Basis;
and (iii) the exercise price per share of Fred Meyer Common Stock under the New
Warrant will be equal to the product of (A) the exercise price per share of the
Food 4 Less Common
 
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<PAGE>   124
 
Stock under the Food 4 Less Warrants divided by the Per Share Value, multiplied
by (B) Average Fred Meyer Price, provided that such exercise price shall be
rounded down to the nearest cent. Food 4 Less is soliciting all of its warrant
holders to exercise their Food 4 Less Warrants prior to the Food 4 Less Merger
Effective Time. Food 4 Less believes such exercise will benefit its warrant
holders because such holders will, as a result, be entitled to receive shares of
Fred Meyer Common Stock in the FM/Food 4 Less Merger that will have been
publicly registered and therefore will not be restricted securities under Rule
144 of the Securities Act. It is expected that substantially all Food 4 Less
Warrants, other than the Yucaipa Warrant, will be exercised for shares of Food 4
Less Common Stock prior to the FM/Food 4 Less Merger Effective Time.
 
TREATMENT OF YUCAIPA CONSULTING AGREEMENT AND YUCAIPA WARRANT
 
     At the FM/Food 4 Less Merger Effective Time, the Consulting Agreement
between Food 4 Less and Yucaipa will be terminated and Food 4 Less or Fred Meyer
will make a termination payment to Yucaipa or its assignee in the amount of $20
million in lieu of all other payments required thereunder and as consideration
for advisory services rendered by Yucaipa in connection with the FM/Food 4 Less
Merger. In addition, the Yucaipa Warrant shall be terminated in consideration
for Fred Meyer's delivery at the FM/Food 4 Less Merger Effective Time to Yucaipa
or its assignee of shares of Fred Meyer Common Stock (and Escrow Percentage
Interests) equal to the number of shares of Fred Meyer Common Stock (and Escrow
Percentage Interests) which the holder of two percent of the Food 4 Less Common
Stock, measured on a fully diluted basis (after giving effect to such two
percent of Food 4 Less Common Stock as though it were outstanding), would have
received in the FM/Food 4 Less Merger.
 
REPRESENTATIONS AND WARRANTIES
 
     The FM/Food 4 Less Merger Agreement contains customary reciprocal
representations and warranties by Fred Meyer and Food 4 Less relating to, among
other things, (a) their respective organizations, the organizations of their
respective subsidiaries and similar corporate matters; (b) authorization,
execution, delivery, performance and enforceability of the FM/Food 4 Less Merger
Agreement and related matters; (c) their respective capital structures; (d)
compliance with applicable laws and agreements; (e) the accuracy of certain
reports and financial statements filed with the Commission; (f) the absence of
adverse material suits, claims or proceedings and other litigation; (g) the
absence of any material adverse changes to their respective business,
operations, condition (financial or otherwise), results of operations, assets or
liabilities; (h) tax matters; (i) employee benefit plans; (j) the delivery of
fairness opinions by their respective financial advisors; (k) their respective
assets; (l) their respective material contracts and commitments; (m) labor
matters; (n) insurance matters; (o) environmental matters; (p) brokers' and
finders' fees; (q) the required vote of their respective stockholders; and (r)
the absence of any action that would prevent the FM/Food 4 Less Merger from
qualifying as a tax-free reorganization. The FM/Food 4 Less Merger Agreement
also contains additional customary representations and warranties of Food 4 Less
relating to, among other things, (a) the absence of other agreements to sell
Food 4 Less; (b) affiliate transactions; and (c) the inapplicability of Section
203 of the DGCL, relating to business combinations with interested stockholders,
to the FM/Food 4 Less Merger Agreement and related agreements and transactions.
 
CONDUCT OF BUSINESS OF FOOD 4 LESS PENDING FM/FOOD 4 LESS MERGER
 
     Pursuant to the FM/Food 4 Less Merger Agreement, Food 4 Less has agreed
that, during the period from the date of the FM/Food 4 Less Merger Agreement
until the FM/Food 4 Less Merger Effective Time, it will, subject to certain
exceptions specified therein, conduct its business and the business of its
subsidiaries only in the ordinary course of business and in a manner consistent
with past practice, and it will not, among other things: (a) make any capital
expenditures in excess of amounts reflected in the most recent financial models
disclosed to Fred Meyer prior to the date of the FM/Food 4 Less Merger
Agreement; (b) incur any indebtedness for borrowed money or guarantee such
indebtedness of another person or make any loans, or advances of borrowed money
or capital contributions to, or equity investments in, any other person or issue
or sell any debt securities, other than borrowings under existing lines of
credit in the ordinary course of business consistent with past practice; (c) (i)
amend its certificate of incorporation or bylaws or the charter or bylaws
 
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of any of its subsidiaries, (ii) split, combine or reclassify the outstanding
shares of its capital stock or declare, set aside or pay any dividend or make
any other distribution with respect to such shares of capital stock, (iii)
redeem, purchase or otherwise acquire any shares of its capital stock or (iv)
sell or pledge any stock of any of its subsidiaries; (d) (i) issue or sell any
additional shares of, or grant, confer or award any options, warrants or rights
of any kind to acquire any shares of, its capital stock, (ii) enter into any
agreement out of the ordinary course of its business to dispose of or acquire a
segment of its business, (iii) sell, pledge, dispose of or encumber any material
assets, except in the ordinary course of business consistent with past practice,
or (iv) acquire any corporation, partnership or other business organization or
division thereof or any material assets (other than inventory in the ordinary
course of business consistent with past practice) or make any material
investment in any other person; (e) grant any new severance or termination pay
or increase the benefits payable under its severance or termination pay policies
or agreements or enter into any new employment or severance agreement with any
officer, director or employee; (f) adopt or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, fund or other
arrangement for the benefit of any director, officer or employee or increase in
any manner the compensation or fringe benefits of any director, officer or
employee or grant, confer, award or pay any forms of cash incentive, bonuses or
other benefit not required by any existing plan, arrangement or agreement; (g)
enter into or amend any contract for the purchase of inventory with a term in
excess of three years which is not cancelable within one year without penalty,
cost or liability; (h) negotiate, enter into or modify any material collective
bargaining agreements; (i) make any material change in its tax or accounting
policies or any material reclassification of assets or liabilities except as
required by law or GAAP; (j) satisfy any claims, liabilities or obligations,
except in the ordinary course of business consistent with past practice or in
accordance with the existing terms thereof, or waive, release, grant or transfer
any rights of material value or modify or change in any material respect any
existing contract, except in the ordinary course of business consistent with
past practice; (k) settle or compromise material litigation; (l) take any action
(without regard to any action taken or agreed to be taken by Fred Meyer or any
of its affiliates) with knowledge that such action would prevent the FM/Food 4
Less Merger from qualifying as a tax-free reorganization; and (m) take any
action which would result in any condition to the FM/Food 4 Less Merger not
being satisfied.
 
CONDUCT OF BUSINESS OF FRED MEYER PENDING THE FM/FOOD 4 LESS MERGER
 
     Pursuant to the FM/Food 4 Less Merger Agreement, Fred Meyer has agreed
that, during the period from the date of the FM/Food 4 Less Merger Agreement
until the FM/Food 4 Less Merger Effective Time, it will, subject to certain
exceptions specified therein, conduct its business and the business of its
subsidiaries only in the ordinary course of business and in a manner consistent
with past practice, and it will not, among other things: (a) amend its
certificate of incorporation or change the size of the Fred Meyer Board (except
as contemplated by the FM/Food 4 Less Merger Agreement and the FM/QFC Merger
Agreement); (b) issue, deliver, sell, pledge, dispose of or encumber, or
authorize any shares of capital stock, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of capital stock,
of Fred Meyer or any of its subsidiaries (except for the issuance of shares of
Fred Meyer Common Stock issuable in accordance with the terms of Fred Meyer's
employee benefit plans and arrangements or other existing stock-based
contractual requirements, directors' deferred compensation plan and the Yucaipa
Warrant and except for the issuance of shares of Fred Meyer Common Stock
pursuant to the FM/QFC Merger Agreement), other than in connection with
acquisitions having a value (on a per-acquisition basis) of not more than
$50,000,000; (c) (i) split, combine or reclassify or otherwise alter Fred Meyer
Common Stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of Fred Meyer Common Stock
or (ii) redeem, purchase or otherwise acquire any shares of Fred Meyer Common
Stock; (d) acquire (other than pursuant to the FM/QFC Merger Agreement) any
corporation, partnership or other business organization or division thereof, if
any such action could reasonably be expected to (i) delay materially obtaining
the antitrust clearances referenced under "-- Antitrust Clearance; Estimated
Gain," (ii) increase the amount of Lost EBITDA or (iii) require an amendment of
this Joint Proxy and Consent Solicitation Statement/Prospectus; (e) consummate
certain acquisitions except in accordance with the terms disclosed to
 
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<PAGE>   126
 
Food 4 Less prior to the date of the FM/Food 4 Less Merger Agreement; and (f)
take any action which would result in any condition to the FM/Food 4 Less Merger
not being satisfied.
 
ANTITRUST CLEARANCE; ESTIMATED GAIN
 
     Each of Fred Meyer and Food 4 Less has agreed to use its reasonable best
efforts to take all appropriate action and to do all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by the FM/Food 4 Less Merger Agreement, including,
without limitation, (i) in the case of Fred Meyer, promptly, if required by the
FTC or its staff, the Assistant Attorney General in charge of the Antitrust
Division or his staff, any state attorney general or its staff or any other
similar governmental entity, in each case in order to consummate the FM/Food 4
Less Merger, taking all steps and making all undertakings to secure antitrust
clearance (including steps to effect the sale or other disposition of particular
Facilities of Fred Meyer, its subsidiaries, QFC, its subsidiaries and/or Food 4
Less and its subsidiaries and to hold separate such Facilities pending such sale
or other disposition), (ii) cooperating in all respects with each other in
connection with any investigation or other inquiry, including any proceeding
initiated by a private party, in connection with the transactions contemplated
by the FM/Food 4 Less Merger Agreement or pursuant to the FM/QFC Merger, (iii)
keeping the other party informed in all material respects of any material
communication received by such party from, or given by such party to, the FTC,
the Antitrust Division of the DOJ or any other governmental authority and of any
material communication received or given in connection with any proceeding by a
private party, in each case regarding any of the transactions contemplated by
the FM/Food 4 Less Merger Agreement or pursuant to the FM/QFC Merger, and (iv)
permitting the other party to review any material communication given by it to,
and consult with each other in advance of any meeting or conference with, the
FTC, the DOJ or any such other governmental authority or, in connection with any
proceeding by a private party, with any other person, and to the extent
permitted by the other person, give the other party the opportunity to attend
and participate in such meetings and conferences. In case at any time after the
FM/Food 4 Less Merger Effective Time any further action is necessary or
desirable to carry out the purposes of the FM/Food 4 Less Merger Agreement, the
proper officers and directors of each party shall use their reasonable best
efforts to take all such necessary action. For purposes of meeting, holding
discussions and entering into any proposed settlement with such governmental
authorities, Fred Meyer shall appoint a committee consisting of Ronald W. Burkle
(or his designee), Roger A. Cooke (or his designee) and one representative
designated by each of Food 4 Less and QFC.
 
     Food 4 Less shall make, subject to the condition that the FM/Food 4 Less
Merger is consummated, any undertakings (including undertakings to make sales or
other dispositions) provided that such divestitures need not themselves be made
until after the FM/Food 4 Less Merger is consummated in order to obtain
antitrust clearances for the FM/Food 4 Less Merger.
 
     Within five business days after such time as any agreement is reached by
Fred Meyer with the FTC or its staff, the Assistant Attorney General in charge
of the Antitrust Division or his staff, any state attorney general or its staff
or any other similar governmental entity to sell or dispose of any Facilities
(the "Settlement Agreement"), Fred Meyer will furnish or cause to be furnished
to Food 4 Less a report (the "Preliminary Report"), based on such information as
Fred Meyer shall determine to be relevant, stating in reasonable detail Fred
Meyer's good faith determination of the Estimated Gain and Lost EBITDA with
respect to such Facilities. Unless Food 4 Less provides specific written notice
to Fred Meyer of an objection to any aspect of the Preliminary Report before the
close of business on the 10th business day after Food 4 Less' receipt thereof,
the Preliminary Report shall then become binding upon Fred Meyer and Food 4
Less, and shall be the "Final Report". If Food 4 Less, by delivering its own
report (the "Food 4 Less Report") stating in reasonable detail Food 4 Less' good
faith determination of the Estimated Gain and Lost EBITDA to Fred Meyer before
the close of business on such business day, makes any good faith objection to
any aspect of the Fred Meyer's proposed Estimated Gain set forth in the
Preliminary Report, then those aspects as to which the objection was made shall
not become binding, Fred Meyer and Food 4 Less shall discuss such objection in
good faith and, if they reach written agreement amending the Preliminary Report
(or portions thereof), the Preliminary Report, as amended by such written
agreement, shall become binding upon Fred Meyer and Food 4 Less, and shall be
 
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<PAGE>   127
 
the "Final Report". If Fred Meyer and Food 4 Less do not reach such written
agreement within five days after Food 4 Less gives such notices of objection,
those aspects as to which such objection was made (relating to Estimated Gain,
and not Lost EBITDA) and as to which written agreement has not been reached
shall be submitted for arbitration to one or more independent business and/or
real estate appraisal firms of recognized national standing with expertise in
the valuation of businesses and/or properties comparable to the Facilities
chosen by agreement of Fred Meyer and Food 4 Less. Such firm shall prepare a
valuation report with respect to the real estate and other assets comprising the
Facilities, which report, when delivered to Fred Meyer and Food 4 Less, shall
become binding upon Fred Meyer and Food 4 Less for purposes of determining the
Estimated Gain, and shall (unless a determination made in such report is higher
or lower than both the determination set forth in the Preliminary Report and the
determination set forth in the Food 4 Less Report, in which case the
determination set forth in the Preliminary Report or the Food 4 Less Report,
whichever is closer to such firm's determination, shall), together with those
aspects of the Preliminary Report as to which no objection was made or as to
which written agreement has been reached, be the "Final Report".
 
     The "Estimated Gain" is the amount set forth in the Final Report and is
equal to the aggregate net proceeds estimated to be realized by Fred Meyer or
any of its subsidiaries on the sale or other disposition of any Facilities in
excess of the book value of the Facilities to be so divested as of the date of
determination thereof. The foregoing notwithstanding, if within three days
following issuance of the Final Report, Food 4 Less shall produce a signed
bona-fide offer from a qualified buyer to purchase any or all of the Facilities
to be disposed of at a price higher than that contained in the Final Report,
then, in such event, the Estimated Gain shall be increased by the amount by
which such offer exceeds the valuation in the Final Report for such Facilities.
 
NO SOLICITATION
 
     In the FM/Food 4 Less Merger Agreement, Food 4 Less has agreed that it
would, and would cause its subsidiaries and their respective officers,
directors, employees, representatives and agents to, immediately cease any
existing discussions or negotiations, if any, with any parties conducted prior
to the date of the FM/Food 4 Less Merger Agreement with respect to any
acquisition or exchange of all or any material portion of the assets of, or more
than 20% of the outstanding equity interest in Food 4 Less or any material
equity interest in any of its subsidiaries, or any business combination with
Food 4 Less or any of its subsidiaries. Neither Food 4 Less nor any of its
subsidiaries, nor any of its or their respective officers, directors, employees,
representatives or agents, will, directly or indirectly, encourage, solicit,
participate in, facilitate or initiate discussions or negotiations with, or
provide any information to, any person or group (other than Fred Meyer and Food
4 Less Sub or any designees thereof) concerning any merger, sale of assets, sale
of more than 20% of the outstanding shares of capital stock or similar
transactions (including an exchange of stock or assets) involving Food 4 Less or
any subsidiary or division of Food 4 Less or any business combination with Food
4 Less or any of its subsidiaries (each, an "Food 4 Less Transaction"). Food 4
Less shall notify Fred Meyer immediately if it receives any unsolicited proposal
concerning an Food 4 Less Transaction, the identity of the person making any
such proposal and all the terms and conditions thereof and shall keep Fred Meyer
promptly advised of all developments relating thereto.
 
EMPLOYEE BENEFIT MATTERS
 
     Pursuant to the FM/Food 4 Less Agreement, Food 4 Less will, or Fred Meyer
will cause Food 4 Less to, promptly pay or provide when due all compensation and
benefits earned through or prior to the FM/Food 4 Less Merger Effective Time as
provided pursuant to the terms of any plans in existence as of the date of the
FM/Food 4 Less Merger Agreement for the benefit of all employees (and former
employees) and directors (and former directors) of Food 4 Less. Fred Meyer and
Food 4 Less have agreed that Food 4 Less will pay promptly or provide when due
all compensation and benefits required to be paid pursuant to the terms of any
individual agreement with any employee, former employee, director or former
director in effect and disclosed to Fred Meyer as of the date of the FM/Food 4
Less Merger Agreement.
 
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<PAGE>   128
 
DIRECTORS' AND OFFICERS' INDEMNIFICATION; INSURANCE
 
     The Food 4 Less bylaws after the FM/Food 4 Less Merger Effective Time shall
contain provisions no less favorable with respect to indemnification and
exculpation from liability than were set forth in the Food 4 Less Certificate
and the Food 4 Less Bylaws on the date of the FM/Food 4 Less Merger Agreement,
which provisions shall not be amended, repealed or otherwise modified for a
period of six years from the FM/Food 4 Less Merger Effective Time in any manner
that would adversely affect the rights thereunder of individuals who at the
FM/Food 4 Less Merger Effective Time were directors, officers, employees or
agents of Food 4 Less. Without limiting the generality of the foregoing, in the
event any person entitled to indemnification under such provisions becomes
involved in any claim, action, proceeding or investigation after the FM/Food 4
Less Merger Effective Time, Food 4 Less shall periodically advance to such
person his or her reasonable legal and other reasonably incurred expenses
(including the cost of any investigation and preparation incurred in connection
therewith), subject to such person providing an undertaking to reimburse all
amounts so advanced in the event of a final non-appealable determination by a
court of competent jurisdiction that such person is not entitled thereto.
 
     For six years from the FM/Food 4 Less Merger Effective Time, Fred Meyer
shall maintain in effect the current directors' and officers' liability
insurance covering those persons who are currently covered by Food 4 Less'
directors' and officers' liability insurance policy to the extent that it
provides coverage for events occurring on or prior to the FM/Food 4 Less Merger
Effective Time, so long as the annual premium therefor would not be in excess of
150% of the Current Premium. If such premiums for such insurance would at any
time exceed 150% of the Current Premium, then Fred Meyer shall cause to be
maintained policies of insurance which in Fred Meyer's good faith determination,
provide the maximum coverage available at an annual premium equal to 150% of the
Current Premium.
 
DIRECTORS
 
     The FM/Food 4 Less Merger Agreement provides that the Fred Meyer Board will
elect Robert Beyer and one additional person selected by Food 4 Less to be
directors of Fred Meyer, with such elections to be effective at the FM/Food 4
Less Effective Time.
 
CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE FM/FOOD 4 LESS MERGER
 
     The respective obligations of each party to effect the FM/Food 4 Less
Merger will be subject to the following conditions:
 
          (i) The FM/Food 4 Less Merger Agreement will have been approved by the
     stockholders of Food 4 Less. The issuance of Fred Meyer Common Stock in the
     FM/Food 4 Less Merger will have been approved by the stockholders of Fred
     Meyer.
 
          (ii) No statute, rule, regulation, executive order, decree, ruling,
     injunction or other order will have been enacted, entered, promulgated or
     enforced by any court or governmental authority of competent jurisdiction
     which prohibits, restrains, enjoins or restricts the consummation of the
     FM/Food 4 Less Merger.
 
          (iii) Any waiting period applicable to the FM/Food 4 Less Merger under
     the HSR Act will have terminated or expired.
 
          (iv) The Registration Statement will have become effective under the
     Securities Act and will not be the subject of any stop order or proceedings
     seeking a stop order, and any material "blue sky" and other state
     securities laws applicable to the registration of Fred Meyer Common Stock
     to be exchanged for Food 4 Less Stock will have been complied with.
 
          (v) The shares of Fred Meyer Common Stock issuable to the holders of
     Food 4 Less Stock pursuant to the FM/Food 4 Less Merger will have been
     approved for listing on the NYSE, subject to official notice of issuance.
 
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<PAGE>   129
 
CONDITIONS TO OBLIGATIONS OF FOOD 4 LESS TO EFFECT THE FM/FOOD 4 LESS MERGER
 
     The obligation of Food 4 Less to effect the FM/Food 4 Less Merger will be
subject to the following additional conditions:
 
          (i) Fred Meyer and Food 4 Less Sub will have performed or complied
     with in all material respects their agreements and covenants contained in
     the FM/Food 4 Less Merger Agreement required to be performed or complied
     with on or prior to the FM/Food 4 Less Merger Closing Date, and the
     representations and warranties of Fred Meyer and Food 4 Less Sub contained
     in the FM/Food 4 Less Merger Agreement qualified as to materiality will be
     true in all respects, and those not so qualified will be true in all
     material respects, in each case when made and on and as of the FM/Food 4
     Less Merger Closing Date with the same force and effect as if made on and
     as of such date.
 
          (ii) Food 4 Less will have received an opinion of Latham & Watkins as
     described in "The FM/Food 4 Less Merger -- Certain United States Federal
     Income Tax Consequences."
 
          (iii) There will not be pending or threatened by any governmental
     entity any suit, action or proceeding, which could reasonably be expected,
     if adversely determined, to result in criminal or material uninsured and
     unindemnified or unindemnifiable personal liability on the part of one or
     more directors of Food 4 Less, (i) challenging or seeking to restrain or
     prohibit the consummation of the FM/Food 4 Less Merger or (ii) seeking to
     prohibit or limit the ownership or operation by Food 4 Less, Fred Meyer or
     any of their respective subsidiaries of any material portion of the
     business or assets of Food 4 Less, Fred Meyer or any of their respective
     subsidiaries, or to dispose of or hold separate any material portion of the
     business or assets of Food 4 Less, Fred Meyer or any of their respective
     subsidiaries, as a result of the FM/Food 4 Less Merger.
 
          (iv) If necessary, each of Fred Meyer and the Escrow Agent will have
     executed and delivered the Escrow Agreement and Fred Meyer will have
     deposited the Escrowed Shares with the Escrow Agent.
 
          (v) Fred Meyer will have executed and delivered the Food 4 Less
     Registration Rights Agreement.
 
CONDITIONS TO OBLIGATIONS OF FRED MEYER AND FOOD 4 LESS SUB TO EFFECT THE
FM/FOOD 4 LESS MERGER
 
     The obligations of Fred Meyer and Food 4 Less Sub to effect the FM/Food 4
Less Merger will be subject to the following additional conditions:
 
          (i) Food 4 Less will have performed or complied with in all material
     respects its agreements and covenants contained in the FM/Food 4 Less
     Merger Agreement required to be performed or complied with at or prior to
     the FM/Food 4 Less Merger Closing Date, and the representations and
     warranties of Food 4 Less contained in the FM/Food 4 Less Merger Agreement
     qualified as to materiality will be true in all respects, and those not so
     qualified will be true in all material respects, in each case when made and
     on and as of the FM/Food 4 Less Merger Closing Date with the same force and
     effect as if made on and as of such date.
 
          (ii) Fred Meyer will have received an opinion of Simpson Thacher &
     Bartlett as described in "The FM/Food 4 Less Merger -- Certain United
     States Federal Income Tax Consequences."
 
          (iii) Subject to Fred Meyer's compliance with provisions described
     under "-- Antitrust Clearance; Estimated Gain," there will not be pending
     or threatened by any governmental entity any suit, action or proceeding,
     (i) challenging or seeking to restrain or prohibit the consummation of the
     FM/Food 4 Less Merger or seeking to obtain from Fred Meyer or any of its
     subsidiaries any damages that are material in relation to Fred Meyer and
     its subsidiaries taken as a whole, (ii) seeking to prohibit or limit the
     ownership or operation by Food 4 Less, Fred Meyer or any of their
     respective subsidiaries of any material portion of the business or assets
     of Food 4 Less, Fred Meyer or any of their respective subsidiaries, to
     dispose of or hold separate any material portion of the business or assets
     of Food 4 Less, Fred Meyer or any of their respective subsidiaries, as a
     result of the FM/Food 4 Less Merger, or (iii) seeking to prohibit Fred
     Meyer or any of its subsidiaries from effectively controlling in any
     material respect the business or operations of Food 4 Less or its
     subsidiaries.
 
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<PAGE>   130
 
          (iv) Holders of not more than five percent of the outstanding shares
     of Food 4 Less Common Stock shall have exercised appraisal rights.
 
TERMINATION
 
     The FM/Food 4 Less Merger Agreement may be terminated and the FM/Food 4
Less Merger may be abandoned at any time prior to the FM/Food 4 Less Merger
Effective Time:
 
          (i) By mutual written consent of Fred Meyer and Food 4 Less;
 
          (ii) By either Fred Meyer or Food 4 Less, if the FM/Food 4 Less Merger
     shall not have been consummated on or before August 31, 1998 (other than
     due to the failure of the party seeking to terminate the FM/Food 4 Less
     Merger Agreement to perform its obligations thereunder required to be
     performed at or prior to the FM/Food 4 Less Merger Effective Time);
 
          (iii) By Fred Meyer or Food 4 Less, if any required approval of the
     stockholders of Food 4 Less for the FM/Food 4 Less Merger shall not have
     been obtained by reason of the failure to obtain the required vote upon a
     vote held at a duly held meeting of stockholders or at any adjournment
     thereof;
 
          (iv) By Food 4 Less or Fred Meyer, if the required approval of the
     stockholders of Fred Meyer for the issuance of Fred Meyer Common Stock
     pursuant to the FM/Food 4 Less Merger Agreement shall not have been
     obtained by reason of the failure to obtain the required vote upon a vote
     held at a duly held meeting of stockholders or at any adjournment thereof;
 
          (v) By Fred Meyer (subject to Fred Meyer's compliance with the
     provisions described under "-- Antitrust Clearance; Estimated Gain") or
     Food 4 Less, if any court or other governmental body of competent
     jurisdiction shall have issued a final order, decree or ruling or taken any
     other final action restraining, enjoining or otherwise prohibiting the
     FM/Food 4 Less Merger and such order, decree, ruling or other action is or
     shall have become final and nonappealable;
 
          (vi) By Food 4 Less, if (i) any representation or warranty on the part
     of Fred Meyer contained in the FM/Food 4 Less Merger Agreement is incorrect
     in any material respect and which could reasonably be expected to have a
     material adverse effect with respect to Fred Meyer or which could
     reasonably be expected to materially adversely affect (or materially delay)
     the consummation of the FM/Food 4 Less Merger or (ii) there shall have been
     a breach of any covenant or agreement on the part of Fred Meyer contained
     in the FM/Food 4 Less Merger Agreement which could reasonably be expected
     to have a material adverse effect with respect to Fred Meyer or which could
     reasonably be expected to materially adversely affect (or materially delay)
     the consummation of the FM/Food 4 Less Merger, which breach, in the case of
     clause (ii), shall not have been cured prior to 10 days following notice
     thereof; or
 
          (vii) By Fred Meyer, if (i) there shall have been a breach of any
     representation or warranty on the part of Food 4 Less contained in the
     FM/Food 4 Less Merger Agreement which could reasonably be expected to have
     a material adverse effect with respect to Food 4 Less or which could
     reasonably be expected to materially adversely affect (or materially delay)
     the consummation of the FM/Food 4 Less Merger or (ii) there shall have been
     a breach of any covenant or agreement on the part of Food 4 Less contained
     in the FM/Food 4 Less Merger Agreement which could reasonably be expected
     to have a material adverse effect with respect to Food 4 Less or which
     could reasonably be expected to materially adversely affect (or materially
     delay) the consummation of the FM/Food 4 Less Merger, which breach, in the
     case of clause (ii), shall not have been cured prior to 10 days following
     notice thereof.
 
AMENDMENT AND WAIVER
 
     The FM/Food 4 Less Merger Agreement may be amended by the parties by action
taken by or on behalf of their respective Boards of Directors at any time before
or after any required approval of matters presented in connection with the
FM/Food 4 Less Merger by the stockholders of either Food 4 Less or Fred Meyer;
provided, however, that after any such approval, no amendment will be made that
by law requires further
 
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<PAGE>   131
 
approval by such stockholders without the further approval of such stockholders.
In addition, either party may waive, by written instrument signed on its behalf,
any provision of the FM/Food 4 Less Merger Agreement.
 
CERTAIN DEFINITIONS
 
     As used in this description of the FM/Food 4 Less Merger Agreement, the
following terms shall have the following meanings:
 
          "Aggregate Exercise Price" shall mean the sum of (i) the aggregate
     cash consideration payable to Food 4 Less upon the exercise of all Food 4
     Less Options outstanding immediately prior to their cancellation as
     provided under "-- Effect on Stock Options" and (ii) the aggregate cash
     consideration received by Food 4 Less from the issuance of shares of Food 4
     Less Common Stock after the date of the FM/Food 4 Less Merger Agreement and
     prior to the FM/Food 4 Less Merger Effective Time.
 
          "Aggregate Purchase Price" shall mean the following:
 
             (i) the Average Fred Meyer Price times 22,500,000, if the Average
        Fred Meyer Price is greater than $26.6667;
 
             (ii) $600,000,000, if the Average Fred Meyer Price is less than or
        equal to $26.6667 but greater than $25.00; or
 
             (iii) the Average Fred Meyer Price times 24,000,000, if the Average
        Fred Meyer Price is less than or equal to $25.00.
 
          "Applicable Percentage" shall mean a percentage equal to the greater
     of (a) 90% and (b) the percentage determined by (i) subtracting the Total
     Deduction Amount attributable to any Pending Settlement Proposal from the
     Aggregate Purchase Price and (ii) dividing the resulting amount by the
     Aggregate Purchase Price; provided that if the Settlement Agreement has
     been entered into as of the FM/Food 4 Less Merger Effective Time, the
     Applicable Percentage shall be 100%.
 
          "Average Fred Meyer Price" shall be equal to the average of the
     closing prices of the Fred Meyer Common Stock on the NYSE as reported on
     the NYSE Composite Transaction Tape for the 15 trading days randomly
     selected by lot out of the 35 trading days ending on the second trading day
     preceding the FM/Food 4 Less Merger Effective Time.
 
          "Fully Diluted Basis" shall mean the Total Share Amount minus the
     quotient of (i) the Aggregate Exercise Price divided by (ii) the Per Share
     Value.
 
          "Lost EBITDA" shall be equal to the aggregate earnings (or losses)
     before interest, taxes, corporate allocation costs for administration
     (including costs for management information systems), depreciation and
     amortization from the continuing operations of any Facilities to be
     divested as described under "-- Antitrust Clearance; Estimated Gain" during
     the twelve-month period ending on the second most recent month-end prior to
     the earlier of (i) the agreement of Fred Meyer with the applicable
     governmental or regulatory authority to divest such Facilities and (ii) the
     FM/Food 4 Less Merger Effective Time; provided, that, for any New Facility
     Lost EBITDA for such New Facility shall be an amount equal to 80% of the
     Average Facility EBITDA.
 
          "Pending Settlement Proposal" shall mean a proposal made by any
     regulatory authority referred to under "-- Antitrust Clearance; Estimated
     Gain" with respect to the divestiture of Facilities which is outstanding or
     otherwise under consideration by Fred Meyer and Food 4 Less at the FM/Food
     4 Less Merger Effective Time.
 
          "Per Share Value" shall mean an amount equal to the result obtained by
     dividing (a) the sum of (i) 0.98 times the Aggregate Purchase Price plus
     (ii) the Aggregate Exercise Price by (b) the Total Share Amount.
 
          "Total Deduction Amount" shall be equal to (i) the product of (A) four
     and (B) the Lost EBITDA in excess of $15 million, minus (ii) 50% of the
     Estimated Gain.
 
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<PAGE>   132
 
          "Total Share Amount" shall mean the sum of the following, all measured
     immediately prior to the FM/Food 4 Less Merger Effective Time: (i) the
     total number of shares of Food 4 Less Common Stock then issued and
     outstanding plus (ii) the total number of shares of Food 4 Less Common
     Stock then issuable upon conversion into shares of Food 4 Less Common Stock
     of the shares of Food 4 Less Preferred Stock then outstanding plus (iii)
     the total number of shares of Food 4 Less Common Stock issuable upon
     exercise of Food 4 Less Options then outstanding plus (iv) the total number
     of shares of Food 4 Less Common Stock issuable upon exercise of the Food 4
     Less Warrants or any other rights to acquire any Food 4 Less Common Stock
     then outstanding (without duplication of clauses (ii) or (iii) above), but
     excluding the Yucaipa Warrant.
 
                   OTHER AGREEMENTS -- FM/FOOD 4 LESS MERGER
 
STOCKHOLDERS AGREEMENTS
 
     As an inducement and condition to the willingness of Fred Meyer to enter
into the FM/Food 4 Less Merger Agreement, the Food 4 Less Stockholders entered
into the Stockholders Agreements with Fred Meyer.
 
     Together, the Food 4 Less Stockholders held, at the Food 4 Less Record
Date, approximately 66% of the outstanding voting power of Food 4 Less and,
therefore, are able to control the vote on the approval and adoption of the
FM/Food 4 Less Merger Agreement and the transactions contemplated thereby.
 
     In the Stockholders Agreements, each Food 4 Less Stockholder has agreed, at
any meeting of stockholders of Food 4 Less or at any adjournment thereof or in
any other circumstances upon which such Food 4 Less Stockholder's vote, consent
or other approval is sought, such Food 4 Less Stockholder shall vote, or execute
a written consent in respect of, all of such Food 4 Less Stockholder's shares of
Food 4 Less Stock (the "Subject Shares") in favor of all such matters submitted
to the stockholders of Food 4 Less in connection with the FM/Food 4 Less Merger
including, without limitation, the adoption by Food 4 Less of the FM/Food 4 Less
Merger Agreement and the approval of the terms thereof and each of the other
transactions contemplated thereby.
 
     Additionally, in the Stockholders Agreements, each Food 4 Less Stockholder
has agreed, subject to certain limited exceptions, not to (i) Transfer or enter
into any contract, option or other arrangement (including any profitsharing
arrangement) with respect to the Transfer of, the Subject Shares to any person
other than pursuant to the terms of the FM/Food 4 Less Merger Agreement or to a
transferee following the due execution and delivery to Fred Meyer by such
transferee of a legal, valid and binding counterpart to the respective
Stockholders Agreement or (ii) enter into any voting arrangement, whether by
proxy, voting agreement or otherwise.
 
     Pursuant to the terms of the Stockholders Agreements, each Food 4 Less
Stockholder shall not, nor shall he or it cause or permit any of his or its
affiliates, directors, officers, employees, investment bankers, attorneys and
other advisers or representatives to directly or indirectly, (i) solicit,
initiate or encourage the submission of any Acquisition Proposal (as defined in
the Stockholders Agreements), or (ii) participate in any discussions or
negotiations regarding, or furnish to any person any information with respect
to, or taking any other action to facilitate any inquiries or the making of any
proposal that constitutes or may reasonably be expected to lead to, any
Acquisition Proposal.
 
     Each of the Stockholders Agreements will terminate upon the earlier of (a)
August 31, 1998, (b) the FM/Food 4 Less Merger Effective Time, (c) upon
execution of any amendment to the FM/Food 4 Less Merger Agreement not approved
by the respective Food 4 Less Stockholder and (d) the termination of the FM/Food
4 Less Merger Agreement.
 
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<PAGE>   133
 
REGISTRATION RIGHTS AGREEMENT
 
     At or prior to the FM/Food 4 Less Merger Effective Time, Fred Meyer and the
Food 4 Less Stockholders shall enter into the Food 4 Less Registration Rights
Agreement providing for the "shelf" and "demand" registration rights described
below.
 
     As soon as practicable, Fred Meyer shall prepare and file with the
Commission a shelf registration statement on an appropriate form that shall
include all Registrable Securities (as defined below), and may include
securities of Fred Meyer for sale for Fred Meyer's own account. Fred Meyer shall
use its reasonable best efforts to cause such shelf registration statement to be
declared effective as soon as practicable following the FM/Food 4 Less Merger
Effective Time; provided, however, that to the extent necessary to preserve
"pooling-of-interest" accounting treatment for the FM/QFC Merger, Fred Meyer
shall have no such obligation to effect such registration until 15 days after
the first public release by Fred Meyer of the combined financial results of Fred
Meyer and Food 4 Less. Fred Meyer shall only be obligated to keep such shelf
registration statement effective until the one year anniversary date (the "Shelf
Termination Date") of the date such shelf registration statement has been
declared effective. "Registrable Securities" mean all shares of Fred Meyer
Common Stock acquired by the Food 4 Less Stockholders pursuant to the FM/Food 4
Less Merger.
 
     Upon written notice to Fred Meyer from Apollo or certain of its affiliates
at any time after the Shelf Termination Date (but not later than the date that
is 180 days after the Shelf Termination Date) requesting that Fred Meyer effect
the registration under the Securities Act of any or all of the Registrable
Securities held by such Food 4 Less Stockholders, Fred Meyer shall prepare and,
within 60 days after such request, file with the Commission a registration
statement with respect to such Registrable Securities and thereafter use its
reasonable best efforts to cause such registration statement to be declared
effective under the Securities Act.
 
     In addition, Fred Meyer has agreed to amend its existing registration
rights agreement with Yucaipa and certain of its affiliates so that Registrable
Securities of Yucaipa are "registrable securities" under such existing
agreement.
 
     Fred Meyer has agreed to pay its expenses associated with the registration
of Registrable Securities, regardless of whether any registration statement
required by the Food 4 Less Registration Rights Agreement becomes effective. In
addition, Fred Meyer will provide customary securities law indemnification to
any party who participates in any registration effected under the Food 4 Less
Registration Rights Agreement.
 
                            REFINANCING ARRANGEMENTS
 
     In connection with the Mergers, Fred Meyer intends to refinance and
consolidate a majority of the indebtedness and a portion of the leasing
arrangements of the combined company. Any refinancing is expected to be
completed concurrently with the closing of the Mergers, but is not a condition
to the obligations of Fred Meyer, QFC or Food 4 Less to effect the Mergers. Fred
Meyer expects to enter into a commitment letter (the "Financing Commitment")
with Chase Manhattan Bank, Bankers Trust Company, Salomon Brothers Inc and
NationsBank of Texas, N.A., and/or certain of their respective affiliates
(collectively, the "Banks"), which Fred Meyer anticipates will provide the
sources of funds required to complete the bank facility portion of the
refinancing. Pursuant to the Financing Commitment, the Banks are expected to
agree to provide senior credit facilities to Fred Meyer and lease financing
programs for Fred Meyer in the event that both the Mergers are consummated. In
addition, the Banks would be expected to agree to issue modified financing
commitments in the event that the FM/QFC Merger or the FM/Food 4 Less Merger are
consummated, but not both. Fred Meyer also intends to issue fixed rate notes for
a portion of the total indebtedness of the combined company, the amount of which
is dependent upon whether the FM/QFC Merger, the FM/Food 4 Less Merger or both
Mergers are consummated. The senior credit facilities, the lease financing
program and the fixed rate notes will be obligations of Fred Meyer, guaranteed
by substantially all of the direct and indirect wholly-owned subsidiaries (other
than inactive subsidiaries or other subsidiaries which are immaterial) of Fred
Meyer, including those companies which become subsidiaries as a result of the
Mergers. The expected refinancing arrangements for both Mergers considered
together, and each Merger considered separately, are described below.
 
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<PAGE>   134
 
THE FM/QFC MERGER AND FM/FOOD 4 LESS MERGER
 
     If both of the Mergers are consummated, the Banks are expected to agree to
provide senior credit facilities to Fred Meyer in an aggregate amount of up to
$3.75 billion (the "FM/QFC/Food 4 Less Credit Facility") and a lease financing
program for Fred Meyer in an aggregate amount of up to $500 million (the
"FM/QFC/Food 4 Less Lease Facility"). The FM/QFC/Food 4 Less Credit Facility is
expected to consist of (i) a five-year $2.00 billion revolving credit facility
(the "FM/QFC/Food 4 Less Revolving Credit Facility") and (ii) a $1.75 billion
five-year term facility (the "FM/QFC/Food 4 Less Term Facility"). The
obligations of Fred Meyer under the FM/QFC/Food 4 Less Credit Facility will be
guaranteed by its material subsidiaries (including QFC and Food 4 Less). In
addition to providing funds for refinancing a portion of Fred Meyer's, QFC's and
Food 4 Less' current indebtedness, the FM/QFC/Food 4 Less Revolving Credit
Facility would be available to satisfy working capital, capital expenditure and
other ongoing financing requirements of Fred Meyer. The FM/QFC/Food 4 Less Lease
Facility will be available to refinance existing leases of Fred Meyer and to
fund new store construction.
 
     If both Mergers are consummated, Fred Meyer also intends to issue up to
$1.50 billion principal amount of notes (the "Fred Meyer Notes") to refinance in
part the indebtedness of the combined company. The Fred Meyer Notes are expected
to mature seven and ten years from the date of issuance and bear interest at
rates based upon the then prevailing rate for seven-year and ten-year U.S.
Treasury securities, respectively, plus a spread to be determined, payable in
cash semi-annually in arrears. The obligations of Fred Meyer under the Fred
Meyer Notes will be guaranteed by its material subsidiaries (including QFC and
Food 4 Less).
 
     The following table illustrates the pro forma sources and uses of funds in
the proposed refinancing and certain fees and expenses related to the Mergers,
assuming the Mergers were consummated as of March 10, 1998. Although Fred Meyer
believes the pro forma amounts estimated below are reasonable under the
circumstances, actual sources and uses may differ from those set forth below.
 
                                SOURCES AND USES
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
              SOURCES                                              USES
------------------------------------               ------------------------------------
<S>                                   <C>          <C>                                   <C>
FM/QFC/Food 4 Less Credit
  Facility..........................  $3,411(a)    Fred Meyer Credit Facility..........  $1,770
Fred Meyer Notes....................   1,500       QFC Credit Facility.................     205
                                                   Food 4 Less Credit Facility.........     710
                                                   QFC Notes...........................     150
                                                   Food 4 Less Notes...................   1,626
                                                   Debt repayment premiums.............     300
                                                   Fees and expenses...................     150
                                      ------                                             ------
     Total Sources..................  $4,911       Total Uses..........................  $4,911
                                      ======                                             ======
</TABLE>
 
---------------
 
(a) The aggregate amount expected to be available under the FM/QFC/Food 4 Less
    Credit Facility is $3.75 billion.
 
THE FM/QFC MERGER
 
     If only the FM/QFC Merger is consummated, the Banks are expected to agree
to provide senior credit facilities to Fred Meyer in an aggregate amount of up
to $2.30 billion (the "FM/QFC Credit Facility") and a lease financing program
for Fred Meyer in an aggregate amount of $320 million (the "FM/QFC Lease
Facility"). The FM/QFC Credit Facility is expected to consist of a five-year
$2.30 billion revolving credit facility. The obligations of Fred Meyer under the
FM/QFC Credit Facility will be guaranteed by its material subsidiaries
(including QFC). In addition to providing funds for refinancing a portion of
Fred Meyer's and QFC's current indebtedness, the FM/QFC Credit Facility would be
available to satisfy working capital,
 
                                       126
<PAGE>   135
 
capital expenditure and other ongoing financing requirements of Fred Meyer. The
FM/QFC Lease Facility will be available to refinance existing leases of Fred
Meyer and to fund new store construction.
 
     The following table illustrates the pro forma sources and uses of funds in
the proposed refinancing and certain fees and expenses related to the FM/QFC
Merger, assuming the FM/QFC Merger was consummated as of March 10, 1998.
Although Fred Meyer believes the pro forma amounts estimated below are
reasonable under the circumstances, actual sources and uses may differ from
those set forth below.
 
                                SOURCES AND USES
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
              SOURCES                                              USES
------------------------------------               ------------------------------------
<S>                                   <C>          <C>                                   <C>
FM/QFC Credit Facility..............  $2,030(a)    Fred Meyer Credit Facility..........  $1,770
                                                   QFC Credit Facility.................     205
                                                   Fees and expenses...................      55
                                      ------                                             ------
     Total Sources..................  $2,030       Total Uses..........................  $2,030
                                      ======                                             ======
</TABLE>
 
---------------
 
(a) The aggregate amount expected to be available under the FM/QFC Credit
    Facility is $2.30 billion.
 
THE FM/FOOD 4 LESS MERGER
 
     If only the FM/Food 4 Less Merger is consummated, the Banks are expected to
agree to provide senior credit facilities to Fred Meyer in an aggregate amount
of up to $3.88 billion (the "FM/Food 4 Less Credit Facility") and a lease
financing program for Fred Meyer in an aggregate amount of $320 million (the
"FM/Food 4 Less Lease Facility"). The FM/Food 4 Less Credit Facility is expected
to consist of (i) a five-year $1.88 billion revolving credit facility (the
"FM/Food 4 Less Revolving Credit Facility") and (ii) a $2.00 billion five-year
term facility (the "FM/Food 4 Less Term Facility"). The obligations of Fred
Meyer under the FM/Food 4 Less Credit Facility will be guaranteed by its
material subsidiaries (including Food 4 Less). In addition to providing funds
for refinancing a portion of Fred Meyer's and Food 4 Less' current indebtedness,
the FM/Food 4 Less Revolving Credit Facility would be available to satisfy
working capital, capital expenditures and other ongoing financing requirements
of Fred Meyer. The FM/Food 4 Less Lease Facility will be available to refinance
existing leases of Fred Meyer and to fund new store construction.
 
     If only the FM/Food 4 Less Merger is consummated, Fred Meyer also intends
to issue $1.00 billion principal amount of Fred Meyer Notes to refinance in part
the indebtedness of the combined company. The Fred Meyer Notes are expected to
mature 10 years from the date of issuance and bear interest at a rate based upon
the then prevailing rate for ten-year U.S. Treasury securities plus a spread to
be determined, payable in cash, semi-annually in arrears. The obligations of
Fred Meyer under the Fred Meyer Notes will be guaranteed by its material
subsidiaries (including Food 4 Less).
 
                                       127
<PAGE>   136
 
     The following table illustrates the pro forma sources and uses of funds in
the proposed refinancing and certain fees and expenses related to the FM/Food 4
Less Merger assuming the FM/Food 4 Less Merger was consummated as of March 10,
1998. Although Fred Meyer believes the pro forma amounts estimated below are
reasonable under the circumstances, actual sources and uses may differ from
those set forth below.
 
                                SOURCES AND USES
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
              SOURCES                                              USES
------------------------------------               ------------------------------------
<S>                                   <C>          <C>                                   <C>
FM/Food 4 Less Credit Facility......  $3,516(a)    Fred Meyer Credit Facility..........  $1,770
Fred Meyer Notes....................   1,000       Food 4 Less Credit Facility.........     710
                                                   Food 4 Less Notes...................   1,626
                                                   Debt repayment premiums.............     280
                                                   Fees and expenses...................     130
                                      ------                                             ------
     Total Sources..................  $4,516       Total Uses..........................  $4,516
                                      ======                                             ======
</TABLE>
 
---------------
 
(a) The aggregate amount expected to be available under the FM/Food 4 Less
    Credit Facility is $3.88 billion.
 
                                       128
<PAGE>   137
 
                  THE FM/QFC MERGER AND FM/FOOD 4 LESS MERGER
 
          UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
 
     The following unaudited pro forma condensed combined financial statements
of Fred Meyer give effect to the FM/QFC Merger as if such transaction occurred
as of January 30, 1994 with respect to the unaudited pro forma condensed
combined statements of operations for the fiscal years ended January 28, 1995,
February 3, 1996, and February 1, 1997 and the 40 weeks ended November 8, 1997,
and as of November 8, 1997 with respect to the unaudited pro forma condensed
combined balance sheet. In addition, such unaudited pro forma condensed combined
financial statements give effect to the FM/Food 4 Less Merger as if such
transaction occurred as of February 4, 1996 with respect to the unaudited pro
forma condensed combined statements of operations for the fiscal year ended
February 1, 1997 and the 40 weeks ended November 8, 1997, and as of November 8,
1997 with respect to the unaudited pro forma condensed combined balance sheet.
Finally, the unaudited pro forma condensed combined financial statements give
effect to refinancing certain Fred Meyer, QFC and Food 4 Less debt, as if such
refinancing occurred as of February 4, 1996 with respect to the unaudited pro
forma condensed combined statements of operations for the fiscal year ended
February 1, 1997 and the 40 weeks ended November 8, 1997, and as of November 8,
1997 with respect to the unaudited pro forma condensed combined balance sheet.
 
     Such pro forma information includes: (i) the historical results of
operations of Fred Meyer for the fiscal years ended January 28, 1995 and
February 3, 1996, and the historical balance sheet of Fred Meyer as of November
8, 1997; (ii) the pro forma results of operations of Fred Meyer for the fiscal
year ended February 1, 1997 and the 40 weeks ended November 8, 1997; (iii) the
historical results of operations of QFC for fiscal years ended December 31, 1994
and December 30, 1995, and the historical balance sheet of QFC as of September
6, 1997; (iv) the pro forma results of operations of QFC for the fiscal year
ended December 28, 1996 and the 36 weeks ended September 6, 1997, (v) the
historical results of operations of Food 4 Less for the fiscal year ended
February 2, 1997 and the 36 weeks ended October 12, 1997 and the historical
balance sheet of Food 4 Less as of October 12, 1997. The Fred Meyer and QFC pro
forma results of operations include adjustments for acquisitions made by both
Fred Meyer and QFC during the most recent fiscal year and interim period
presented as if such acquisitions occurred at the beginning of the most recent
fiscal year presented.
 
     The FM/QFC Merger will be accounted for as a pooling-of-interests. Under
the pooling-of-interests method of accounting, the recorded assets and
liabilities of Fred Meyer and QFC will be carried forward to Fred Meyer's
consolidated financial statements at their historical amounts and the
consolidated earnings of Fred Meyer will include the earnings of Fred Meyer and
QFC for the entire fiscal year in which the FM/QFC Merger occurs and for all
prior years presented and the reported retained earnings of Fred Meyer and QFC
for prior periods will be combined and restated as consolidated retained
earnings of Fred Meyer.
 
     The FM/Food 4 Less Merger will be accounted for as a purchase of Food 4
Less by Fred Meyer. Under purchase accounting, the purchase price will be
allocated to assets acquired and liabilities assumed based on their estimated
fair values. The adjustments included in the unaudited pro forma condensed
combined financial statements represent a preliminary determination of these
adjustments based upon available information. The purchase price is expected to
exceed the fair value of the net assets acquired. This difference has been
allocated to goodwill which will be amortized over 40 years. Such allocations
are subject to final determination based on real estate, leasehold and equipment
valuation studies and a review of the books, records and accounting policies of
Food 4 Less. These studies are expected to be completed before the end of the
1998 fiscal year. Accordingly, the final allocations will be different from the
amounts reflected herein.
 
     The unaudited pro forma condensed combined financial statements are not
necessarily indicative of either future results of operations or results that
might have been achieved if the FM/QFC Merger and the FM/Food 4 Less Merger had
been consummated as of the indicated dates. The unaudited pro forma condensed
combined financial statements should be read in conjunction with the historical
consolidated financial statements of Fred Meyer, QFC and Food 4 Less together
with the related notes thereto, which are incorporated by reference in this
Joint Proxy and Consent Solicitation Statement/Prospectus.
 
                                       129
<PAGE>   138
 
     The unaudited pro forma condensed combined statements of operations
included herein do not reflect an extraordinary charge of approximately $220
million (net of taxes) relating to refinancing certain debt. Any divestitures
that may be required by federal or state regulatory authorities as a result of
the Mergers have not been considered and are not reflected in the following
unaudited pro forma condensed combined financial statements. The unaudited pro
forma condensed combined statements of operations also do not reflect
approximately $50 million, $70 million, $90 million and $100 million in
annualized operating savings that management of Fred Meyer believes are
achievable by the end of 1998, 1999, 2000 and 2001, respectively.
 
     If shareholders approve either the FM/QFC Merger or the FM/Food 4 Less
Merger but not both, Fred Meyer intends to proceed with the merger that is
approved. Accordingly, in addition to the accompanying unaudited pro forma
condensed combined financial statements reflecting the FM/QFC Merger and FM/Food
4 Less Merger, shareholders are encouraged to read the accompanying unaudited
pro forma condensed combined financial statements separately reflecting (i) the
FM/QFC Merger only, and (ii) the FM/Food 4 Less Merger only.
 
                                       130
<PAGE>   139
 
                  THE FM/QFC MERGER AND FM/FOOD 4 LESS MERGER
 
              UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
                                NOVEMBER 8, 1997
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                           FRED MEYER              QFC              FOOD 4 LESS
                                        NOVEMBER 8, 1997    SEPTEMBER 6, 1997    OCTOBER 12, 1997     PRO FORMA        PRO FORMA
                                           HISTORICAL           HISTORICAL          HISTORICAL       ADJUSTMENTS       COMBINED
                                        -----------------   ------------------   -----------------   ------------     -----------
<S>                                     <C>                 <C>                  <C>                 <C>              <C>
                                                             ASSETS
CURRENT ASSETS:
  Cash and cash equivalents............    $   117,375          $   90,088          $    63,524       $       --(1)   $   270,987
  Trade and other receivables..........        100,191              25,324               46,130                           171,645
  Inventories..........................      1,200,557             119,021              492,894           26,600(2)     1,839,072
  Prepaid expenses and other...........         52,207              17,203               23,713                            93,123
  Deferred tax assets..................         81,610                                                   147,035(3)       228,645
  Assets held for sale.................          9,721                                                                      9,721
                                            ----------          ----------           ----------       ----------      -----------
         TOTAL CURRENT ASSETS..........      1,561,661             251,636              626,261          173,635        2,613,193
PROPERTY AND EQUIPMENT, NET............      1,941,983             501,779            1,080,688          129,673(2)     3,654,123
OTHER ASSETS:
  Goodwill, net........................      1,026,514             226,133            1,286,560        1,081,926(2)     3,621,133
  Deferred financing costs, net........          9,313               6,145               50,764          (61,013)(3)
                                                                                                          68,000(1)        73,209
  Other................................         33,790              39,571               32,495                           105,856
                                            ----------          ----------           ----------       ----------      -----------
         TOTAL ASSETS..................    $ 4,573,261          $1,025,264          $ 3,076,768       $1,392,221      $10,067,514
                                            ==========          ==========           ==========       ==========      ===========

                                         LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
  Accounts payable and outstanding
    checks.............................    $   830,429          $   86,600          $   302,081                       $ 1,219,110
  Current portion of long-term debt and
    capital leases.....................          3,364               8,377               38,456       $   (3,500)(1)       46,697
  Income taxes payable.................                              8,878                1,929                            10,807
  Accrued compensation.................        140,305              42,044              110,476                           292,825
  Other accrued expenses...............        191,715              47,567              323,387                           562,669
                                            ----------          ----------           ----------       ----------      -----------
         TOTAL CURRENT LIABILITIES.....      1,165,813             193,466              776,329           (3,500)       2,132,108
LONG-TERM DEBT, less current
  maturities...........................      1,900,504             392,708            2,314,911          453,500(1)     5,061,623
CAPITAL LEASE OBLIGATIONS, less current
  portion..............................         53,238              28,980              133,177                           215,395
DEFERRED INCOME TAXES..................         23,150              57,154               20,874           59,165(2)       160,343
OTHER LONG-TERM LIABILITIES............        145,531              18,156              252,488            4,568(2)       420,743
         TOTAL STOCKHOLDERS' EQUITY
           (DEFICIT)...................      1,285,025             334,800             (421,011)         878,488(3)     2,077,302
                                            ----------          ----------           ----------       ----------      -----------
         TOTAL LIABILITIES AND
           STOCKHOLDERS'
           EQUITY(DEFICIT).............    $ 4,573,261          $1,025,264          $ 3,076,768       $1,392,221      $10,067,514
                                            ==========          ==========           ==========       ==========      ===========
</TABLE>
 
                See The FM/QFC Merger and FM/Food 4 Less Merger
         Notes to Unaudited Pro Forma Condensed Combined Balance Sheet.
 
                                       131
<PAGE>   140
 
                  THE FM/QFC MERGER AND FM/FOOD 4 LESS MERGER
 
                NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
                                 BALANCE SHEET
                                 (IN THOUSANDS)
 
(1) The net effect on cash and cash equivalents of the FM/QFC Merger and the
FM/Food 4 Less Merger and the concurrent debt refinancing reflects the
following:
 
<TABLE>
        <S>                                                                <C>
        TOTAL SOURCES:
        FM/QFC/Food 4 Less Credit Facility...............................  $3,411,000
        Fred Meyer Notes.................................................   1,500,000
                                                                           -----------
                                                                           $4,911,000
                                                                           ===========
        TOTAL USES:
        Fred Meyer Credit Facility.......................................  $1,770,000
        QFC Credit Facility..............................................     205,000
        Food 4 Less Credit Facility......................................     710,000
        QFC Notes........................................................     150,000
        Food 4 Less Notes................................................   1,626,000
        Debt repayment premiums..........................................     300,000
        Financing fees...................................................      68,000
        Other fees and expenses..........................................      82,000
                                                                           -----------
                                                                           $4,911,000
                                                                           ===========
</TABLE>
 
(2) The purchase cost and preliminary allocation of the excess of cost over the
net book value of the assets acquired in the FM/Food 4 Less Merger is as
follows. The market value of Fred Meyer Common Stock issued reflects 22.5
million shares multiplied by the average market price of Fred Meyer Common Stock
on the day Fred Meyer and Food 4 Less reached agreement on the purchase price
and the proposed FM/Food 4 Less Merger was announced and the three trading days
preceding and following the announcement date.
 
<TABLE>
        <S>                                                               <C>
        Market value of Fred Meyer Common Stock issued..................  $   687,455
        Transaction fees and expenses...................................       66,000
                                                                          -----------
                  Total purchase cost...................................      753,455
        Book value of net asset acquired................................     (421,011)
                                                                          -----------
                  Excess of purchase cost over net book value of assets
                    acquired............................................  $ 1,174,466
                                                                          ===========
        Allocated to:
          Increase in value of inventory................................  $    26,600
          Increase in value of property and equipment...................      129,673
          Food 4 Less historical net goodwill...........................   (1,286,560)
          Adjust accrued pension and postretirement benefit
             obligation.................................................       (4,568)
          Adjust deferred taxes for temporary differences (39% effective
             rate)......................................................      (59,165)
          Residual excess purchase cost.................................    2,368,486
                                                                          -----------
        Total allocation................................................  $ 1,174,466
                                                                          ===========
</TABLE>
 
(3) Represents the net change in stockholders' equity as a result of the FM/QFC
Merger and the FM/Food 4 Less Merger and concurrent refinancing of certain Fred
Meyer, QFC and Food 4 Less debt:
 
<TABLE>
        <S>                                                               <C>
        Issuance of Fred Meyer Common Stock in FM/Food 4 Less Merger....  $   687,455
        Elimination of Food 4 Less historical stockholders' deficit.....      421,011
        Write-off of Fred Meyer historical deferred financing costs, net
          of tax of $1,755..............................................       (2,745)
        Write-off of Food 4 Less historical deferred financing costs,
          net of tax of $19,798.........................................      (30,966)
        Write-off of QFC historical deferred financing costs, net of tax
          of $2,242.....................................................       (3,507)
        Estimated premiums related to repayment of Food 4 Less and QFC
          debt, net of tax of $117,000..................................     (183,000)
        FM/QFC Merger fees and expenses, net of tax of $6,240...........       (9,760)
                                                                          -----------
        Pro forma adjustment to stockholders' equity....................  $   878,488
                                                                          ===========
</TABLE>
 
                                       132
<PAGE>   141
 
                  THE FM/QFC MERGER AND FM/FOOD 4 LESS MERGER
 
                     UNAUDITED PRO FORMA CONDENSED COMBINED
                            STATEMENT OF OPERATIONS
                    FOR THE 40 WEEKS ENDED NOVEMBER 8, 1997
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                 FRED MEYER             QFC
                               40 WEEKS ENDED     36 WEEKS ENDED       FOOD 4 LESS
                              NOVEMBER 8, 1997   SEPTEMBER 6, 1997    36 WEEKS ENDED
                                 PRO FORMA           PRO FORMA       OCTOBER 12, 1997    PRO FORMA         PRO FORMA
                                COMBINED (1)       COMBINED (3)       HISTORICAL (2)    ADJUSTMENTS        COMBINED
                              ----------------   -----------------   ----------------   ------------      -----------
<S>                           <C>                <C>                 <C>                <C>               <C>
Net sales....................    $5,471,428         $ 1,468,001         $3,778,470                        $10,717,899
Cost of goods sold...........     3,934,892           1,022,806          2,962,209                          7,919,907
                                 ----------          ----------         ----------        --------        -----------
  Gross margin...............     1,536,536             445,195            816,261                          2,797,992
Operating and administrative
  expenses...................     1,115,345             344,136            557,604        $ (3,000)(4)      2,014,085
Depreciation and amortization
  expense....................       185,886              33,934            121,047          27,107(5)         367,974
                                 ----------          ----------         ----------        --------        -----------
  Income from operations.....       235,305              67,125            137,610         (24,107)           415,933
Interest expense.............        98,089              21,633            187,122         (12,599)(6)        294,245
Amortization of deferred
  financing costs............         1,092                 430              4,406           2,974(7)           8,902
                                 ----------          ----------         ----------        --------        -----------
  Income (loss) before income
    taxes and extraordinary
    charge...................       136,124              45,062            (53,918)        (14,482)           112,786
Provision for income taxes...        60,862              18,747                             (9,143)(8)         70,466
                                 ----------          ----------         ----------        --------        -----------
  Income (loss) before
    extraordinary charge.....    $   75,262         $    26,315         $  (53,918)       $ (5,339)       $    42,320
                                 ==========          ==========         ==========        ========        ===========
  Income before extraordinary
    charge per share of
    common stock (9).........    $     0.83         $      1.22                                           $      0.27
                                 ==========          ==========                                           ===========
  Weighted average common
    shares outstanding (9)...        90,422              21,573                             41,916(9)         153,911
                                 ==========          ==========                           ========        ===========
</TABLE>
 
             See The FM/QFC Merger and FM/Food 4 Less Merger Notes
       to Unaudited Pro Forma Condensed Combined Statement of Operations.
 
                                       133
<PAGE>   142
 
                  THE FM/QFC MERGER AND FM/FOOD 4 LESS MERGER
 
                NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
                            STATEMENT OF OPERATIONS
                    FOR THE 40 WEEKS ENDED NOVEMBER 8, 1997
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
(1) The following Fred Meyer unaudited pro forma condensed combined statement of
operations is based on historical financial statements of Fred Meyer and Smith's
and has been prepared to illustrate the effects of Fred Meyer's acquisition of
Smith's (the "Smith's Acquisition") and other related transactions described
below and the assumed financing therefor.
 
     The Fred Meyer unaudited pro forma condensed statement of operations for
the 40 weeks ended November 8, 1997 give effect to the Smith's Acquisition as if
such transaction had been completed as of February 4, 1996. Such pro forma
information includes the historical results of operations of Fred Meyer for the
40 weeks ended November 8, 1997 and the historical results of operations for
Smith's from February 2, 1997 to September 8, 1997.
 
     The Smith's Acquisition was accounted for as a purchase of Smith's by Fred
Meyer. Under purchase accounting, the purchase price is allocated to assets
acquired and liabilities assumed based on their estimated fair values. The pro
forma adjustments included in the unaudited pro forma condensed combined
statement of operations represent a preliminary determination of these
adjustments based upon available information.
 
     The unaudited pro forma condensed combined statement of operations for the
Smith's Acquisition included in the table below does not reflect an
extraordinary charge of approximately $91 million (net of taxes) relating to
refinancing certain debt.
 
<TABLE>
<CAPTION>
                                                                   SMITH'S
                                             FRED MEYER          PERIOD FROM
                                           40 WEEKS ENDED    FEBRUARY 2, 1997 TO                  FRED MEYER
                                          NOVEMBER 8, 1997    SEPTEMBER 8, 1997     PRO FORMA     PRO FORMA
                                             HISTORICAL          HISTORICAL        ADJUSTMENTS     COMBINED
                                          ----------------   -------------------   ------------   ----------
<S>                                       <C>                <C>                   <C>            <C>
Net sales...............................     $3,611,323          $ 1,860,105                      $5,471,428
Cost of goods sold......................      2,500,908            1,433,984                       3,934,892
                                             ----------           ----------         --------     ----------
  Gross margin..........................      1,110,415              426,121                       1,536,536
Operating and administrative expenses...        860,904              254,728         $   (287)     1,115,345
Depreciation and amortization expense...        118,225               57,472           10,189        185,886
                                             ----------           ----------         --------     ----------
  Income from operations................        131,286              113,921           (9,902)       235,305
Interest expense........................         46,242               71,938          (20,091)        98,089
Amortization of deferred financing
  costs.................................            198                2,953           (2,059)         1,092
                                             ----------           ----------         --------     ----------
  Income before income taxes and
     extraordinary charge...............         84,846               39,030           12,248        136,124
Provision for income taxes..............         34,190               16,490           10,182         60,862
                                             ----------           ----------         --------     ----------
  Income before extraordinary charge....     $   50,656          $    22,540         $  2,066     $   75,262
                                             ==========           ==========         ========     ==========
  Income before extraordinary charge per
     share of common stock..............     $     0.79                                           $     0.83
                                             ==========                                           ==========
  Weighted average common shares
     outstanding........................         64,117                                26,305         90,422
                                             ==========                              ========     ==========
</TABLE>
 
     The unaudited pro forma condensed combined statement of operations gives
effect to the following significant pro forma adjustments: (i) the adjustment
for additional depreciation and amortization expense resulting from the
allocation of the purchase price for Smith's to the assets acquired, including
an increase in property, plant, and equipment, leasehold interest, and
identifiable intangible assets to their estimated fair market values and the
recording of goodwill associated with the acquisition; (ii) the adjustment to
interest expense associated with the transaction financing and the corresponding
adjustments to the amortization of
 
                                       134
<PAGE>   143
 
                  THE FM/QFC MERGER AND FM/FOOD 4 LESS MERGER
 
                NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
                      STATEMENT OF OPERATIONS (CONTINUED)
                    FOR THE 40 WEEKS ENDED NOVEMBER 8, 1997
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
related financing fees; and (iii) the adjustment to the provision for income
taxes based upon a tax rate of 39% applied to the pro forma operating income
before income taxes adjusted for amortization of goodwill.
 
(2) Certain reclassifications were made to Food 4 Less historical information to
conform with the Fred Meyer presentation.
 
(3) The following QFC unaudited pro forma condensed combined statement of
operations is based on historical financial statements of QFC, Hughes and KUI,
and has been prepared to illustrate the effects of the QFC acquisitions of
Hughes and KUI (the "QFC Acquisitions") and other related transactions described
below and the assumed financing therefor.
 
     Certain reclassifications have been made to QFC, Hughes and KUI historical
information to conform with the Fred Meyer presentation.
 
     The QFC unaudited pro forma condensed combined statement of operations for
the 36 weeks ended September 6, 1997 gives effect to each of the following
transactions as if such transactions had been completed as of December 29, 1996:
(i) the Hughes acquisition and certain related transactions; (ii) KUI's spin off
of certain assets and liabilities, primarily related to non-grocery operations,
prior to the KUI acquisition; (iii) the KUI acquisition and certain related
transactions; (iv) the application of the net proceeds from the sale of
5,175,000 shares of QFC Common Stock in a public offering (the "QFC Common Stock
Offering") and the sale of $150.0 million aggregate principal amount of 8.70%
Senior Subordinated Notes, due 2007 (the "QFC Notes" and together with the QFC
Common Stock Offering, the "QFC Offerings") and borrowings under QFC's credit
facility (the "QFC Credit Facility"), which consists of (A) a $250 million term
loan facility, (B) a $125 million revolving credit facility and (C) a $225
million reducing revolving credit facility, to finance the Hughes acquisition
and to refinance bank debt of QFC which was outstanding at the time of the
closing of the Hughes acquisition (including indebtedness which was incurred in
connection with the KUI acquisition); and (v) QFC's proposed divestiture of five
recently acquired KUI stores.
 
                                       135
<PAGE>   144
 
                  THE FM/QFC MERGER AND FM/FOOD 4 LESS MERGER
 
                NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
                      STATEMENT OF OPERATIONS (CONTINUED)
                    FOR THE 40 WEEKS ENDED NOVEMBER 8, 1997
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
     The QFC Acquisitions were accounted for as purchases by QFC. Under purchase
accounting, the purchase price is allocated to assets acquired and liabilities
assumed based on their estimated fair values. The pro forma adjustments included
in the unaudited pro forma condensed combined statement of operations represent
a preliminary determination of these adjustments based upon available
information.
 
<TABLE>
<CAPTION>
                                                                                                         PRO FORMA
                                                      HUGHES                KUI                         ADJUSTMENTS
                                     QFC            PERIOD FROM         PERIOD FROM                         FOR
                                36 WEEKS ENDED   DECEMBER 29, 1996   DECEMBER 29, 1996                  ACQUISITIONS
                                 SEPTEMBER 6,         THROUGH             THROUGH            KUI            AND           QFC
                                     1997         MARCH 18, 1997     FEBRUARY 14, 1997    PRO FORMA      OFFERINGS     PRO FORMA
                                  HISTORICAL        HISTORICAL          HISTORICAL       ADJUSTMENTS      COMBINED      COMBINED
                                --------------   -----------------   -----------------   ------------   ------------   ----------
<S>                             <C>              <C>                 <C>                 <C>            <C>            <C>
Net sales.....................    $1,225,261         $ 211,425            $46,793          $ (1,492)      $(13,986)    $1,468,001
Cost of goods sold............       854,100           146,955             33,480              (907)       (10,822)     1,022,806
                                  ----------          --------            -------           -------       --------     ----------
  Gross margin................       371,161            64,470             13,313              (585)        (3,164)       445,195
Operating and administrative
  expenses....................       282,388            54,932             10,301              (648)        (2,837)       344,136
Depreciation and amortization
  expense.....................        28,039             3,847                337               (43)         1,754         33,934
                                  ----------          --------            -------           -------       --------     ----------
    Income from operations....        60,734             5,691              2,675               106         (2,081)        67,125
Interest expense..............        16,755               538                204                            4,136         21,633
Amortization of deferred
  financing costs.............           430                                                                                  430
                                  ----------          --------            -------           -------       --------     ----------
  Income before income taxes
    and extraordinary
    charge....................        43,549             5,153              2,471               106         (6,217)        45,062
Provision for income taxes....        17,220             2,437                860                36         (1,806)        18,747
                                  ----------          --------            -------           -------       --------     ----------
  Income before extraordinary
    charge....................    $   26,329         $   2,716            $ 1,611          $     70       $ (4,411)    $   26,315
                                  ==========          ========            =======           =======       ========     ==========
  Income before extraordinary
    charge per share of common
    stock.....................    $     1.33                                                                           $     1.22
                                  ==========                                                                           ==========
  Weighted average common
    shares outstanding........        19,757                                                                 1,816         21,573
                                  ==========                                                              ========     ==========
</TABLE>
 
     The unaudited pro forma condensed combined statement of operations gives
effect to the following significant pro forma adjustments: (i) the elimination
of sales and certain expenses attributable to certain assets and liabilities of
KUI, primarily related to non-grocery operations which were spun off by KUI
prior to its acquisition by QFC; (ii) the adjustment for additional depreciation
and amortization expense resulting from the allocations of the purchase prices
for KUI and Hughes to the assets acquired, including an increase in property,
plant, and equipment, leasehold interest and identifiable intangible assets to
their estimated fair market values and the recording of goodwill associated with
the acquisitions; (iii) the adjustment to interest expense associated with the
transaction financing and the corresponding adjustments to the amortization of
related financing fees; and (iv) the adjustment to the provision for income
taxes based upon a tax rate of 38% applied to the pro forma operating income
before income taxes adjusted for amortization of goodwill.
 
(4) To eliminate management fees paid by Food 4 Less.
 
(5) To increase depreciation and amortization expense for revaluation of
property and equipment in the amount of $6.8 million and increase amortization
of goodwill in the amount of $20.3 million as a result of the FM/Food 4 Less
Merger. The adjustment to depreciation and amortization expense assumes an
average useful life of acquired property and equipment of 11 years and the
adjustment to goodwill amortization assumes an amortization period for acquired
goodwill of 40 years.
 
                                       136
<PAGE>   145
 
                  THE FM/QFC MERGER AND FM/FOOD 4 LESS MERGER
 
                NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
                      STATEMENT OF OPERATIONS (CONTINUED)
                    FOR THE 40 WEEKS ENDED NOVEMBER 8, 1997
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
(6) In connection with the FM/QFC Merger and FM/Food 4 Less Merger, Fred Meyer
intends to refinance and consolidate approximately $4,461 million of existing
indebtedness of Fred Meyer, QFC and Food 4 Less. See "Refinancing
Arrangements -- The FM/QFC Merger and FM/Food 4 Less Merger." The following
table reflects the pro forma adjustments to interest expense related to the
refinancing of certain debt:
 
<TABLE>
        <S>                                                                <C>
        Historical interest expense
          Fred Meyer -- historical pro forma.............................  $  98,089
          QFC -- historical pro forma....................................     21,633
          Food 4 Less -- historical......................................    187,122
                                                                            --------
                                                                             306,844
        Less: amount in historical pro forma statement of operations for
          refinanced debt................................................  (266,818)
        Add: amounts for new facility and debt...........................    254,219
                                                                            --------
        Pro forma interest expense.......................................  $ 294,245
                                                                            ========
</TABLE>
 
     The pro forma adjustment to interest expense assumes a weighted average
interest rate of 7.1% per annum. A 0.125% increase or decrease in the weighted
average interest rate would change pro forma interest expense by $4.7 million
for the 40 weeks ended November 8, 1997.
 
(7) To adjust for the change in amortization of deferred financing costs as a
result of the refinancing of certain Fred Meyer, Food 4 Less and QFC debt.
 
(8) The pro forma adjustment to the provision for income taxes is based upon a
tax rate of 39% applied to the pro forma income before income taxes adjusted for
amortization of goodwill. The following table presents a reconciliation of pro
forma provision for income taxes:
 
<TABLE>
        <S>                                                                 <C>
        Income before income taxes and extraordinary charge...............  $112,786
        Non-deductible goodwill amortization..............................    67,896
                                                                            --------
          Pro forma taxable income........................................   180,682
        Pro forma effective tax rate......................................        39%
                                                                            --------
          Pro forma provision for income taxes............................  $ 70,466
                                                                            ========
</TABLE>
 
(9) All share and per share data has been adjusted to reflect a two-for-one
stock split of Fred Meyer Common Stock effected as a 100% stock dividend which
was effective September 30, 1997. An assumed (i) exchange ratio of 1.9 shares of
Fred Meyer Common Stock for each share of QFC Common Stock issued and
outstanding immediately prior to the FM/QFC Merger Effective Time in connection
with the FM/QFC Merger and (ii) issuance of 22.5 million shares of Fred Meyer
Common Stock in connection with the FM/ Food 4 Less Merger were used in
preparing the pro forma combined share and per share data. See "The FM/ QFC
Merger Agreement -- Conversion of Shares" and "The FM/Food 4 Less Merger
Agreement -- Conversion of Shares."
 
                                       137
<PAGE>   146
 
                  THE FM/QFC MERGER AND FM/FOOD 4 LESS MERGER
 
                NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
                      STATEMENT OF OPERATIONS (CONCLUDED)
                    FOR THE 40 WEEKS ENDED NOVEMBER 8, 1997
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
     The following table presents a reconciliation of the pro forma weighted
average number of shares outstanding used in calculating pro forma income per
share of Fred Meyer Common Stock:
 
<TABLE>
        <S>                                                                  <C>
        Pro forma weighted average number of shares of QFC Common Stock
          outstanding as of September 6, 1997..............................    21,573
        Exchange ratio.....................................................       1.9
                                                                              -------
        Number of shares of Fred Meyer Common Stock issued in the FM/QFC
          Merger...........................................................    40,989
        Number of shares of Fred Meyer Common Stock issued in the FM/Food 4
          Less Merger......................................................    22,500
                                                                              -------
        Number of shares of Fred Meyer Common Stock issued in the FM/QFC
          Merger and FM/Food 4 Less Merger.................................    63,489
        Pro forma weighted average number of shares of Fred Meyer Common
          Stock outstanding as of November 8, 1997.........................    90,422
                                                                              -------
        Pro forma number of shares of Fred Meyer Common Stock outstanding
          after completion of the FM/QFC Merger and FM/Food 4 Less
          Merger...........................................................   153,911
                                                                              =======
</TABLE>
 
                                       138
<PAGE>   147
 
                  THE FM/QFC MERGER AND FM/FOOD 4 LESS MERGER
 
                     UNAUDITED PRO FORMA CONDENSED COMBINED
                            STATEMENT OF OPERATIONS
                    FOR THE 52 WEEKS ENDED FEBRUARY 1, 1997
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                       FRED MEYER             QFC
                                     52 WEEKS ENDED    FISCAL YEAR ENDED     FOOD 4 LESS
                                    FEBRUARY 1, 1997   DECEMBER 28, 1996    53 WEEKS ENDED
                                       PRO FORMA           PRO FORMA       FEBRUARY 2, 1997    PRO FORMA        PRO FORMA
                                      COMBINED (1)       COMBINED (3)       HISTORICAL (2)    ADJUSTMENTS       COMBINED
                                    ----------------   -----------------   ----------------   -----------      -----------
<S>                                 <C>                <C>                 <C>                <C>              <C>
Net sales.........................     $6,742,523         $ 2,099,756         $5,516,259                       $14,358,538
Cost of goods sold................      4,928,596           1,478,720          4,270,538                        10,677,854
                                       ----------          ----------         ----------      ----------        ----------
  Gross margin....................      1,813,927             621,036          1,245,721                         3,680,684
Operating and administrative
  expenses........................      1,293,941             504,550            910,740       $  (4,000)(4)     2,705,231
Depreciation and amortization
  expense.........................        232,345              47,189            180,344          36,143(5)        496,021
                                       ----------          ----------         ----------      ----------        ----------
  Income from operations..........        287,641              69,297            154,637         (32,143)          479,432
Interest expense..................        129,984              33,350            273,550         (23,602)(6)       413,282
Amortization of deferred financing
  costs...........................          1,664                 185             10,667            (648)(7)        11,868
                                       ----------          ----------         ----------      ----------        ----------
  Income (loss) before income
     taxes and extraordinary
     charge.......................        155,993              35,762           (129,580)         (7,893)           54,282
Provision for income taxes........         74,512              16,217                            (34,253)(8)        56,476
                                       ----------          ----------         ----------      ----------        ----------
  Income (loss) before
     extraordinary charge.........     $   81,481         $    19,545         $ (129,580)      $  26,360       $    (2,194)
                                       ==========          ==========         ==========      ==========        ==========
  Income (loss) before
     extraordinary charge per
     share of common stock (9)....     $     0.90         $      0.93                                          $     (0.01)
                                       ==========          ==========                                           ==========
  Weighted average common shares
     outstanding (9)..............         90,220              20,968                             41,371(9)        152,559
                                       ==========          ==========                         ==========        ==========
</TABLE>
 
                See The FM/QFC Merger and FM/Food 4 Less Merger
    Notes to Unaudited Pro Forma Condensed Combined Statement of Operations.
 
                                       139
<PAGE>   148
 
                  THE FM/QFC MERGER AND FM/FOOD 4 LESS MERGER
 
                   NOTES TO THE UNAUDITED PRO FORMA CONDENSED
                        COMBINED STATEMENT OF OPERATIONS
                    FOR THE 52 WEEKS ENDED FEBRUARY 1, 1997
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
(1) The following Fred Meyer unaudited pro forma condensed combined statement of
operations is based on historical financial statements of Fred Meyer, Smith's
and Smitty's Supermarkets, Inc., a subsidiary of Smith's ("Smitty's"), and have
been prepared to illustrate the effects of Fred Meyer's acquisition of Smith's,
Smith's acquisition of Smitty's (the "Smitty's Acquisition"), and other related
transactions described below and the assumed financing therefor.
 
     The Fred Meyer unaudited pro forma condensed combined statement of
operations for the 52 weeks ended February 1, 1997 gives effect to the Smith's
Acquisition and the Smitty's Acquisition as if such transactions occurred as of
February 3, 1996. Such pro forma information includes: (i) the historical
results of operations of Fred Meyer for the 52 weeks ended February 1, 1997 and
(ii) the historical results of operations of Smith's for the 52 weeks ended
December 28, 1996, as adjusted (x) to eliminate the effect of Smith's California
Disposition (as described below), (y) to reflect the results of operations of
Smitty's from January 15, 1996 through May 22, 1996 and (z) to eliminate certain
non-recurring expenses incurred in connection with the Smitty's Acquisition.
 
     In December 1995, Smith's decided to sell, lease or close all 34 stores and
the distribution center comprising its California region. During 1996, Smith's
sold or leased 23 of its California stores and related equipment and six
non-operating properties to various supermarket companies and others and closed
the remaining eleven California stores, and also adopted a strategy to
accelerate the disposition of its remaining real estate in California (the
"California Disposition"), including non-operating stores and excess land.
Accordingly, Smith's recorded restructuring charges of $201.6 million relating
to the difference between the anticipated cash proceeds from the accelerated
dispositions and the existing book values and other charges resulting from its
decision to close the California region. The adjustments to Smith's historical
results of operations for the California Disposition differ from a complete
statement of operations because certain corporate allocations such as benefits
of corporate buying, distribution and manufacturing operations and corporate
overhead are included, but certain other corporate services and interest expense
are not included.
 
     The Smith's Acquisition was accounted for as a purchase of Smith's by Fred
Meyer and the Smitty's Acquisition was accounted for as a purchase of Smitty's
by Smith's. Under purchase accounting, the purchase price is allocated to assets
acquired and liabilities assumed based on their estimated fair values. The pro
forma adjustments for the Smith's Acquisition included in the unaudited pro
forma condensed combined statement of operations represent a preliminary
determination of these adjustments based upon available information.
 
                                       140
<PAGE>   149
 
                  THE FM/QFC MERGER AND FM/FOOD 4 LESS MERGER
 
                   NOTES TO THE UNAUDITED PRO FORMA CONDENSED
                  COMBINED STATEMENT OF OPERATIONS (CONTINUED)
                    FOR THE 52 WEEKS ENDED FEBRUARY 1, 1997
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
     The following unaudited pro forma condensed combined statement of
operations does not reflect an extraordinary charge of approximately $91 million
(net of taxes) relating to refinancing certain debt.
 
<TABLE>
<CAPTION>
                                                                             ADJUSTMENTS
                          FRED MEYER         SMITH'S         SMITTY'S            FOR
                        52 WEEKS ENDED    52 WEEKS ENDED     18 WEEKS        CALIFORNIA
                          FEBRUARY 1,      DECEMBER 28,        ENDED         DISPOSITION                    FRED MEYER
                             1997              1996        MAY 22, 1996     AND SMITTY'S      PRO FORMA      PRO FORMA
                          HISTORICAL        HISTORICAL      HISTORICAL       ACQUISITION     ADJUSTMENTS     COMBINED
                        ---------------   --------------   -------------   ---------------   ------------   -----------
<S>                     <C>               <C>              <C>             <C>               <C>            <C>
Net sales.............    $ 3,724,839       $2,889,988       $ 200,770        $ (73,074)                    $6,742,523
Cost of goods sold....      2,612,325        2,237,789         144,392          (65,910)                     4,928,596
                           ----------       ----------        --------         --------         -------     ----------
  Gross margin........      1,112,514          652,199          56,378           (7,164)                     1,813,927
Operating and
  administrative
  expenses............        861,800          449,247          45,684          (62,290)       $   (500)     1,293,941
Depreciation and
  amortization
  expense.............        116,854           93,951           5,309             (954)         17,185        232,345
Restructuring
  charges.............                         201,622                         (201,622)
                           ----------       ----------        --------         --------         -------     ----------
  Income (loss)from
    operations........        133,860          (92,621)          5,385          257,702         (16,685)       287,641
Interest expense......         39,432          104,602           6,046           28,384         (48,480)       129,984
Amortization of
  deferred financing
  costs...............                           5,406             344            3,466          (7,552)         1,664
                           ----------       ----------        --------         --------         -------     ----------
  Income (loss) before
    income taxes and
    extraordinary
    charge............         94,428         (202,629)         (1,005)         225,852          39,347        155,993
Provision (benefit)
  for income taxes....         35,883          (80,245)                          90,111          28,763         74,512
                           ----------       ----------        --------         --------         -------     ----------
  Income (loss) before
    extraordinary
    charge............    $    58,545       $ (122,384)      $  (1,005)       $ 135,741        $ 10,584     $   81,481
                           ==========       ==========        ========         ========         =======     ==========
  Income before
    extraordinary
    charge per share
    of common stock...    $      1.05                                                                       $     0.90
                           ==========                                                                       ==========
  Weighted average
    common shares
    outstanding.......         55,924                                                            34,296         90,220
                           ==========                                                           =======     ==========
</TABLE>
 
     The unaudited pro forma condensed combined statement of operations gives
effect to the following significant pro forma adjustments: (i) elimination of
the 1996 operating results and restructuring charges for Smith's closed
California region recorded in connection with the California Disposition; (ii)
the elimination of nonrecurring expenses totaling $28.1 million recorded in
operating and administrative expenses by Smith's as a result of the Smitty's
Acquisition; (iii) the adjustment for additional depreciation and amortization
expense resulting from the allocations of the purchase prices for Smith's and
Smitty's to the assets acquired, including an increase in property and
equipment, leasehold interest, and identifiable intangible assets to their
estimated fair market values and the recording of goodwill associated with the
acquisitions; (iv) the adjustment to interest expense associated with the
transaction financing and the corresponding adjustments to the amortization of
related financing fees; and (v) the adjustment to the provision for income taxes
based upon a tax rate of 39% applied to the pro forma operating income before
income taxes adjusted for amortization of goodwill.
 
(2) Certain reclassifications were made to Food 4 Less historical information to
conform with the Fred Meyer presentation.
 
                                       141
<PAGE>   150
 
                  THE FM/QFC MERGER AND FM/FOOD 4 LESS MERGER
 
                   NOTES TO THE UNAUDITED PRO FORMA CONDENSED
                  COMBINED STATEMENT OF OPERATIONS (CONTINUED)
                    FOR THE 52 WEEKS ENDED FEBRUARY 1, 1997
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
(3) The following QFC unaudited pro forma condensed combined statement of
operations is based on historical financial statements of QFC, Hughes and KUI
and have been prepared to illustrate the effects of the QFC Acquisitions and
other related transactions described below and the assumed financing therefor.
 
     Certain reclassifications were made to QFC, Hughes and KUI historical
information to conform with the Fred Meyer presentation.
 
     The unaudited pro forma condensed combined statement of operations for the
year ended December 28, 1996 gives effect to each of the following transactions
as if such transactions had been completed as of December 31, 1995: (i) the
acquisition of Hughes and certain related transactions; (ii) KUI's spin off of
certain assets and liabilities, primarily related to non-grocery operations,
prior to the acquisition of KUI; (iii) the acquisition of KUI and certain
related transactions; (iv) the application of the net proceeds from the QFC
offerings and borrowings under the QFC Credit Facility to finance the
acquisition of Hughes and to refinance bank debt of QFC which was outstanding at
the time of the closing of the acquisition of Hughes (including indebtedness
which was incurred in connection with the acquisition of KUI); and (v) QFC's
proposed divestiture of five recently acquired KUI stores.
 
     The QFC Acquisitions were accounted for as purchases by QFC. Under purchase
accounting, the purchase price is allocated to assets acquired and liabilities
assumed based on their estimated fair values. The pro forma adjustments included
in the unaudited pro forma condensed combined statement of operations represent
a preliminary determination of these adjustments based upon available
information.
 
<TABLE>
<CAPTION>
                                                                                                         PRO FORMA
                                                                               KUI                      ADJUSTMENTS
                                             QFC FISCAL                    FISCAL YEAR                      FOR
                                             YEAR ENDED    HUGHES FISCAL      ENDED                     ACQUISITION
                                            DECEMBER 28,    YEAR ENDED     DECEMBER 28,     KUI PRO         AND           QFC
                                                1996       MARCH 2, 1997       1996          FORMA       OFFERINGS     PRO FORMA
                                             HISTORICAL     HISTORICAL      HISTORICAL    ADJUSTMENTS     COMBINED      COMBINED
                                            ------------   -------------   ------------   -----------   ------------   ----------
<S>                                         <C>            <C>             <C>            <C>           <C>            <C>
Net sales.................................    $805,281      $ 1,001,042      $348,915      $ (12,864)     $(42,618)    $2,099,756
Cost of goods sold........................     560,511          703,838       258,720        (11,236)      (33,113)     1,478,720
                                              --------       ----------      --------       --------      --------     ----------
  Gross margin............................     244,770          297,204        90,195         (1,628)       (9,505)       621,036
Operating and administrative expenses.....     176,296          257,416        84,494         (2,288)      (11,368)       504,550
Depreciation and amortization expense.....      19,477           17,748         2,739           (200)        7,425         47,189
                                              --------       ----------      --------       --------      --------     ----------
  Income from operations..................      48,997           22,040         2,962            860        (5,562)        69,297
Interest expense..........................       9,238            3,160         1,682                       19,270         33,350
Amortization of deferred financing
  costs...................................         185                                                                        185
                                              --------       ----------      --------       --------      --------     ----------
  Income before income taxes and
    extraordinary charge..................      39,574           18,880         1,280            860       (24,832)        35,762
Provision (benefit) for income taxes......      14,156            8,917           442            292        (7,590)        16,217
                                              --------       ----------      --------       --------      --------     ----------
  Income before extraordinary charge......    $ 25,418      $     9,963      $    838      $     568      $(17,242)    $   19,545
                                              ========       ==========      ========       ========      ========     ==========
  Income before extraordinary charge per
    share of common stock.................    $   1.71                                                                 $     0.93
                                              ========                                                                 ==========
  Weighted average common shares
    outstanding...........................      14,888                                                       6,080         20,968
                                              ========                                                    ========     ==========
</TABLE>
 
     The unaudited pro forma condensed combined statement of operations gives
effect to the following significant pro forma adjustments: (i) the elimination
of certain assets and liabilities of KUI, primarily related to non-grocery
operations, and the elimination of sales and certain expenses attributable to
those assets and liabilities, which were spun off by KUI prior to its
acquisition by QFC; (ii) the adjustment for additional depreciation and
amortization expense resulting from the allocations of the purchase prices for
KUI and Hughes to the assets acquired, including an increase in property, plant,
and equipment, leasehold interest, and identifiable intangible assets to their
estimated fair market values and the recording of goodwill associated with
 
                                       142
<PAGE>   151
 
                  THE FM/QFC MERGER AND FM/FOOD 4 LESS MERGER
 
                   NOTES TO THE UNAUDITED PRO FORMA CONDENSED
                  COMBINED STATEMENT OF OPERATIONS (CONTINUED)
                    FOR THE 52 WEEKS ENDED FEBRUARY 1, 1997
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
the acquisitions; (iii) the adjustment to interest expense associated with the
transaction financing and the corresponding adjustments to the amortization of
related financing fees; and (iv) the adjustment to the provision for income
taxes based upon a tax rate of 39% applied to the pro forma operating income
before income taxes adjusted for amortization of goodwill.
 
(4) To eliminate management fees paid by Food 4 Less.
 
(5) To increase depreciation and amortization expense for revaluation of
property and equipment in the amount of $9.1 million and increase amortization
of goodwill in the amount of $27.0 million as a result of the FM/Food 4 Less
Merger. The adjustment to depreciation and amortization expense assumes an
average useful life of acquired property and equipment of 11 years and the
adjustment to goodwill amortization assumes an amortization period for acquired
goodwill of 40 years.
 
(6) In connection with the FM/QFC Merger and FM/Food 4 Less Merger, Fred Meyer
intends to refinance and consolidate approximately $4,461 million of existing
indebtedness of Fred Meyer, QFC and Food 4 Less. See "Refinancing
Arrangements -- The FM/QFC Merger and FM/Food 4 Less Merger." The following
table reflects the pro forma adjustments to interest expense related to the
refinancing of certain debt:
 
<TABLE>
        <S>                                                             <C>
        Historical interest expense
          Fred Meyer -- historical pro forma..........................     $ 129,984
          QFC -- historical pro forma.................................        33,350
          Food 4 Less -- historical...................................       273,550
                                                                           ---------
                                                                             436,884
        Less: amount in historical pro forma statement of operations
          for refinanced debt.........................................      (382,174)
        Add: amounts for new facility and debt........................       358,572
                                                                           ---------
        Pro forma interest expense....................................     $ 413,282
                                                                           =========
</TABLE>
 
     The pro forma adjustment to interest expense assumes a weighted average
interest rate of 7.1% per annum. A 0.125% increase or decrease in the weighted
average interest rate would change pro forma interest expense by $6.4 million
for the 52 weeks ended February 1, 1997.
 
(7) To adjust for the change in amortization of deferred financing costs as a
result of the refinancing of certain Fred Meyer, Food 4 Less and QFC debt.
 
(8) The pro forma adjustment to the provision for income taxes is based upon a
tax rate of 39% applied to the pro forma income before income taxes adjusted for
amortization of goodwill. The following table presents a reconciliation of the
pro forma provision for income taxes:
 
<TABLE>
        <S>                                                                <C>
        Income before income taxes and extraordinary charge..............  $  54,282
        Non-deductible goodwill amortization.............................     90,528
                                                                           ---------
          Pro forma taxable income.......................................    144,810
        Pro forma effective tax rate.....................................         39%
                                                                           ---------
          Pro forma provision for income taxes...........................  $  56,476
                                                                           =========
</TABLE>
 
(9) All share and per share data has been adjusted to reflect a two-for-one
stock split of Fred Meyer Common Stock effected as a 100% stock dividend which
was effective September 30, 1997. An assumed (i) exchange ratio of 1.9 shares of
Fred Meyer Common Stock for each share of QFC Common Stock issued and
outstanding immediately prior to the FM/QFC Merger Effective Time in connection
with the FM/QFC
 
                                       143
<PAGE>   152
 
                  THE FM/QFC MERGER AND FM/FOOD 4 LESS MERGER
 
                   NOTES TO THE UNAUDITED PRO FORMA CONDENSED
                  COMBINED STATEMENT OF OPERATIONS (CONCLUDED)
                    FOR THE 52 WEEKS ENDED FEBRUARY 1, 1997
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
Merger and (ii) issuance of 22.5 million shares of Fred Meyer Common Stock in
connection with the FM/Food 4 Less Merger were used in preparing the pro forma
combined share and per share data. See "The FM/QFC Merger
Agreement -- Conversion of Shares" and "The FM/Food 4 Less Merger Agreement --
Conversion of Shares."
 
     The following table presents a reconciliation of the pro forma weighted
average number of shares outstanding used in calculating pro forma income per
share of common stock:
 
<TABLE>
        <S>                                                                  <C>
        Pro forma weighted average number of shares of QFC Common Stock
          outstanding as of December 28, 1996..............................    20,968
        Exchange ratio.....................................................       1.9
                                                                             --------
        Number of shares of Fred Meyer Common Stock issued in the FM/QFC
          Merger...........................................................    39,839
        Number of shares of Fred Meyer Common Stock issued in the FM/Food 4
          Less Merger......................................................    22,500
                                                                             --------
        Number of shares of Fred Meyer Common Stock issued in the FM/QFC
          Merger and FM/Food 4 Less Merger.................................    62,339
        Pro forma weighted average number of shares of Fred Meyer Common
          Stock outstanding as of February 1, 1997.........................    90,220
                                                                             --------
        Pro forma number of shares of Fred Meyer Common Stock outstanding
          after completion of the FM/QFC Merger and FM/Food 4 Less
          Merger...........................................................   152,559
                                                                             ========
</TABLE>
 
                                       144
<PAGE>   153
 
                  THE FM/QFC MERGER AND FM/FOOD 4 LESS MERGER
 
                     UNAUDITED PRO FORMA CONDENSED COMBINED
                            STATEMENT OF OPERATIONS
                    FOR THE 53 WEEKS ENDED FEBRUARY 3, 1996
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                        FRED MEYER               QFC
                                      53 WEEKS ENDED      FISCAL YEAR ENDED
                                     FEBRUARY 3, 1996     DECEMBER 30, 1995      PRO FORMA      PRO FORMA
                                        HISTORICAL           HISTORICAL         ADJUSTMENTS      COMBINED
                                     ----------------     -----------------     -----------     ----------
<S>                                  <C>                  <C>                   <C>             <C>
Net sales..........................     $3,422,718            $ 729,856                         $4,152,574
Cost of goods sold.................      2,442,222              512,910                          2,955,132
                                        ----------            ---------          --------       ----------
  Gross margin.....................        980,496              216,946                          1,197,442
Operating and administrative
  expenses.........................        784,684              157,999                            942,683
Depreciation and amortization
  expense..........................        107,385               16,170                            123,555
                                        ----------            ---------          --------       ----------
  Income from operations...........         88,427               42,777                            131,204
Interest expense...................         39,578                8,995                             48,573
Amortization of deferred financing
  costs............................                                 143                                143
Other charge.......................                               1,400                              1,400
                                        ----------            ---------          --------       ----------
  Income before income taxes and
     extraordinary charge..........         48,849               32,239                             81,088
Provision for income taxes.........         18,563               12,023                             30,586
                                        ----------            ---------          --------       ----------
  Income before extraordinary
     charge........................     $   30,286            $  20,216                         $   50,502
                                        ==========            =========          ========       ==========
  Income before extraordinary
     charge per share of common
     stock (1).....................     $     0.53            $    1.28                         $     0.58
                                        ==========            =========                         ==========
  Weighted average common shares
     outstanding (1)...............         56,666               15,830            14,247           86,743
                                        ==========            =========          ========       ==========
</TABLE>
 
---------------
 
(1) All share and per share data has been adjusted to reflect the two-for-one
    stock split of Fred Meyer Common Stock effected as a 100% stock dividend
    which was effective September 30, 1997. The number of shares of Fred Meyer
    Common Stock that will be issued in exchange for the outstanding shares of
    QFC Common Stock is based on an assumed exchange ratio of 1.9.
 
                                       145
<PAGE>   154
 
                  THE FM/QFC MERGER AND FM/FOOD 4 LESS MERGER
 
                     UNAUDITED PRO FORMA CONDENSED COMBINED
                            STATEMENT OF OPERATIONS
                    FOR THE 52 WEEKS ENDED JANUARY 28, 1995
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                      FRED MEYER
                                    52 WEEKS ENDED             QFC
                                      JANUARY 28,       FISCAL YEAR ENDED
                                         1995           DECEMBER 31, 1994       PRO FORMA       PRO FORMA
                                      HISTORICAL            HISTORICAL         ADJUSTMENTS       COMBINED
                                    ---------------     ------------------     ------------     ----------
<S>                                 <C>                 <C>                    <C>              <C>
Net sales.........................    $ 3,122,635            $575,879                           $3,698,514
Cost of goods sold................      2,254,488             404,412                            2,658,900
                                       ----------            --------             ------        ----------
  Gross margin....................        868,147             171,467                            1,039,614
Operating and administrative
  expenses........................        724,969             120,651                              845,620
Depreciation and amortization
  expense.........................         89,782              11,604                              101,386
Write-down of California assets...         15,978                                                   15,978
                                       ----------            --------             ------        ----------
  Income from operations..........         37,418              39,212                               76,630
Interest expense (income).........         25,857                (933)                              24,924
                                       ----------            --------             ------        ----------
  Income before income taxes and
     extraordinary charge.........         11,561              40,145                               51,706
Provision for income taxes........          4,393              13,768                               18,161
                                       ----------            --------             ------        ----------
  Income before extraordinary
     charge.......................    $     7,168            $ 26,377                           $   33,545
                                       ==========            ========             ======        ==========
  Income before extraordinary
     charge per share of common
     stock (1)....................    $      0.13            $   1.34                           $     0.35
                                       ==========            ========                           ==========
  Weighted average common shares
     outstanding (1)..............         57,250              19,656             17,690            94,596
                                       ==========            ========             ======        ==========
</TABLE>
 
---------------
 
(1) All share and per share data has been adjusted to reflect the two-for-one
    stock split of Fred Meyer Common Stock effected as a 100% stock dividend
    which was effective September 30, 1997. The number of shares of Fred Meyer
    Common Stock that will be issued in exchange for the outstanding shares of
    QFC Common Stock is based on an assumed exchange ratio of 1.9.
 
                                       146
<PAGE>   155
 
                               THE FM/QFC MERGER
 
          UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
 
     The following unaudited pro forma condensed combined financial statements
of Fred Meyer give effect to the FM/QFC Merger (and not the FM/Food 4 Less
Merger) as if such transaction occurred as of January 30, 1994 with respect to
the unaudited pro forma condensed combined statements of operations for the
fiscal years ended January 28, 1995, February 3, 1996, and February 1, 1997 and
the 40 weeks ended November 8, 1997, and as of November 8, 1997 with respect to
the unaudited pro forma condensed combined balance sheet. In addition, the
unaudited pro forma condensed combined financial statements give effect to
refinancing certain Fred Meyer and QFC debt, as if such refinancing occurred as
of February 4, 1996 with respect to the unaudited pro forma condensed statements
of operations for the fiscal year ended February 1, 1997 and the 40 weeks ended
November 8, 1997, and as of November 8, 1997 with respect to the unaudited pro
forma condensed combined balance sheet. Such pro forma information includes: (i)
the historical results of operations of Fred Meyer for fiscal years ended
January 28, 1995 and February 3, 1996, and the historical balance sheet of Fred
Meyer as of November 8, 1997; (ii) the pro forma results of operations of Fred
Meyer for the fiscal year ended February 1, 1997 and the 40 weeks ended November
8, 1997; (iii) the historical results of operations of QFC for fiscal years
ended December 31, 1994 and December 30, 1995, and the historical balance sheet
of QFC as of September 6, 1997; and (iv) the pro forma results of operations of
QFC for the fiscal year ended December 28, 1996 and the 36 weeks ended September
6, 1997. The Fred Meyer and QFC pro forma results of operations includes
adjustments for acquisitions made by both Fred Meyer and QFC during the most
recent fiscal year and interim period presented as if such acquisitions occurred
at the beginning of the most recent fiscal year presented.
 
     The FM/QFC Merger will be accounted for as a pooling-of-interests. Under
the pooling-of-interests method of accounting, the recorded assets and
liabilities of Fred Meyer and QFC will be carried forward to Fred Meyer's
consolidated financial statements at their historical amounts and the
consolidated earnings of Fred Meyer will include the earnings of Fred Meyer and
QFC for the entire fiscal year in which the FM/QFC Merger occurs and for all
prior years presented and the reported retained earnings of Fred Meyer and QFC
for prior periods will be combined and restated as consolidated retained
earnings of Fred Meyer.
 
     The unaudited pro forma condensed combined financial statements are not
necessarily indicative of either future results of operations or results that
might have been achieved if the FM/QFC Merger had been consummated as of the
indicated dates. The unaudited pro forma condensed combined financial statements
should be read in conjunction with the historical consolidated financial
statements of Fred Meyer and QFC, together with the related notes thereto, which
are incorporated by reference in this Joint Proxy and Consent Solicitation
Statement/Prospectus.
 
     The unaudited pro forma condensed combined statements of operations
included herein do not reflect an extraordinary charge of approximately $6.3
million (net of taxes) relating to refinancing certain debt. The unaudited pro
forma condensed combined statements of operations also do not reflect
approximately $20 million, $25 million, $30 million and $30 million in
annualized operating savings that management of Fred Meyer believes are
achievable by the end of 1998, 1999, 2000 and 2001, respectively.
 
                                       147
<PAGE>   156
 
                               THE FM/QFC MERGER
 
              UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
                                NOVEMBER 8, 1997
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                           FRED MEYER                QFC                                             ADJUSTMENTS       ADJUSTED
                        NOVEMBER 8, 1997      SEPTEMBER 6, 1997       PRO FORMA        PRO FORMA         FOR           PRO FORMA
                           HISTORICAL             HISTORICAL         ADJUSTMENTS       COMBINED      REFINANCING       COMBINED
                       -------------------   --------------------   -------------     -----------   -------------     -----------
<S>                    <C>                   <C>                    <C>               <C>           <C>               <C>
                                                             ASSETS
CURRENT ASSETS:
  Cash and cash
    equivalents......      $   117,375            $   90,088          $ (38,000)(1)   $  169,463      $  38,000(1)    $  207,463
  Trade and other
    receivables......          100,191                25,324                             125,515                         125,515
  Inventories........        1,200,557               119,021                           1,319,578                       1,319,578
  Prepaid expenses
    and other........           52,207                17,203                              69,410                          69,410
  Deferred tax
    assets...........           81,610                                   14,820(2)        96,430          3,997(2)       100,427
  Assets held for
    sale.............            9,721                                                     9,721                           9,721
                            ----------            ----------           --------       ----------       --------       ----------
    TOTAL CURRENT
      ASSETS.........        1,561,661               251,636            (23,180)       1,790,117         41,997        1,832,114
PROPERTY AND
  EQUIPMENT, NET.....        1,941,983               501,779                           2,443,762                       2,443,762
OTHER ASSETS:
  Goodwill, net......        1,026,514               226,133                           1,252,647                       1,252,647
  Deferred financing
    costs, net.......            9,313                 6,145                              15,458         17,000(1)
                                                                                                        (10,249)(2)       22,209
  Other..............           33,790                39,571                              73,361                          73,361
                            ----------            ----------           --------       ----------       --------       ----------
    TOTAL ASSETS.....      $ 4,573,261            $1,025,264          $ (23,180)      $5,575,345      $  48,748       $5,624,093
                            ==========            ==========           ========       ==========       ========       ==========

                                              LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable
    and outstanding
    checks...........      $   830,429            $   86,600                          $  917,029                      $  917,029
  Current portion of
    long-term debt
    and capital
    leases...........            3,364                 8,377                              11,741      $    --(1)          11,741
  Income taxes
    payable..........                                  8,878                               8,878                           8,878
  Accrued
    compensation.....          140,305                42,044                             182,349                         182,349
  Other accrued
    expenses.........          191,715                47,567                             239,282                         239,282
                            ----------            ----------           --------       ----------       --------       ----------
    TOTAL CURRENT
      LIABILITIES....        1,165,813               193,466                           1,359,279                       1,359,279
LONG-TERM DEBT, less
  current
  maturities.........        1,900,504               392,708                           2,293,212         55,000(1)     2,348,212
CAPITAL LEASE
  OBLIGATIONS, less
  current portion....           53,238                28,980                              82,218                          82,218
DEFERRED INCOME
  TAXES..............           23,150                57,154                              80,304                          80,304
OTHER LONG-TERM
  LIABILITIES........          145,531                18,156                             163,687                         163,687
    TOTAL
      STOCKHOLDERS'
      EQUITY.........        1,285,025               334,800          $ (23,180)(2)    1,596,645         (6,252)(2)    1,590,393
                            ----------            ----------           --------       ----------       --------       ----------
    TOTAL LIABILITIES
      AND
      STOCKHOLDERS'
      EQUITY.........      $ 4,573,261            $1,025,264          $ (23,180)      $5,575,345      $  48,748       $5,624,093
                            ==========            ==========           ========       ==========       ========       ==========
</TABLE>
 
               See The FM/QFC Merger Notes to Unaudited Pro Forma
                       Condensed Combined Balance Sheet.
 
                                       148
<PAGE>   157
 
                               THE FM/QFC MERGER
 
                NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
                                 BALANCE SHEET
                                 (IN THOUSANDS)
 
(1) The net effect on cash and cash equivalents of the FM/QFC Merger and
concurrent debt refinancing reflects the following:
 
<TABLE>
        <S>                                                                <C>
        TOTAL SOURCES:
          FM/QFC Facility................................................  $2,030,000
                                                                           ----------
                                                                           $2,030,000
                                                                           ==========
        TOTAL USES:
          Fred Meyer Credit Facility.....................................  $1,770,000
          QFC Credit Facility............................................     205,000
          Financing fees.................................................      17,000
          Other fees and expenses........................................      38,000
                                                                           ----------
                                                                           $2,030,000
                                                                           ==========
</TABLE>
 
(2) Represents the net change in stockholders' equity as a result of the FM/QFC
Merger and concurrent refinancing of certain Fred Meyer and QFC debt:
 
<TABLE>
        <S>                                                                 <C>
        Write-off of Fred Meyer historical deferred financing costs, net
          of tax of $1,755................................................  $ (2,745)
        Write-off of QFC historical deferred financing cost, net of tax of
          $2,242..........................................................    (3,507)
        Merger fees and expenses, net of tax of $14,820...................   (23,180)
                                                                             -------
        Combined pro forma adjustments to stockholders' equity............  $(29,432)
                                                                             =======
</TABLE>
 
                                       149
<PAGE>   158
 
                               THE FM/QFC MERGER
 
                     UNAUDITED PRO FORMA CONDENSED COMBINED
                            STATEMENT OF OPERATIONS
                    FOR THE 40 WEEKS ENDED NOVEMBER 8, 1997
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                     FRED MEYER             QFC
                                   40 WEEKS ENDED      36 WEEKS ENDED
                                  NOVEMBER 8, 1997   SEPTEMBER 6, 1997                                 ADJUSTMENTS      ADJUSTED
                                     PRO FORMA           PRO FORMA         PRO FORMA      PRO FORMA        FOR         PRO FORMA
                                    COMBINED (1)        COMBINED (2)      ADJUSTMENTS      COMBINED    REFINANCING      COMBINED
                                  ----------------   ------------------   -----------     ----------   -----------     ----------
<S>                               <C>                <C>                  <C>             <C>          <C>             <C>
Net sales.......................     $5,471,428          $1,468,001                       $6,939,429                   $6,939,429
Cost of goods sold..............      3,934,892           1,022,806                        4,957,698                    4,957,698
                                     ----------          ----------         --------      ----------     --------      ----------
  Gross margin..................      1,536,536             445,195                        1,981,731                    1,981,731
Operating and administrative
  expenses......................      1,115,345             344,136                        1,459,481                    1,459,481
Depreciation and amortization
  expense.......................        185,886              33,934                          219,820                      219,820
                                     ----------          ----------         --------      ----------     --------      ----------
  Income from operations........        235,305              67,125                          302,430                      302,430
Interest expense................         98,089              21,633                          119,722    $  11,888(4)      131,610
Amortization of deferred
  financing costs...............          1,092                 430                            1,522        1,430(5)        2,952
                                     ----------          ----------         --------      ----------     --------      ----------
  Income before income taxes and
    extraordinary charge........        136,124              45,062                          181,186      (13,318)        167,868
Provision for income taxes......         60,862              18,747                           79,609       (5,194)(6)      74,415
                                     ----------          ----------         --------      ----------     --------      ----------
  Income before extraordinary
    charge......................     $   75,262          $   26,315                       $  101,577    $  (8,124)     $   93,453
                                     ==========          ==========         ========      ==========     ========      ==========
  Income before extraordinary
    charge per share of common
    stock (3)...................     $     0.83          $     1.22                       $     0.77                   $     0.71
                                     ==========          ==========                       ==========                   ==========
  Weighted average common shares
    outstanding (3).............         90,422              21,573           19,416(7)      131,411                      131,411
                                     ==========          ==========         ========      ==========                   ==========
</TABLE>
 
               See The FM/QFC Merger Notes to Unaudited Pro Forma
                  Condensed Combined Statement of Operations.
 
                                       150
<PAGE>   159
 
                               THE FM/QFC MERGER
 
                     UNAUDITED PRO FORMA CONDENSED COMBINED
                            STATEMENT OF OPERATIONS
                    FOR THE 52 WEEKS ENDED FEBRUARY 1, 1997
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                    FRED MEYER              QFC
                                  52 WEEKS ENDED     FISCAL YEAR ENDED
                                 FEBRUARY 1, 1997    DECEMBER 28, 1996                                ADJUSTMENTS       ADJUSTED
                                     PRO FORMA           PRO FORMA        PRO FORMA      PRO FORMA        FOR          PRO FORMA
                                   COMBINED (1)        COMBINED (2)      ADJUSTMENTS      COMBINED    REFINANCING       COMBINED
                                 -----------------   -----------------   -----------     ----------   ------------     ----------
<S>                              <C>                 <C>                 <C>             <C>          <C>              <C>
Net sales......................     $ 6,742,523         $ 2,099,756                      $8,842,279                    $8,842,279
Cost of goods sold.............       4,928,596           1,478,720                       6,407,316                     6,407,316
                                     ----------          ----------         ------       ----------     --------       ----------
  Gross margin.................       1,813,927             621,036                       2,434,963                     2,434,963
Operating and administrative
  expenses.....................       1,293,941             504,550                       1,798,491                     1,798,491
Depreciation and amortization
  expense......................         232,345              47,189                         279,534                       279,534
                                     ----------          ----------         ------       ----------     --------       ----------
  Income from operations.......         287,641              69,297                         356,938                       356,938
Interest expense...............         129,984              33,350                         163,334     $ 17,800(4)       181,134
Amortization of deferred
  financing costs..............           1,664                 185                           1,849        2,086(5)         3,935
                                     ----------          ----------         ------       ----------     --------       ----------
  Income before income taxes
    and extraordinary charge...         155,993              35,762                         191,755      (19,886)         171,869
Provision for income taxes.....          74,512              16,217                          90,729       (7,756)(6)       82,973
                                     ----------          ----------         ------       ----------     --------       ----------
  Income before extraordinary
    charge.....................     $    81,481         $    19,545                      $  101,026     $(12,130)      $   88,896
                                     ==========          ==========         ======       ==========     ========       ==========
  Income before extraordinary
    charge per share of common
    stock (3)..................     $      0.90         $      0.93                      $     0.78                    $     0.68
                                     ==========          ==========                      ==========                    ==========
  Weighted average common
    shares outstanding (3).....          90,220              20,968         18,871(7)       130,059                       130,059
                                     ==========          ==========         ======       ==========                    ==========
</TABLE>
 
               See The FM/QFC Merger Notes to Unaudited Pro Forma
                  Condensed Combined Statement of Operations.
 
                                       151
<PAGE>   160
 
                               THE FM/QFC MERGER
 
                     UNAUDITED PRO FORMA CONDENSED COMBINED
                            STATEMENT OF OPERATIONS
                    FOR THE 53 WEEKS ENDED FEBRUARY 3, 1996
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                     FRED MEYER                QFC
                                   53 WEEKS ENDED       FISCAL YEAR ENDED
                                  FEBRUARY 3, 1996      DECEMBER 30, 1995       PRO FORMA         PRO FORMA
                                     HISTORICAL             HISTORICAL         ADJUSTMENTS         COMBINED
                                  -----------------     ------------------     ------------       ----------
<S>                               <C>                   <C>                    <C>                <C>
Net sales.......................     $ 3,422,718             $729,856                             $4,152,574
Cost of goods sold..............       2,442,222              512,910                              2,955,132
                                      ----------             --------             ------          ----------
  Gross margin..................         980,496              216,946                              1,197,442
Operating and administrative
  expenses......................         784,684              157,999                                942,683
Depreciation and amortization
  expense.......................         107,385               16,170                                123,555
                                      ----------             --------             ------          ----------
  Income from operations........          88,427               42,777                                131,204
Interest expense................          39,578                8,995                                 48,573
Amortization of deferred
  financing costs...............                                  143                                    143
Other charge....................                                1,400                                  1,400
                                      ----------             --------             ------          ----------
  Income before income taxes and
     extraordinary charge.......          48,849               32,239                                 81,088
Provision for income taxes......          18,563               12,023                                 30,586
                                      ----------             --------             ------          ----------
  Income before extraordinary
     charge.....................     $    30,286             $ 20,216                             $   50,502
                                      ==========             ========             ======          ==========
  Income before extraordinary
     charge per share of common
     stock (3)..................     $      0.53             $   1.28                             $     0.58
                                      ==========             ========                             ==========
  Weighted average common shares
     outstanding (3)............          56,666               15,830             14,247(7)           86,743
                                      ==========             ========             ======          ==========
</TABLE>
 
               See The FM/QFC Merger Notes to Unaudited Pro Forma
                  Condensed Combined Statement of Operations.
 
                                       152
<PAGE>   161
 
                               THE FM/QFC MERGER
 
                     UNAUDITED PRO FORMA CONDENSED COMBINED
                            STATEMENT OF OPERATIONS
                    FOR THE 52 WEEKS ENDED JANUARY 28, 1995
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                     FRED MEYER                QFC
                                   52 WEEKS ENDED       FISCAL YEAR ENDED
                                  JANUARY 28, 1995      DECEMBER 31, 1994       PRO FORMA         PRO FORMA
                                     HISTORICAL             HISTORICAL         ADJUSTMENTS         COMBINED
                                  -----------------     ------------------     ------------       ----------
<S>                               <C>                   <C>                    <C>                <C>
Net sales.......................     $ 3,122,635             $575,879                             $3,698,514
Cost of goods sold..............       2,254,488              404,412                              2,658,900
                                      ----------             --------             ------          ----------
  Gross margin..................         868,147              171,467                              1,039,614
Operating and administrative
  expenses......................         724,969              120,651                                845,620
Depreciation and amortization
  expense.......................          89,782               11,604                                101,386
Write-down of California
  assets........................          15,978                                                      15,978
                                      ----------             --------             ------          ----------
  Income from operations........          37,418               39,212                                 76,630
Interest expense (income).......          25,857                 (933)                                24,924
                                      ----------             --------             ------          ----------
  Income before income taxes and
     extraordinary charge.......          11,561               40,145                                 51,706
Provision for income taxes......           4,393               13,768                                 18,161
                                      ----------             --------             ------          ----------
  Income before extraordinary
     charge.....................     $     7,168             $ 26,377                             $   33,545
                                      ==========             ========             ======          ==========
  Income before extraordinary
     charge per share of common
     stock (3)..................     $      0.13             $   1.34                             $     0.35
                                      ==========             ========                             ==========
  Weighted average common shares
     outstanding (3)............          57,250               19,656             17,690(7)           94,596
                                      ==========             ========             ======          ==========
</TABLE>
 
               See The FM/QFC Merger Notes to Unaudited Pro Forma
                  Condensed Combined Statement of Operations.
 
                                       153
<PAGE>   162
 
                               THE FM/QFC MERGER
 
                NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
                            STATEMENT OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
(1) See note (1) to The FM/QFC Merger and FM/Food 4 Less Merger Unaudited Pro
Forma Condensed Combined Statement of Operations for the 40 weeks ended November
8, 1997 and the 52 weeks ended February 1, 1997.
 
(2) See note (3) to The FM/QFC Merger and FM/Food 4 Less Merger Unaudited Pro
Forma Condensed Combined Statement of Operations for the 36 weeks ended
September 6, 1997 and the fiscal year ended December 28, 1996.
 
(3) All share and per share data has been adjusted to reflect a two-for-one
split of Fred Meyer Common Stock effected as a 100% stock dividend which was
effective September 30, 1997.
 
(4) In connection with the FM/QFC Merger, Fred Meyer intends to refinance and
consolidate approximately $1,975 million of existing indebtedness of Fred Meyer
and QFC. See "Refinancing Arrangements -- The FM/QFC Merger." The following
table reflects the pro forma adjustments to interest expense related to the
refinancing of certain debt:
 
<TABLE>
<CAPTION>
                                                                             52 WEEKS ENDED
                                                         40 WEEKS ENDED       FEBRUARY 1,
                                                        NOVEMBER 8, 1997          1997
                                                        ----------------     --------------
        <S>                                             <C>                  <C>
        Historical interest expense
          Fred Meyer -- historical pro forma..........      $ 98,089            $129,984
          QFC -- historical pro forma.................        21,633              33,350
                                                            --------            --------
                                                             119,722             163,334
        Less: amount in historical pro forma statement
          of operations for refinanced debt...........       (93,468)           (132,659)
        Add: amounts for new facility and debt........       105,356             150,459
                                                            --------            --------
        Pro forma interest expense....................      $131,610            $181,134
                                                            ========            ========
</TABLE>
 
     The pro forma adjustment to interest expense assumes a weighted average
interest rate of 6.6% per annum. A 0.125% increase or decrease in the weighted
average interest rate would change pro forma interest expense by $2.0 million
and $2.8 million for the 40 weeks ended November 8, 1997 and the 52 weeks ended
February 1, 1997, respectively.
 
(5) To adjust for the change in amortization of deferred financing costs as a
result of the refinancing of certain Fred Meyer and QFC debt.
 
(6) The pro forma adjustment to the provision for income taxes is based upon a
tax rate of 39% applied to the pro forma income before income taxes.
 
(7) An assumed exchange ratio of 1.9 shares of Fred Meyer Common Stock for each
share of QFC Common Stock issued and outstanding immediately prior to the FM/QFC
Merger Effective Time in connection with the FM/QFC Merger was used in preparing
the pro forma share and per share data. See "The FM/QFC Merger
Agreement -- Conversion of Shares."
 
                                       154
<PAGE>   163
 
                           THE FM/FOOD 4 LESS MERGER
 
                     UNAUDITED PRO FORMA CONDENSED COMBINED
                              FINANCIAL STATEMENTS
 
     The following unaudited pro forma condensed combined financial statements
of Fred Meyer give effect to the FM/Food 4 Less Merger (but not the FM/QFC
Merger) and the refinancing of certain Fred Meyer and Food 4 Less debt as if
such transactions occurred as of February 4, 1996 with respect to the unaudited
pro forma condensed combined statements of operations for the fiscal year ended
February 1, 1997 and the 40 weeks ended November 8, 1997, and as of November 8,
1997 with respect to the unaudited pro forma condensed combined balance sheet.
Such pro forma information includes: (i) the historical balance sheet of Fred
Meyer as of November 8, 1997; (ii) the pro forma results of operations of Fred
Meyer for the fiscal year ended February 1, 1997 and the 40 weeks ended November
8, 1997; (iii) the historical balance sheet of Food 4 Less as of October 12,
1997; and (iv) the historical results of operations of Food 4 Less for the
fiscal year ended February 2, 1997 and the 36 weeks ended October 12, 1997. The
Fred Meyer pro forma results of operations includes adjustments for an
acquisition made by Fred Meyer during the interim period presented as if such
acquisition occurred as of the beginning of the most recent fiscal year
presented.
 
     The FM/Food 4 Less Merger will be accounted for as a purchase of Food 4
Less by Fred Meyer. Under purchase accounting, the purchase price will be
allocated to assets acquired and liabilities assumed based on their estimated
fair values. The adjustments included in the unaudited pro forma condensed
combined financial statements represent a preliminary determination of these
adjustments based upon available information. The purchase price is expected to
exceed the fair value of the net assets acquired. This difference has been
allocated to goodwill which will be amortized over 40 years. Such allocations
are subject to final determination based on real estate, leasehold and equipment
valuation studies and a review of the books, records and accounting policies of
Food 4 Less. These studies are expected to be completed before the end of the
1998 fiscal year. Accordingly, the final allocations will be different from the
amount reflected herein.
 
     The unaudited pro forma condensed combined financial statements are not
necessarily indicative of either future results of operations or results that
might have been achieved if the FM/Food 4 Less Merger had been consummated as of
the indicated dates. The unaudited pro forma condensed combined financial
statements should be read in conjunction with the historical consolidated
financial statements of Fred Meyer and Food 4 Less, together with the related
notes thereto, which are incorporated by reference in this Joint Proxy and
Consent Solicitation Statement/Prospectus.
 
     The unaudited pro forma condensed combined statements of operations
included herein do not reflect an extraordinary charge of approximately $205
million (net of taxes) relating to refinancing certain debt. The unaudited pro
forma condensed combined statements of operations also do not reflect
approximately $10 million and $15 million in annualized operating savings that
management of Fred Meyer believes are achievable by the end of 2000 and 2001,
respectively.
 
                                       155
<PAGE>   164
 
                           THE FM/FOOD 4 LESS MERGER
 
              UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
                                NOVEMBER 8, 1997
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                  FRED MEYER        FOOD 4 LESS
                                               NOVEMBER 8, 1997   OCTOBER 12, 1997    PRO FORMA        PRO FORMA
                                                  HISTORICAL         HISTORICAL      ADJUSTMENTS        COMBINED
                                               ----------------   ----------------   -----------       ----------
<S>                                            <C>                <C>                <C>               <C>
                                                     ASSETS
CURRENT ASSETS:
  Cash and cash equivalents..................     $  117,375         $   63,524      $       -- (1)    $  180,899
  Trade and other receivables................        100,191             46,130                           146,321
  Inventories................................      1,200,557            492,894          26,600 (2)     1,720,051
  Prepaid expenses and other.................         52,207             23,713                            75,920
  Deferred tax assets........................         81,610                            130,753 (3)       212,363
  Assets held for sale.......................          9,721                                                9,721
                                                  ----------         ----------      ----------        ----------
    TOTAL CURRENT ASSETS.....................      1,561,661            626,261         157,353         2,345,275
PROPERTY AND EQUIPMENT, NET..................      1,941,983          1,080,688         129,673 (2)     3,152,344
OTHER ASSETS:
  Goodwill, net..............................      1,026,514          1,286,560       1,081,926 (2)     3,395,000
  Deferred financing costs, net..............          9,313             50,764         (55,264) (3)
                                                                                         64,000 (1)        68,813
  Other......................................         33,790             32,495                            66,285
                                                  ----------         ----------      ----------        ----------
    TOTAL ASSETS.............................     $4,573,261         $3,076,768      $1,377,688        $9,027,717
                                                  ==========         ==========      ==========        ==========
 
                                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
 
CURRENT LIABILITIES:
  Accounts payable and outstanding checks....     $  830,429         $  302,081                        $1,132,510
  Current portion of long-term debt and
    capital leases...........................          3,364             38,456      $   (3,500) (1)       38,320
  Income taxes payable.......................                             1,929                             1,929
  Accrued compensation.......................        140,305            110,476                           250,781
  Other accrued expenses.....................        191,715            323,387                           515,102
                                                  ----------         ----------      ----------        ----------
    TOTAL CURRENT LIABILITIES................      1,165,813            776,329          (3,500)        1,938,642
LONG-TERM DEBT, less current maturities......      1,900,504          2,314,911         413,500 (1)     4,628,915
CAPITAL LEASE OBLIGATIONS, less current
  portion....................................         53,238            133,177                           186,415
DEFERRED INCOME TAXES........................         23,150             20,874          59,165 (2)       103,189
OTHER LONG-TERM LIABILITIES..................        145,531            252,488           4,568 (2)       402,587
    TOTAL STOCKHOLDERS' EQUITY (DEFICIT).....      1,285,025           (421,011)        903,955 (3)     1,767,969
                                                  ----------         ----------      ----------        ----------
    TOTAL LIABILITIES AND STOCKHOLDERS'
      EQUITY (DEFICIT).......................     $4,573,261         $3,076,768      $1,377,688        $9,027,717
                                                  ==========         ==========      ==========        ==========
</TABLE>
 
                      See The FM/Food 4 Less Merger Notes
            to Unaudited Pro Forma Condensed Combined Balance Sheet
 
                                       156
<PAGE>   165
 
                           THE FM/FOOD 4 LESS MERGER
 
         NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
                                 (IN THOUSANDS)
 
(1) The net effect on cash and cash equivalents of the FM/Food 4 Less Merger and
concurrent debt refinancing reflects the following:
 
<TABLE>
        <S>                                                                <C>
        TOTAL SOURCES:
          FM/Food 4 Less Credit Facility.................................  $3,516,000
          Fred Meyer Notes...............................................   1,000,000
                                                                           ----------
                                                                           $4,516,000
                                                                           ==========
        TOTAL USES:
          Fred Meyer Credit Facility.....................................  $1,770,000
          Food 4 Less Credit Facility....................................     710,000
          Food 4 Less Notes..............................................   1,626,000
          Debt repayment premiums........................................     280,000
          Financing fees.................................................      64,000
          Other fees and expenses........................................      66,000
                                                                           ----------
                                                                           $4,516,000
                                                                           ==========
</TABLE>
 
(2) The purchase cost and preliminary allocation of the excess of cost over the
net book value of the assets acquired in the FM/Food 4 Less Merger is as
follows. The market value of Fred Meyer Common Stock issued reflects 22.5
million shares multiplied by the average market price of Fred Meyer Common Stock
on the day Fred Meyer and Food 4 Less reached agreement on the purchase price
and the proposed FM/Food 4 Less Merger was announced and the three trading days
preceding and following the announcement date.
 
<TABLE>
        <S>                                                                <C>
        Market value of Fred Meyer Common Stock issued...................  $  687,455
        Transaction fees and expenses....................................      66,000
                                                                           ----------
          Total purchase cost............................................     753,455
        Book value of net asset acquired.................................    (421,011)
                                                                           ----------
          Excess of purchase cost over net book value of assets
             acquired....................................................  $1,174,466
                                                                           ==========
        Allocated to:
          Increase in value of inventory.................................  $   26,600
          Increase in value of property and equipment....................     129,673
          Food 4 Less historical net goodwill............................  (1,286,560)
          Adjust accrued pension and postretirement benefit obligation...      (4,568)
          Adjust deferred taxes for temporary differences (39% effective
             rate).......................................................     (59,165)
          Residual excess purchase cost..................................   2,368,486
                                                                           ----------
        Total allocation.................................................  $1,174,466
                                                                           ==========
</TABLE>
 
(3) Represents the net change in stockholders' equity as a result of the FM/Food
4 Less Merger and refinancing of certain Fred Meyer and Food 4 Less debt
concurrent with the FM/Food 4 Less Merger:
 
<TABLE>
        <S>                                                                <C>
        Issuance of Fred Meyer Common Stock in FM/Food 4 Less Merger.....  $ 687,455
        Elimination of Food 4 Less historical equity.....................    421,011
        Write-off of Fred Meyer historical deferred financing costs, net
          of tax of $1,755...............................................     (2,745)
        Write-off of Food 4 Less historical deferred financing costs, net
          of tax of $19,798..............................................    (30,966)
        Estimated premiums related to repayment of Food 4 Less debt, net
          of tax of $109,200.............................................   (170,800)
                                                                            --------
        Pro forma adjustment to stockholders' equity.....................  $ 903,955
                                                                            ========
</TABLE>
 
                                       157
<PAGE>   166
 
                           THE FM/FOOD 4 LESS MERGER
 
                     UNAUDITED PRO FORMA CONDENSED COMBINED
                            STATEMENT OF OPERATIONS
                    FOR THE 40 WEEKS ENDED NOVEMBER 8, 1997
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                            FRED MEYER
                                          40 WEEKS ENDED        FOOD 4 LESS
                                         NOVEMBER 8, 1997     36 WEEKS ENDED
                                            PRO FORMA        OCTOBER 12, 1997     PRO FORMA       PRO FORMA
                                           COMBINED (1)       HISTORICAL (2)     ADJUSTMENTS       COMBINED
                                        ------------------   -----------------   -----------      ----------
<S>                                     <C>                  <C>                 <C>              <C>
Net sales.............................      $5,471,428          $ 3,778,470                       $9,249,898
Cost of goods sold....................       3,934,892            2,962,209                        6,897,101
                                            ----------           ----------         -------       ----------
  Gross margin........................       1,536,536              816,261                        2,352,797
Operating and administrative
  expenses............................       1,115,345              557,604       $  (3,000)(3)    1,669,949
Depreciation and amortization
  expense.............................         185,886              121,047          27,107(4)       334,040
                                            ----------           ----------         -------       ----------
  Income from operations..............         235,305              137,610         (24,107)         348,808
Interest expense......................          98,089              187,122          (2,250)(5)      282,961
Amortization of deferred financing
  costs...............................           1,092                4,406           2,507(6)         8,005
                                            ----------           ----------         -------       ----------
  Income (loss) before income taxes
     and extraordinary charge.........         136,124              (53,918)        (24,364)          57,842
Provision for income taxes............          60,862                              (13,478)(7)       47,384
                                            ----------           ----------         -------       ----------
  Income (loss) before extraordinary
     charge...........................      $   75,262          $   (53,918)      $ (10,886)      $   10,458
                                            ==========           ==========         =======       ==========
  Income before extraordinary charge
     per share of common stock(8).....      $     0.83                                            $     0.09
                                            ==========                                            ==========
  Weighted average common shares
     outstanding(8)...................          90,422                               22,500(8)       112,922
                                            ==========                              =======       ==========
</TABLE>
 
                      See The FM/Food 4 Less Merger Notes
       to Unaudited Pro Forma Condensed Combined Statement of Operations.
 
                                       158
<PAGE>   167
 
                           THE FM/FOOD 4 LESS MERGER
 
                     UNAUDITED PRO FORMA CONDENSED COMBINED
                            STATEMENT OF OPERATIONS
                    FOR THE 52 WEEKS ENDED FEBRUARY 1, 1997
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                          FRED MEYER
                                        52 WEEKS ENDED        FOOD 4 LESS
                                       FEBRUARY 1, 1997     53 WEEKS ENDED
                                           PRO FORMA       FEBRUARY 2, 1997       PRO FORMA       PRO FORMA
                                         COMBINED (1)       HISTORICAL (2)       ADJUSTMENTS      COMBINED
                                       -----------------   -----------------     -----------     -----------
<S>                                    <C>                 <C>                   <C>             <C>
Net sales............................     $ 6,742,523         $ 5,516,259                        $12,258,782
Cost of goods sold...................       4,928,596           4,270,538                          9,199,134
                                           ----------          ----------          --------      -----------
  Gross margin.......................       1,813,927           1,245,721                          3,059,648
Operating and administrative
  expenses...........................       1,293,941             910,740         $  (4,000)(3)    2,200,681
Depreciation and amortization
  expense............................         232,345             180,344            36,143(4)       448,832
                                           ----------          ----------          --------      -----------
  Income from operations.............         287,641             154,637           (32,143)         410,135
Interest expense.....................         129,984             273,550            (8,723)(5)      394,811
Amortization of deferred financing
  costs..............................           1,664              10,667            (1,658)(6)       10,673
                                           ----------          ----------          --------      -----------
  Income (loss) before income taxes
     and extraordinary charge........         155,993            (129,580)          (21,762)           4,651
Provision for income taxes...........          74,512                               (39,597)(7)       34,915
                                           ----------          ----------          --------      -----------
  Income (loss) before extraordinary
     charge..........................     $    81,481         $  (129,580)           17,835      $   (30,264)
                                           ==========          ==========          ========      ===========
  Income (loss) before extraordinary
     charge per share of common
     stock(8)........................     $      0.90                                            $     (0.27)
                                           ==========                                            ===========
  Weighted average common shares
     outstanding(8)..................          90,220                                22,500(8)       112,720
                                           ==========                              ========      ===========
</TABLE>
 
                      See The FM/Food 4 Less Merger Notes
       to Unaudited Pro Forma Condensed Combined Statement of Operations.
 
                                       159
<PAGE>   168
 
                           THE FM/FOOD 4 LESS MERGER
                NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
                            STATEMENT OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
(1) See note (1) to The FM/QFC Merger and FM/Food 4 Less Merger Unaudited Pro
Forma Condensed Combined Statement of Operations for the 40 weeks ended November
8, 1997 and the 52 weeks ended February 1, 1997.
 
(2) Certain reclassifications were made to Food 4 Less historical information to
conform with the Fred Meyer presentation.
 
(3) To eliminate management fees paid by Food 4 Less.
 
(4) To increase depreciation and amortization expense for revaluation of
property and equipment and increase amortization of goodwill as a result of the
FM/Food 4 Less Merger as presented in the following table. The adjustment to
depreciation and amortization expense assumes an average useful life of acquired
property and equipment of 11 years and the adjustment to goodwill amortization
assumes an amortization period for acquired goodwill of 40 years.
 
<TABLE>
<CAPTION>
                                                                             52 WEEKS ENDED
                                                        40 WEEKS ENDED        FEBRUARY 1,
                                                       NOVEMBER 8, 1997           1997
                                                       -----------------     --------------
        <S>                                            <C>                   <C>
        Depreciation and amortization:
          Increase in depreciation for revaluation of
             property, plant and equipment...........       $ 6,821             $  9,095
          Increase in amortization of goodwill.......        20,286               27,048
                                                            -------              -------
                                                            $27,107             $ 36,143
                                                            =======              =======
</TABLE>
 
(5) In connection with the FM/Food 4 Less Merger, Fred Meyer intends to
refinance and consolidate approximately $4,106 million of existing indebtedness
of Fred Meyer and Food 4 Less. See "Refinancing Arrangements -- The FM/Food 4
Less Merger." The following table reflects the pro forma adjustments to interest
expense related to the refinancing of certain debt:
 
<TABLE>
<CAPTION>
                                                        40 WEEKS ENDED        52 WEEKS ENDED
                                                       NOVEMBER 8, 1997      FEBRUARY 1, 1997
                                                       -----------------     -----------------
        <S>                                            <C>                   <C>
        Historical interest expense:
          Fred Meyer -- historical pro forma.........      $  98,089             $ 129,984
          Food 4 Less -- historical..................        187,122               273,550
                                                           ---------             ---------
                                                             285,211               403,534
        Less: amount in historical pro forma
          statement of operations for refinanced
          debt.......................................       (249,401)             (357,016)
        Add: amounts for new facility and debt.......        247,151               348,293
                                                           ---------             ---------
        Pro forma interest expense...................      $ 282,961             $ 394,811
                                                           =========             =========
</TABLE>
 
     The pro forma adjustment to interest expense assumes a weighted average
interest rate of 7.5% per annum. A 0.125% increase or decrease in the weighted
average interest rate would change pro forma interest expense by $4.3 million
and $5.9 million for the 40 weeks ended November 8, 1997 and the 52 weeks ended
February 1, 1997, respectively.
 
(6) To adjust for the change in amortization of deferred financing costs as a
result of the refinancing of certain Fred Meyer and Food 4 Less debt.
 
                                       160
<PAGE>   169
 
                           THE FM/FOOD 4 LESS MERGER
                NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
                      STATEMENT OF OPERATIONS (CONCLUDED)
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
(7) The pro forma adjustment to the provision for income taxes is based upon a
tax rate of 39% applied to the pro forma income before income taxes adjusted for
amortization of goodwill. The following table presents a reconciliation of the
pro forma provision for income taxes:
 
<TABLE>
<CAPTION>
                                                        40 WEEKS ENDED        52 WEEKS ENDED
                                                          NOVEMBER 8,           FEBRUARY 1,
                                                             1997                  1997
                                                       -----------------     -----------------
        <S>                                            <C>                   <C>
        Income before income taxes and extraordinary
          charge.....................................      $  57,842              $ 4,651
        Non-deductible goodwill amortization.........         63,656               84,875
                                                            --------              -------
          Pro forma taxable income...................        121,498               89,526
        Effective tax rate...........................             39%                  39%
                                                            --------              -------
          Pro forma provision for income taxes.......      $  47,384              $34,915
                                                            ========              =======
</TABLE>
 
(8) All share and per share data has been adjusted to reflect a two-for-one
split of Fred Meyer Common Stock effected as a 100% stock dividend which was
effective September 30, 1997. An assumed issuance of 22.5 million shares of Fred
Meyer Common Stock in connection with the FM/Food 4 Less Merger was used in
preparing the pro forma combined financial data. See "The FM/Food 4 Less Merger
Agreement -- Conversion of Shares."
 
                                       161
<PAGE>   170
 
                    COMPARATIVE MARKET PRICES AND DIVIDENDS
 
     The Fred Meyer Common Stock and the QFC Common Stock are listed on the NYSE
under the ticker symbols FMY and XQ, respectively. No public market exists for
any of Food 4 Less' capital stock.
 
     The table below sets forth, for the calendar quarters indicated, the
reported high and low sale prices of the Fred Meyer Common Stock and the QFC
Common Stock as reported on the NYSE Composite Transactions Reporting System, in
each case based on published financial sources.
 
<TABLE>
<CAPTION>
                                                   FRED MEYER                  QFC
                                                  COMMON STOCK            COMMON STOCK
                                                MARKET PRICE (1)          MARKET PRICE
                                                -----------------       -----------------
                                                 HIGH       LOW          HIGH       LOW
                                                ------     ------       ------     ------
        <S>                                     <C>        <C>          <C>        <C>
        1996
          First Quarter.......................  $14.94     $10.25       $24.50     $20.00
          Second Quarter......................   16.00      13.50        29.50      23.75
          Third Quarter.......................   16.88      13.06        35.63      25.75
          Fourth Quarter......................   18.81      14.94        39.75      32.75
        1997
          First Quarter.......................  $21.00     $16.19       $42.50     $33.25
          Second Quarter......................   25.94      19.06        43.50      36.25
          Third Quarter.......................   28.97      25.50        43.63      37.00
          Fourth Quarter......................   37.00      25.00        68.50      40.88
        1998
          First Quarter (through January 22,
             1998)............................  $36.63     $32.75       $68.25     $61.63
</TABLE>
 
---------------
 
(1) Price adjusted to reflect two-for-one stock split of Fred Meyer Common Stock
    effective on September 30, 1997.
 
     On November 6, 1997, the last trading day preceding the public announcement
of the proposed Mergers, the closing price on the NYSE Composite Transaction
Tape was $30.94 per share of Fred Meyer Common Stock and $51.63 per share of QFC
Common Stock. On January 22, 1998, the most recent practicable date prior to the
date of this Joint Proxy and Consent Solicitation Statement/Prospectus, the
closing price on the NYSE Composite Transaction Tape was $36.19 per share of
Fred Meyer Common Stock and $67.50 per share of QFC Common Stock. Stockholders
are urged to obtain current market quotations prior to making any decision with
respect to the Mergers.
 
                                       162
<PAGE>   171
 
                       COMPARISON OF STOCKHOLDERS' RIGHTS
 
     The following comparison of stockholders' rights is necessarily a summary
thereof and is subject, in all respects, and is qualified by reference to
Delaware law, Washington law and to the provisions of the Fred Meyer
Certificate, the bylaws of Fred Meyer (the "Fred Meyer Bylaws"), the Food 4 Less
Certificate, the Food 4 Less Bylaws, the QFC Charter and the QFC Bylaws.
 
     The rights of QFC's shareholders are governed by the QFC Charter, the QFC
Bylaws and the WBCA. The rights of Food 4 Less' stockholders are governed by the
Food 4 Less Certificate, Food 4 Less Bylaws and the DGCL. The rights of QFC
shareholders and Food 4 Less stockholders who become Fred Meyer stockholders
will be governed by the Fred Meyer Certificate, the Fred Meyer Bylaws and the
DGCL. The following is a summary comparison of certain differences between the
rights of QFC shareholders and Food 4 Less stockholders under the QFC Charter
and Bylaws and WBCA and the Food 4 Less Certificate and Bylaws and DGCL,
respectively, and the rights of Fred Meyer stockholders under the Fred Meyer
Certificate and Bylaws and DGCL.
 
     Certain differences, including all material differences, that may affect
the rights and interests of QFC shareholders and Fred Meyer and Food 4 Less
stockholders are set forth below.
 
COMPARISON OF RIGHTS OF HOLDERS OF QFC COMMON STOCK AND HOLDERS OF FRED MEYER
COMMON STOCK
 
     Fred Meyer is incorporated under the laws of the State of Delaware and,
accordingly, the rights of Fred Meyer's stockholders are governed by the Fred
Meyer Certificate, the Fred Meyer Bylaws and the DGCL. QFC is incorporated under
the laws of the State of Washington and, accordingly, the rights of QFC
shareholders are governed by the QFC Charter, the QFC Bylaws and the WBCA.
 
     Upon the consummation of the FM/QFC Merger, shareholders of QFC will become
stockholders of Fred Meyer, and, as such, their rights will be governed by the
Fred Meyer Certificate, the Fred Meyer Bylaws and the DGCL. The following is a
summary of material differences between the rights of a Fred Meyer stockholder
under the Fred Meyer Certificate and Bylaws and under the DGCL, on the one hand,
and the rights of a QFC shareholder under the QFC Charter and Bylaws and under
the WBCA, on the other hand.
 
     Number of Directors. Under the Fred Meyer Certificate, the Fred Meyer Board
is composed of between three and 15 directors, as fixed by the Fred Meyer Board
from time to time. The Fred Meyer Board now consists of 11 directors and will be
increased by two additional directors if the FM/QFC Merger is effected and by
two additional directors if the FM/Food 4 Less Merger is effected so that the
Fred Meyer Board would consist of 15 directors if both Mergers are effected. If
the proposed amendment to the Fred Meyer Certificate is approved at the Fred
Meyer Special Meeting, there will be no limitations in the Fred Meyer
Certificate on the size of the Fred Meyer Board.
 
     Under the QFC Bylaws, the QFC Board is comprised of between two and 10
directors, as determined by resolution from time to time of the QFC Board. The
QFC Board now consists of 10 directors.
 
     Classified Board of Directors. The Fred Meyer Certificate and Bylaws
provide for the Fred Meyer Board to be divided into three classes of directors,
with each class being as nearly equal in size as possible. At each annual
meeting of stockholders, one class is to be elected to a three-year term. The
QFC Charter provides for the QFC Board to be divided into three classes of
directors, with each class being as nearly equal in size as possible. At each
annual meeting, one class is to be elected to a three-year term.
 
     Removal of Directors. The Fred Meyer Certificate provides for the removal
of directors only for cause and only by the affirmative vote of the holders of
not less than 75% of the voting power of the outstanding shares of capital stock
of Fred Meyer entitled to vote generally in the election of directors cast at a
meeting of the stockholders called for that purpose.
 
     Under the QFC Charter, generally, a director of QFC can be removed prior to
the expiration of his or her term only for cause and by the affirmative vote of
the holders of a majority of the outstanding shares of QFC capital stock
entitled to vote generally in the election of directors at a meeting called
expressly for that purpose.
 
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<PAGE>   172
 
     Vacancies on the Board of Directors. Under the Fred Meyer Certificate and
Bylaws, vacancies on the Fred Meyer Board may be filled by the designee of a
majority of the directors then in office, even if less than a quorum. A director
so designated will hold office for a term coinciding with the term of the class
to which such director is elected and until his or her successor is elected and
qualified. Any vacancy not filled by the Fred Meyer Board will be filled by
election at an annual meeting or special meeting of stockholders called
expressly for that purpose.
 
     Under the QFC Bylaws, vacancies on the QFC Board may be filled by the
designee of a majority of the directors then in office, even if less than a
quorum. A director so designated will hold office until the next shareholders'
meeting at which directors are elected and until his or her successor is elected
and qualified.
 
     Liability of Directors. Both the WBCA and the DGCL allow charter documents
to eliminate or limit the personal liability of directors, with the WBCA giving
directors greater protection. Under the WBCA, a corporation's articles of
incorporation may not eliminate or limit the liability of a director for (i)
acts or omissions involving intentional misconduct or a knowing violation of
law, (ii) approval of certain distributions contrary to law or the articles of
incorporation, or (iii) any transaction from which the director personally
receives a benefit in money, property or services to which the director is not
legally entitled.
 
     The DGCL bars any elimination or limitation of director liability (a) where
a director has breached the duty of loyalty to the corporation or its
stockholders or (b) for acts or omissions not in good faith. Both of the QFC
Charter and the Fred Meyer Certificate provides for the limitation or
elimination of liability of directors to the fullest extent permitted by law.
 
     Indemnification of Directors and Officers. Although the DGCL, the Fred
Meyer Certificate and the Fred Meyer Bylaws, on the one hand, and the WBCA, the
QFC Charter and the QFC Bylaws, on the other hand, contain similar provisions
with respect to the indemnification of directors, officers, employees and agents
of Fred Meyer and QFC, respectively, there are significant differences in the
treatment of potential indemnitees who are successful on one or more but less
than all claims or issues in proceedings. The DGCL makes indemnification
mandatory to the extent that a person is wholly successful on the merits, or
otherwise, as to one or more, but less than all, claims or issues in a
proceeding. Thus, under the DGCL, an indemnitee may be entitled to partial
indemnification even if he or she is found liable for one or more counts of an
action if one or more of the other counts is dismissed. Under the WBCA, a person
is not entitled to mandatory indemnification unless he or she is wholly
successful on the merits, or otherwise, in the entire proceeding.
 
     In addition, under the DGCL and the Fred Meyer Certificate, a corporation
may indemnify its directors or officers for payments made in settlement of
derivative actions to the extent the directors or officers acted in good faith
and in a manner the director or officer believed to be in or not opposed to the
best interests of the corporation; provided, however, that no indemnification
shall be made if such officer or director is adjudged liable to the corporation
unless a court determines in view of all the circumstances of the case that such
officer or director is fairly and reasonably entitled to indemnify for expenses.
 
     Finally, the Fred Meyer Certificate provides that with respect to current
and former employees, indemnification is subject to the discretion of the Fred
Meyer Board (in contrast to mandatory indemnification for current and former
directors and officers).
 
     Payment of Dividends. Under the DGCL, dividends may be paid by Fred Meyer
either out of Fred Meyer's surplus (defined as the excess of the net assets of
the corporation over the stated capital of the corporation) or, if there is no
surplus, out of net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year (but directors may not declare and pay
dividends out of such net profits if the amount of capital of the corporation is
less than the aggregate amount of capital represented by the issued and
outstanding stock of all classes having preference upon the distribution of
assets).
 
     In accordance with the WBCA and the QFC Bylaws, dividends may be paid by
QFC at the discretion of the QFC Board only if, after giving effect to the
dividend, QFC will be able to pay its debts as they become due in the usual
course of business and QFC's total assets will not be less than the sum of its
total liabilities plus the amount that would be needed, if QFC were to be
dissolved at the time of the dividend, to satisfy the
 
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<PAGE>   173
 
preferential rights upon dissolution of shareholders whose preferential rights
are superior to those receiving the dividend.
 
     Stockholder Action by Written Consent. The Fred Meyer Certificate provides
that stockholder actions may only be taken at an annual or special meeting of
stockholders. In accordance with the WBCA, any action permitted or required to
be taken at a special or annual meeting of shareholders of QFC may be taken by
the written consent of such shareholders in lieu of a meeting but only if taken
by all the shareholders.
 
     Amendments of Certificate/Articles of Incorporation. The DGCL provides
that, unless a higher percentage is specified in a corporation's certificate of
incorporation, such certificate may be amended by the affirmative vote of the
holders of a majority of the outstanding shares of the corporation entitled to
vote thereon. The Fred Meyer Certificate provides that the provisions relating
to: (i) the classified Fred Meyer Board; (ii) the number of directors; (iii) the
filling of vacancies on the Fred Meyer Board; and (iv) the removal of directors,
may not be amended or repealed without the affirmative vote of the holders of
not less than 75% of the voting power of the outstanding shares of capital stock
of Fred Meyer entitled to vote generally in the election of directors cast at a
meeting of the stockholders called for that purpose.
 
     The WBCA authorizes a corporation's board of directors to make various
changes to the corporation's articles of incorporation, including changes of
corporate name, and, in the case of a corporation having only one class of
shares outstanding, changes in the number of authorized shares in order to
effectuate a stock split or stock dividend in the corporation's own shares and
changes to or elimination of provisions with respect to the par value of its
stock. In general, other amendments to a corporation's articles of incorporation
must be recommended to the shareholders by the board of directors (unless the
board determines that, because of a conflict of interest or other special
circumstances, it should make no recommendation), and approved by a majority of
all votes entitled to be cast by each voting group which has a right to vote on
such amendment, unless a higher percentage is specified in the WBCA, the
corporation's articles of incorporation or by the corporation's board of
directors. The QFC Charter may, in some cases, be amended by an affirmative vote
of a majority of the QFC Board and of holders of a majority of the outstanding
shares of capital stock of QFC entitled to vote generally in the election of
directors. In most cases, however, any amendment to the QFC Charter must also be
approved by a majority of the authorized members of the QFC Board or by an
affirmative vote of holders of 66 2/3% of the outstanding shares of capital
stock of QFC entitled to vote generally in the election of directors.
 
     Amendment of Bylaws. The Fred Meyer Certificate provides that the Fred
Meyer Bylaws may be altered, amended or repealed either by an affirmative vote
of the Fred Meyer Board or by an affirmative vote of the holders of a majority
of outstanding Fred Meyer Common Stock, except that the provisions relating to
advance notice of stockholder proposals and nominations for directors may only
be amended, altered, changed or repealed by the Fred Meyer Board or by the
affirmative vote of the holders of not less than 75% of the voting power of the
outstanding shares of capital stock of Fred Meyer entitled to vote generally at
an annual or special meeting of stockholders cast at a meeting of the
stockholders called for that purpose.
 
     The QFC Charter and Bylaws provide generally that the QFC Bylaws may be
amended, repealed or replaced by approval of the QFC Board; provided, however,
that any such Bylaws or any amendment or repeal may be subsequently changed or
repealed by the affirmative vote of the holders of a majority of the QFC capital
stock entitled to vote at any shareholders' meeting.
 
     Notice of Stockholders Proposals/Nominations of Directors. Under the Fred
Meyer Bylaws, for stockholders to properly introduce business to be transacted
at an annual meeting or any special meeting of stockholders, a stockholder of
record, on the date both of giving such notice and of determining stockholders
entitled to vote at the annual or special meeting, must give timely notice of
such proposal in a proper written form to Fred Meyer's corporate secretary, as
provided in the Fred Meyer Bylaws. To be timely, a stockholder's notice to the
secretary must be delivered to or mailed and received at Fred Meyer's principal
executive offices not more than 90 nor less than 60 days prior to the first
anniversary of the preceding year's annual meeting of stockholders, or, in the
case of a special meeting, not more than 90 nor less than the later of 60 days
prior to such special meeting or 10 days after the day on which a public
announcement is first made of the date of the special meeting; provided,
however, that in the event that the date of the annual meeting is more than 30
days
 
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<PAGE>   174
 
before or more than 60 days after such anniversary date of the preceding year's
annual meeting, notice by the stockholder to be timely must be so delivered not
more than 90 nor less than 60 days prior to such annual meeting or the 10th day
following the day on which public announcement of the date of such meeting is
first made by Fred Meyer.
 
     Under the QFC Charter, for a shareholder to properly introduce business to
be transacted at an annual meeting of shareholders, such shareholder must give
timely notice of such proposal in a proper written form to the corporate
secretary, as provided in the QFC Charter. To be timely, a shareholder's notice
to the secretary must be delivered to or mailed and received at QFC's principal
executive offices not less than 30 nor more than 60 days prior to the meeting as
originally scheduled, provided, however, that if less than 40 days notice or
prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made by QFC.
 
     Generally, the Fred Meyer Bylaws require that the stockholder's notice
include (i) as to any business that the stockholder proposes to bring before the
meeting, a brief description of the business, the reasons for conducting such
business and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (ii) as to
the stockholder giving notice and the beneficial owner, if any, on whose behalf
the proposal is made, (a) the name and address of such stockholder, as they
appear on Fred Meyer's books, and of such beneficial owner and (b) the class and
number of shares of Fred Meyer which are owned beneficially and of record by
such stockholder and such beneficial owner.
 
     Generally, the QFC Charter requires that a shareholder's notice include:
(i) as to any business that the shareholder proposes to bring before the
meeting, a brief description of the business and any material interest in such
business and (ii) as to the shareholder giving the notice, (a) the name and
address, as they appear on QFC's books, of such shareholder and (b) the class
and number of shares of QFC which are beneficially owned by such shareholder.
 
     The Fred Meyer Bylaws permit stockholders to nominate persons for election
to the Fred Meyer Board at any annual meeting of stockholders, or at any special
meeting if the Fred Meyer Board has determined that directors will be elected at
such meeting, if they are stockholders of record as of both the date of giving
such notice and the date of determining stockholders entitled to vote at the
annual or special meeting. A stockholder must give timely notice thereof in a
proper written form to the corporate secretary, as provided in the Fred Meyer
Bylaws. To be timely, the stockholder's notice must meet the same timeliness
requirements as described above for providing advance notice of business to be
transacted at a stockholders' meeting; provided, however, that if the number of
directors to be elected to the Fred Meyer Board is increased and there is no
public announcement by Fred Meyer naming all of the nominees for director or
specifying the size of the increased Fred Meyer Board at least 70 days prior to
the first anniversary of the preceding year's annual meeting, a stockholder's
notice shall also be considered timely, but only with respect to nominees for
any new positions created by such increase, if it is delivered to the secretary
at the principal executive offices of Fred Meyer not later than the 10th day
following the day on which such public announcement is first made by Fred Meyer.
 
     The QFC Charter permits shareholders entitled to vote for the election of
directors to nominate persons for election to the QFC Board at any annual
meeting. A shareholder must give timely notice thereof in a proper written form
to the corporate secretary, as provided in the QFC Charter. To be timely, the
notice must meet the same timeliness requirements as described above for
providing advance notice of business to be transacted at an annual meeting.
 
     Under the Fred Meyer Bylaws, to be in proper written form, a stockholder's
notice to the secretary relating to the nomination of directors must set forth
(i) as to each person whom the stockholder proposes to nominate for election or
reelection as a director, all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors
in an election contest, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and (ii) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination is made, (a) the name
and address of such stockholder, as they appear on Fred Meyer's
 
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books, and of such beneficial owner and (b) the class and number of shares of
Fred Meyer which are owned beneficially and of record by such stockholder and
such beneficial owner.
 
     Under the QFC Charter, to be in proper written form, a stockholder's notice
to the secretary relating to the nomination of directors must set forth (i) as
to each person whom the shareholder proposes to nominate for election or
reelection as a director, all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to the Exchange Act; (ii) the
name and address, as they appear on QFC's books, of such shareholder, and (iii)
the class and number of shares of QFC which are beneficially owned by such
shareholder.
 
     The notice to the secretary for each of Fred Meyer and QFC relating to the
nomination of directors must be accompanied by a written consent of each
proposed nominee to being named in the proxy statement as a nominee and to
serving as a director if elected.
 
     Calling of Special Meeting of Stockholders. The Fred Meyer Bylaws provide
that special meetings of the stockholders can only be called by the Chairman of
the Fred Meyer Board, the President or by the Chairman, President or Secretary
acting upon the direction of the Fred Meyer Board. The QFC Charter provides that
special meetings of shareholders can only be called by the QFC Board.
 
     Appraisal/Dissenters' Rights. Under the DGCL, appraisal rights are
generally available for the shares of any class or series of stock of a
corporation that is a party to a merger or consolidation. Unless the
corporation's certificate of incorporation provides otherwise (and the Fred
Meyer Certificate has no such provision), such appraisal rights are not
available in certain circumstances, including without limitation (a) the sale,
lease or exchange of all or substantially all of the assets of a corporation,
(b) the merger or consolidation of a corporation the shares of which are either
listed on a national securities exchange or on Nasdaq or are held of record by
more than 2,000 holders if such stockholders receive only shares of the
surviving corporation or shares of any other corporation which are either listed
on a national securities exchange or on Nasdaq or held of record by more than
2,000 holders, plus cash in lieu of fractional shares or (c) to stockholders of
a corporation surviving a merger if no vote of the stockholders of the surviving
corporation is required to approve the merger because the merger agreement does
not amend the existing certificate of incorporation, each share of the surviving
corporation outstanding prior to the merger is an identical outstanding or
treasury share after the merger, and the number of shares to be issued in the
merger does not exceed 20% of the shares of the surviving corporation
outstanding immediately prior to the merger and if certain other conditions are
met. Stockholders of Fred Meyer do not have appraisal rights in connection with
the FM/QFC Merger.
 
     Under the WBCA, shareholders of QFC generally have dissenters' rights in
connection with (i) a plan of merger to which QFC is a party; (ii) a plan of
share exchange to which QFC is a party as the corporation whose shares will be
acquired; (iii) certain sales or exchanges of all, or substantially all, of
QFC's property other than in the regular course of business; and (iv) amendments
to the QFC Charter effecting a material reverse stock split. However,
shareholders generally will not have such dissenters' rights if shareholder
approval is not required for the corporate action. Shareholders of QFC are
entitled to dissenters' rights in connection with the FM/QFC Merger. See "The
FM/QFC Merger -- Dissenters' Rights."
 
     Business Combination Statute. Each of the DGCL and the WBCA contains
provisions that may have the effect of delaying or discouraging a hostile
takeover of a corporation, although the statutes differ in certain respects. A
brief summary of such provisions follows. In addition, the QFC Charter generally
requires the affirmative vote of 66 2/3% of the outstanding shares of QFC
capital stock entitled to vote generally in the election of directors with
respect to certain transactions involving a holder of 5% or more of the
outstanding voting stock of QFC.
 
     Section 203 of the DGCL contains certain provisions which may have the
effect of delaying or discouraging a hostile takeover of Fred Meyer. With few
exceptions, the DGCL prohibits certain business combinations between a
corporation and a stockholder who owns 15% or more of a corporation's voting
securities (an "Interested Stockholder") during the three-year period after the
Interested Stockholder achieved such level of ownership. Although the DGCL
permits a corporation to opt out of the Interested
 
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Stockholder restrictions through a provision to such effect in the corporation's
certificate of incorporation, Fred Meyer has not elected to opt out of such
restrictions.
 
     The WBCA contains similar provisions that may have the effect of delaying
or discouraging a hostile takeover of QFC. Chapter 19 of the WBCA prohibits a
"Target Corporation" (as defined in the WBCA), with certain exceptions, from
engaging in certain significant business transactions with an "Acquiring Person"
(defined generally as a person who beneficially owns 10% or more of the
corporation's voting securities) for a period of five years after the Acquiring
Person achieved such level of ownership. The prohibited transactions include,
among others, a merger, share exchange or consolidation with, disposition of
assets to, or issuance, transfer or redemption of securities to, the Acquiring
Person, or a reclassification of securities that has the effect of increasing
the proportionate share of the outstanding securities held by the Acquiring
Person. In addition, under the WBCA, certain restrictions continue after the end
of the five year period. QFC, however, has expressly elected in the QFC Charter
not to be covered by such continuing restrictions.
 
     Merger, Sale of Assets. Under the DGCL and the Fred Meyer Certificate,
merger, dissolution or sale of all or substantially all the assets of Fred Meyer
must be approved by the holders of a majority of the outstanding stock of Fred
Meyer entitled to vote thereon.
 
     Under the WBCA, a merger, share exchange, dissolution or sale of all or
substantially all the assets of a corporation must be approved by each voting
group entitled to vote separately by 66 2/3% of all the votes entitled to be
cast, unless otherwise provided in the articles of incorporation. Under the
WBCA, a corporation may provide for a lesser vote, so long as the vote provided
to each voting group entitled to vote separately is not less than a majority of
all the votes to be cast. Consistent with the foregoing, the QFC Charter
contains a provision requiring majority approval of any merger, share exchange,
dissolution or sale of all or substantially all the assets involving QFC, except
with respect to certain business combinations involving a shareholder who owns
5% or more of the outstanding shares of QFC capital stock entitled to vote
generally in the election of directors, which require the affirmative vote of
66 2/3% of the outstanding shares of QFC capital stock entitled to vote
generally in the election of directors.
 
     Transactions With Officers or Directors. The DGCL, applicable to Fred
Meyer, provides that contracts or transactions between a corporation and one or
more of its officers or directors or an entity in which they have an interest is
not void or voidable solely because of such interest or the participation of the
director or officer in a meeting of the board or a committee which authorizes
the contract or transaction if (i) the material facts as to the relationship or
interest and as to the contract or transaction are disclosed or are known to the
board or the committee, and the board or committee in good faith authorizes the
contract or transaction by the affirmative vote of a majority of disinterested
directors, (ii) the material facts as to the relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by a vote of the stockholders, or (iii) the contract or
transaction is fair as to the corporation as of the time it is authorized,
approved or ratified by the board of directors, a committee thereof or the
stockholders.
 
     The WBCA, applicable to QFC, sets forth a safe harbor for transactions
between a corporation and one or more of its directors. A conflicting interest
transaction may not be enjoined, set aside or give rise to damages if (i) it is
approved by a majority, but no fewer than two, of the "qualified directors" on
the board of directors or a duly appointed committee of the board, (ii) it is
approved by the affirmative vote of a majority of all "qualified shares," or
(iii) at the time of the commitment, the transaction is established to have been
fair to the corporation. For the purposes of this provision, a "qualified
director" is one who does not have (a) a conflicting interest respecting the
transaction or (b) a familial, financial, professional or employment
relationship with a second director who does have a conflict of interest
respecting the transaction, which relationship would be reasonably expected to
exert an influence on the first director's judgment when voting on the
transaction. "Qualified shares" are defined generally as shares other than those
beneficially owned, or the voting of which is controlled, by a director who has
a conflicting interest respecting the transaction or a related person of such
director.
 
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COMPARISON OF RIGHTS OF HOLDERS OF FOOD 4 LESS COMMON STOCK AND HOLDERS OF FRED
MEYER COMMON STOCK
 
     The rights of Fred Meyer's stockholders are governed by the Fred Meyer
Certificate, the Fred Meyer Bylaws and the DGCL. The rights of Food 4 Less'
stockholders are governed by the Food 4 Less Certificate, the Food 4 Less Bylaws
and the DGCL. After the FM/Food 4 Less Merger Effective Time, the rights of Food
4 Less stockholders who become Fred Meyer stockholders will be governed by the
Fred Meyer Certificate, the Fred Meyer Bylaws and the DGCL. The following is a
summary comparison of certain differences between the rights of Fred Meyer and
Food 4 Less stockholders under the Fred Meyer Certificate and Bylaws and the
Food 4 Less Certificate and Bylaws, respectively.
 
     Number of Directors. The Fred Meyer Certificate provides that the Fred
Meyer Board will consist of between three and 15 members, the exact number to be
fixed by the Fred Meyer Board from time to time. Currently, the Fred Meyer Board
consists of 11 directors and will be increased by two additional directors if
the FM/QFC Merger is effected and by two additional directors if the FM/Food 4
Less Merger is effected. If the proposed amendment to the Fred Meyer Certificate
is approved at the Fred Meyer Special Meeting, there will be no limitations in
the Fred Meyer Certificate on the size of the Fred Meyer Board. The Food 4 Less
Bylaws provide that the number of directors which shall constitute the whole
Food 4 Less Board shall be nine.
 
     Classified Board of Directors. The Fred Meyer Certificate and Bylaws
provide for the Fred Meyer Board to be divided into three classes of directors,
with each class being as nearly equal in size as is possible. At each annual
meeting, one class is to be elected to a three-year term. The Food 4 Less Board
is not classified, and the Food 4 Less Bylaws provide that the directors shall
be elected at the annual meeting of the stockholders (or any special meeting of
the stockholders called for the purpose of electing directors).
 
     Removal of Directors. The Fred Meyer Certificate provides for the removal
of directors only for cause and only by the affirmative vote of the holders of
not less than 75% of the voting power of the outstanding shares of capital stock
of Fred Meyer entitled to vote generally in the election of directors cast at a
meeting of the stockholders called for that purpose. The Food 4 Less Bylaws
provide that, except as otherwise provided for in that certain Stockholders
Agreement, dated as of June 14, 1995, of Food 4 Less or restricted by the Food 4
Less Certificate or Bylaws, any or all directors may be removed, either with or
without cause, from the Food 4 Less Board at any meeting of stockholders by a
majority of the Food 4 Less Stock represented and entitled to vote thereat.
 
     Vacancies on the Board Of Directors. Under the Fred Meyer Certificate and
Bylaws, vacancies on the Fred Meyer Board may be filled by the designee of a
majority of the directors then in office, even if less than a quorum. A director
so designated will hold office for a term coinciding with the term of the class
to which such director is elected. The Food 4 Less Bylaws provide that, except
as otherwise provided for in that certain Stockholders Agreement, dated as of
June 14, 1995, of Food 4 Less, vacancies on the Food 4 Less Board by reason of
death, resignation, retirement, disqualification, removal from office or
otherwise, and newly created directorships resulting from any increase in the
authorized number of directors, may be filled by the designee of a majority of
the directors then in office, although less than a quorum, or by the designee of
a sole remaining director. The directors so chosen shall hold office until the
next annual election of directors and until their successors are duly elected,
unless sooner displaced.
 
     Stockholder Action by Written Consent. The Fred Meyer Certificate provides
that stockholder actions may only be taken at an annual or special meeting of
stockholders. The Food 4 Less Bylaws provide that any action required to be
taken at any annual or special meeting of stockholders of Food 4 Less, or any
action which may be taken at any annual or special meeting of such stockholders,
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted.
 
     Amendments of Certificate of Incorporation. The DGCL provides that, unless
a higher percentage is specified in a corporation's certificate of
incorporation, such certificate may be amended by the affirmative
 
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<PAGE>   178
 
vote of the holders of a majority of the outstanding shares of the corporation
entitled to vote thereon. The Fred Meyer Certificate provides that the
provisions thereof relating to: (i) the classified Fred Meyer Board, (ii) the
number of directors, (iii) the filling of vacancies on the Fred Meyer Board, and
(iv) the removal of directors, may not be amended or repealed without the
affirmative vote of the holders of not less than 75% of the voting power of the
outstanding shares of capital stock of Fred Meyer entitled to vote generally in
the election of directors cast at a meeting of the stockholders called for that
purpose. The Food 4 Less Certificate may, in general, be amended by an
affirmative vote of holders of shares of Food 4 Less Stock representing a
majority of the combined voting power of Food 4 Less Stock entitled to vote
generally thereon.
 
     Amendment of Bylaws. The Fred Meyer Certificate provides that the Fred
Meyer Bylaws can be altered, amended or repealed either by an affirmative vote
of the Fred Meyer Board or by an affirmative vote of the holders of a majority
of outstanding Fred Meyer Common Stock, except that Section 1.11 of the Bylaws
(relating to advance notice of stockholder proposals and nominations for
directors) can only be amended, altered, changed or repealed by the Fred Meyer
Board or by the affirmative vote of the holders of not less than 75% of the
voting power of the outstanding shares of capital stock of Fred Meyer entitled
to vote generally at an annual or special meeting of stockholders cast at a
meeting of the stockholders called for that purpose. The Food 4 Less Bylaws
provide that the Food 4 Less Bylaws may be altered, amended or repealed or new
Bylaws may be adopted by the stockholders or by the Food 4 Less Board at any
regular meeting of the stockholders or of the Food 4 Less Board or at any
special meeting of the stockholders or of the Food 4 Less Board if notice of
such alternation, amendment, repeal or adoption of new Bylaws be contained in
the notice of such special meeting.
 
     Notice of Stockholders Proposals/Nominations of Directors. Under the Fred
Meyer Bylaws, for stockholders to properly introduce business to be transacted
at the annual or any special meeting of stockholders, a stockholder of record,
on the date both of giving such notice and of determining stockholders entitled
to vote at the annual or special meeting, must give timely notice of such
proposal in a proper written form to Fred Meyer's corporate secretary, as
provided in the Fred Meyer Bylaws. To be timely, a stockholder's notice to the
secretary must be delivered to or mailed and received at Fred Meyer's principal
executive offices not more than 90 nor less than 60 days prior to the first
anniversary of the preceding year's annual meeting of stockholders, or, in the
case of a special meeting, not more than 90 nor less than the later of 60 days
prior to such special meeting or 10 days after the day on which a public
announcement is first made of the date of the special meeting; provided,
however, that in the event that the date of the annual meeting is more than 30
days before or more than 60 days after the first anniversary date of the
preceding year's annual meeting, notice by the stockholder to be timely must be
so delivered not more than 90 nor less than 60 days prior to such annual meeting
or the 10th day following the day on which public announcement of the date of
such meeting is first made by Fred Meyer.
 
     Generally, the Fred Meyer Bylaws require that a stockholder's notice
include: (i) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business, the reasons for
conducting such business and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (ii) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the proposal is made, (a) the name and address of such
stockholder, as they appear on Fred Meyer's books, and of such beneficial owner
and (b) the class and number of shares of Fred Meyer which are owned
beneficially and of record by such stockholder and such beneficial owner.
 
     The Fred Meyer Bylaws permit stockholders to nominate persons for election
to the Fred Meyer Board at any annual meeting of stockholders, or at any special
meeting if the Fred Meyer Board has determined that directors will be elected at
such meeting, if they are stockholders of record as of both the date of giving
such notice and the date of determining stockholders entitled to vote at the
annual or special meeting. A stockholder must give timely notice thereof in a
proper written form to the corporate secretary, as provided in the Fred Meyer
Bylaws. To be timely, the stockholder's notice must meet the same timeliness
requirements as described above for providing advance notice of business to be
transacted at a stockholders' meeting; provided, however, that if the number of
directors to be elected to the Fred Meyer Board is increased and there is no
public announcement by Fred Meyer naming all of the nominees for director or
specifying the size of the increased Fred Meyer Board at least 70 days prior to
the first anniversary of the preceding year's annual
 
                                       170
<PAGE>   179
 
meeting, a stockholder's notice shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it is
delivered to the secretary at the principal executive offices of Fred Meyer not
later than the 10th day following the day on which such public announcement is
first made by Fred Meyer.
 
     To be in proper written form, a stockholder's notice to the secretary must
set forth (a) as to each person whom the stockholder proposes to nominate for
election or reelection as a director, all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Exchange Act; and (b) as to the stockholder
giving the notice and the beneficial owner, if any, on whose behalf the
nomination is made, (i) the name and address of such stockholder, as they appear
on Fred Meyer's books, and of such beneficial owner and (ii) the class and
number of shares of Fred Meyer which are owned beneficially and of record by
such stockholder and such beneficial owner. Such notice must be accompanied by a
written consent of each proposed nominee to being named as a nominee and to
serving as a director if elected.
 
     The Food 4 Less Bylaws do not contain any similar advance notice
provisions.
 
     Calling of Special Meeting of Stockholders. The Fred Meyer Bylaws provide
that special meetings of the stockholders can only be called by the Chairman of
the Fred Meyer Board, the President or by the Chairman, President or Secretary
acting upon the direction of the Fred Meyer Board. The Food 4 Less Bylaws
provide that special meetings of stockholders, for any purpose or purposes, may
be called by the President and shall be called by the President or the Secretary
at the written request of a majority of the Food 4 Less Board, or at the request
in writing of stockholders owning a majority in amount of the entire capital
stock of the corporation issued and outstanding and entitled to vote.
 
                  PROPOSAL TO APPROVE AND ADOPT THE AMENDMENT
                  TO THE RESTATED CERTIFICATE OF INCORPORATION
                              OF FRED MEYER, INC.
 
     Pursuant to the FM/QFC Merger Agreement, the Fred Meyer Board will appoint
two designees of QFC to the Fred Meyer Board if the FM/QFC Merger becomes
effective. In addition, pursuant to the FM/Food 4 Less Merger Agreement, the
Fred Meyer Board will appoint two designees of Food 4 Less to the Fred Meyer
Board if the FM/Food 4 Less Merger becomes effective. If both Mergers are
consummated, the Fred Meyer Board will be required to appoint a total of four
new directors to the Board, bringing the total number of directors on the Fred
Meyer Board to 15. Currently, the Fred Meyer Certificate states that the number
of directors constituting the entire Fred Meyer Board shall not be more than 15.
To retain the flexibility to make future increases in the size of the Fred Meyer
Board, the Fred Meyer Board proposes to amend the Fred Meyer Certificate to
provide that the maximum number of directors constituting the entire Fred Meyer
Board shall be increased from 15 to 25. The amendment to the Fred Meyer
Certificate would amend Article VIII, paragraph A to read as follows:
 
          The number of directors constituting the entire Board of
     Directors of the Corporation shall be not less than three nor more
     than 25 as fixed from time to time by the Board of Directors,
     provided, however, that the number of directors shall not be reduced
     so as to shorten the term of any director at the time in office, and
     provided further, that the number of directors constituting the entire
     Board of Directors shall be eleven until otherwise fixed by a majority
     of the entire Board of Directors.
 
     THE FRED MEYER BOARD RECOMMENDS THE APPROVAL AND ADOPTION OF THE AMENDMENT
TO THE FRED MEYER CERTIFICATE BY FRED MEYER'S STOCKHOLDERS. The proposal must be
approved by the holders of at least 75% of the outstanding shares of Fred Meyer
Common Stock. Abstentions will be considered present at the Fred Meyer Special
Meeting for purposes of determining a quorum, but will not be considered to have
been voted in favor of such matter and, therefore, will have the same effect as
a vote against the approval and adoption of the amendment to the Fred Meyer
Certificate. Broker non-votes will be counted for purposes of determining
whether a quorum exists at the Fred Meyer Special Meeting, but will not be
considered to have been voted in favor of any matter and therefore will have the
same effect as a vote against the approval and adoption of the
 
                                       171
<PAGE>   180
 
amendment to the Fred Meyer Certificate. If the proposal to amend the Fred Meyer
Certificate is approved but one or both of the Mergers are not consummated, the
amendment to the Certificate will become effective.
 
                                 LEGAL MATTERS
 
     The validity of the shares of Fred Meyer Common Stock offered hereby will
be passed upon for Fred Meyer by Stoel Rives LLP.
 
     Certain United States federal income tax matters related to the FM/QFC
Merger will be passed upon for Fred Meyer by Simpson Thacher & Bartlett (a
partnership which includes professional corporations), New York, New York, and
for QFC by Sidley & Austin, Chicago, Illinois. Certain United States federal
income tax matters related to the FM/Food 4 Less Merger will be passed upon for
Fred Meyer by Simpson Thacher & Bartlett and for Food 4 Less by Latham &
Watkins, Los Angeles, California.
 
                                    EXPERTS
 
     The consolidated financial statements incorporated in this Joint Proxy and
Consent Solicitation Statement/Prospectus by reference from the Fred Meyer Form
10-K have been audited by Deloitte & Touche LLP, independent auditors, as stated
in their report, which is incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report of said firm given upon its authority as experts in accounting and
auditing.
 
     The financial statements of QFC as of December 30, 1995 and December 28,
1996 and for each of the three years in the period ended December 28, 1996
included in the QFC Form 10-K/A for the year ended December 28, 1996 dated July
23, 1997 have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report included therein and incorporated herein by reference.
Such financial statements are incorporated herein by reference in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
 
     The consolidated balance sheets of Food 4 Less Holdings, Inc., as of
February 2, 1997, January 28, 1996 and January 29, 1995 and the related
consolidated statements of operations, cash flows and stockholders' equity for
the 53 weeks ended February 2, 1997, the 52 weeks ended January 28, 1996, the 31
weeks ended January 29, 1995 and the 52 weeks ended June 25, 1994 and the
related financial statement schedules included in the Food 4 Less Form 10-K for
the year ended February 2, 1997 and incorporated by reference herein, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
 
     The financial statements of Keith Uddenberg, Inc. as of December 30, 1995
and December 28, 1996 and for each of the three years in the period ended
December 28, 1996 included in the QFC Form 8-K/A dated November 12, 1996, and
filed February 20, 1997, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report included therein and incorporated herein by
reference. Such financial statements are incorporated herein by reference in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
 
     The consolidated financial statements of Hughes Markets, Inc. incorporated
by reference herein from Quality Food Centers, Inc.'s Current Report on Form
8-K/A dated February 20, 1997 have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference herein in reliance upon the authority
of said firm as experts in giving said report.
 
     Representatives of Deloitte & Touche LLP are expected to be present at the
Fred Meyer Special Meeting and the QFC Special Meeting. In each case, such
representatives will have the opportunity to make a statement if they desire to
do so and are expected to be available to respond to appropriate questions.
 
                                       172
<PAGE>   181
 
                                 OTHER MATTERS
 
     As of the date of this Joint Proxy and Consent Solicitation
Statement/Prospectus, the Fred Meyer Board and the QFC Board know of no matters
that will be presented for consideration at the Fred Meyer Special Meeting or
the QFC Special Meeting other than as described in this Joint Proxy and Consent
Solicitation Statement/Prospectus. If any other matters shall properly come
before either of such meetings or any adjournments or postponements thereof and
be voted upon, the enclosed proxies will be deemed to confer discretionary
authority on the individuals named as proxies therein to vote the shares
represented by such proxies as to any such matters. The persons named as proxies
intend to vote or not to vote in accordance with the recommendation of the
respective managements of Fred Meyer and QFC, as applicable.
 
                      WHERE YOU CAN FIND MORE INFORMATION
 
     Fred Meyer, QFC and Food 4 Less file annual, quarterly and special reports,
proxy statements and other information with the Commission. You may read and
copy any reports, statements or other information we file at the Commission's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the Commission at 1-800-SEC-0330 for further information
on the public reference rooms. Our Commission filings are also available to the
public from commercial document retrieval services and at the web site
maintained by the Commission at "http://www.sec.gov."
 
     Fred Meyer filed a Registration Statement on Form S-4 to register with the
Commission the Fred Meyer Common Stock to be issued to QFC shareholders and Food
4 Less stockholders in the Mergers. This Joint Proxy and Consent Solicitation
Statement/Prospectus is a part of that Registration Statement and constitutes a
prospectus of Fred Meyer in addition to being a proxy statement of Fred Meyer
and QFC for the Special Meetings and a consent solicitation statement for the
Food 4 Less Consent Solicitation. As allowed by Commission rules, this Joint
Proxy and Consent Solicitation Statement/Prospectus does not contain all the
information you can find in the Registration Statement or the exhibits to the
Registration Statement.
 
     The Commission allows us to "incorporate by reference" information into
this Joint Proxy and Consent Solicitation Statement/Prospectus, which means that
we can disclose important information to you by referring you to another
document filed separately with the Commission. The information incorporated by
reference is deemed to be part of this Joint Proxy and Consent Solicitation
Statement/Prospectus, except for any information superseded by information in
this Joint Proxy and Consent Solicitation Statement/Prospectus. This Joint Proxy
and Consent Solicitation Statement/Prospectus incorporates by reference the
documents set forth below that we have previously filed with the Commission.
These documents contain important information about our companies and their
finances.
 
<TABLE>
<S>                                            <C>
FRED MEYER COMMISSION FILINGS
  (FILE NO. 1-13339)                           PERIOD
Annual Report on Form 10-K, as amended.......  Year ended February 1, 1997
Quarterly Reports on Form 10-Q, as amended...  Quarters ended May 24, 1997, August 16, 1997
                                               and
                                               November 8, 1997
Current Reports on Form 8-K..................  Dated September 9, 1997 and November 6, 1997
QFC COMMISSION FILINGS (FILE NO. 0-15590)      PERIOD
Annual Report on Form 10-K, as amended.......  Year ended December 28, 1996
Quarterly Reports on Form 10-Q, as amended...  Quarters ended March 22, 1997, June 14, 1997
                                               and
                                               September 6, 1997
Current Reports on Form 8-K..................  Dated March 19, 1997 and November 6, 1997
Amendments to Current Reports on Form 8-K....  Dated November 12, 1996 and March 19, 1997
FOOD 4 LESS COMMISSION FILINGS
  (FILE NO. 33-88894)                          PERIOD
Annual Report on Form 10-K, as amended.......  Year ended February 2, 1997
Quarterly Reports on Form 10-Q...............  Quarters ended April 27, 1997, July 20, 1997
                                               and
                                               October 12, 1997
Current Report on Form 8-K...................  Dated November 6, 1997
</TABLE>
 
                                       173
<PAGE>   182
 
     We are also incorporating by reference additional documents that we may
file with the Commission between the date of this Joint Proxy and Consent
Solicitation Statement/Prospectus and the dates of the Special Meetings and the
completion of the Food 4 Less Consent Solicitation.
 
     Fred Meyer has supplied all information contained or incorporated by
reference in this Joint Proxy and Consent Solicitation Statement/Prospectus
relating to Fred Meyer, QFC has supplied all such information relating to QFC
and Food 4 Less has supplied all such information relating to Food 4 Less. The
pro forma financial data and financial statements contained in this Joint Proxy
and Consent Solicitation Statement/Prospectus have been prepared by Fred Meyer.
 
     If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the
Commission. Documents incorporated by reference are available from us without
charge, excluding all exhibits unless we have specifically incorporated by
reference an exhibit in this Joint Proxy and Consent Solicitation
Statement/Prospectus. Stockholders may obtain documents incorporated by
reference in this Joint Proxy and Consent Solicitation Statement/Prospectus by
requesting them in writing or by telephone from the appropriate party at the
following addresses:
 
<TABLE>
        <S>                                     <C>
        Fred Meyer, Inc.                        Quality Food Centers, Inc.
        Attention: Roger A. Cooke, Secretary    Attention: Susan Obuchowski,
                                                Secretary
        3800 SE 22nd Avenue                     10112 NE 10th Street, Suite 201
        Portland, Oregon 97202                  Bellevue, Washington 98004
        (503) 232-8844                          (425) 462-2177
</TABLE>
 
                       Food 4 Less Holdings, Inc.
                       Attention: Terrence J. Wallock, Secretary
                       1100 West Artesia Boulevard
                       Compton, California 90220
                       (310) 884-9900
 
     If you would like to request documents from us, please do so by
  , 1998 to receive them before the Special Meetings and the completion of the
Food 4 Less Consent Solicitation.
 
     YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY AND CONSENT SOLICITATION STATEMENT/PROSPECTUS TO
VOTE ON THE MERGERS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS JOINT PROXY AND
CONSENT SOLICITATION STATEMENT/PROSPECTUS. THIS JOINT PROXY AND CONSENT
SOLICITATION STATEMENT/PROSPECTUS IS DATED             , 1998. YOU SHOULD NOT
ASSUME THAT THE INFORMATION CONTAINED IN THIS JOINT PROXY AND CONSENT
SOLICITATION STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN
            , 1998, AND NEITHER THE MAILING OF THE JOINT PROXY AND CONSENT
SOLICITATION STATEMENT/PROSPECTUS TO STOCKHOLDERS NOR THE ISSUANCE OF FRED MEYER
COMMON STOCK IN THE MERGERS SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
 
                                       174
<PAGE>   183
                                   APPENDICES

                                       TO

          JOINT PROXY AND CONSENT SOLICITATION STATEMENT/PROSPECTUS OF



                                FRED MEYER, INC.

                           QUALITY FOOD CENTERS, INC.

                           FOOD 4 LESS HOLDINGS, INC.

<PAGE>   184

<TABLE>
<S>                    <C>  <C>
        APPENDIX A     --    FM/QFC Merger Agreement

        APPENDIX B     --    FM/Food 4 Less Merger Agreement

        APPENDIX C     --    Fairness Opinion of Salomon Brothers Inc (FM/QFC Merger)

        APPENDIX D     --    Fairness Opinion of Goldman, Sachs & Co. (FM/QFC Merger)

        APPENDIX E     --    Fairness Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated (FM/QFC
                             Merger)

        APPENDIX F     --    Fairness Opinion of Salomon Brothers Inc (FM/Food 4 Less Merger)

        APPENDIX G     --    Fairness Opinion of Goldman, Sachs & Co. (FM/Food 4 Less Merger)

        APPENDIX H     --    Fairness Opinion of Donaldson, Lufkin & Jenrette Securities Corporation (FM/Food 4
                             Less Merger)

        APPENDIX I     --    Fairness Opinion of Morgan Stanley & Co. Incorporated (FM/Food 4 Less Merger)

        APPENDIX J     --    Chapter 23B.13 of the Washington Business Corporation Act

        APPENDIX K     --    Section 262 of the Delaware General Corporation Law
</TABLE>

<PAGE>   185
                                                                      APPENDIX A


                          AGREEMENT AND PLAN OF MERGER


                                      Among


                           QUALITY FOOD CENTERS, INC.,

                               Q-ACQUISITION CORP.

                                       and

                                FRED MEYER, INC.



                          Dated as of November 6, 19971


--------

1          Reflects changes effected pursuant to an Amendment Agreement dated as
           of January 20, 1998.


<PAGE>   186
                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                   Page
                                                                   ----
<S>                                                                <C>

                                    ARTICLE I

                                  THE MERGER .................        1
SECTION 1.1  The Merger ......................................        1
SECTION 1.2  Effective Time ..................................        2
SECTION 1.3  Effects of the Merger ...........................        2
SECTION 1.4  Articles of Incorporation; By-Laws ..............        2
SECTION 1.5  Directors and Officers ..........................        2
SECTION 1.6  Conversion of Securities ........................        2
SECTION 1.7  Treatment of Employee Options and Other
                   Employee Equity Rights ....................        5
SECTION 1.8  Fractional Interests ............................        6
SECTION 1.9  Surrender of Shares of Company Common
                   Stock; Stock Transfer Books ...............        6
SECTION 1.10  Closing and Closing Date .......................        9

                                   ARTICLE II

                 REPRESENTATIONS AND WARRANTIES OF THE COMPANY        9
SECTION 2.1  Organization and Qualification ..................        9
SECTION 2.2  Authorization; Validity and Effect of
                   Agreement .................................        9
SECTION 2.3  Capitalization ..................................       10
SECTION 2.4  Subsidiaries ....................................       10
SECTION 2.5  Other Interests .................................       11
SECTION 2.6  No Conflict; Required Filings and
                   Consents ..................................       11
SECTION 2.7  Compliance ......................................       12
SECTION 2.8  SEC Documents ...................................       12
SECTION 2.9  Litigation ......................................       13
SECTION 2.10  Absence of Certain Changes .....................       13
SECTION 2.11  Taxes ..........................................       14
SECTION 2.12  Employee Benefit Plans .........................       15
SECTION 2.13 No Other Agreements to Sell the Company or
                   its Assets ................................       16
SECTION 2.14  Assets .........................................       16
SECTION 2.15  Contracts and Commitments ......................       18
SECTION 2.16  Absence of Breaches or Defaults ................       19
SECTION 2.17  Labor Matters ..................................       20
SECTION 2.18  Insurance ......................................       21
SECTION 2.19  Affiliate Transactions .........................       21
SECTION 2.20  Environmental Matters ..........................       21
SECTION 2.21  Forms S-3 and S-4; Offer to Purchase;
                   Joint Proxy Statement .....................       22
SECTION 2.22  Opinion of Financial Advisor ...................       23
SECTION 2.23  Brokers ........................................       23
SECTION 2.24  Vote Required ..................................       23
SECTION 2.25  Chapter 23B.19 of the WBCL; State
                   Takeover Statutes .........................       24
</TABLE>


                                       A-i


<PAGE>   187



<TABLE>
<CAPTION>
                                                                   Page
                                                                   ----
<S>                                                                <C>
SECTION 2.26  Accounting Matters .............................       24
SECTION 2.27  Tax Matters ....................................       24

                                   ARTICLE III

                        REPRESENTATIONS AND WARRANTIES OF
                                PARENT AND SUB ...............       24
SECTION 3.1  Organization and Qualification ..................       24
SECTION 3.2  Authorization; Validity and Effect of
                   Agreement .................................       25
SECTION 3.3  Capitalization ..................................       25
SECTION 3.4  Subsidiaries ....................................       26
SECTION 3.5  Other Interests .................................       26
SECTION 3.6  No Conflict; Required Filings and
                   Consents ..................................       26
SECTION 3.7  Compliance ......................................       27
SECTION 3.8  SEC Documents ...................................       28
SECTION 3.9  Litigation ......................................       29
SECTION 3.10  Absence of Certain Changes .....................       29
SECTION 3.11  Taxes ..........................................       29
SECTION 3.12  Employee Benefit Plans .........................       30
SECTION 3.13  Assets .........................................       32
SECTION 3.14  Contracts and Commitments ......................       33
SECTION 3.15  Absence of Breaches or Defaults ................       34
SECTION 3.16  Labor Matters ..................................       35
SECTION 3.17  Insurance ......................................       36
SECTION 3.18  Environmental Matters ..........................       36
SECTION 3.19  Forms S-3 and S-4; Offer to Purchase;
                   Joint Proxy Statement .....................       37
SECTION 3.20  Brokers ........................................       37
SECTION 3.21  Vote Required ..................................       38
SECTION 3.22  Opinion of Financial Advisor ...................       38
SECTION 3.23  Tax Matters ....................................       38

                                   ARTICLE IV

                    CONDUCT OF BUSINESS PENDING THE MERGER ...       38
SECTION 4.1  Conduct of Business of the Company Pending
                   the Merger ................................       38
SECTION 4.2  Conduct of Business of Parent Pending the
                   Merger ....................................       41

                                    ARTICLE V

                             ADDITIONAL AGREEMENTS ...........       43
SECTION 5.1  Preparation of Form S-4 and the Joint
                   Proxy Statement; Shareholder Meetings .....       43
SECTION 5.2  Accountants' Letters ............................       45
SECTION 5.3  Access to Information; Confidentiality ..........       46
SECTION 5.4  No Solicitation of Transactions .................       47
SECTION 5.5  Employee Benefits Matters .......................       47
SECTION 5.6  Directors' and Officers' Indemnification;
                   Insurance .................................       48
SECTION 5.7  Notification of Certain Matters .................       49
</TABLE>


                                      A-ii


<PAGE>   188
<TABLE>
<CAPTION>
                                                                   Page
                                                                   ----
<S>                                                                <C>
SECTION 5.8  Further Action ..................................       49
SECTION 5.9  Public Announcements ............................       52
SECTION 5.10  Stock Exchange Listing .........................       52
SECTION 5.11  Affiliates .....................................       52
SECTION 5.12  Directorships ..................................       52
SECTION 5.13  Parent Representations and Warranties ..........       52
SECTION 5.14  Real Estate Transfer Taxes .....................       53
SECTION 5.15  Registration Rights ............................       53
SECTION 5.16  Form S-3 .......................................       54

                                   ARTICLE VI

                             CONDITIONS OF MERGER ............       54
SECTION 6.1  Conditions to Obligation of Each Party to
                   Effect the Merger .........................       54
SECTION 6.2  Conditions to Obligations of the Company
                   to Effect the Merger ......................       55
SECTION 6.3  Conditions to Obligations of Parent and
                   Sub to Effect the Merger ..................       57

                                   ARTICLE VII

                       TERMINATION, AMENDMENT AND WAIVER .....       58
SECTION 7.1  Termination .....................................       58
SECTION 7.2  Effect of Termination ...........................       60
SECTION 7.3  Fees and Expenses ...............................       60
SECTION 7.4  Amendment .......................................       62
SECTION 7.5  Waiver ..........................................       62

                                  ARTICLE VIII

                              GENERAL PROVISIONS .............       62
SECTION 8.1  Non-Survival of Representations,
                   Warranties and Agreements .................       62
SECTION 8.2  Notices .........................................       63
SECTION 8.3  Certain Definitions .............................       64
SECTION 8.4  Severability ....................................       68
SECTION 8.5  Entire Agreement; Assignment ....................       68
SECTION 8.6  Parties in Interest .............................       68
SECTION 8.7  Governing Law ...................................       69
SECTION 8.8  Headings ........................................       69
SECTION 8.9  Counterparts ....................................       69
</TABLE>


                                      A-iii


<PAGE>   189
                          AGREEMENT AND PLAN OF MERGER


                  AGREEMENT AND PLAN OF MERGER, dated as of November 6, 1997
(the "Agreement"), among FRED MEYER, INC., a Delaware corporation ("Parent"),
Q-ACQUISITION CORP., a Washington corporation and a wholly owned subsidiary of
Parent ("Sub"), and QUALITY FOOD CENTERS, INC., a Washington corporation (the
"Company").

                  WHEREAS, the Boards of Directors of Parent, Sub and the
Company have each approved the merger of Sub with and into the Company and the
Company becoming a wholly owned direct subsidiary of Parent (the "Merger") in
accordance with the Washington Business Corporation Act ("WBCL") upon the terms
and subject to the conditions set forth herein;

                  WHEREAS, concurrently with the execution and delivery of this
Agreement and as a condition and inducement to Parent's willingness to enter
into this Agreement, Parent and certain Company shareholders (the
"Shareholders") have each entered into a shareholders agreement, dated as of the
date hereof and attached as Annex A hereto (the "Shareholder Agreements"); and

                  WHEREAS, for federal income tax purposes, it is intended that
the Merger shall qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code").

                  NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, and intending to be legally
bound hereby, Parent, Sub and the Company hereby agree as follows:


                                    ARTICLE I

                                   THE MERGER

                  SECTION 1.1 The Merger. Upon the terms and subject to the
conditions of this Agreement and in accordance with the WBCL, at the Effective
Time (as defined in Section 1.2), Sub shall be merged with and into the Company.
As a result of the Merger, the separate corporate existence of Sub shall cease
and the Company shall continue as the surviving corporation of the Merger (the
"Surviving Corporation"). At Parent's election, the Merger may alternatively be
structured so that any direct wholly owned subsidiary of Parent may be
substituted for Sub as a constituent corporation in the Merger. In the event of
such an election, the parties agree to execute an appropriate amendment to this
Agreement in order to reflect such election.

                  SECTION 1.2  Effective Time.  The parties hereto shall
cause the Merger to be consummated by filing articles of merger


<PAGE>   190
(the "Articles of Merger") on the Closing Date with the Secretary of State of
the State of Washington, in such form as required by and executed in accordance
with the relevant provisions of the WBCL (the date and time of the filing of the
Articles of Merger with the Secretary of State of the State of Washington or at
such later time or date after such filing as may be specified in the Articles of
Merger being the "Effective Time").

                  SECTION 1.3 Effects of the Merger. The Merger shall have the
effects set forth in the applicable provisions of the WBCL. Without limiting the
generality of the foregoing and subject thereto, at the Effective Time all the
property, rights, privileges, immunities, powers and franchises of the Company
and Sub shall vest in the Surviving Corporation, and all debts, liabilities and
duties of the Company and Sub shall become the debts, liabilities and duties of
the Surviving Corporation.

                  SECTION 1.4 Articles of Incorporation; By-Laws. (a) At the
Effective Time and without any further action on the part of the Company and
Sub, the text of the Articles of Incorporation of the Company as in effect
immediately prior to the Effective Time shall be amended, restated and
integrated to read in its entirety as set forth in Exhibit A hereto, and as so
amended, restated and integrated shall be the Amended and Restated Articles of
Incorporation of the Surviving Corporation until thereafter and further amended
as provided therein and under the WBCL.

                  (b) At the Effective Time and without any further action on
the part of the Company and Sub, the By-Laws of Sub shall be the By-Laws of the
Surviving Corporation and thereafter may be amended or repealed in accordance
with their terms or the Articles of Incorporation of the Surviving Corporation
and as provided by law.

                  SECTION 1.5 Directors and Officers. The directors of Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and By-Laws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed (as the case may be) and qualified.

                  SECTION 1.6 Conversion of Securities. At the Effective Time,
by virtue of the Merger and without any action on the part of Parent, Sub, the
Company or the holders of any of the following securities:

                  (a) Subject to Sections 1.6(d) and 1.8, each share of Common
         Stock, par value $.001 per share, of the Company ("Company Common
         Stock") issued and outstanding immediately prior to the Effective Time
         (other than shares of Company


                                       A-2


<PAGE>   191
         Common Stock to be cancelled in accordance with Section 1.6(b) hereof)
         shall be converted into and represent the right to receive a number
         (rounded to the nearest ten- thousandth of a share) (adjusted as set
         forth below, the "Exchange Ratio") of fully paid and nonassessable
         shares of Common Stock, par value $.01 per share of Parent (the "Parent
         Common Stock"), equal to the greater of (i) 1.9 and (ii) the number
         equal to the lesser of (A) 2.3 and (B) the number determined by
         dividing $55 by the Average Parent Price (as defined below); provided,
         that the Exchange Ratio determined pursuant to this Section 1.6(a)
         shall be reduced by the Exchange Ratio Adjustment Amount (as defined
         below), if any (the "Merger Consideration"). The Merger Consideration
         shall be payable upon the surrender of the certificate formerly
         representing such share of Company Common Stock. As of the Effective
         Time, all such shares of Company Common Stock shall no longer be
         outstanding and shall automatically be cancelled and retired and shall
         cease to exist, and each holder of a certificate representing any such
         shares of Company Common Stock shall cease to have any rights with
         respect thereto, except the right to receive (i) the Merger
         Consideration, (ii) any cash in lieu of fractional shares of Parent
         Common Stock to be issued or paid in consideration therefor upon
         surrender of such certificate in accordance with Section 1.9 and (iii)
         any dividends and distributions in accordance with Section 1.9(e), in
         each case without interest. The "Average Parent Price" shall be equal
         to the average of the closing prices of the Parent Common Stock on the
         New York Stock Exchange ("NYSE") as reported on the NYSE Composite
         Transaction Tape for the 15 trading days randomly selected by lot out
         of the 35 trading days ending on the second trading day preceding the
         Effective Time. The "Exchange Ratio Adjustment Amount" shall be equal
         to (i) the Total Deduction Amount (as defined below) divided by (ii)
         the product of (x) the Average Parent Price and (y) the sum of the
         aggregate number of shares of Company Common Stock issued and
         outstanding immediately prior to the Effective Time and (without
         duplication) the aggregate number of shares of Company Common Stock in
         respect of which Company Stock Rights (as defined in Section 1.7) are
         outstanding immediately prior to the Effective Time. The "Total
         Deduction Amount" shall be equal to (i) the product of (A) four and (B)
         the Lost EBITDA (as defined below) in excess of $15 million, minus (ii)
         50% of the Estimated Gain (as defined in Section 5.8). The "Lost
         EBITDA" shall be equal to the aggregate earnings before interest,
         taxes, corporate allocation costs for administration (including costs
         for management information systems), depreciation and amortization from
         the continuing operations of any Facilities (as defined in Section
         2.14) to be divested pursuant to Section 5.8 (each a "Divested
         Facility") and located in the State of California during the
         twelve-month period ending on the second most recent month-end prior to
         the earlier of (i) the agreement of Parent with


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         the applicable governmental or regulatory authority to divest such
         Divested Facilities pursuant to Section 5.8 and (ii) the Effective
         Time; provided, that, for any new Divested Facility to be divested
         which has not been in operation for such twelve-month period (each a
         "New Facility"), Lost EBITDA for such New Facility shall be an amount
         equal to 80% of the Average Facility EBITDA. "Average Facility EBITDA"
         is equal to the aggregate Lost EBITDA of all Facilities (other than New
         Facilities) owned by the company which is divesting such New Facility,
         assuming all such Facilities are to be divested pursuant to Section
         5.8, divided by the total number of such Facilities (other than New
         Facilities).

                  (b) Each share of Company Common Stock that is (i) held in the
         treasury of the Company or (ii) owned by Parent, Sub or any other
         direct or indirect subsidiary of Parent or of the Company, in each case
         immediately prior to the Effective Time, shall be cancelled and retired
         without any conversion thereof and no payment or distribution shall be
         made with respect thereto.

                  (c) Each share of common, preferred or other capital stock of
         Sub issued and outstanding immediately prior to the Effective Time
         shall remain outstanding and shall be unchanged after the Merger and
         shall thereafter constitute all of the issued and outstanding capital
         stock of the Surviving Corporation.

                  (d) Notwithstanding any other provision of this Agreement to
the contrary, shares of Company Common Stock outstanding immediately prior to
the Effective Time and held by a holder who has not voted in favor of the Merger
or consented thereto in writing and who has demanded appraisal for such Company
Common Stock in accordance with the WBCL shall not be converted into a right to
receive the Merger Consideration, unless such holder fails to perfect or
withdraws or otherwise loses its right to appraisal or it is determined that
such holder does not have appraisal rights in accordance with the WBCL. If after
the Effective Time such holder fails to perfect or withdraws or loses its right
to appraisal, or if it is determined that such holder does not have an appraisal
right, such shares of Company Common Stock shall be treated as if they had been
exchanged as of the Effective Time for a right to receive the Merger
Consideration. The Company shall give Parent and Sub prompt notice of any
demands received by the Company for appraisal of shares of Company Common Stock,
and Parent and Sub shall have the right to participate in all negotiations and
proceedings with respect to such demands except as required by applicable law.
The Company shall not, except with the prior written consent of Parent and Sub,
make any payment with respect to, or settle or offer to settle, any such
demands.


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                  SECTION 1.7 Treatment of Employee Options and Other Employee
Equity Rights. (a) Subject to Sections 1.7(b) and 1.7(c), prior to the Effective
Time, the Board of Directors of the Company (or, if appropriate, any Committee
thereof) and the Board of Directors of Parent shall adopt appropriate
resolutions and take all other actions necessary to provide that effective at
the Effective Time, all the outstanding stock options, stock appreciation
rights, limited stock appreciation rights, performance units and stock purchase
rights (the "Company Stock Rights") heretofore granted under any stock option,
performance unit or similar plan of the Company and its Subsidiaries (as defined
in Section 8.3)(the "Stock Plans") shall be assumed by Parent and converted
automatically into options to purchase shares of Parent Common Stock
(collectively, "New Stock Rights") in an amount and, if applicable, at an
exercise price determined as provided below:

                  (i) The number of shares of Parent Common Stock to be subject
         to the New Stock Right shall be equal to the product of the number of
         shares of Company Common Stock remaining subject (as of immediately
         prior to the Effective Time) to the original Company Stock Right and
         the Exchange Ratio, provided that any fractional shares of Parent
         Common Stock resulting from such multiplication shall be rounded down
         to the nearest share; and

                  (ii) The exercise price per share of Parent Common Stock under
         the New Stock Right shall be equal to the exercise price per share of
         the Company Common Stock under the original Company Stock Right divided
         by the Exchange Ratio, provided that such exercise price shall be
         rounded down to the nearest cent.

The adjustment provided herein with respect to any options which are "incentive
stock options" (as defined in Section 422 of the Code) shall be and is intended
to be effected in a manner which is consistent with Section 424(a) of the Code.
Subject to Sections 1.7(b) and 1.7(c), after the Effective Time, each New Stock
Right shall be exercisable and shall vest upon the same terms and conditions as
were applicable to the related Company Stock Right immediately prior to the
Effective Time (except that with regard to such New Stock Right, any references
to the Company shall be deemed, as appropriate, to include Parent).

                  (b) Notwithstanding anything else to the contrary contained in
this Agreement, each vested Stock Unit ("Stock Unit") outstanding under the
Company's Director Stock Unit Plan shall at the Effective Time, be converted
into that number of Shares of Parent Common Stock and such other property as
would have been received by the holder if such Stock Unit had been exercised and
converted into shares of Company Common Stock immediately prior to the Effective
Time and the Company Common Stock that would have been received upon such
exercise had been converted pursuant to Section 1.6(a).


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<PAGE>   194
                  (c) Prior to the Effective Time, the Company will take all
actions necessary (i) to shorten the offering periods under the Company's 1990
Amended and Restated Employee Stock Purchase Plan (the "Stock Purchase Plan")
currently scheduled to terminate on March 31, 1998, so that such offering
periods terminate on the day prior to the Effective Time if the Effective Time
occurs on or before March 31, 1998 and (ii) to terminate such plan effective as
of the earliest of the Effective Time or March 31, 1998.

                  (d) The Company shall use reasonable best efforts so that
following the Effective Time no holder of a Company Stock Right or any
participant in any Stock Plans shall have any right thereunder to acquire
capital stock of the Company, Sub, or the Surviving Corporation. The Company
will use reasonable best efforts so that, as of the Effective Time, none of Sub,
the Company, the Surviving Corporation or any of their respective Subsidiaries
is or will be bound by any Company Stock Rights, other options, warrants, rights
or agreements which would entitle any person, other than Sub or its affiliates,
to own any capital stock of the Company, Sub, the Surviving Corporation or any
of their respective subsidiaries or to receive any payment in respect thereof,
except as otherwise provided herein.

                  (e) Parent agrees that it shall take all action necessary, on
or prior to the Effective Time, to authorize and reserve a number of shares of
Parent Common Stock sufficient for issuance upon exercise of options as
contemplated by Section 1.7.

                  SECTION 1.8 Fractional Interests. No certificates or scrip
representing fractional shares of Parent Common Stock shall be issued in
connection with the Merger, and such fractional interests will not entitle the
owner thereof to any rights of a shareholder of Parent. In lieu of any such
fractional interests, each holder of shares of Company Common Stock exchanged
pursuant to Section 1.6(a) who would otherwise have been entitled to receive a
fraction of a share of Parent Common Stock (after taking into account all shares
of Company Common Stock then held of record by such holder) shall receive cash
(without interest) in an amount equal to the product of such fractional part of
a share of Parent Common Stock multiplied by the Average Parent Price.

                  SECTION 1.9 Surrender of Shares of Company Common Stock; Stock
Transfer Books. (a) Prior to the Closing Date, Sub shall designate a bank or
trust company reasonably acceptable to the Company to act as agent for the
holders of shares of Company Common Stock in connection with the Merger (the
"Exchange Agent") to receive the shares of Parent Common Stock (and any cash
payable in lieu of any fractional shares of Parent Common Stock) to which
holders of shares of Company Common Stock shall become entitled pursuant to
Sections 1.6(a) and 1.8. Immediately before the Effective Time, Parent will, or
will cause Sub to, make available to the Exchange Agent sufficient shares of
Parent


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<PAGE>   195
Common Stock and cash to make all exchanges pursuant to Section 1.9(b).

                  (b) Promptly after the Effective Time, Parent shall, or shall
cause the Surviving Corporation to, cause to be mailed to each record holder, as
of the Effective Time, of an outstanding certificate or certificates which
immediately prior to the Effective Time represented shares of Company Common
Stock (the "Certificates"), a form of letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Exchange Agent)
and instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Parent Common Stock therefor.
Upon surrender to the Exchange Agent of a Certificate, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, and such other documents as may be reasonably required
pursuant to such instructions, the holder of such Certificate shall be entitled
to receive in exchange therefor, (i) a certificate representing that number of
whole shares of Parent Common Stock which such holder has the right to receive
pursuant to the provisions of Section 1.6(a), (ii) cash in lieu of any
fractional shares of Parent Common Stock to which such holder is entitled
pursuant to Section 1.8, after giving effect to any required tax withholdings,
and (iii) any dividends or distributions to which such holder is entitled
pursuant to Section 1.9(e), and the Certificate so surrendered shall forthwith
be cancelled. If the exchange of certificates representing shares of Parent
Common Stock is to be made to a person other than the person in whose name the
surrendered Certificate is registered, it shall be a condition of exchange that
the Certificate so surrendered shall be properly endorsed or shall be otherwise
in proper form for transfer and that the person requesting such exchange shall
have paid any transfer and other taxes required by reason of the exchange of
certificates representing shares of Parent Common Stock to a person other than
the registered holder of the Certificate surrendered or shall have established
to the satisfaction of the Surviving Corporation that such tax either has been
paid or is not applicable.

                  (c) At any time following 12 months after the Effective Time,
Parent shall be entitled to require the Exchange Agent to deliver to it or the
Surviving Corporation any shares of Parent Common Stock (and any cash payable in
lieu of any fractional shares of Parent Common Stock and dividends or other
distributions in respect thereof) which had been made available to the Exchange
Agent and which have not been disbursed to holders of Certificates, and
thereafter such holders shall be entitled to look to Parent (subject to
abandoned property, escheat or other similar laws) only as general creditors
thereof with respect to the shares of Parent Common Stock (and any cash payable
in lieu of any fractional shares of Parent Common Stock) payable upon due
surrender of their Certificates.


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<PAGE>   196
Notwithstanding the foregoing, neither Parent, the Surviving Corporation nor the
Exchange Agent shall be liable to any holder of a Certificate for shares of
Parent Common Stock (and any cash payable in lieu of any fractional shares of
Parent Common Stock) delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.

                  (d) At the Effective Time, the stock transfer books of the
Company shall be closed and thereafter there shall be no further registration of
transfers of shares of Company Common Stock on the records of the Company. From
and after the Effective Time, the holders of Certificates evidencing ownership
of shares of Company Common Stock outstanding immediately prior to the Effective
Time shall cease to have any rights with respect to such shares of Company
Common Stock except as otherwise provided for herein or by applicable law.

(e)No dividends or other distributions declared or made after the Effective Time
with respect to shares of Parent Common Stock shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of Parent Common Stock it
is entitled to receive and no cash payment in lieu of fractional interests shall
be paid pursuant to Section 1.8 until the holder of such Certificate shall
surrender such Certificate in accordance with the provisions of this Agreement.
Upon such surrender, Parent shall cause to be paid to the person in whose name
the certificates representing such shares of Parent Common Stock shall be
issued, any dividends or distributions with respect to such shares of Parent
Common Stock which have a record date after the Effective Time and shall have
become payable between the Effective Time and the time of such surrender. In no
event shall the person entitled to receive such dividends or distributions be
entitled to receive interest thereon.

                  (f) If, at any time after the Effective Time, the Surviving
Corporation shall consider or be advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of either Sub or the Company acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with, the Merger or
otherwise to carry out this Agreement, the officers of the Surviving Corporation
shall be authorized to execute and deliver, in the name and on behalf of each of
Sub and the Company or otherwise, all such deeds, bills of sale, assignments and
assurances and to take and do, in such names and on such behalves or otherwise,
all such other actions and things as may be necessary or desirable to vest,
perfect or confirm any and all right, title and interest in, to and under such
rights, properties or assets in the Surviving Corporation or otherwise to carry
out the purposes of this Agreement.


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<PAGE>   197
                  SECTION 1.10 Closing and Closing Date. Unless this Agreement
shall have been terminated and the transactions herein contemplated shall have
been abandoned pursuant to the provisions of Section 7.1, the closing (the
"Closing") of the transactions contemplated by this Agreement shall take place
(a) at 10:00 a.m. (Pacific time) on the second business day after all of the
conditions to the respective obligations of the parties set forth in Article VI
hereof shall have been satisfied or waived or (b) at such other time and date as
Parent and the Company shall agree (such date and time on and at which the
Closing occurs being referred to herein as the "Closing Date"). The Closing
shall take place at such location as Parent and the Company shall agree.


                                   ARTICLE II

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

                  The Company hereby represents and warrants to Parent and Sub
that:

                  SECTION 2.1 Organization and Qualification. The Company and
each of its Subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, with the
corporate power and authority to own and operate its business as presently
conducted. The Company and each of its Subsidiaries is duly qualified as a
foreign corporation or other entity to do business and is in good standing in
each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary, except
for such failures of the Company and any of its Subsidiaries to be so qualified
as would not, individually or in the aggregate, have a Material Adverse Effect
(as defined in Section 8.3). The Company has previously made available to Parent
true and correct copies of its articles of incorporation and bylaws or other
organizational documents and the charter documents and bylaws or other
organizational documents of each of its Subsidiaries, as currently in effect.

                  SECTION 2.2 Authorization; Validity and Effect of Agreement.
The Company has the requisite corporate power and authority to execute, deliver
and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Company and the performance by the Company of its obligations hereunder
and the consummation of the transactions contemplated hereby have been duly
authorized by the Board of Directors of the Company and all other necessary
corporate action on the part of the Company, other than the adoption and
approval of this Agreement by the shareholders of the Company, and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement and the transactions contemplated hereby


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<PAGE>   198
and the execution, delivery and performance of the Shareholders Agreements by
the parties thereto. The Board of Directors of the Company has adopted for the
purposes of Chapters 23B.11.010 and 23B.11.030 of the WBCL the plan of merger
contained in this Agreement. This Agreement has been duly and validly executed
and delivered by the Company and constitutes a legal, valid and binding
obligation of the Company, enforceable against it in accordance with its terms,
subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles (whether considered in
a proceeding in equity or at law) and an implied covenant of good faith and fair
dealing.

                  SECTION 2.3 Capitalization. The authorized capital stock of
the Company consists of 60,000,000 shares of Company Common Stock and 1,000,000
shares of preferred stock having a par value of $.001 per share (the "Company
Preferred Stock"). As of October 31, 1997, 20,996,562 shares of Company Common
Stock (none of which are held in the Company treasury), and no shares of Company
Preferred Stock, were issued and outstanding. Except pursuant to the exercise of
employee options prior to the date hereof, since October 31, 1997, no shares of
Company Common Stock or Company Preferred Stock have been issued. All of the
issued and outstanding shares of Company Common Stock are validly issued, fully
paid and non-assessable. As of the date hereof, except as otherwise disclosed in
Section 2.3 of the disclosure schedule delivered by the Company to Parent and
Sub prior to the execution of this Agreement (the "Disclosure Schedule"), there
are no existing options, warrants, calls, subscriptions, convertible securities
or other securities, agreements, commitments, or obligations which would require
the Company or any of its Subsidiaries to issue or sell shares of Company Common
Stock, Company Preferred Stock or any other equity securities, or securities
convertible into or exchangeable or exercisable for shares of Company Common
Stock, Company Preferred Stock or any other equity securities of the Company or
any of its Subsidiaries. Except as set forth in Section 2.3 of the Disclosure
Schedule, the Company has no commitments or obligations to purchase or redeem
any shares of Company Common Stock.

                  SECTION 2.4 Subsidiaries. The only Subsidiaries of the Company
are those set forth in Section 2.4 of the Disclosure Schedule. All of the
outstanding shares of capital stock and other ownership interests of each of the
Company's Subsidiaries are validly issued, fully paid, non-assessable and free
of preemptive rights, rights of first refusal or similar rights. Except as set
forth in Section 2.4 of the Disclosure Schedule, the Company owns, directly or
indirectly, all of the issued and outstanding capital stock and other ownership
interests of each of its Subsidiaries, free and clear of all Encumbrances (as
defined in Section 8.3), and there are no existing options, warrants, calls,
subscriptions, convertible securities or other


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<PAGE>   199
securities, agreements, commitments or obligations of any character relating to
the outstanding capital stock or other securities of any Subsidiary of the
Company or which would require any Subsidiary of the Company to issue or sell
any shares of its capital stock, ownership interests or securities convertible
into or exchangeable for shares of its capital stock or ownership interests.

                  SECTION 2.5 Other Interests. Except as set forth in Schedule
2.5 of the Disclosure Schedule, neither the Company nor any of the Company's
Subsidiaries owns, directly or indirectly, any interest or investment in the
equity or debt for borrowed money of any corporation, partnership, limited
liability company, joint venture, business, trust or other Person (other than
the Company's Subsidiaries).

                  SECTION 2.6 No Conflict; Required Filings and Consents. (a)
Except as set forth in Section 2.6 of the Disclosure Schedule, neither the
execution and delivery of this Agreement nor the performance by the Company of
its obligations hereunder, nor the consummation of the transactions contemplated
hereby, will: (i) conflict with the Company's articles of incorporation or
bylaws; (ii) assuming satisfaction of the requirements set forth in Section
2.6(b) below, violate any statute, law, ordinance, rule or regulation,
applicable to the Company or any of its Subsidiaries or any of their properties
or assets; or (iii) violate, breach, be in conflict with or constitute a default
(or an event which, with notice or lapse of time or both, would constitute a
default) under, or permit the termination of any provision of, or result in the
termination of, the acceleration of the maturity of, or the acceleration of the
performance of any obligation of the Company or any of its Subsidiaries, or
cause an indemnity payment to be made by the Company or any of its Subsidiaries
under, or result in the creation or imposition of any lien upon any properties,
assets or business of the Company or any of its Subsidiaries under, any note,
bond, indenture, mortgage, deed of trust, lease, franchise, permit,
authorization, license, contract, instrument or other agreement or commitment or
any order, judgment or decree to which the Company or any of its Subsidiaries is
a party or by which the Company or any of its Subsidiaries or any of their
respective assets or properties is bound or encumbered, or give any Person the
right to require the Company or any of its Subsidiaries to purchase or
repurchase any notes, bonds or instruments of any kind except, in the case of
clauses (ii) and (iii), for such violations, breaches, conflicts, defaults or
other occurrences which, individually or in the aggregate, would not have a
Material Adverse Effect.

                  (b) Except (i) for applicable requirements, if any, of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (the "Exchange Act"), the Securities Act of 1933, as amended, and the
rules and regulations thereunder (the "Securities Act"), and state securities or
"blue sky" laws


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<PAGE>   200
("Blue Sky Laws"), (ii) for the pre-merger notification requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations thereunder (the "HSR Act"), (iii) for the filing of articles of
merger pursuant to the WBCL, (iv) the filing of an affidavit relating to real
estate excise taxes in the State of Washington and (v) with respect to matters
set forth in Sections 2.6(a) or 2.6(b) of the Disclosure Schedule, no consent,
approval or authorization of, permit from, or declaration, filing or
registration with, any governmental or regulatory authority, or any other Person
(as defined in Section 8.3) or entity is required to be made or obtained by the
Company or its Subsidiaries in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby, except where the failure to obtain such consent, approval,
authorization, permit or declaration or to make such filing or registration
would not, individually or in the aggregate, have a Material Adverse Effect.

                  SECTION 2.7 Compliance. The Company and each of its
Subsidiaries is in compliance with all foreign, federal, state and local laws
and regulations applicable to its operations or with respect to which compliance
is a condition of engaging in the business thereof (including, without
limitation, all Environmental Laws), except to the extent that failure to comply
would not, individually or in the aggregate, have a Material Adverse Effect. To
the knowledge of the Company, neither the Company nor any of its Subsidiaries
has received any notice asserting a failure, or possible failure, to comply with
any such law or regulation, the subject of which notice has not been resolved as
required thereby or otherwise to the satisfaction of the party sending the
notice, except for such failure as would not, individually or in the aggregate,
have a Material Adverse Effect. The Company and its Subsidiaries have all
permits, licenses and franchises from governmental agencies required to conduct
their respective businesses as they are now being conducted, except for such
failures to have such permits, licenses and franchises that would not,
individually or in the aggregate, have a Material Adverse Effect.

                  SECTION 2.8 SEC Documents. (a) The Company has delivered or
made available to Parent true and complete copies of each registration
statement, proxy or information statement, form, report and other documents
required to be filed by it with the Securities and Exchange Commission (the
"SEC") since January 1, 1996 (collectively, the "Company SEC Reports"). As of
their respective dates, the Company SEC Reports and any registration statements,
reports, forms, proxy or information statements and other documents filed by the
Company with the SEC after the date of this Agreement (i) complied, or, with
respect to those not yet filed, will comply, in all material respects with the
applicable requirements of the Securities Act and the Exchange Act and (ii) did
not, or, with respect to those not yet filed, will not, contain any untrue
statement of a material fact or omit to state


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<PAGE>   201
a material fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading.

                  (b) Each of the consolidated balance sheets of the Company
included in or incorporated by reference into the Company SEC Reports (including
the related notes and schedules) presents fairly, in all material respects, the
consolidated financial position of the Company and its consolidated Subsidiaries
as of its date, and each of the consolidated statements of income, retained
earnings and cash flows of the Company included in or incorporated by reference
into the Company SEC Reports (including any related notes and schedules)
presents fairly, in all material respects, the results of operations, retained
earnings or cash flows, as the case may be, of the Company and its Subsidiaries
for the periods set forth therein (subject, in the case of unaudited statements,
to normal year-end audit adjustments), in each case in accordance with GAAP
consistently applied during the periods involved, except as may be noted
therein.

                  (c) Except as set forth in Section 2.8(c) of the Disclosure
Schedule and except as set forth in the Company SEC Reports filed prior to the
date of this Agreement (the "Recent Company SEC Reports"), neither the Company
nor any of its Subsidiaries has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) that would be required to
be reflected on, or reserved against in, a balance sheet of the Company or in
the notes thereto, prepared in accordance with GAAP consistently applied, except
for (i) liabilities or obligations that were so reserved on, or reflected in
(including the notes to), the consolidated balance sheet of the Company as of
December 28, 1996 and (ii) liabilities or obligations arising in the ordinary
course of business (including trade indebtedness) since December 28, 1996 which
would not, individually or in the aggregate, have a Material Adverse Effect.

                  SECTION 2.9 Litigation. Except as set forth in Section 2.9 of
the Disclosure Schedule and except as set forth in the Recent Company SEC
Reports, there is no Action instituted, pending or, to the knowledge of the
Company, threatened, in each case against the Company or any of its
Subsidiaries, which would, individually or in the aggregate, directly or
indirectly, have a Material Adverse Effect, nor is there any outstanding
judgment, decree, or injunction, in each case against the Company or any of its
Subsidiaries, or any statute, rule or order of any domestic or foreign court,
governmental department, commission or agency applicable to the Company or any
of its Subsidiaries which has or will have, individually or in the aggregate,
any Material Adverse Effect.

                  SECTION 2.10 Absence of Certain Changes. Except as set forth
in Section 2.10 of the Disclosure Schedule and except as set forth in the Recent
Company SEC Reports and except for the transactions expressly contemplated
hereby, since December 28,


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<PAGE>   202
1996, the Company and its Subsidiaries have conducted their respective
businesses only in the ordinary and usual course consistent with past practices
and there has not been any (i) change in the Company's business, operations,
condition (financial or otherwise), results of operations, assets or
liabilities, except for changes contemplated hereby or changes which have not,
individually or in the aggregate, had a Material Adverse Effect, or (ii)
condition, event or occurrence which, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect. Except as set
forth in Section 2.10 of the Disclosure Schedule and except as set forth in the
Recent Company SEC Reports, from September 6, 1997 through the date of this
Agreement, neither the Company nor any of its Subsidiaries has taken any of the
actions prohibited by Section 4.1 hereof.

                  SECTION 2.11 Taxes. Except as set forth in Section 2.11 of the
Disclosure Schedule:

                  (a) the Company and its Subsidiaries have (A) duly filed (or
there have been filed on their behalf) with the appropriate governmental
authorities all Tax Returns (as defined in Section 8.3) required to be filed by
them and such Tax Returns are true, correct and complete in all respects, except
where any such failure to file, or failure to be true, correct and complete,
would not, individually or in the aggregate, have a Material Adverse Effect, and
(B) duly paid in full all Taxes shown to be due on such Tax Returns;

                  (b) the Company and its Subsidiaries have complied in all
material respects with all applicable laws, rules and regulations relating to
the withholding of Taxes and the payment of such withheld Taxes to the proper
governmental authorities, except where any such failure to comply, withhold or
pay over would not, individually or in the aggregate, have a Material Adverse
Effect;

                  (c) All federal income Tax Returns of the Company and its
Subsidiaries for periods through the taxable year ended in 1993 have been
audited, and no federal or material state, local or foreign audits or other
administrative proceedings or court proceedings are presently being conducted
with regard to any Taxes or Tax Returns of the Company or its Subsidiaries and
neither the Company nor its Subsidiaries has received a written notice of any
pending audits with respect to material Taxes or material Tax Returns of the
Company, and neither the Company nor any of its Subsidiaries has waived in
writing any statute of limitations with respect to material Taxes;

                  (d) Neither the Internal Revenue Service nor any other taxing
authority (whether domestic or foreign) has asserted in writing against the
Company or any of its Subsidiaries any deficiency or claim for Taxes, except
where any such deficiency or claim for Taxes, if decided adversely to the
Company or any of


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its Subsidiaries, would not, individually or in the aggregate, have a Material
Adverse Effect;

                  (e) There are no material liens for Taxes upon any Property or
Assets of the Company or any Subsidiary thereof, except for liens for Taxes not
yet due and payable and liens for Taxes that are being contested in good faith
by appropriate proceedings, and no material written power of attorney that has
been granted by the Company or its Subsidiaries (other than to the Company or a
Subsidiary) currently is in force with respect to any matter relating to Taxes;

                  (f) Neither the Company nor any of its Subsidiaries has, with
regard to any assets or property held by any of them, agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
such term is defined in Section 341(f)(4) of the Code) owned by the Company or
any of its Subsidiaries; and

                  (g) Since January 1, 1994, none of the Company or its
Subsidiaries has been a member of an Affiliated Group filing a consolidated
federal income tax return other than a group the common parent of which is the
Company.

                  SECTION 2.12  Employee Benefit Plans.

                  (a) Section 2.12 of the Disclosure Schedule contains a
complete list of all Employee Plans which the Company and its Subsidiaries
maintain, administer or contribute to, or are required to contribute to as of
the date hereof. To the extent in the Company's or its Subsidiaries' possession,
true and complete copies or descriptions of the Employee Plans of the Company
and its Subsidiaries, including, without limitation, trust instruments, if any,
that form a part thereof, and all amendments thereto have been furnished or made
available to Parent and its counsel.

                  (b) Except as described in Section 2.12 of the Disclosure
Schedule, each of the Employee Plans of the Company and of its ERISA Affiliates
(other than any Multiemployer Plan) has been administered and is in compliance
with the terms of such Employee Plan and all applicable laws, rules and
regulations except for noncompliance which could not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect.

                  (c) No "reportable event" (as such term is used in section
4043 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), "prohibited transaction" (as such term is used in section 406 of
ERISA or section 4975 of the Code), "nondeductible contributions" (as such term
is used in Section 4972 of the Code) or "accumulated funding deficiency" (as
such term is used in section 412 or 4971 of the Code) has heretofore occurred
with respect to any Employee Plan (other than


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any Multiemployer Plan) of the Company or any ERISA Affiliate, except for such
events which would not, individually or in the aggregate, have a Material
Adverse Effect.

                  (d) No litigation or administrative or other proceeding
involving any Employee Plans of the Company or any of its ERISA Affiliates
(other than any Multiemployer Plan) has occurred or are threatened where an
adverse determination could, individually or in the aggregate, have a Material
Adverse Effect.

                  (e) Except as set forth in Section 2.12 of the Disclosure
Schedule, neither the Company nor any ERISA Affiliate of the Company has
incurred any withdrawal liability with respect to any Multiemployer Plan under
Title IV of ERISA which remains unsatisfied, except for such liabilities as
would not, individually or in the aggregate, have a Material Adverse Effect.

                  (f) All of the Employee Plans of the Company or its
Subsidiaries (other than any Multiemployer Plan) can be terminated by the
Company without incurring any material liability. Subject to any collective
bargaining obligations, except as set forth in Section 2.12(f) of the Disclosure
Schedule, the Company and its Subsidiaries can withdraw from participation in
any Employee Plan that is a Multiemployer Plan. Except as set forth in Section
2.12(f) of the Disclosure Schedule, any termination of, or withdrawal from, any
Employee Plans of the Company or its Subsidiaries, on or prior to the Closing
Date, would not subject the Company to any liability under Title IV of ERISA
that would individually or in the aggregate have a Material Adverse Effect.

                  (g) Neither the Company nor any of its controlled or
controlling Affiliates is aware of any situation with respect to a Multiemployer
Plan described in (b), (c) or (d) above, except as described in Section 2.12 of
the Disclosure Schedule.

                  (h) The transactions contemplated by this Agreement will not
cause the occurrence of a situation described in Section 2.12 (b), (c), (d) or
(e) as of or after the Effective Time.

                  SECTION 2.13 No Other Agreements to Sell the Company or its
Assets. The Company has no legal obligation, absolute or contingent, to any
other Person to sell any material portion of the Assets of the Company, to sell
any material portion of the capital stock or other ownership interests of the
Company or any of its Subsidiaries, or to effect any merger, consolidation or
other reorganization of the Company or any of its Subsidiaries or to enter into
any agreement with respect thereto.

                  SECTION 2.14 Assets. (a) Except as set forth in Section
2.14(a) of the Disclosure Schedule, the Company and its Subsidiaries have good
and marketable title to or a valid leasehold estate in all of the material
properties and assets, real or personal, reflected on the Company's balance
sheet at


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December 28, 1996 (except for properties or assets subsequently sold in the
ordinary course of business consistent with past practice). Except as set forth
in Section 2.14(a) of the Disclosure Schedule, the Company and its Subsidiaries
have good and marketable title or a valid right to use all of the real
properties that are necessary, and all of the personal assets and properties
that are materially necessary, for the conduct of the business of the Company or
any of its Subsidiaries free and clear of all Encumbrances (other than Permitted
Encumbrances).

                  (b) Section 2.14(b) of the Disclosure Schedule sets forth a
complete and accurate list of each improved or unimproved real property (whether
owned or leased, "Property") and/or store, office, plant or warehouse
("Facility") owned or leased by the Company or any of its Subsidiaries, and the
current use of such Property or Facility and indicating whether the Property or
Facility is owned or leased.

                  (c) There are no pending or, to the knowledge of the Company,
threatened condemnation or similar proceedings against the Company or any of its
Subsidiaries or, to the knowledge of the Company, otherwise relating to any of
the Properties or Facilities of the Company and its Subsidiaries except for such
proceedings which would not, individually or in the aggregate, have a Material
Adverse Effect.

                  (d) Section 2.14(d) of the Disclosure Schedule sets forth a
complete and accurate list of all Leases (including subleases and licenses) of
personal property entered into by the Company or any of its Subsidiaries and
involving any annual expense to the Company or any such Subsidiary in excess of
$250,000 and/or not cancelable (without material liability) within two (2)
years.

                  (e) Section 2.14(e) of the Disclosure Schedule indicates each
Lease entered into by the Company or any of its Subsidiaries, as a tenant or
subtenant.

                  (f) The Company or its Subsidiaries, as the case may be, has
in all material respects performed all obligations on its part required to have
been performed with respect to (i) all Assets leased by it or to it (whether as
lessor or lessee), and (ii) all Leases and there exists no material default or
event which, with the giving of notice or lapse of time or both, would become a
default on the part of the Company or any of its Subsidiaries under any Lease,
in each case except where the failure to perform or such default or event would
not, individually or in the aggregate, have a Material Adverse Effect.

                  (g) To the knowledge of the Company, each of the Leases is
valid, binding and enforceable in accordance with its terms (subject to the
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights


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generally, general equitable principles (whether considered on a proceeding in
equity or at law) and an implied covenant of good faith and fair dealing) and is
in full force and effect, and assuming all consents required by the terms
thereof or applicable law have been obtained, the Leases will continue to be
valid, binding and enforceable in accordance with their respective terms and in
full force and effect immediately following the consummation of the transactions
contemplated hereby, in each case except where the failure to be valid, binding
and enforceable and in full force and effect would not, individually or in the
aggregate, have a or Material Adverse Effect.

                  (h) Except as shown on Section 2.14(h) of the Disclosure
Schedule, the Company has delivered to Parent, or otherwise made available,
originals or true copies of all material Leases (as the same may have been
amended or modified, in any material respect, from time to time).

                  SECTION 2.15 Contracts and Commitments. Section 2.15 of the
Disclosure Schedule contains a complete and accurate list of all contracts
(written or oral), plans, undertakings, commitments or agreements ("Contracts")
of the following categories to which the Company or any of its Subsidiaries is a
party or by which any of them is bound as of the date of this Agreement:

                  (a) employment contracts, including, without limitation,
         contracts to employ executive officers and other contracts with
         officers, directors or shareholders of the Company, and all severance,
         change in control or similar arrangements with any officers, employees
         or agents of the Company that will result in any obligation (absolute
         or contingent) of the Company or any of its Subsidiaries to make any
         payment to any officers, employees or agents of the Company following
         either the consummation of the transactions contemplated hereby,
         termination of employment, or both;

                  (b) Labor contracts;

                  (c) material distribution, franchise, license, sales, agency
         or advertising contracts;

                  (d) Contracts for the purchase of inventory which are not
         cancelable (without material penalty, cost or other liability) within
         one (1) year (other than Contracts for the purchase of holiday goods in
         accordance with customary industry practices) and other Contracts made
         in the ordinary course of business involving annual expenditures or
         liabilities in excess of $400,000 which are not cancelable (without
         material penalty, cost or other liability) within ninety (90) days;


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                  (e) promissory notes, loans, agreements, indentures, evidences
         of indebtedness or other instruments providing for the lending of
         money, whether as borrower, lender or guarantor, in excess of $250,000;

                  (f) Contracts (other than Leases) containing covenants
         limiting the freedom of the Company or any of its Subsidiaries to
         engage in any line of business or compete with any Person or operate at
         any location;

                  (g) joint venture or partnership agreements or joint
         development or similar agreements pursuant to which any third party is
         entitled to develop any Property and/or Facility on behalf of the
         Company or its Subsidiaries;

                  (h) any Contract where the customer under such Contract is a
         federal, state or local government;

                  (i) any Contract pending for the acquisition, directly or
         indirectly (by merger or otherwise) of material assets (other than
         inventory) or capital stock of another Person; and

                  (j) Contracts involving annual expenditures or liabilities in
         excess of $400,000 which are not concealable (without material penalty,
         cost or other liability) within ninety (90) days.

                  True copies of the written Contracts identified in Section
2.15 of the Disclosure Schedule have been delivered or made available to Parent.

                  SECTION 2.16 Absence of Breaches or Defaults. Except as set
forth in Section 2.16 of the Disclosure Schedule, neither the Company nor any of
its Subsidiaries is and, to the knowledge of the Company, no other party is in
default under, or in breach or violation of, any Contract identified on Section
2.15 of the Disclosure Schedule and, to the knowledge of the Company, no event
has occurred which, with the giving of notice or passage of time or both would
constitute a default under any Contract identified on Section 2.15 of the
Disclosure Schedule, except for defaults, breaches, violations or events which,
individually or in the aggregate, would not have a Material Adverse Effect.
Other than contracts which have terminated or expired in accordance with their
terms, each of the Contracts identified on Section 2.15 of the Disclosure
Schedule is valid, binding and enforceable in accordance with its terms (subject
to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered on a proceeding in
equity or at law) and an implied covenant of good faith and fair dealing) and is
in full force and effect, and assuming all consents required by the terms
thereof or applicable law have been obtained, such Contracts will


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continue to be valid, binding and enforceable in accordance with their
respective terms and in full force and effect immediately following the
consummation of the transactions contemplated hereby, in each case except where
the failure to be valid, binding, enforceable and in full force and effect would
not, individually or in the aggregate, have a Material Adverse Effect. No event
has occurred which either entitles, or would, on notice or lapse of time or
both, entitle the holder of any indebtedness for borrowed money affecting the
Company or any of its Subsidiaries (except for the execution of this Agreement
and the Shareholder Agreements) to accelerate, or which does accelerate, the
maturity of any indebtedness affecting the Company or any of its Subsidiaries,
except as set forth in Section 2.16 of the Disclosure Schedule.

                  SECTION 2.17 Labor Matters.

                  (a) Section 2.17(a) of the Disclosure Schedule contains a
complete list of all organizations representing the employees of the Company or
any of its Subsidiaries. As of the date hereof, there is no strike, work
stoppage or labor disturbance, pending or, to the knowledge of the Company,
threatened, which involves any employees of the Company or any of its
Subsidiaries.

                  (b) Section 2.17(b) of the Disclosure Schedule contains as of
the date hereof (i) a list of all material unfair employment or labor practice
charges which are presently pending which, to the knowledge of the Company, have
been filed with any governmental authority by or on behalf of any employee
against the Company or any of its Subsidiaries and (ii) a list of all material
employment-related litigation, including, without limitation, arbitrations or
administrative proceedings which are presently pending, filed by or on behalf of
any former, current or prospective employee against the Company or any of its
Subsidiaries.

                  (c) Except as described in Sections 2.17(a) and (b) of the
Disclosure Schedule, there are not presently pending or, to the knowledge of the
Company, threatened, against the Company or any of its Subsidiaries any claims
by any governmental authority, labor organization, or any former, current or
prospective employee alleging that the Company or any such employer has violated
any applicable laws respecting employment practices, except where such claims
would not, individually or in the aggregate, have a Material Adverse Effect.
Except as disclosed in Schedule 2.17(c) of the Disclosure Schedule, the Company
and each of its Subsidiaries is in compliance in all respects with its
obligations under all statutes, executive orders and other governmental
regulations or judicial decrees governing its employment practices, including,
without limitation, provisions relating to wages, hours, equal opportunity and
payment of social security and other taxes and has timely filed all regular
federal and state employment related reports and other documents, except


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for such failures to be in compliance or failure to file that would not,
individually or in the aggregate, have a Material Adverse Effect.

                  SECTION 2.18 Insurance. All material fire and casualty,
general liability, business interruption, product liability, and sprinkler and
water damage insurance policies maintained by the Company or any of its
Subsidiaries are with reputable insurance carriers, provide adequate coverage
for normal risks incident to the business of the Company and its Subsidiaries
and their respective Properties and Assets, and are in character and amount
substantially equivalent to that carried by Persons engaged in similar
businesses and subject to the same or similar perils or hazards, except for any
such failures to maintain insurance policies that, individually or in the
aggregate, are not reasonably likely to have a Material Adverse Effect.

                  SECTION 2.19 Affiliate Transactions. Except as set forth in
the Recent Company SEC Reports and as set forth in Schedule 2.19 of the
Disclosure Schedule, from December 31, 1996 through the date of this Agreement
there have been no transactions, agreements, arrangements or understandings
between the Company or any of its Subsidiaries, on the one hand, and Company
Affiliates (other than wholly owned Subsidiaries of the Company) or other
Persons, on the other hand, that would be required to be disclosed under Item
404 of Regulation S-K under the Securities Act.

                  SECTION 2.20 Environmental Matters. Except as set forth in
Section 2.20 of the Disclosure Schedule, to the knowledge of the Company each of
the Properties and Facilities has been maintained by the Company in compliance
with all Environmental Laws, except where the failure to so comply, or any
aggregation of such failures, would not, individually or in the aggregate, have
a Material Adverse Effect. Except as disclosed on Schedule 2.20, to the
knowledge of the Company, there are no Hazardous Materials which have been or
are being released or disposed of by the Company or any of its Subsidiaries, or
in the case of asbestos only, is present, on any property, the cost of
remediation of which to the Company would reasonably be expected individually or
in the aggregate to have a Material Adverse Effect. Expect as disclosed on
Schedule 2.20, to the knowledge of the Company, there are no Hazardous Materials
which have been or are being released by persons other than the Company or any
of its Subsidiaries and which have encroached through the soil or groundwater
onto or under the Properties and Facilities where the cost to Company of
remediation of such Hazardous Materials would reasonably be expected
individually or in the aggregate to have a Material Adverse Effect. Except as
set forth in Section 2.20 of the Disclosure Schedule, (i) there are no existing
uncured written notices of noncompliance, notices of violation, administrative
actions, or lawsuits against the Company or any of its Subsidiaries arising
under Environmental Laws or relating to


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the use, handling, storage, treatment, recycling, generation, or release of
Hazardous Materials, nor has the Company received any uncured written
notification of any allegation of any responsibility for any disposal, release,
or threatened release at any location of any Hazardous Materials, except in any
such case which would not, individually or in the aggregate, be reasonably
expected to have a Material Adverse Effect; (ii) there are no consent decrees,
consent orders, judgments, judicial or administrative orders, or liens by any
governmental authority relating to any Environmental Law which have not already
been fully satisfied and which name the Company or any of its Subsidiaries,
except in any such case which would not, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect; and (iii) to the
knowledge of the Company, except as set forth in Section 2.20 of the Disclosure
Schedule, no Properties or Facilities of the Company or any Subsidiary are
listed on the federal National Priorities List, the federal Comprehensive
Environmental Response Compensation Liability Information System list, or any
similar state listing of sites known to be contaminated with Hazardous
Materials. Except as set forth in Section 2.20 of the Disclosure Schedule, there
are no budgeted expenses or capital costs that will be required in the next two
years to maintain compliance with Environmental Laws, except in any such case
which would not be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect.

                  SECTION 2.21 Forms S-3 and S-4; Offer to Purchase; Joint Proxy
Statement. None of the information supplied by the Company for inclusion or
incorporation by reference in (i) either the registration statement on Form S-4
to be filed with the SEC by Parent in connection with the issuance of shares of
Parent Common Stock in the Merger, or any of the amendments or supplements
thereto (collectively, the "Form S-4"), or the registration statement on Form
S-3 to be filed by Parent, F4LH, the Company and their respective subsidiaries
relating to the debt securities that may be sold by Parent prior to or following
the Merger (the "Form S-3") will, at the time such Form is filed with the SEC,
at any time it is amended or supplemented and at the time it becomes effective
under the Securities Act, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, (ii) the joint proxy statement for
use relating to the approval by the shareholders of the Company of the Merger
and the approval by the stockholders of Parent of the issuance of shares of
Parent Common Stock in the Merger or any of the amendments or supplements
thereto (collectively, the "Joint Proxy Statement"), will, at the date it is
first mailed to the Company's shareholders and Parent's stockholders and at the
time of the meeting of the Company's shareholders held to vote on approval of
this Agreement and at the time of the meeting of Parent's stockholders held to
vote on approval of the issuance of the shares of Parent Common Stock in the
Merger, contain any untrue statement of material fact or omit


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to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading and (iii) the Offer to Purchase and Consent
Solicitation Statement of the Company in connection with the consummation of the
transactions pursuant to this Agreement (the "Offer to Purchase"), will, at the
date it is first mailed to bondholders and at each consent date thereunder,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Joint Proxy Statement will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and regulations
thereunder, except that no representation is made by the Company with respect to
statements made or incorporated by reference therein based on information
supplied by Parent or Sub for inclusion or incorporation by reference in the
Joint Proxy Statement.

                  SECTION 2.22 Opinion of Financial Advisor. The Company has
received the written opinion of Merrill Lynch & Co. (the "Company Financial
Advisor"), dated the date hereof, to the effect that the consideration to be
received in the Merger by the Company's shareholders is fair to such
shareholders from a financial point of view. The Company has been authorized by
the Company Financial Advisor to permit, subject to prior review and consent by
such Company Financial Adviser (such consent not to be unreasonably withheld),
the inclusion of such fairness opinion (or a reference thereto) in the Form S-4
and the Joint Proxy Statement.

                  SECTION 2.23 Brokers. No broker, finder or investment banker
(other than the Company Financial Adviser) is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company. The Company has heretofore furnished to Parent a complete and
correct copy of all agreements between the Company and the Company Financial
Adviser pursuant to which such firm would be entitled to any payment relating to
the transactions contemplated hereby.

                  SECTION 2.24 Vote Required. The affirmative vote of the
holders of a majority of the outstanding shares of Company Common Stock entitled
to vote thereon is the only vote of the holders of any class or series of the
Company's capital stock necessary to approve the Merger. The Board of Directors
of the Company (the "Company Board") (at a meeting duly called and held) has (i)
unanimously approved this Agreement and the Shareholder Agreements, (ii)
determined that the Merger is fair to and in the best interests of the holders
of Company Common Stock, (iii) resolved (subject to Section 5.1(b)) to recommend
this Agreement and the Merger to such holders for approval and adoption and (iv)
directed (subject to Section 5.1(b)) that this Agreement be submitted to the
Company's shareholders. The Company hereby


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agrees to the inclusion in the Form S-4 and the Joint Proxy Statement of the
recommendations of the Company Board described in this Section 2.24.

                  SECTION 2.25 Chapter 23B.19 of the WBCL; State Takeover
Statutes. Prior to the date hereof, the Board of Directors of the Company has
approved this Agreement and the Shareholder Agreements, and the Merger and the
other transactions contemplated hereby and thereby, and such approval is
sufficient to render inapplicable to the Merger and any of such other
transactions the provisions of Chapter 23B.19 of the WBCL. To the Company's
knowledge, no other state takeover statute or similar statute or regulation
applies or purports to apply to the Merger, this Agreement, the Shareholder
Agreements or any of the transactions contemplated hereby or thereby and no
provision of the articles of incorporation, by-laws or other governing
instruments of the Company or any of its Subsidiaries would, directly or
indirectly, restrict or impair the ability of Parent to vote, or otherwise to
exercise the rights of a shareholder with respect to, shares of the Company and
its Subsidiaries that may be acquired or controlled by Parent as contemplated by
this Agreement or the Shareholders Agreements.

                  SECTION 2.26 Accounting Matters. Neither the Company nor any
of its Affiliates, has taken or agreed to take any action that, to the Company's
knowledge (without regard to any action taken or agreed to be taken by Parent or
any of its affiliates), would prevent Parent from accounting for the business
combination to be effected by the Merger as a pooling of interests.

                  SECTION 2.27 Tax Matters. Neither the Company nor any of its
Affiliates, has taken or agreed to take any action, or knows of any
circumstances, that (without regard to any action taken or agreed to be taken by
Parent or any of its Affiliates) would prevent the Merger from qualifying as a
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Code.


                                   ARTICLE III

                        REPRESENTATIONS AND WARRANTIES OF
                                 PARENT AND SUB

                  Parent and Sub hereby, jointly and severally, represent and
warrant to the Company that:

                  SECTION 3.1 Organization and Qualification. Each of Parent and
Sub is duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization, with the corporate power and authority to
own and operate its businesses as presently conducted. Each of Parent and Sub is
duly qualified as a foreign corporation or other entity to do business and is in
good standing in each jurisdiction where the


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<PAGE>   213
character of its properties owned or held under lease or the nature of its
activities makes such qualification necessary, except for such failures of
Parent and Sub to be so qualified as would not, individually or in the
aggregate, have a Material Adverse Effect. Parent has previously made available
to the Company true and correct copies of the certificate of incorporation and
bylaws of each of Parent and Sub.

                  SECTION 3.2 Authorization; Validity and Effect of Agreement.
Each of Parent and Sub has the requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Parent and Sub and the performance by them of their respective
obligations hereunder and the consummation by them of the transactions
contemplated hereby have been duly authorized by the Board of Directors of
Parent and Sub, and all other necessary corporate action on the part of Parent
or Sub, other than the approval of the issuance of the shares of Parent Common
Stock in the Merger by the shareholders of Parent, and no other corporate
proceedings on the part of Parent or Sub are necessary to authorize this
Agreement and the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Parent and Sub and constitutes a legal,
valid and binding obligation of Parent and Sub, enforceable against them in
accordance with its terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.

                  SECTION 3.3 Capitalization. (a) The authorized capital stock
of Parent consists of (i) 400,000,000 shares of Parent Common Stock and (ii)
100,000,000 shares of preferred stock, par value $.01 per share ("Parent
Preferred Stock"). As of November 6, 1997, 91,506,211 shares of Parent Common
Stock and no shares of Parent Preferred Stock were issued and outstanding; and
no shares of Parent Common Stock are held in Parent's treasury as of the date
hereof. All of the issued and outstanding shares of Parent Common Stock are
validly issued, fully paid and non-assessable. Except pursuant to the exercise
of employee options prior to the date hereof, since November 7, 1977, no shares
of Parent Common Stock or Parent Preferred Stock have been issued. As of the
date hereof, except as set forth on Section 3.3 of the disclosure schedule
delivered by Parent to the Company prior to the execution of this Agreement (the
"Parent Disclosure Schedule"), there are no existing options, warrants, calls,
subscriptions, convertible securities or other securities, agreements (other
than this Agreement), commitments or obligations which would require Parent to
issue or sell shares of Parent Common Stock, Parent Preferred Stock or any other
equity securities, or securities convertible into or exchangeable or exercisable
for shares of Parent Common Stock, Parent Preferred


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Stock or any other equity securities of Parent as of the date hereof. Except as
set forth on Section 3.3 of the Parent Disclosure Schedule, Parent has no
commitments or obligations to purchase or redeem any shares of capital stock of
any class of Parent Common Stock.

                  (b) The authorized capital stock of Sub consists of 100 shares
of common stock, par value $.01 per share, 100 shares of which are duly
authorized, validly issued and outstanding, fully paid and nonassessable and
owned by Parent free and clear of all liens, claims and encumbrances. Sub was
formed solely for the purpose of engaging in a business combination transaction
with the Company and has engaged in no other business activities and has
conducted its operations only as contemplated hereby.

                  SECTION 3.4 Subsidiaries. The only Subsidiaries of Parent are
those set forth in Section 3.4 of the Parent Disclosure Schedule. All of the
outstanding shares of capital stock and other ownership interests of each of
Parent's Subsidiaries are validly issued, fully paid, non-assessable and free of
preemptive rights, rights of first refusal or similar rights. Except as set
forth in Section 3.4 of the Parent Disclosure Schedule, Parent owns, directly or
indirectly, all of the issued and outstanding capital stock and other ownership
interests of each of its Subsidiaries, free and clear of all Encumbrances, and
there are no existing options, warrants, calls, subscriptions, convertible
securities or other securities, agreements, commitments or obligations of any
character relating to the outstanding capital stock or other securities of any
Subsidiary of Parent or which would require any Subsidiary of Parent to issue or
sell any shares of its capital stock, ownership interests or securities
convertible into or exchangeable for shares of its capital stock or ownership
interests.

                  SECTION 3.5 Other Interests. Except as set forth in Schedule
3.5 of the Parent Disclosure Schedule, neither Parent nor any of Parent's
Subsidiaries owns, directly or indirectly, any interest or investment in the
equity or debt for borrowed money of any corporation, partnership, limited
liability company, joint venture, business, trust or other Person (other than
Parent's Subsidiaries).

                  SECTION 3.6 No Conflict; Required Filings and Consents. (a)
Except as set forth in Section 3.6 of the Parent Disclosure Schedule, neither
the execution and delivery of this Agreement nor the performance by Parent and
Sub of their obligations hereunder, nor the consummation of the transactions
contemplated hereby, will: (i) conflict with Parent's or Sub's certificate of
incorporation or bylaws; (ii) assuming satisfaction of the requirements set
forth in Section 3.6(b) below, violate any statute, law, ordinance, rule or
regulation, applicable to Parent or any of its Subsidiaries or any of their
properties or assets; or (iii) violate, breach, be in conflict


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with or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or permit the termination of any
provision of, or result in the termination of, the acceleration of the maturity
of, or the acceleration of the performance of any obligation of Parent or any of
its Subsidiaries, or cause an indemnity payment to be made by the Parent or any
of its Subsidiaries under, or result in the creation of imposition of any lien
upon any properties, assets or business of Parent or any of its Subsidiaries
under, any note, bond, indenture, mortgage, deed of trust, lease, franchise,
permit, authorization, license, contract, instrument or other agreement or
commitment or any order, judgment or decree to which Parent or any of its
Subsidiaries is a party or by which Parent or any of its Subsidiaries or any of
their respective assets or properties is bound or encumbered, or give any Person
the right to require Parent or any of its Subsidiaries to purchase or repurchase
any notes, bonds or instruments of any kind except, in the case of clauses (ii)
and (iii), for such violations, breaches, conflicts, defaults or other
occurrences which, individually or in the aggregate, would not have a Material
Adverse Effect.

                  (b) Except (i) for applicable requirements, if any, of the
Exchange Act, the Securities Act and Blue Sky Laws, (ii) for the pre-merger
notification requirements of the HSR Act, (iii) for the filing of articles of
merger pursuant to the WBCL, and (iv) with respect to matters set forth in
Section 3.6(a) or 3.6(b) of the Parent Disclosure Schedule, no consent, approval
or authorization of, permit from, or declaration, filing or registration with,
any governmental or regulatory authority, or any other Person or entity is
required to be made or obtained by Parent or Sub in connection with the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby, except where the failure to obtain such
consent, approval, authorization, permit or declaration or to make such filing
or registration would not, individually or in the aggregate, have a Material
Adverse Effect.

                  SECTION 3.7 Compliance. Parent and each of its Subsidiaries is
in compliance with all foreign, federal, state and local laws and regulations
applicable to its operations or with respect to which compliance is a condition
of engaging in the business thereof (including, without limitation, all
Environmental Laws), except to the extent that failure to comply would not,
individually or in the aggregate, have a Material Adverse Effect. To the
knowledge of Parent, neither Parent nor any of its Subsidiaries has received any
notice asserting a failure, or possible failure, to comply with any such law or
regulation, the subject of which notice has not been resolved as required
thereby or otherwise to the satisfaction of the party sending the notice, except
for such failure as would not, individually or in the aggregate, have a Material
Adverse Effect. Parent and its Subsidiaries have all permits, licenses and
franchises from governmental agencies required to conduct their


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respective businesses as they are now being conducted, except for such failures
to have such permits, licenses and franchises that would not, individually or in
the aggregate, have a Material Adverse Effect.

                  SECTION 3.8 SEC Documents. (a) Parent has delivered or made
available to the Company true and complete copies of each registration
statement, proxy or information statement, form, report and other documents
required to be filed by it (or by Fred Meyer Stores, Inc. ("FMSI") or Smith's
Food & Drug Centers, Inc. ("Smith's") with the SEC since January 1, 1996
(collectively, the "Parent SEC Reports"). As of their respective dates, the
Parent SEC Reports and any registration statements, reports, forms, proxy or
information statements and other documents filed by Parent with the SEC after
the date of this Agreement (i) complied, or, with respect to those not yet
filed, will comply, in all material respects with the applicable requirements of
the Securities Act and the Exchange Act and (ii) did not, or, with respect to
those not yet filed, will not, contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading.

                  (b) Each of the consolidated balance sheets included in or
incorporated by reference into Parent SEC Reports (including the related notes
and schedules) presents fairly, in all material respects, the consolidated
financial position of Parent (or FMSI or Smith's, as the case may be) and its
consolidated Subsidiaries as of its date, and each of the consolidated
statements of income, retained earnings and cash flows of Parent (or FMSI or
Smith's, as the case may be) included in or incorporated by reference into
Parent SEC Reports (including the related notes and schedules) presents fairly,
in all material respects, the results of operations, retained earnings or cash
flows, as the case may be, of Parent (or FMSI or Smith's, as the case may be)
and its Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments), in each case in
accordance with GAAP consistently applied during the periods involved, except as
may be noted therein.

                  (c) Except as set forth in the Parent SEC Reports filed prior
to the date of this Agreement or reports filed by Smith's with the SEC prior to
the date of this Agreement (together, the "Recent Parent SEC Reports"), neither
Parent nor any of its Subsidiaries has any liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise) that would be
required to be reflected on, or reserved against in, a balance sheet of Parent
or in the notes thereto, prepared in accordance with GAAP consistently applied,
except for (i) liabilities or obligations that were so reserved on, or reflected
in (including the notes to), the consolidated balance sheets of FMSI and Smith's
as of February 1, 1997, (ii)


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liabilities and obligations incurred or acquired in connection with the
transactions pursuant to the Smith's Merger Agreement and (iii) liabilities or
obligations arising in the ordinary course of business (including trade
indebtedness) since February 1, 1997 which would not, individually or in the
aggregate, have a Material Adverse Effect.

                  SECTION 3.9 Litigation. Except as set forth in Section 3.9 of
the Parent Disclosure Schedule or in the Recent Parent SEC Reports there is no
Action instituted, pending or, to the knowledge of Parent, threatened, in each
case against Parent or any of its Subsidiaries, which would, individually or in
the aggregate, directly or indirectly, have a Material Adverse Effect, nor is
there any outstanding judgment, decree, or injunction, in each case against
Parent or any of its Subsidiaries, or any statute, rule or order of any domestic
or foreign court, governmental department, commission or agency applicable to
Parent or any of its Subsidiaries which has or will have, individually or in the
aggregate, any Material Adverse Effect.

                  SECTION 3.10 Absence of Certain Changes. Except as set forth
in Section 3.10 of the Parent Disclosure Schedule or the Recent Parent SEC
Reports (including, without limitation, the transactions contemplated by the
proxy statement of Parent dated August 6, 1997) and except for the transactions
expressly contemplated hereby, since February 1, 1997, Parent and its
Subsidiaries have conducted their respective businesses only in the ordinary and
usual course consistent with past practices and there has not been any (i)
change in Parent's business, operations, condition (financial or otherwise),
results of operations, assets or liabilities, except for changes contemplated
hereby or changes which have not, individually or in the aggregate, had a
Material Adverse Effect, or (ii) condition, event or occurrence which,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect.

                  SECTION 3.11 Taxes. Except as set forth in Section 3.11 of the
Parent Disclosure Schedule:

                  (a) Parent and its Subsidiaries have (A) duly filed (or there
have been filed on their behalf) with the appropriate governmental authorities
all Tax Returns (as defined in Section 8.3) required to be filed by them and
such Tax Returns are true, correct and complete in all respects, except where
any such failure to file, or failure to be true, correct and complete, would
not, individually or in the aggregate, have a Material Adverse Effect, and (B)
duly paid in full and all Taxes shown to be due on such Tax Returns;

                  (b) Parent and its Subsidiaries have complied in all material
respects with all applicable laws, rules and regulations relating to the
withholding of Taxes and the payment of such


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withheld Taxes to the proper governmental authorities except where any such
failure to comply, withhold or pay over would not, individually or in the
aggregate, have a Material Adverse Effect;

                  (c) All federal income Tax Returns of Parent and its
Subsidiaries for periods through the taxable year ended in 1993 have been
audited, and no federal or material state, local or foreign audits or other
administrative proceedings or court proceedings are presently being conducted
with regard to any Taxes or Tax Returns of Parent or its Subsidiaries and
neither Parent nor its Subsidiaries has received a written notice of any pending
audits with respect to material Taxes or material Tax Returns of Parent, and
neither Parent nor any of its Subsidiaries has waived in writing any statute of
limitations with respect to material Taxes;

                  (d) Neither the Internal Revenue Service nor any other taxing
authority (whether domestic or foreign) has asserted in writing against Parent
or any of its Subsidiaries any deficiency or claim for Taxes, except where any
such deficiency or claim for Taxes, if decided adversely to the Parent or any of
its Subsidiaries, would not, individually or in the aggregate, have a Material
Adverse Effect;

                  (e) There are no material liens for Taxes upon any Property or
Assets of Parent or any Subsidiary thereof, except for liens for Taxes not yet
due and payable and liens for Taxes that are being contested in good faith by
appropriate proceedings, and no material written power of attorney that has been
granted by Parent or its Subsidiaries (other than to Parent or a Subsidiary)
currently is in force with respect to any matter relating to Taxes;

                  (f) Neither Parent nor any of its Subsidiaries has, with
regard to any assets or property held by any of them, agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
such term is defined in Section 341(f)(4) of the Code) owned by Parent or any of
its Subsidiaries; and

                  (g) Since January 1, 1994, none of Parent or its Subsidiaries
has been a member of an Affiliated Group filing a consolidated federal income
tax return other than a group the common parent of which is Parent.

                  SECTION 3.12  Employee Benefit Plans.

                  (a) Section 3.12 of the Parent Disclosure Schedule contains a
complete list of all Employee Plans which Parent and its Subsidiaries maintain,
administer or contribute to, or are required to contribute to as of the date
hereof. To the extent in the Parent's or its Subsidiaries' possession, true and
complete copies or descriptions of the Employee Plans of Parent and its
Subsidiaries, including, without limitation, trust


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instruments, if any, that form a part thereof, and all amendments thereto have
been furnished or made available to the Company and its counsel.

                  (b) Except as described in Section 3.12 of the Parent
Disclosure Schedule, each of the Employee Plans of Parent and of its ERISA
Affiliates (other than any Multiemployer Plan) has been administered and is in
compliance with the terms of such Employee Plan and all applicable laws, rules
and regulations except for noncompliance which could not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect.

                  (c) No "reportable event" (as such term is used in section
4043 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), "prohibited transaction" (as such term is used in section 406 of
ERISA or section 4975 of the Code), "nondeductible contributions" (as such term
is used in Section 4972 of the Code) or "accumulated funding deficiency" (as
such term is used in section 412 or 4971 of the Code) has heretofore occurred
with respect to any Employee Plan (other than any Multiemployer Plan) of Parent
or any ERISA Affiliate, except for such events which would not, individually or
in the aggregate, have a Material Adverse Effect.

                  (d) No litigation or administrative or other proceeding
involving any Employee Plans of Parent or any of its ERISA Affiliates (other
than any Multiemployer Plan) has occurred or are threatened where an adverse
determination could, individually or in the aggregate, have a Material Adverse
Effect.

                  (e) Except as set forth in Section 3.12 of the Parent
Disclosure Schedule, neither Parent nor any ERISA Affiliate of Parent has
incurred any withdrawal liability with respect to any Multiemployer Plan under
Title IV of ERISA which remains unsatisfied, except for such liabilities as
would not, individually or in the aggregate, have a Material Adverse Effect.


                  (f) All of the Employee Plans of Parent or its Subsidiaries
(other than any Multiemployer Plan) can be terminated by Parent without
incurring any material liability. Subject to any collective bargaining
obligations, Parent and its Subsidiaries can withdraw from participation in any
Employee Plan that is a Multiemployer Plan. Any termination of, or withdrawal
from, any Employee Plans of Parent or its Subsidiaries, on or prior to the
Closing Date, would not subject Parent to any material liability under Title IV
of ERISA.

                  (g) Neither Parent nor any of its controlled or controlling
Affiliates is aware of any situation with respect to a Multiemployer Plan
described in (b), (c) or (d) above, except as described in Section 3.12 of the
Parent Disclosure Schedule.


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                  (h) The transactions contemplated by this Agreement will not
cause the occurrence of a situation described in Section 3.12 (b), (c), (d) or
(e) as of or after the Effective Time.

                  SECTION 3.13 Assets. (a) Except as set forth in Section
3.13(a) of the Parent Disclosure Schedule, Parent and its Subsidiaries have good
and marketable title to or a valid leasehold estate in all of the material
properties and assets, real or personal, reflected on Parent's balance sheet at
February 1, 1997 (except for properties or assets subsequently sold in the
ordinary course of business consistent with past practice). Except as set forth
in Section 3.13(a) of the Parent Disclosure Schedule, Parent and its
Subsidiaries have good and marketable title or a valid right to use all of the
real properties that are necessary, and all of the personal assets and
properties that are materially necessary, for the conduct of the business of
Parent or any of its Subsidiaries free and clear of all Encumbrances (other than
Permitted Encumbrances).

                  (b) Section 3.13(b) of the Parent Disclosure Schedule sets
forth a complete and accurate list of each Property and/or Facility owned or
leased by Parent or any of its Subsidiaries, and the current use of such
Property or Facility and indicating whether the Property or Facility is owned or
leased.

                  (c) There are no pending or, to the knowledge of Parent,
threatened condemnation or similar proceedings against Parent or any of its
Subsidiaries or, to the knowledge of Parent, otherwise relating to any of the
Properties or Facilities of Parent and its Subsidiaries except for such
proceedings which would not, individually or in the aggregate, have a Material
Adverse Effect.

                  (d) Section 3.13(d) of the Parent Disclosure Schedule sets
forth a complete and accurate list of all Leases (including subleases and
licenses) of personal property entered into by Parent or any of its Subsidiaries
and involving any annual expense to Parent or any such Subsidiary in excess of
$250,000 and not cancelable (without material liability) within two (2) years.

                  (e) Section 3.13(e) of the Parent Disclosure Schedule
indicates each Lease entered into by Parent or any of its Subsidiaries as a
tenant or subtenant.

                  (f) Parent or its Subsidiaries, as the case may be, has in all
material respects performed all obligations on its part required to have been
performed with respect to (i) all Assets leased by it or to it (whether as
lessor or lessee), and (ii) all Leases and there exists no material default or
event which, with the giving of notice or lapse of time or both, would become a
default on the part of Parent or any of its Subsidiaries under any Lease, in
each case except where the failure to perform


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or such default or event would not, individually or in the aggregate, have a
Material Adverse Effect.

                  (g) To the knowledge of Parent, each of the Leases is valid,
binding and enforceable in accordance with its terms (subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered on a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing) and is in full force and
effect, and assuming all consents required by the terms thereof or applicable
law have been obtained, the Leases will continue to be valid, binding and
enforceable in accordance with their respective terms and in full force and
effect immediately following the consummation of the transactions contemplated
hereby, in each case except where the failure to be valid, binding and
enforceable and to have such effect would not, individually or in the aggregate,
have a Material Adverse Effect.

                  (h) Except as shown on Section 3.13(h) of the Parent
Disclosure Schedule, Parent has delivered to the Company, or otherwise made
available, originals or true copies of all material Leases (as the same may have
been amended or modified, in any material respect, from time to time).

                  SECTION 3.14 Contracts and Commitments. Section 3.14 of the
Parent Disclosure Schedule contains a complete and accurate list of all
Contracts of the following categories to which Parent or any of its Subsidiaries
is a party or by which any of them is bound as of the date of this Agreement:

                  (a) employment contracts, including, without limitation,
         contracts to employ executive officers and other contracts with
         officers, directors or shareholders of Parent, and any other Contracts
         with or for the benefits of Parent or its affiliates, and all
         severance, change in control or similar arrangements with any officers,
         employees or agents of Parent that will result in any obligation
         (absolute or contingent) of Parent or any of its Subsidiaries to make
         any payment to any officers, employees or agents of Parent following
         either the consummation of the transactions contemplated hereby,
         termination of employment, or both;

                  (b) Labor contracts;

                  (c) material distribution, franchise, license, sales, agency
         or advertising contracts;

                  (d) Contracts for the purchase of inventory which are not
         cancelable (without material penalty, cost or other liability) within
         one (1) year (other than Contracts for the purchase of holiday goods in
         accordance with customary


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         industry practices) and other Contracts made in the ordinary course of
         business involving annual expenditures or liabilities in excess of
         $400,000 which are not cancelable (without material penalty, cost or
         other liability) within ninety (90) days;

                  (e) promissory notes, loans, agreements, indentures, evidences
         of indebtedness or other instruments providing for the lending of
         money, whether as borrower, lender or guarantor, in excess of $250,000;

                  (f) Contracts (other than Leases) containing covenants
         limiting the freedom of Parent or any of its Subsidiaries to engage in
         any line of business or compete with any Person or operate at any
         location;

                  (g) joint venture or partnership agreements or joint
         development or similar agreements pursuant to which any third party is
         entitled to develop any Property and/or Facility on behalf of Parent or
         its Subsidiaries;

                  (h) any Contract where the customer under such Contract is a
         federal, state or local government;

                  (i) any Contract providing for the acquisition, directly or
         indirectly (by merger or otherwise) of material assets (other than
         inventory) or capital stock of another Person; and

                  (j) Contracts involving annual expenditures or liabilities in
         excess of $400,000, which are not cancelable (without material penalty,
         cost or other liability) within ninety (90) days.

                  True copies of the written Contracts identified in Section
3.14 of the Parent Disclosure Schedule have been delivered or made available to
the Company.

                  SECTION 3.15 Absence of Breaches or Defaults. Neither Parent
nor any of its Subsidiaries is and, to the knowledge of Parent, no other party
is in default under, or in breach or violation of, any Contract identified on
Section 3.14 of the Parent Disclosure Schedule and, to the knowledge of Parent,
no event has occurred which, with the giving of notice or passage of time or
both would constitute a default under any Contract identified on Section 3.14 of
the Parent Disclosure Schedule, except for defaults, breaches, violations or
events which, individually or in the aggregate, would not have a Material
Adverse Effect. Other than Contracts which have terminated as expired in
accordance with their terms each of the Contracts identified on Section 3.14 of
the Parent Disclosure Schedule is valid, binding and enforceable in accordance
with its terms (subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws


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relating to or affecting creditors' rights generally, general equitable
principles (whether considered as a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing) and is in full force and
effect, and assuming all consents required by the terms thereof or applicable
law have been obtained, such Contracts will continue to be valid, binding and
enforceable in accordance with their respective terms and in full force and
effect immediately following the consummation of the transactions contemplated
hereby in each case, except where the failure to be valid, binding, enforceable
and in full force and effect would not, individually or in the aggregate, have a
Material Adverse Effect. No event has occurred which either entitles, or would,
on notice or lapse of time or both, entitle the holder of any indebtedness for
borrowed money affecting Parent or any of its Subsidiaries to accelerate, or
which does accelerate, the maturity of any indebtedness affecting Parent or any
of its Subsidiaries, except as set forth in Section 3.15 of the Parent
Disclosure Schedule.

                  SECTION 3.16 Labor Matters.

                  (a) Section 3.16(a) of the Parent Disclosure Schedule contains
a complete list of all organizations representing the employees of Parent or any
of its Subsidiaries. As of the date hereof, there is no strike, work stoppage or
labor disturbance, pending or, to the knowledge of Parent, threatened, which
involves any employees of Parent or any of its Subsidiaries.

                  (b) Section 3.16(b) of the Parent Disclosure Schedule contains
as of the date hereof (i) a list of all material unfair employment or labor
practice charges which are presently pending, which, to the knowledge of Parent,
have been filed with any governmental authority by or on behalf of any employee
against Parent or any of its Subsidiaries and (ii) a list of all material
employment-related litigation, including, without limitation, arbitrations or
administrative proceedings which are presently pending filed by or on behalf of
any former, current or prospective employee against Parent or any of its
Subsidiaries.

                  (c) Except as described in Sections 3.16(a) and (b) of the
Parent Disclosure Schedule, there are not presently pending or, to the knowledge
of Parent, threatened, against Parent or any of its Subsidiaries any material
claims by any governmental authority, labor organization, or any former, current
or prospective employee alleging that Parent or any such employer has violated
any applicable laws respecting employment practices, except where such claims
would not, individually or in the aggregate, have a Material Adverse Effect.
Parent and each of its Subsidiaries is in compliance in all material respects
with its obligations under all statutes, executive orders and other governmental
regulations or judicial decrees governing its employment practices, including,
without limitation, provisions relating to wages, hours, equal opportunity and
payment of social security and other taxes and has timely filed all regular
federal


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and state employment related reports and other documents, except for such
failures to be in compliance or failure to file would not, individually or in
the aggregate, have a Material Adverse Effect.

                  SECTION 3.17 Insurance. All material fire and casualty,
general liability, business interruption, product liability, and sprinkler and
water damage insurance policies maintained by Parent or any of its Subsidiaries
are with reputable insurance carriers, provide adequate coverage for normal
risks incident to the business of Parent and its Subsidiaries and their
respective Properties and Assets, and are in character and amount substantially
equivalent to that carried by Persons engaged in similar businesses and subject
to the same or similar perils or hazards, except for any such failures to
maintain insurance policies that, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect.

                  SECTION 3.18 Environmental Matters. Except as set forth in
Section 3.18 of the Parent Disclosure Schedule, to the knowledge of Parent, each
of the Properties and Facilities has been maintained by Parent in compliance
with all Environmental Laws, except where the failure to so comply, or any
aggregation of such failures, would not, individually or in the aggregate, have
a Material Adverse Effect. Except as disclosed on Schedule 3.18, to the
knowledge of Parent, there are no Hazardous Materials which have been or are
being released or disposed of by Parent or any of its Subsidiaries, or in the
case of asbestos only, is present, on any property, the cost of remediation of
which to Parent would reasonably be expected individually or in the aggregate to
have a Material Adverse Effect. Except as disclosed on Schedule 3.18, to the
knowledge of Parent, there are no Hazardous Materials which have been or are
being released by persons other than Parent or any of its Subsidiaries and which
have encroached through the soil or groundwater onto or under the Properties and
Facilities where the cost to Parent of remediation of such Hazardous Materials
would reasonably be expected individually or in the aggregate to have a Material
Adverse Effect. Except as set forth in Section 3.18 of the Parent Disclosure
Schedule, (i) there are no existing uncured notices of noncompliance, notices of
violation, administrative actions, or lawsuits against Parent or any of its
Subsidiaries arising under Environmental Laws or relating to the use, handling,
storage, treatment, recycling, generation, or release of Hazardous Materials,
nor has Parent received any uncured written notification of any allegation of
any responsibility for any disposal, release, or threatened release at any
location of any Hazardous Materials, except in any such case which would not,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect; (ii) there are no consent decrees, consent orders, judgments,
judicial or administrative orders, or liens by any governmental authority
relating to any Environmental Law which have not already been fully satisfied
and which name


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Parent or any of its Subsidiaries, except in any such case which would not,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect; and (iii) to the knowledge of Parent, except as set forth in
Section 3.18 of the Parent Disclosure Schedule, no Properties or Facilities of
Parent or any of its Subsidiaries are listed on the federal National Priorities
List, the federal Comprehensive Environmental Response Compensation Liability
Information System list, or any similar state listing of sites known to be
contaminated with Hazardous Materials. Except as set forth in Section 3.18 of
the Disclosure Schedule, there are no budgeted expenses or capital costs that
will be required in the next two years to maintain compliance with Environmental
Laws, except in any such case which would not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect.

                  SECTION 3.19 Forms S-3 and S-4; Offer to Purchase; Joint Proxy
Statement. None of the information supplied by Parent or Sub for inclusion or
incorporation by reference in (i) either the Form S-4 or the Form S-3 will, at
the time such Form is filed with the SEC, at any time it is amended or
supplemented and at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, (ii) the Joint Proxy Statement will, at the date it is first
mailed to the Company's shareholders and Parent's stockholders and at the time
of the meeting of the Company's shareholders held to vote on approval of this
Agreement and at the time of the meeting of Parent's stockholders held to vote
on approval of the issuance of the shares of Parent Common Stock in the Merger,
contain any untrue statement of material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not misleading
and (iii) the Offer to Purchase will, at the date it is first mailed to
bondholders and at each Consent Date thereunder, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Joint Proxy
Statement, the Form S-3, the Form S-4 and the Offer to Purchase will comply as
to form in all material respects with the requirements of the Securities Act,
the Exchange Act and the rules and regulations thereunder, except that no
representation is made by Parent or Sub with respect to statements made or
incorporated by reference therein based on information supplied by the Company
for inclusion or incorporation by reference in the Joint Proxy Statement, the
Form S-3, the Form S-4 and the Offer to Purchase.

                  SECTION 3.20 Brokers. No broker, finder or investment banker
(other than Goldman, Sachs & Co. and Salomon Brothers Inc, the fees and expenses
of which shall be paid by Parent) is entitled to any brokerage, finder's or
other fee or commission in


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connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or Sub.

                  SECTION 3.21 Vote Required. The affirmative vote of the
holders of a majority of the shares of Parent Common Stock present in person or
represented by proxy, entitled to vote and voted at a meeting of Parent's
stockholders at which the holders of a majority of the outstanding shares of
Parent Common Stock cast votes on the proposal to approve the issuance of Parent
Common Stock in the Merger is the only vote of the holders of any class or
series of Parent's capital stock necessary to approve such issuance. The Board
of Directors of Parent (the "Parent Board") (at a meeting duly called and held)
has (i) unanimously approved this Agreement, (ii) determined that the
transactions contemplated hereby are fair to and in the best interests of the
holders of Parent Common Stock, (iii) resolved to recommend this Agreement, the
issuance of Parent Common Stock in the Merger and the other transactions
contemplated hereby to such holders for approval and adoption and (iv) directed
that the issuance of Parent Common Stock in the Merger be submitted to Parent's
shareholders. Parent hereby agrees to the inclusion in the Form S-4 and the
Joint Proxy Statement of the recommendations of the Parent Board described in
this Section 3.21.

                  SECTION 3.22 Opinion of Financial Advisor. Parent has received
the opinions of Goldman, Sachs & Co. and Salomon Brothers Inc, dated the date of
this Agreement, to the effect that the consideration to be paid by Parent in
connection with the Merger is fair to Parent from a financial point of view.

                  SECTION 3.23 Tax Matters. Neither Parent nor Sub has taken or
agreed to take any action, or knows of any circumstances, that (without regard
to any action taken or agreed to be taken by the Company or any of its
Affiliates) would prevent the Merger from qualifying as a reorganization within
the meaning of Sections 368(a)(1)(A) or 368(a)(2)(E) of the Code.

                                   ARTICLE IV

                     CONDUCT OF BUSINESS PENDING THE MERGER

                  SECTION 4.1 Conduct of Business of the Company Pending the
Merger. Except as set forth in Section 4.1 of the Disclosure Schedule, the
Company covenants and agrees that, during the period from the date hereof to the
Effective Time (except as otherwise contemplated by the terms of this
Agreement), unless Parent shall otherwise agree in writing in advance, the
businesses of the Company and its Subsidiaries shall be conducted, in all
material respects, only in, and the Company and its Subsidiaries shall not take
any action except in, the ordinary course of business and in a manner consistent
with past practice and, in all material respects, in compliance with applicable
laws; and the Company and its Subsidiaries shall each use its reasonable best
efforts consistent with the foregoing to


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preserve substantially intact the business organization of the Company and its
Subsidiaries, to keep available the services of the present officers, employees
and consultants of the Company and its Subsidiaries and to preserve the present
relationships of the Company and its Subsidiaries with customers, suppliers,
advertisers, distributors and other persons with which the Company or any of its
Subsidiaries has significant business relations. By way of amplification and not
limitation, neither the Company nor any of its Subsidiaries shall (except as set
forth in Section 4.1 of the Disclosure Schedule and except as otherwise
contemplated by the terms of this Agreement), between the date of this Agreement
and the Effective Time, directly or indirectly do, or propose or commit to do,
any of the following without the prior written consent of Parent:

                  (a) make or commit to make any capital expenditures in excess
         of $500,000 in the aggregate, other than expenditures for routine
         maintenance and repair or pursuant to existing contracts or commitments
         or expenditures reflected in capital expenditure budgets disclosed in
         the Recent Company SEC Reports or supplied to Parent prior to the date
         of this Agreement;

                  (b) incur any indebtedness for borrowed money or guarantee
         such indebtedness of another Person (other than the Company or a
         wholly-owned Subsidiary of the Company) or enter into any "keep well"
         or other agreement to maintain the financial condition of another
         Person (other than the Company or a wholly-owned Subsidiary of the
         Company) or make any loans, or advances of borrowed money or capital
         contributions to, or equity investments in, any other Person (other
         than the Company or a wholly owned Subsidiary of the Company) or issue
         or sell any debt securities, other than borrowings under existing lines
         of credit in the ordinary course of business consistent with past
         practice;

                  (c)(i) amend its articles of incorporation or bylaws or the
         charter or bylaws of any of its Subsidiaries; (ii) split, combine or
         reclassify the outstanding shares of its capital stock or other
         ownership interests or declare, set aside or pay any dividend payable
         in cash, stock or property or make any other distribution with respect
         to such shares of capital stock or other ownership interests; (iii)
         redeem, purchase or otherwise acquire, directly or indirectly, any
         shares of its capital stock or other ownership interests other than in
         connection with the Stock Purchase Plan; or (iv) sell or pledge any
         stock of any of its Subsidiaries;

                  (d)(i) Other than upon exercise of options or stock units or
         pursuant to the Stock Purchase Plan, in each case disclosed in Section
         2.3 of the Disclosure Schedule, issue or sell or agree to issue or sell
         any additional shares of, or grant, confer or award any options,
         warrants or rights of any kind to acquire any shares of, its capital
         stock of any


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         class; (ii) enter into any agreement, contract or commitment out of the
         ordinary course of its business, to dispose of or acquire, or relating
         to the disposition or acquisition of, a segment of its business; (iii)
         except in the ordinary course of business consistent with past
         practice, sell, pledge, dispose of or encumber any material Assets
         (including without limitation, any indebtedness owed to them or any
         claims held by them); or (iv) acquire (by merger, consolidation,
         acquisition of stock or assets or otherwise) any corporation,
         partnership or other business organization or division thereof or any
         material Assets (other than inventory in the ordinary course of
         business consistent with past practice) or make any material
         investment, either by purchase of stock or other securities, or
         contribution to capital, in any case, in any material amount of
         property or assets, in or of any other Person;

                  (e) grant any severance or termination pay (other than
         pursuant to policies or agreements in effect on the date hereof as
         disclosed in the Recent Company SEC Reports or set forth in Section
         4.1(e) of the Disclosure Schedule) or increase the benefits payable
         under its severance or termination pay policies or agreements in effect
         on the date hereof or enter into any employment or severance agreement
         with any officer, director or employee;

                  (f) adopt or amend any bonus, profit sharing, compensation,
         stock option, pension, retirement, deferred compensation, employment or
         other employee benefit plan, agreement, trust, fund or other
         arrangement for the benefit or welfare of any director, officer or
         employee or increase in any manner the compensation or fringe benefits
         of any director, officer or employee or grant, confer, award or pay any
         forms of cash incentive, bonuses or other benefit not required by any
         existing plan, arrangement or agreement except as required by law;

                  (g) enter into or amend any Contract for the purchase of
         inventory which is not cancelable within one (1) year without penalty,
         cost or liability, or any other Contract involving annual expenditures
         or liabilities in excess of $400,000 which is not cancelable within two
         (2) years without penalty, cost or liability;

                  (h) enter into or modify any material collective bargaining
         agreements;

                  (i) make any material change in its tax or accounting policies
         or any material reclassification of assets or liabilities except as
         required by law or GAAP;

                  (j) pay, discharge or satisfy any claims, liabilities or
         obligations (absolute, accrued, asserted or unasserted, contingent or
         otherwise), except the payment, discharge or


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         satisfaction of (i) liabilities or obligations in the ordinary course
         of business consistent with past practice or in accordance with the
         terms thereof as in effect on the date hereof or (ii) claims settled or
         compromised to the extent permitted by Section 4.1(l), or waive,
         release, grant or transfer any rights of material value or modify or
         change in any material respect any existing Contract, in each case
         other than in the ordinary course of business consistent with past
         practice;

                  (k) settle or compromise any litigation, other than litigation
         not in excess of amounts reserved for in the most recent consolidated
         financial statements of the Company included in the Recent Company SEC
         Documents or, if not so reserved for, in an aggregate amount not in
         excess of $250,000 (provided in either case such settlement documents
         do not involve any material non-monetary obligations on the part of the
         Company and its Subsidiaries);

                  (l) take any action (without regard to any action taken or
         agreed to be taken by Parent or any of its affiliates) with knowledge
         that such action would prevent (x) Parent from accounting for the
         business combination to be effected by the Merger as a pooling of
         interests or (y) the Merger from qualifying as a reorganization within
         the meaning of Sections 368(a)(1)(A) or 368(a)(2)(E) of the Code; and

                  (m) consummate any acquisition pursuant to any Contract
         disclosed pursuant to Section 2.15(i) other than in accordance with the
         terms so disclosed (including without waiver of any condition to the
         Company's obligations to consummate such acquisition), excluding
         insignificant deviations from such terms; or

                  (n) take, or offer or propose to take, or agree to take in
         writing or otherwise, any of the actions described in Sections 4.1(a)
         through 4.1(m) or any action which would result in any of the
         conditions set forth in Article VI not being satisfied.

                  SECTION 4.2 Conduct of Business of Parent Pending the Merger.
(a) Parent covenants and agrees that, during the period from the date hereof to
the Effective Time (except as otherwise contemplated by the terms of this
Agreement and except that nothing in this Agreement shall restrict Parent from
taking any actions in respect of the consummation of the transactions pursuant
to the F4LH Merger Agreement), unless Company shall otherwise agree in writing
in advance, the businesses of Parent and its Subsidiaries shall be conducted, in
all material respects, only in, and Parent and its Subsidiaries shall not take
any action except in, the ordinary course of business and in a manner consistent
with past practice and, in all material respects, in compliance with applicable
laws; and Parent and its


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Subsidiaries shall each use its reasonable best efforts consistent with the
foregoing to preserve substantially intact the business organization of Parent
and its Subsidiaries, to keep available the services of the present officers,
employees and consultants of Parent and its Subsidiaries and to preserve the
present relationships of Parent and its Subsidiaries with customers, suppliers,
advertisers, distributors and other persons with which Parent or any of its
Subsidiaries has significant business relations.

                  (b) By way of amplification and not limitation, neither the
Parent nor any of its Subsidiaries shall (except as otherwise contemplated by
the terms of this Agreement), between the date of this Agreement and the
Effective Time, directly or indirectly do, or propose or commit to do, any of
the following without the prior written consent of the Company:

                           (i) amend Parent's certificate of incorporation;

                           (ii) other than in connection with acquisitions
         having a value (on a per-acquisition basis) of not more than $50
         million or (on an aggregate basis) of not more than $200 million,
         issue, deliver, sell, pledge, dispose of or encumber, or authorize or
         commit to the issuance, sale, pledge, disposition or encumbrance of,
         any shares of capital stock of any class, or any options, warrants,
         convertible securities or other rights of any kind to acquire any
         shares of capital stock, or any other ownership interest (including but
         not limited to stock appreciation rights or phantom stock), of Parent
         or any of its Subsidiaries (except for the issuance of shares of Parent
         Common Stock issuable in accordance with the terms of Parent's employee
         benefit plans and arrangements or other stock-based contractual
         requirements existing as of the date hereof, directors deferred
         compensation plan and the warrant issued to the Yucaipa Companies and
         except for the issuance of shares of Parent Common Stock pursuant to
         the F4LH Merger Agreement);

                           (iii) (A) split, combine or reclassify or otherwise
         alter the Parent Common Stock or issue or authorize the issuance of any
         other securities in respect of, in lieu of or in substitution for
         shares of Parent Common Stock, or (B) redeem, purchase or otherwise
         acquire, directly or indirectly, any shares of Parent Common Stock;

                           (iv) other than pursuant to the F4LH Merger
         Agreement, acquire (by merger, consolidation or acquisition of stock or
         assets) any corporation, partnership or other business organization or
         division thereof, if any such action could reasonably be expected to
         (A) delay materially the date of mailing of the Joint Proxy Statement,
         (B) delay materially obtaining the antitrust clearances referenced in
         Section 5.8(a)(iii), (C) increase the Exchange Ratio Adjustment


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         Amount or (D) if it were to occur after such date of mailing, require
         an amendment of the Joint Proxy Statement;

                  (v) consummate any acquisition pursuant to any Contract
         disclosed pursuant to Section 3.14(i) other than in accordance with the
         terms so disclosed (including without waiver of any condition to
         Parent's obligations to consummate such acquisition), excluding
         insignificant deviations from such terms; or

                  (vi) take, or offer or propose to take, or agree to take in
         writing or otherwise, any of the actions described in Sections
         4.2(b)(i) through 4.2(b)(v) or any action which would result in any of
         the conditions set forth in Article VI not being satisfied.

                  (c) Parent shall not, and shall not permit any of its
Subsidiaries to, take any action (without regard to any action taken or agreed
to be taken by the Company or any of its Affiliates) with knowledge that such
action would prevent (x) Parent from accounting for the business combination to
be effected by the Merger as a pooling of interests or (y) the Merger from
qualifying as a reorganization within the meaning of Sections 368(a)(1)(A) or
368(a)(2)(E) of the Code.


                                    ARTICLE V

                              ADDITIONAL AGREEMENTS

                  SECTION 5.1 Preparation of Form S-4 and the Joint Proxy
Statement; Shareholder Meetings. (a) Promptly following the date of this
Agreement, the Company and Parent shall prepare and file with the SEC the Joint
Proxy Statement, and Parent shall prepare and file with the SEC the Form S-4, in
which the Joint Proxy Statement will be included as a prospectus. Each of the
Company and Parent shall use its reasonable best efforts to have the Form S-4
declared effective under the Securities Act as promptly as practicable after
such filing. Each of the Company and Parent will use its reasonable best efforts
to cause the Joint Proxy Statement to be mailed to its respective shareholders
as promptly as practicable after the Form S-4 is declared effective under the
Securities Act. Parent shall also take any action (other than qualifying to do
business in any jurisdiction in which it is not now so qualified) required to be
taken under any applicable state securities law in connection with the issuance
of Parent Common Stock in the Merger, and the Company shall furnish all
information concerning the Company and the holders of the Company Common Stock
and rights to acquire Company Common Stock pursuant to the Stock Plans as may be
reasonably required in connection with any such action. Each of Parent and the
Company shall furnish all information concerning itself to the other as may be
reasonably requested in connection with any such action and the preparation,
filing and distribution of the


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Form S-4 and the preparation, filing and distribution of the Joint Proxy
Statement. The Company, Parent and Sub each agree to correct any information
provided by it for use in the Form S-4 or the Joint Proxy Statement which shall
have become false or misleading. The Company acknowledges that Parent will
include in the Joint Proxy Statement such information concerning the
transactions pursuant to the F4LH Merger Agreement as may be required to be
included to permit Parent to seek any approvals of shareholders which may be
required to be obtained in connection with the transactions pursuant to the F4LH
Merger Agreement.

                  (b) The Company, acting through its Board of Directors, shall,
in accordance with its Articles of Incorporation and By-Laws and subject to the
other provisions of this Section 5.1(b), promptly and duly call, give notice of,
convene and hold as soon as practicable following the date upon which the Form
S-4 becomes effective a meeting of the holders of Company Common Stock for the
purpose of voting to approve and adopt this Agreement and the transactions
contemplated hereby (the date of which meeting shall be as soon as practicable
following Parent's shareholder meeting referred to below, but shall be at least
two business days after the date of Parent's shareholder meeting referred to
below), and (i) recommend approval and adoption of this Agreement and the Merger
by the shareholders of the Company and include in the Joint Proxy Statement such
recommendation and (ii) take all reasonable and lawful action to solicit and
obtain such approval. The Board of Directors of the Company shall not withdraw,
amend or modify in a manner adverse to Parent its recommendation referred to in
clause (i) of the preceding sentence (or announce publicly its intention to do
so (provided that the disclosure of the receipt of an Alternative Transaction
and the fact that the Board of Directors is considering such Alternative
Transaction or reviewing it with its advisors shall not by itself constitute
such a withdrawal, modification or amendment)), except that such Board of
Directors shall be permitted to withdraw, amend or modify its recommendation (or
publicly announce its intention to do so) if: (i) the Company has complied with
Section 5.4; (ii) a Superior Transaction (as defined below) shall have been
proposed by any Person other than Parent and such proposal is pending at the
time of such withdrawal, amendment or modification; and (iii) the Company shall
have notified Parent of such Superior Transaction proposal at least five
business days in advance of such withdrawal, amendment or modification to the
extent required by the last two sentences of Section 5.4. "Superior Transaction"
means any bona fide Transaction proposal involving at least a majority of the
outstanding shares of Company Common Stock on terms that the Board of Directors
of the Company determines in its good faith judgment (based on the advice of a
financial advisor of nationally recognized reputation, taking into account all
the terms and conditions of the Transaction proposal, including any break-up
fees, expense reimbursement provisions and conditions to consummation) are more
favorable and provide greater value to all the Company's shareholders than this


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Agreement and the Merger taken as a whole. Parent, acting through its Board of
Directors, shall, in accordance with its certificate of incorporation and
by-laws, promptly and duly call, give notice of, convene and hold as soon as
practicable following the date upon which the Form S-4 becomes effective a
meeting of the holders of Parent Common Stock for the purpose of voting to
approve the issuance of the Parent Common Stock in the Merger, and (i) recommend
approval of the issuance of the Parent Common Stock in the Merger by the
shareholders of Parent and include in the Joint Proxy Statement such
recommendation and (ii) take all reasonable and lawful action to solicit and
obtain such approval. The Board of Directors of Parent shall not withdraw, amend
or modify in a manner adverse to the Company, its recommendation referred to in
clause (i) of the preceding sentence.

                  (c) The Company will cause its transfer agent to make stock
transfer records relating to the Company available to the extent reasonably
necessary to effectuate the intent of this Agreement and the Shareholder
Agreements.

                  SECTION 5.2 Accountants' Letters. (a) The Company shall use
its reasonable best efforts to cause to be delivered to Parent a "comfort"
letter of Deloitte & Touche LLP (Seattle office), the Company's independent
public accountants, dated a date within two business days before the date on
which the Form S-4 shall become effective and addressed to Parent, in form and
substance reasonably satisfactory to Parent and customary in scope and substance
for letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4. In connection with the
Company's efforts to obtain such letter, if requested by Deloitte & Touche LLP,
Parent shall provide a representation letter to Deloitte & Touche LLP, complying
with the Statement on Auditing Standards No. 72 ("SAS 72"), if then required.

                  (b) Parent shall use its reasonable best efforts to cause to
be delivered to the Company a "comfort" letter of Deloitte & Touche LLP
(Portland office), Parent's independent public accountants, dated a date within
two business days before the date on which the Form S-4 shall become effective
and addressed to the Company, in form and substance reasonably satisfactory to
the Company and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Form S-4. In connection with the Parent's efforts to obtain such
letter, if requested by Deloitte & Touche LLP, the Company shall provide a
representation letter to Deloitte & Touche LLP complying with SAS 72, if then
required.

                  (c) The Company shall endeavor in good faith to cause to be
delivered to Parent letters from Deloitte & Touche LLP (Seattle office),
addressed to Parent and the Company, one dated the date of the Joint Proxy
Statement, stating that after appropriate review of this Agreement the Company
is an entity


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which would qualify as a party to a pooling of interests transaction under
Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations, and one dated as of the Closing Date, confirming as of the Closing
Date the previously delivered letter referred to above.

                  (d) Parent shall endeavor in good faith to cause to be
received by it letters from Deloitte & Touche LLP (Portland office), addressed
to Parent, one dated the date of the Joint Proxy Statement, stating that the
Merger will qualify as a pooling of interests transaction under Opinion 16 of
the Accounting Principles Board and applicable SEC rules and regulations, and
one dated as of the Closing Date, confirming as of the Closing Date the
previously delivered letter referred to above.

                  SECTION 5.3 Access to Information; Confidentiality. (a) From
the date hereof to the Effective Time, each of the Company and Parent shall, and
shall cause its Subsidiaries, officers, directors, employees, auditors and other
agents to, afford the officers, employees, auditors and other agents of Parent
or the Company, respectively, who shall agree to be bound by the provisions of
this Section 5.3 as though a party hereto, complete access at all reasonable
times to its officers, employees, agents, properties, offices, plants and other
facilities and to all books and records, and shall furnish Parent or the
Company, respectively, with all financial, operating and other data and
information as Parent or the Company, respectively, through its officers,
employees or agents may from time to time request; provided, that the Company
shall not be required to make available to Parent any books and records or other
information relating to potential Transactions (as defined in Section 5.4) to
the extent that any confidentiality agreement in existence on the date hereof
with the Company prohibits the Company from making such books, records and other
information to Parent; and provided, further, that the Company may provide
information which is of a sensitive competitive nature in a form which minimizes
the potential detriment to the Company from such disclosure while addressing the
legitimate business objectives of Parent in seeking such information.

                  (b) Each of the Company and Parent will hold and will cause
its directors, officers, employees, agents, advisors (including, without
limitation, counsel and auditors) and controlling persons to hold any such
information which is nonpublic in confidence on the same terms and conditions as
set forth in the letter dated October 5, 1997, as amended from time to time,
between the Company and Parent (the "Confidentiality Agreement").

                  (c) No investigation pursuant to this Section 5.3 shall affect
any representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.


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                  SECTION 5.4 No Solicitation of Transactions. The Company
shall, and shall cause its Subsidiaries and their respective officers,
directors, management employees, and representatives and agents engaged by the
Company in connection with the transactions contemplated hereby to, immediately
cease any existing discussions or negotiations, if any, with any parties
conducted heretofore with respect to any direct or indirect acquisition of or
exchange for (i) all or any material portion of the assets of the Company or its
Subsidiaries, (ii) more than 15% of the outstanding material equity interest in
the Company, (iii) any material equity interest in any of the Subsidiaries of
the Company, or (iv) any merger, consolidation or other business combination
transaction with or involving the Company or any of its Subsidiaries (each, a
"Transaction"). Neither the Company or any of its Subsidiaries, nor any of its
or their respective officers, directors, management employees or representatives
and agents engaged by the Company in connection with the transactions
contemplated hereby, shall, directly or indirectly, encourage, solicit,
participate in, facilitate or initiate discussions or negotiations with, or
provide any information to, any Person or group (other than Parent and Sub or
any designees of Parent or Sub) concerning any Transaction; provided, that, the
Company (and its Subsidiaries and its and their respective officers, directors,
employees, representatives or agents) may participate in negotiations or
discussions with, and provide information to, any Person concerning a
Transaction submitted in writing by such Person to the Board of Directors of the
Company after the date of this Agreement if (A) such Transaction was not
solicited, initiated, facilitated or encouraged in violation of this Agreement,
(B) the Board of Directors of the Company, in its good faith judgment, believes
that such Transaction is reasonably likely to result in a Superior Transaction
and (C) the Company complies with the other provisions of this Section 5.4.
Nothing contained in this Section 5.4 shall prohibit the Board of Directors of
the Company from complying with Rule 14e-2 promulgated under the Exchange Act
with regard to a tender or exchange offer. Unless prohibited from doing so
pursuant to a confidentiality letter in effect on the date of this Agreement,
the Company shall notify Parent immediately if it receives any unsolicited
proposal concerning a Transaction, the identity of the person making any such
proposal and all the terms and conditions thereof and shall keep Parent promptly
advised of all developments relating thereto. If the Company is so prohibited,
the Company shall promptly advise the person making the proposal that it will
not participate in negotiations or discussions with or provide information to
such person unless such person authorizes the Company to comply with the
preceding sentence as if such prohibition did not exist.

                  SECTION 5.5 Employee Benefits Matters. The Company shall or
Parent shall cause the Company and the Surviving Corporation to promptly pay or
provide when due all compensation and benefits earned through or prior to the
Effective Time as provided pursuant to the terms of any Employee Plans in
existence


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as of the date hereof and as otherwise set forth on Section 5.5 of the
Disclosure Schedule for all employees (and former employees) and directors (and
former directors) of the Company. Parent and the Company agree that the Company
and the Surviving Corporation shall pay promptly or provide when due all
compensation and benefits required to be paid pursuant to the terms of any
individual agreement with any employee, former employee, director or former
director in effect and disclosed to Parent as of the date hereof. Nothing herein
shall require the continued employment of any person or prevent the Company
and/or the Surviving Corporation from taking any action or refraining from
taking any action which the Company could take or refrain from taking prior to
or after the Effective Time, including without limitation any action the Company
or the Surviving Corporation could take to terminate any plan under its terms as
in effect as of the date hereof.

                  SECTION 5.6 Directors' and Officers' Indemnification;
Insurance. (a) The By-Laws of the Surviving Corporation shall contain provisions
no less favorable with respect to indemnification and exculpation from liability
than are set forth in Articles IX of the Articles of Incorporation of the
Company and Article IX of the By-Laws of the Company, which provisions shall not
be amended, repealed or otherwise modified for a period of six years from the
Effective Time in any manner that would adversely affect the rights thereunder
of individuals who at the Effective Time were directors, officers, employees or
agents of the Company. Without limiting the generality of the foregoing, in the
event any person entitled to indemnification under this Section 5.6 becomes
involved in any claim, action, proceeding or investigation after the Effective
Time, the Surviving Corporation shall periodically advance to such person his or
her reasonable legal and other reasonably incurred expenses (including the cost
of any investigation and preparation incurred in connection therewith), subject
to such person providing an undertaking to reimburse all amounts so advanced in
the event of a final non-appealable determination by a court of competent
jurisdiction that such person is not entitled thereto.

                  (b) For six years from the Effective Time, Parent shall
maintain in effect the current directors' and officers' liability insurance
covering those persons who are currently covered by the Company's directors' and
officers' liability insurance policy to the extent that it provides coverage for
events occurring on or prior to the Effective Time (a copy of which has been
heretofore delivered to Parent), so long as the annual premium therefor would
not be in excess of 150% of the last annual premium paid prior to the date of
this Agreement (the "Company's Current Premium"). If such premiums for such
insurance would at any time exceed 150% of the Company's Current Premium, then
Parent shall cause to be maintained policies of insurance which in Parent's good
faith determination, provide the maximum coverage available at an annual premium
equal to 150% of


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the Company's Current Premium. The Company represents to Parent that the
Company's Current Premium is $221,225.

                  (c) Parent hereby covenants not to take or permit to be taken,
any action that would limit, restrict or otherwise prevent the Surviving
Corporation from performing, or render it unable to perform, each of its
obligation under this Section 5.6.

                  (d) The provision of this Section 5.6 are intended for the
benefit of, and shall be enforceable by, each person entitled to indemnification
under this Section 5.6, his or her heirs and his or her personal
representatives.

                  SECTION 5.7 Notification of Certain Matters. The Company shall
give prompt notice to Parent, and Parent shall give prompt notice to the
Company, of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate and (ii) any failure of
the Company, Parent or Sub, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 5.7 shall not limit or otherwise affect the remedies available hereunder
to the party receiving such notice.

                  SECTION 5.8 Further Action. (a) Upon the terms and subject to
the conditions hereof, each of the parties hereto shall use its reasonable best
efforts to take, or cause to be taken, all appropriate action, and to do or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including, without limitation, (i) cooperating
in the preparation and filing of the Form S-4, the Joint Proxy Statement, and
required filings under the HSR Act and any amendments to any thereof, (ii) using
its reasonable best efforts to make all required regulatory filings and
applications and to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities and
parties to contracts with the Company and its Subsidiaries as are necessary for
the consummation of the transactions contemplated by this Agreement and to
fulfill the conditions to the Merger, (iii) in the case of Parent, promptly, if
required by the FTC or its staff, the Assistant Attorney General in charge of
the Antitrust Division or her staff, any state attorney general or its staff or
any other similar governmental entity, in each case in order to consummate the
Merger, taking all steps and making all undertakings to secure antitrust
clearance (including steps to effect the sale or other disposition of particular
Facilities of Parent, its Subsidiaries, F4LH, its Subsidiaries and/or the
Company and its Subsidiaries and to hold separate such Facilities pending such
sale or other disposition), (iv) cooperating in all respects with each other in
connection with any investigation or other inquiry, including any


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proceeding initiated by a private party, in connection with the transactions
pursuant hereto, (v) keeping the other party informed in all material respects
of any material communication received by such party from, or given by such
party to, the FTC, the Antitrust Division of the Department of Justice ("DOJ")
or any other governmental authority and of any material communication received
or given in connection with any proceeding by a private party, in each case
regarding any of the transactions contemplated hereby, and (vi) permitting the
other party to review any material communication given by it to, and consult
with each other in advance of any meeting or conference with, the FTC, the DOJ
or any such other governmental authority or, in connection with any proceeding
by a private party, with any other Person, and to the extent permitted by the
other Person, give the other party the opportunity to attend and participate in
such meetings and conferences. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall use their reasonable best efforts to take all such necessary action. In
furtherance and not in limitation of the covenants of the parties contained in
this Section 5.8, if any administrative or judicial action or proceeding,
including any proceeding by a private party, is instituted (or threatened to be
instituted) challenging any transaction contemplated by this Agreement as
violative of any antitrust law, each of the parties shall cooperate in all
respects with each other and use its reasonable best efforts to contest and
resist any such action or proceeding, and to have vacated, lifted, reversed or
overturned any decree, judgment, injunction or other order, whether temporary,
preliminary or permanent, that is in effect and that prohibits, prevents or
restricts, and to resolve any challenge or objection raised by any governmental
authority or private party. For purposes of meeting, holding discussions and
entering into any proposed settlement with any such governmental authority,
Parent shall appoint a committee consisting of Ronald Burkle (or his designee),
Roger Cooke (or his designee), a representative of F4LH and a representative of
the Company.

                  (b) The Company shall make, subject to the condition that the
transactions contemplated herein and therein actually occur, any undertakings
(including undertakings to make sales or other dispositions) provided that such
divestitures need not themselves be made until after the transactions
contemplated hereby actually occur) required in order to obtain the antitrust
clearances referred to in Section 5.8(a)(iii).

                  (c) Within five business days after such time as any agreement
is reached by Parent with the FTC or its staff, the Assistant Attorney General
in charge of the Antitrust Division or her staff, any state attorney general or
its staff or any other similar governmental entity in accordance with Section
5.8(a)(iii) to sell or dispose of any Divested Facilities, Parent shall furnish
or cause to be furnished to the Company a report


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(the "Preliminary Report"), based on such information as Parent shall determine
to be relevant, stating in reasonable detail the Parent's good faith
determination of the Estimated Gain and Lost EBITDA with respect to the real
estate and other assets comprising such Divested Facilities. Unless the Company
provides specific written notice to Parent of an objection to any aspect of the
Preliminary Report before the close of business on the 10th business day after
the Company's receipt thereof, the Preliminary Report shall then become binding
upon Parent and the Company, and shall be the "Final Report". If the Company, by
delivering its own report (the "Company Report") stating in reasonable detail
the Company's good faith determination of the Estimated Gain and Lost EBITDA to
Parent before the close of business on such business day, makes any good faith
objection to any aspect of the Parent's proposed Estimated Gain set forth in the
Preliminary Report, then those aspects as to which the objection was made shall
not become binding, Parent and the Company shall discuss such objection in good
faith and, if they reach written agreement amending the Preliminary Report (or
portions thereof), the Preliminary Report, as amended by such written agreement,
shall become binding upon Parent and the Company, and shall be the "Final
Report". If Parent and the Company do not reach such written agreement within
five days after the Company gives such notices of objection, those aspects as to
which such objection was made (relating to Estimated Gain, and not Lost EBITDA)
and as to which written agreement has not been reached shall be submitted for
arbitration to one or more independent business and/or real estate appraisal
firm(s) of recognized national standing with expertise in the valuation of
businesses and/or properties comparable to the Facilities chosen by agreement of
Parent and the Company (whose fees shall be shared equally by Parent and the
Company). Such firm shall prepare a valuation report with respect to the real
estate and other assets comprising the Divested Facilities, which report, when
delivered to Parent and the Company, shall become binding upon Parent and the
Company for purposes of determining the Estimated Gain, and shall (unless a
determination made in such report is higher or lower than both the determination
set forth in the Preliminary Report and the determination set forth in the
Company Report, in which case the determination set forth in the Preliminary
Report or the Company Report, whichever is closer to such firm's determination,
shall), together with those aspects of the Preliminary Report as to which no
objection was made or as to which written agreement has been reached, be the
"Final Report". The "Estimated Gain" is the amount set forth in the Final Report
and is equal to the aggregate net proceeds estimated to be realized by Parent or
any of its Subsidiaries on the sale or other disposition of the real estate and
other assets comprising the Divested Facilities pursuant to this Section 5.8 in
excess of the book value of the real estate and other assets comprising the
Divested Facilities to be so divested as of the date of determination thereof.
For purposes of this Section 5.8, the book value of the Divested Facilities
shall be based on the depreciated historical cost of fixtures, equipment, and
leasehold


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improvements (on land and buildings, if owned, plus inventory at cost). The
foregoing notwithstanding, if within three (3) days of the issuance of the Final
Report the Company shall produce a signed bona-fide offer from a qualified buyer
to purchase all or any of the Facilities to be disposed of at a price higher
than that contained in the Final Report, then, in such event, the Estimated Gain
shall be increased by the amount which such offer exceeds the valuation in the
Final Report for such Facility or Facilities.

                  SECTION 5.9 Public Announcements. Parent and the Company shall
consult with each other before issuing any press release or otherwise making any
public statements with respect to the Merger and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by law or any listing agreement with its securities exchange.

                  SECTION 5.10 Stock Exchange Listing. Parent shall use its
reasonable best efforts to have approved for listing on the NYSE prior to the
Effective Time, subject to official notice of issuance, the Parent Common Stock
to be issued pursuant to the Merger (including Shares issuable pursuant to
Section 1.7).

                  SECTION 5.11 Affiliates. (a) Prior to the Closing Date, the
Company shall deliver to Parent a letter identifying all persons who are, at the
time this Agreement is submitted for approval to the shareholders of the
Company, "affiliates" of the Company for purposes of Rule 145 under the
Securities Act or (if the Company shall have caused to be delivered to Parent
the letters referred to in Section 5.2(c)) for purposes of qualifying the Merger
for pooling of interests accounting treatment under Opinion 16 of the Accounting
Principles Board and applicable SEC rules and regulations. The Company shall use
its reasonable best efforts to cause each such person to deliver to Parent on or
prior to the Closing Date a written agreement substantially in the form attached
as Exhibit B hereto.

                  (b) Parent shall use its reasonable best efforts to cause all
persons who are "affiliates" of Parent for purposes of qualifying the Merger for
pooling of interests accounting treatment under Opinion 16 of the Accounting
Principles Board and applicable SEC rules and regulations to comply with the
fourth paragraph of Exhibit B hereto.

                  SECTION 5.12 Directorships. Promptly following the Effective
Time of the Merger, Parent's Board of Directors will elect Sam Zell and Stuart
M. Sloan to be directors of Parent.

                  SECTION 5.13 Parent Representations and Warranties. The
Company agrees and acknowledges that the representations and warranties set
forth in Article III hereof are being made without any regard to F4LH, the F4LH
Merger Agreement or the transactions contemplated thereby and that no facts or
developments relating


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to F4LH, the F4LH Merger Agreement or the transactions contemplated thereby
shall constitute a breach of such representations and warranties as initially
made and as made on the Closing Date in accordance with Section 6.2(a), except
that upon consummation of the transaction pursuant to the F4LH Merger Agreement,
F4LH shall be treated as a Subsidiary of Parent for purposes of Sections 3.10,
4.2 and 5.8.

                  SECTION 5.14 Real Estate Transfer Taxes. The Company or
Surviving Corporation shall pay all state or local real property transfer, real
estate excise, gains or similar Taxes, if any (collectively, the "Transfer
Taxes"), attributable to the transfer of a controlling interest in the Company
or the beneficial ownership of real property or interests therein and any
penalties or interest with respect thereto, payable in connection with the
consummation of the Merger. The Company shall cooperate with Parent in the
filing of any returns with respect to the Transfer Taxes, including supplying in
a timely manner a complete list of all real property or interests therein held
by the Company and its Subsidiaries and any information with respect to such
properties that is reasonably necessary to complete such returns. The
shareholders of the Company are intended third-party beneficiaries of this
Section 5.14.

                  SECTION 5.15 Registration Rights. (a) At or prior to the
Effective Time, Parent and the Shareholders shall enter into a registration
rights agreement (the "Registration Rights Agreement"), the form of which shall
be agreed to by Parent and the Shareholders within 10 business days of the date
hereof providing for (i) "shelf" and "demand" registration rights to the
Shareholders in substantially the form of Sections 5.15(b) and (c), respectively
(which rights in the case of Zell/Chilmark Fund, L.P., shall be assignable to
the partners thereof), and (ii) other customary provisions for agreements of
this nature (but not providing for registration in addition to those
contemplated by Sections 5.15(b) and (c)) as mutually agreed between such
parties. After the date hereof, each of such parties shall endeavor in good
faith to negotiate and finalize the form of the Registration Rights Agreement.

                  (b) If requested by a Shareholder or Shareholders holding a
majority in interest in the Registrable Securities after the Effective Time, as
soon as practicable (but in any event not more than 10 days following such
request), Parent shall prepare and file with the SEC a shelf registration
statement on an appropriate form that shall include all shares of Parent Common
Stock acquired by the Shareholders pursuant to the Merger of otherwise
("Registrable Securities"), and may include securities of Parent for sale for
Parent's own account. Parent shall use its reasonable best efforts to cause such
Shelf Registration Statement to be declared effective within 5 days after the
first public release by Parent of the combined financial results of Parent and
the Company. Parent shall only be obligated to keep such Shelf Registration
Statement effective


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until the one year anniversary date of the date such Shelf Registration
Statement has been declared effective.

                  (c) In addition to the shelf registration rights described in
subsection (b) above, if requested by a Shareholder or Shareholders holding a
majority in interest in the Registrable Securities after the Effective Time (but
not later than 180 days after the Shelf Termination Date), as soon as
practicable (but in any event not more than 15 days following such request),
Parent shall prepare and file with the SEC a registration statement with respect
to a secondary underwritten offering on an appropriate form including all of the
Registrable Securities as to which such Shareholder requests registration.
Parent shall use its reasonable best efforts to cause such registration
statement to be declared effective within the later to occur of the first public
release of Parent of 30 days of combined financial results of Parent and the
Company and 30 days after the filing of such registration statement. Parent
management will actively participate to assist the marketing effort with respect
to the Registrable Securities included in such registration statement
(including, without limitation, having officers of Parent attend "road shows"
and analyst or investor presentations scheduled in connection therewith).

                  SECTION 5.16 Form S-3. In the event of any termination of this
Agreement pursuant to Section 7.1, the parties will use their reasonable best
efforts to withdraw from registration the Form S-3 or, if the Form S-3 has been
declared effective, to terminate the effectiveness of the Form S-3.

                                   ARTICLE VI

                              CONDITIONS OF MERGER

                  SECTION 6.1 Conditions to Obligation of Each Party to Effect
the Merger. The respective obligations of each party to effect the Merger shall
be subject to the satisfaction at or prior to the Closing Date of the following
conditions:

                  (a) This Agreement shall have been approved by the affirmative
         vote of the holders of a majority of the outstanding shares of Company
         Common Stock. The issuance of Parent Common Stock in the Merger shall
         have been approved by the affirmative vote of the holders of a majority
         of the shares of Parent Common Stock present in person or represented
         by proxy, entitled to vote and voted at the meeting of Parent's
         stockholders, and the holders of a majority of the outstanding shares
         of Parent Common Stock shall have cast votes on the proposal to approve
         such issuance.

                  (b) No statute, rule, regulation, executive order, decree,
         ruling, injunction or other order (whether temporary, preliminary or
         permanent) shall have been


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         enacted, entered, promulgated or enforced by any court or governmental
         authority of competent jurisdiction which prohibits, restrains, enjoins
         or restricts the consummation of the Merger; provided, however, that
         the parties shall use their reasonable best efforts to cause any such
         decree, ruling, injunction or other order to be vacated or lifted.

                  (c) Any waiting period applicable to the Merger under the HSR
         Act shall have terminated or expired.

                  (d) The Form S-4 and any required post-effective amendment
         thereto shall have become effective under the Securities Act and shall
         not be the subject of any stop order or proceedings seeking a stop
         order, and any material "blue sky" and other state securities laws
         applicable to the registration of the Parent Common Stock to be
         exchanged for Company Common Stock shall have been complied with.

                  (e) The shares of Parent Common Stock issuable to the holders
         of Company Common Stock pursuant to this Agreement shall have been
         approved for listing on the NYSE, subject to official notice of
         issuance.

                  SECTION 6.2 Conditions to Obligations of the Company to Effect
the Merger. The obligation of the Company to effect the Merger shall be subject
to the fulfillment at or prior to the Closing Date of the following additional
conditions:

                  (a) Parent and Sub shall have performed or complied with in
         all material respects their agreements and covenants contained in this
         Agreement required to be performed or complied with at or prior to the
         Closing Date and the representations and warranties of Parent and Sub
         contained in this Agreement qualified as to materiality shall be true
         in all respects, and those not so qualified shall be true in all
         material respects, in each case when made and on and as of the Closing
         Date with the same force and effect as if made on and as of such date,
         except as expressly contemplated or otherwise expressly permitted by
         this Agreement. The Company shall have received a certificate signed on
         behalf of Parent by the chief executive officer and chief financial
         officer of Parent to such effect.

                  (b) The Company shall have received an opinion of Sidley &
         Austin, in form and substance reasonably satisfactory to the Company,
         dated the Effective Time, substantially to the effect that, on the
         basis of facts, representations and assumptions set forth in such
         opinion that are consistent with the state of facts existing as of the
         Effective Time, for federal income tax purposes:

                  (i) the Merger will constitute a "reorganization" within the
         meaning of Section 368(a) of the Code, and the Company, Sub and Parent
         will each be a party to such


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         reorganization within the meaning of Section 368(b) of the
         Code;

                  (ii) no gain or loss will be recognized by Parent, Sub or the
         Company as a result of the Merger;

                  (iii) no gain or loss will be recognized by the shareholders
         of the Company upon the exchange of their Company Common Stock solely
         for shares of Parent Common Stock pursuant to the Merger, except with
         respect to cash, if any, received in lieu of fractional shares of
         Parent Common Stock;

                  (iv) the aggregate tax basis of the shares of Parent Common
         Stock received solely in exchange for Company Common Stock pursuant to
         the Merger (including fractional shares of Parent Common Stock for
         which cash is received) will be the same as the aggregate tax basis of
         the Company Common Stock exchanged therefor;

                  (v) the holding period for shares of Parent Common Stock
         received solely in exchange for Company Common Stock pursuant to the
         Merger will include the holding period of the Company Common Stock
         exchanged therefor, provided such Company Common Stock was held as
         capital assets by the shareholder at the Effective Time; and

                  (vi) a shareholder of the Company who receives cash in lieu of
         a fractional share of Parent Common Stock will recognize gain or loss
         equal to the difference, if any, between such shareholders's tax basis
         in such fractional share (as described in clause (iv) above) and the
         amount of cash received.

         In rendering such opinion, Sidley & Austin may receive and rely upon
         representations contained in a certificate of the Company substantially
         in the form of the Company Tax Certificate attached to the Disclosure
         Schedule, a certificate of Parent substantially in the form of the
         Parent Tax Certificate attached to the Parent Disclosure Schedule and
         representations contained in other appropriate certificates of the
         Company, Parent, certain shareholders of the Company, and others.

                  (c) There shall not be pending or threatened by any
         governmental entity any suit, action or proceeding, which could
         reasonably be expected, if adversely determined, to result in criminal
         or material uninsured and unindemnified or unindemnifiable personal
         liability on the part of one or more directors of the Company, (i)
         challenging or seeking to restrain or prohibit the consummation of the
         Merger or (ii) seeking to prohibit or limit the ownership or operation
         by the Company, Parent or any of their respective Subsidiaries of any
         material portion of the business or assets of the


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         Company, Parent or any of their respective Subsidiaries, or to dispose
         of or hold separate any material portion of the business or assets of
         the Company, Parent or any of their respective Subsidiaries, as a
         result of the Merger or any of the other transactions contemplated by
         this Agreement.

                  SECTION 6.3 Conditions to Obligations of Parent and Sub to
Effect the Merger. The obligations of Parent and Sub to effect the Merger shall
be subject to the fulfillment at or prior to the Closing Date of the following
additional conditions:

                  (a) The Company shall have performed or complied with in all
         material respects its agreements and covenants contained in this
         Agreement required to be performed or complied with at or prior to the
         Closing Date and the representations and warranties of the Company
         contained in this Agreement qualified as to materiality shall be true
         in all respects, and those not so qualified shall be true in all
         material respects, in each case when made and on and as of the Closing
         Date with the same force and effect as if made on and as of such date,
         except as expressly contemplated or otherwise expressly permitted by
         this Agreement. Parent shall have received a certificate signed on
         behalf of the Company by the chief executive officer and chief
         financial officer of the Company to such effect.

                  (b) Parent shall have received an opinion of Simpson Thacher &
         Bartlett, in form and substance reasonably satisfactory to Parent,
         dated the Effective Time, substantially to the effect that, on the
         basis of facts, representations and assumptions set forth in such
         opinion that are consistent with the state of facts existing as of the
         Effective Time, for federal income tax purposes:

                  (i) the Merger will constitute a "reorganization" within the
         meaning of Section 368(a) of the Code, and the Company, Sub and Parent
         will each be a party to such reorganization within the meaning of
         Section 368(b) of the Code.

                  (ii) no gain or loss will be recognized by Parent, Sub or the
         Company as a result of the Merger;

                  (iii) no gain or loss will be recognized by the shareholders
         of the Company upon the exchange of their Company Common Stock solely
         for shares of Parent Common Stock pursuant to the Merger, except with
         respect to cash, if any, received in lieu of fractional shares of
         Parent Common Stock;

                  (iv) the aggregate tax basis of the shares of Parent Common
         Stock received solely in exchange for Company Common Stock pursuant to
         the Merger (including fractional shares of Parent Common Stock for
         which cash is received) will be the


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<PAGE>   246
         same as the aggregate tax basis of the Company Common Stock
         exchanged therefor;

                  (v) the holding period for shares of Parent Common Stock
         received solely in exchange for Company Common Stock pursuant to the
         Merger will include the holding period of the Company Common Stock
         exchanged therefor, provided such Company Common Stock was held as
         capital assets by the stockholder at the Effective Time; and

                  (vi) a shareholder of the Company who receives cash in lieu of
         a fractional share of Parent Common Stock will recognize gain or loss
         equal to the difference, if any, between such shareholder's tax basis
         in such fractional share (as described in clause (iv) above) and the
         amount of cash received.

         In rendering such opinion, Simpson Thacher & Bartlett may receive and
         rely upon representations contained in a certificate of Parent
         substantially in the form of the Parent Tax Certificate attached to the
         Parent Disclosure Schedule, a certificate of the Company substantially
         in the form of the Company Tax Certificate attached to the Disclosure
         Schedule and representations contained in other appropriate
         certificates of the Company, Parent, certain shareholders of the
         Company, and others.

                  (c) Subject to Parent's compliance with Section 5.8, there
         shall not be pending or threatened by any governmental entity any suit,
         action or proceeding, (i) challenging or seeking to restrain or
         prohibit the consummation of the Merger or seeking to obtain from
         Parent or any of its Subsidiaries any damages that are material in
         relation to Parent and its Subsidiaries taken as a whole, (ii) seeking
         to prohibit or limit the ownership or operation by the Company, Parent
         or any of their respective Subsidiaries of any material portion of the
         business or assets of the Company, Parent or any of their respective
         Subsidiaries, to dispose of or hold separate any material portion of
         the business or assets of the Company, Parent or any of their
         respective Subsidiaries, as a result of the Merger or any of the other
         transactions contemplated by this Agreement, or (iii) seeking to
         prohibit Parent or any of its Subsidiaries from effectively controlling
         in any material respect the business or operations of the Company or
         its Subsidiaries.


                                   ARTICLE VII

                        TERMINATION, AMENDMENT AND WAIVER

                  SECTION 7.1 Termination. This Agreement may be terminated and
the Merger contemplated hereby may be abandoned at any time prior to the Closing
Date, whether before or after


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approval of matters presented in connection with the Merger by
the shareholders of the Company:

                  (a)  By mutual written consent of Parent and the
         Company;

                  (b) By either Parent or the Company, if the Merger shall not
         have been consummated on or before August 31, 1998 (other than due to
         the failure of the party seeking to terminate this Agreement to perform
         its obligations under this Agreement required to be performed at or
         prior to the Effective Time);

                  (c) By Parent or the Company, if any required approval of the
         shareholders of the Company for this Agreement or the Merger shall not
         have been obtained by reason of the failure to obtain the required vote
         upon a vote held at a duly held meeting of shareholders or at any
         adjournment thereof;

                  (d) By the Company or Parent, if the required approval of the
         stockholders of Parent for the issuance of Parent Common Stock pursuant
         to this Agreement shall not have been obtained by reason of the failure
         to obtain the required vote upon a vote held at a duly held meeting of
         stockholders or at any adjournment thereof;

                  (e) By Parent (subject to Parent's compliance with Section
         5.8) or the Company if any court or other governmental body of
         competent jurisdiction shall have issued a final order, decree or
         ruling or taken any other final action restraining, enjoining or
         otherwise prohibiting the Merger and such order, decree, ruling or
         other action is or shall have become final and nonappealable;

                  (f) By the Company if prior to the Closing Date (i) there
         shall have been a breach of any representation or warranty on the part
         of Parent contained in this Agreement which could reasonably be
         expected to have a Material Adverse Effect with respect to Parent or
         which could reasonably be expected to materially adversely affect (or
         materially delay) the consummation of the Merger or (ii) there shall
         have been a breach of any covenant or agreement on the part of Parent
         contained in this Agreement which could reasonably be expected to have
         a Material Adverse Effect with respect to Parent or which could
         reasonably be expected to materially adversely affect (or materially
         delay) the consummation of the Merger, which breach shall not have been
         cured prior to 10 days following notice thereof; or

                  (g) By Parent if prior to the Closing Date (i) there shall
         have been a breach of any representation or warranty on the part of the
         Company contained in this Agreement which could reasonably be expected
         to have a Material Adverse


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         Effect with respect to the Company or which could reasonably be
         expected to materially adversely affect (or materially delay) the
         consummation of the Merger, (ii) there shall have been a breach of any
         covenant or agreement on the part of the Company contained in this
         Agreement which could reasonably be expected to have a Material Adverse
         Effect with respect to the Company or which could reasonably be
         expected to materially adversely affect (or materially delay) the
         consummation of the Merger, which breach shall not have been cured
         prior to 10 days following notice thereof; or

                  (h) By Parent, if the Board of Directors of the Company shall
         have (i) withdrawn, modified or amended in any respect adverse to
         Parent or Sub its approval or recommendation of this Agreement, the
         Merger or any of the other transactions contemplated herein or resolved
         to do so (provided that the disclosure of the receipt of an Alternative
         Transaction and the fact that the Board of Directors is considering
         such Alternative Transaction or reviewing it with its advisors shall
         not by itself constitute such a withdrawal, modification or amendment),
         or (ii) recommended an Alternative Transaction from a Person (other
         than Parent) or resolved to do so;

                  (i) By the Company (but only prior to approval by the
         shareholders of the Company of this Agreement and the Merger), if any
         Person (other than Parent) shall have proposed a Superior Transaction,
         such proposal is pending and the Company shall have notified Parent of
         such Superior Transaction at least 5 business days prior to such
         termination; provided that such termination under this Section 7.1(i)
         shall not be effective until the Company has made payment of the Fee
         and the Expenses required by Section 7.3; or

                  (j) by the Company, if the average of the closing prices of
         the Parent Common Stock on the NYSE as reported on the NYSE Composite
         Transaction Tape for the 5 trading days ending on the second trading
         day preceding the Effective Time is $20.00 or less.

                  SECTION 7.2 Effect of Termination. In the event of the
termination of this Agreement pursuant to Section 7.1, this Agreement shall
forthwith become void and there shall be no liability on the part of any party
hereto except as set forth in Section 7.3 and Section 8.1; provided, however,
that nothing herein shall relieve any party from liability for any willful
breach hereof.

                  SECTION 7.3 Fees and Expenses.

                  (a)  If:


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<PAGE>   249
                  (i) This Agreement is terminated pursuant to Section 7.1(h) or
         (i); or

                  (ii) (x) Parent terminates this Agreement (A) pursuant to
         Section 7.1(c) and prior to the Company's shareholders meeting giving
         rise to Parent's right of termination, the issuance of Parent Common
         Stock pursuant to the F4LH Merger Agreement shall have been approved by
         a vote held at a duly held meeting of the stockholders of Parent or at
         any adjournment thereof and the F4LH Merger Agreement shall be in full
         force and effect; or (B) pursuant to Section 7.1(g) (as a result of a
         willful breach of representation, warranty, covenant or agreement on
         the part of the Company) and, (y) in the case of (A) or (B), within 9
         months thereafter, the Company enters into an agreement with respect to
         an Alternative Transaction or an Alternative Transaction contemplated
         by any of clauses (i), (ii), or (iii) of the definition of such term
         occurs;

then the Company shall pay to Parent and Sub, (A) simultaneously with any
termination by the Company contemplated by Section 7.3(a)(i), (B) within one
business day following any termination by Parent contemplated by Section
7.3(a)(i), and (C) within one business day following the occurence of one of the
events described in clause (y) of Section 7.3(a)(ii), a fee, in cash, of $40
million (the "Fee"), provided, however, that the Company shall in no event be
obligated to pay more than one such fee with respect to all such occurrences and
such termination, and (B) within one business day after request by Parent or Sub
(accompanied by reasonably detailed documentation to the extent reasonably
requested by the Company) from time to time, all of Parent's and Sub's Expenses
(as defined below) up to a maximum payment pursuant to this clause (B) of $5
million. The term "Expenses" shall include all out-of-pocket expenses and fees
(including without limitation fees and expenses payable to all banks, investment
banking firms and other financial institutions and their respective agents and
counsel for arranging or providing financial advice with respect to the Merger
and all reasonable fees and expenses of counsel, accountants, experts and
consultants to Parent and Sub) actually incurred by Parent or Sub or on their
behalf in connection with the consummation of all transactions contemplated by
this Agreement, including the Merger.

                  "Alternative Transaction" means any of the following events:
(i) the acquisition of the Company by merger, tender offer or otherwise by any
person other than Parent, Sub or any affiliate thereof (a "Third Party"); (ii)
the acquisition by a Third Party of 30% or more of the assets of the Company and
its subsidiaries, taken as a whole; (iii) the acquisition by a Third Party of
30% or more of the outstanding shares of Company Common Stock; (iv) the adoption
by the Company of a plan of liquidation or the declaration or payment of an
extraordinary dividend; or


                                      A-61


<PAGE>   250
(v) the repurchase by the Company or any of its subsidiaries of 30% or more of
the outstanding shares of Company Common Stock.

                  (b) Except as otherwise specifically provided herein, each
party shall bear its own expenses in connection with this Agreement, the
Shareholder Agreements and the transactions contemplated hereby and thereby,
except that each of Parent and the Company shall bear and pay one-half of the
costs and expenses incurred in connection with the filing, printing and mailing
of the Form S-4 and the Joint Proxy Statement. In the event that the Merger
Agreement is terminated pursuant to Section 7.1, Parent will, promptly after
request by the Company (accompanied by reasonably detailed documentation to the
extent reasonably requested by Parent), pay all of the Company's reasonable
out-of-pocket expenses actually incurred in connection with the Form S-3 and
Offer to Purchase.

                  SECTION 7.4 Amendment. This Agreement may be amended by the
parties hereto by action taken by or on behalf of their respective Boards of
Directors at any time before or after any required approval of matters presented
in connection with the Merger by the shareholders of either the Company or
Parent; provided, however, that after any such approval, there shall be made no
amendment that by law requires further approval by such shareholders without the
further approval of such shareholders. This Agreement may not be amended except
by an instrument in writing signed by the parties hereto.

                  SECTION 7.5 Waiver. At any time prior to the Closing Date, any
party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any such extension or waiver shall be
valid if set forth in an instrument in writing signed by the party or parties to
be bound thereby. The failure of any party to this Agreement to assert any of
its rights under this Agreement or otherwise shall not constitute a waiver of
such rights.


                                  ARTICLE VIII

                               GENERAL PROVISIONS

                  SECTION 8.1 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 7.1, as the case may be, except that the agreements set
forth in Article I and Section 5.6, Section 5.14 and Section 5.15 shall survive
the Effective Time and those set forth in Section 5.3 and Section 7.3 and the
Confidentiality Agreement in


                                      A-62


<PAGE>   251
accordance with its terms shall survive termination of this
Agreement.

                  SECTION 8.2 Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt) by delivery in person, by
cable, telecopy, telegram or telex or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):

                  if to Parent or Sub:

                           Fred Meyer, Inc.
                           3800 S.E. 22nd Avenue
                           Portland, Oregon  97202
                           Attention:  Roger A. Cooke
                           Fax: (503) 797-7138

                  with an additional copy to:

                           Simpson Thacher & Bartlett
                           425 Lexington Avenue
                           New York, NY  10017
                           Attention:  William E. Curbow, Esq.
                           Fax: (212) 455-2502

                  if to the Company:

                           Quality Food Centers, Inc.
                           10112 N.E. 10th Street
                           Bellevue, Washington  98004
                           Attention:  Stuart M. Sloan
                           Fax: (425) 462-2214

                  with a copy to:

                           Sidley & Austin
                           One First National Plaza
                           Chicago, Illinois  60603
                           Attention:  Thomas A. Cole and
                                              Imad I. Qasim
                           Fax: (312) 853-7036

                           and

                           Rosenberg & Liebentritt
                           2 North Riverside Plaza
                           Chicago, Illinois  60606
                           Attention:  Alisa Singer
                           Fax:  (312) 454-0335


                                      A-63


<PAGE>   252
                  SECTION 8.3 Certain Definitions. For purposes of this
Agreement, the term:

                  "Action" shall mean any action, order, writ, injunction,
         judgment or decree outstanding or claim, suit, litigation, proceeding,
         arbitration or investigation by or before any court, governmental or
         other regulatory or administrative agency or commission or any other
         Person.

                  "Affiliate" shall mean, with respect to any Person, any other
         Person that directly, or through one or more intermediaries, controls
         or is controlled by or is under common control with such Person.

                  "Assets" shall mean, with respect to any Person, all land,
         buildings, improvements, leasehold improvements, Fixtures and Equipment
         and other assets, real or personal, tangible or intangible, owned,
         leased or licensed by such Person or any of its Subsidiaries.

                  "Benefit Arrangement" shall mean, with respect to any Person,
         any employment, consulting, severance, change in control or other
         similar contract, arrangement or policy and each plan, arrangement
         (written or oral), program, agreement or commitment providing for
         insurance coverage (including without limitation any self-insured
         arrangements), workers' compensation, disability benefits, life,
         health, disability or accident benefits (including without limitation
         any "voluntary employees' beneficiary association" as defined in
         Section 501(c)(9) of the Code providing for the same or other benefits)
         or for deferred compensation, profit-sharing bonuses, stock options,
         stock appreciation rights, stock purchases or other forms of incentive
         compensation other than Welfare Plan, Pension Plan or Multiemployer
         Plan, (A) which is entered into, maintained, contributed to or required
         to be contributed to, as the case may be, by such Person or any ERISA
         Affiliate or under which such Person or any ERISA Affiliate may incur
         any liability, and (B) which covers any employee or former employee of
         such Person or any ERISA Affiliate (with respect to their relationship
         with such entities).

                  "Contract" shall mean any contract (written or oral), plan,
         undertaking or other commitment or agreement.

                  "Encumbrances" shall mean any claim, lien, pledge, option,
         charge, easement, security interest, deed of trust, mortgage,
         right-of-way, covenant, condition, restriction, encumbrance or other
         rights of third parties.

                  "Employee Plans" shall mean all Benefit Arrangements,
         Multiemployer Plans, Pension Plans and Welfare Plans.


                                      A-64


<PAGE>   253
                  "ERISA Affiliate" shall mean, with respect to any Person, any
         entity which is (or at any relevant time was) a member of a "controlled
         group of corporations" with, under "common control" with, or a member
         of as "affiliated service group" with, such Person as defined in
         Section 414(b), (c), (m) or (o) of the Code.

                  "Environmental Laws" shall mean any federal, state or
         local law, statute, ordinance, order, decree, rule or
         regulation relating to releases, discharges, emissions or
         disposals to air, water, land or groundwater of Hazardous
         Materials; to the use handling or disposal of
         polychlorinated byphenyls, asbestos or urea formaldehyde or
         any other Hazardous Material; to the treatment, storage,
         disposal or management of Hazardous Materials; to exposure
         to toxic, hazardous or other controlled, prohibited or
         regulated substances; and to the transportation, release or
         any other use of Hazardous Materials, including the
         Comprehensive Environmental Response, Compensation and
         Liability Act, 42 U.S.C. 9601, et seq. ("CERCLA"), the
         Resource Conservation and Recovery Act, 42 U.S.C. 6901, et
         seq. ("RCRA"), the Toxic Substances Control Act, 15 U.S.C.
         2601, et seq. ("TSCA"), the Occupational, Safety and Health
         Act, 29 U.S.C. 651, et seq., the Clean Air Act, 42 U.S.C.
         7401, et seq., the Federal Water Pollution Control Act, 33
         U.S.C. 1251, et seq., the Safe Drinking Water Act, 42 U.S.C.
         300f, et seq., the Hazardous Materials Transportation act,
         49 U.S.C. 1802 et seq. ("HMTA") and the Emergency Planning
         and Community Right to Know Act, 42 U.S.C. 11001 et seq.
         ("EPCRA"), and other comparable state and local laws and all
         rules, regulations and guidance documents promulgated
         pursuant thereto or published thereunder.

                  "Fixtures and Equipment" shall mean, with respect to any
         Person, all of the furniture, fixtures, furnishings, machinery and
         equipment owned, leased or licensed by such Person and located in, at
         or upon the facilities of such Person.

                  "F4LH" shall mean Food 4 Less Holdings, Inc.

                  "F4LH Merger Agreement" shall mean the Agreement and Plan of
         Merger dated as of November 6, 1997, among Parent and F4LH.

                  "GAAP" shall mean generally accepted accounting principles in
         the United States of America, as in effect from time to time,
         consistently applied.

                  "Hazardous Materials" shall mean each and every element,
         compound, chemical mixture, contaminant, pollutant, material, waste or
         other substance which is defined, determined or identified as hazardous
         or toxic under Environmental Laws or the release of which is regulated


                                      A-65


<PAGE>   254
         under Environmental Laws. Without limiting the generality of the
         foregoing, the term includes: "hazardous substances" as defined in
         CERCLA; "extremely hazardous substances" as defined in EPCRA;
         "hazardous waste" as defined in RCRA; "hazardous materials" as defined
         in HMTA; "chemical substance or mixture" as defined in TSCA; crude oil,
         petroleum products or any fraction thereof; radioactive materials
         including source, byproduct or special nuclear materials; asbestos or
         asbestos-containing materials; chlorinated fluorocarbons ("CFCs"); and
         radon.

                  "Leases" shall mean, with respect to any Person, all leases
         (including subleases, licenses, any occupancy agreement and any other
         agreement) of real or personal property, in each case to which such
         Person or any of its Subsidiaries is a party, whether as lessor,
         lessee, guarantor or otherwise, or by which any of them or their
         respective properties or assets are bound, or which otherwise relate to
         the operation of their respective businesses.

                  "Material Adverse Effect" shall mean, with respect to either
         of the Company or Parent, as the context requires, a material adverse
         change in or effect on the business, results of operations or financial
         condition of such Person and its Subsidiaries taken as a whole or any
         change which materially impairs or materially delays the ability of
         such Person to consummate the transactions contemplated by this
         Agreement; provided, that (i) the failure of Parent to consummate the
         transactions pursuant to the F4LH Merger Agreement (ii) changes or
         effects as a result of any sales or dispositions of Facilities or other
         actions pursuant to Section 5.8 and (iii) the acceleration of the
         Santee Dairies, Inc. $80,000,000 Senior Secured Notes due 2008 and the
         consequences thereof, shall not constitute a Material Adverse Effect.

                  "Multiemployer Plan" shall mean, with respect to any Person,
         any "multiemployer plan," as defined in Section 4001(a)(3) of ERISA,
         (A) which such Person or any ERISA Affiliate contributes to or is
         required to contribute to, or, since January 1, 1990, maintained,
         administered, contributed to or was required to contribute to, or under
         which such Person or any ERISA Affiliate may incur any liability and
         (B) which covers any employee or former employee of such Person or any
         ERISA Affiliate (with respect to their relationship with such
         entities).

                  "Pension Plan" shall mean, with respect to any Person, any
         "employee pension benefit plan" as defined in Section 3(2) of ERISA
         (other than a Multiemployer Plan) (A) which such Person or any ERISA
         Affiliate maintains, administers, contributes to or is required to
         contribute to, or, within the six years prior to the Closing Date,
         maintained,


                                      A-66


<PAGE>   255
         administered, contributed to or was required to contribute to, or under
         which such Person or any ERISA Affiliate may incur any liability and
         (B) which covers any employee or former employee of such Person or any
         ERISA Affiliate (with respect to their relationship with such
         entities).

                  "Permitted Encumbrances" shall mean any Encumbrances resulting
         from (i) all statutory or other liens for Taxes or assessments which
         are not yet due or delinquent or the validity of which are being
         contested in good faith by appropriate proceedings for which adequate
         reserves are being maintained in other accordance with GAAP; (ii) all
         cashiers', landlords', workers' and repairers' liens, and other similar
         liens imposed by law, incurred in the ordinary course of business;
         (iii) all laws and governmental rules, regulations, ordinances and
         restrictions; (iv) all leases, subleases, licenses, concessions or
         service contracts to which any Person or any of its Subsidiaries is a
         party; (v) Encumbrances identified on title policies or preliminary
         title reports or other documents or writing delivered or made available
         for inspection to any Person prior to the date hereof or included in
         the Public Records; and (vi) all other liens and mortgages (but solely
         to the extent such liens or mortgages secure indebtedness described or
         referred to in the Disclosure Schedule), covenants, imperfections in
         title, charges, easements, restrictions and other Encumbrances which,
         in the case of any such Encumbrances pursuant to clause (i) through
         (vi), do not materially detract from or materially interfere with the
         present use of the asset subject thereto or affected thereby.

                  "Person" shall mean any individual, corporation, partnership,
         limited liability company, joint venture, governmental agency or
         instrumentality, or any other entity.

                  "Smith's Merger Agreement" shall mean the Agreement and
         Plan of Reorganization and Merger by and between Smith's
         Food & Drug Centers, Inc. and Fred Meyer, Inc., dated as of
         May 11, 1997.

                  "Subsidiary" shall mean, with respect to any Person, any
         corporation or other organization, whether incorporated or
         unincorporated, of which such Person directly or indirectly owns or
         controls at least a majority of the securities or other interests
         having by their terms ordinary voting power to elect a majority of the
         board of directors or others performing similar functions.

                  "Tax" or "Taxes" shall mean all federal, state, local, foreign
         and other taxes, levies, imposts, assessments, impositions or other
         similar government charges, including, without limitation, income,
         estimated income, business, occupation, franchise, real property,
         payroll, personal property, sales, transfer, stamp, use, employment,


                                      A-67


<PAGE>   256
         commercial rent or withholding, occupancy, premium, gross receipts,
         profits, windfall profits, deemed profits, license, lease, severance,
         capital, production, corporation, ad valorem, excise, duty or other
         taxes, including interest, penalties and additions (to the extent
         applicable) thereto whether disputed or not.

                  "Tax Return" shall mean any report, return, document,
         declaration or other information or filing required to be supplied to
         any taxing authority or jurisdiction (foreign or domestic) with respect
         to Taxes, including, without limitation, information returns, any
         documents with respect to or accompanying payments of estimated Taxes,
         or with respect to or accompanying requests for the extension of time
         in which to file any such report, return, document, declaration or
         other information.

                  "Welfare Plan" shall mean, with respect to any Person, any
         "employee welfare benefit plan" as defined in Section 3(1) of ERISA,
         (A) which such Person or any ERISA Affiliate maintains, administers,
         contributes to or is required to contribute to, or under which such
         Person or any ERISA Affiliate may incur any liability and (B) which
         covers any employee or former employee of such Person or any ERISA
         Affiliate (with respect to their relationship with such entities).

                  SECTION 8.4 Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that the transactions contemplated hereby are fulfilled to the fullest
extent possible.

                  SECTION 8.5 Entire Agreement; Assignment. This Agreement,
together with the Shareholders Agreement and the Confidentiality Agreement,
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all prior agreements and undertakings, both written
and oral, among the parties, or any of them, with respect to the subject matter
hereof. Any attempted assignment which does not comply with the provisions of
this Section 8.5 shall be null and void ab initio.

                  SECTION 8.6 Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and, except
as provided in the following sentence,


                                      A-68


<PAGE>   257
nothing in this Agreement, express or implied, is intended to or shall confer
upon any other person any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement. The parties hereto expressly intend the
provisions of Sections 1.7, 5.6, 5.14 and 5.15 to confer a benefit upon and be
enforceable by, as third party beneficiaries of this Agreement, the third
persons referred to in, or intended to be benefitted by, such provisions.

                  SECTION 8.7 Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware.

                  SECTION 8.8 Headings. The descriptive headings contained in
this Agreement are included for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement.

                  SECTION 8.9 Counterparts. This Agreement may be executed in
two or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.


                  IN WITNESS WHEREOF, Parent, Sub and the Company have caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.

<TABLE>
<S>                                <C>
                                   FRED MEYER, INC.
Attest:


KENNETH THRASHER                   By:  ROBERT G. MILLER
-------------------------------       -------------------------------
                                      Title: President and Chief
                                             Executive Officer


                                   Q-ACQUISITION CORP.
Attest:


MARGARET HILL NOTO                 By:  ROGER A. COOKE
-------------------------------       -------------------------------
                                      Title:Senior Vice President,
                                            General Counsel and
                                            Secretary


                                   QUALITY FOOD CENTERS, INC.
Attest:


                                   By:  STUART M. SLOAN
-------------------------------       -------------------------------
                                      Title:Chairman
</TABLE>


                                      A-69


<PAGE>   258
                                                                      APPENDIX B


                          AGREEMENT AND PLAN OF MERGER


                                      Among


                           FOOD 4 LESS HOLDINGS, INC.,

                              FFL ACQUISITION CORP.

                                       and

                                FRED MEYER, INC.



                          Dated as of November 6, 19971


--------

1                 Reflects changes effected pursuant to an Amendment Agreement
                  dated as of January 20, 1998.



<PAGE>   259
                                TABLE OF CONTENTS



<TABLE>
<CAPTION>
                                                                   Page
                                                                   ----
<S>                                                                <C>
                                    ARTICLE I

             THE MERGER ......................................        1
SECTION 1.1  The Merger ......................................        1
SECTION 1.2  Effective Time ..................................        2
SECTION 1.3  Effects of the Merger ...........................        2
SECTION 1.4  Certificate of Incorporation; By-Laws ...........        2
SECTION 1.5  Directors and Officers ..........................        3
SECTION 1.6  Conversion of Securities ........................        3
SECTION 1.7  Treatment of Employee Options and Other
                            Employee Equity Rights ...........        4
SECTION 1.8  Fractional Interests ............................        6
SECTION 1.9  Surrender of Shares of Company Stock;
                            Stock Transfer Books .............        7
SECTION 1.10  Closing and Closing Date .......................        9
SECTION 1.11  Escrow .........................................        9
SECTION 1.12  Appraisal Rights ...............................       10
SECTION 1.13  Stockholders' Representatives ..................       10

                                   ARTICLE II

             REPRESENTATIONS AND WARRANTIES OF THE COMPANY....       11
SECTION 2.1  Organization and Qualification ..................       11
SECTION 2.2  Authorization; Validity and Effect of
                            Agreement ........................       11
SECTION 2.3  Capitalization ..................................       12
SECTION 2.4  Subsidiaries ....................................       12
SECTION 2.5  Other Interests .................................       12
SECTION 2.6  No Conflict; Required Filings and
                            Consents .........................       13
SECTION 2.7  Compliance ......................................       14
SECTION 2.8  SEC Documents ...................................       14
SECTION 2.9  Litigation ......................................       15
SECTION 2.10  Absence of Certain Changes .....................       15
SECTION 2.11  Taxes ..........................................       16
SECTION 2.12  Employee Benefit Plans .........................       17
SECTION 2.13  No Other Agreements to Sell the Company
                            or its Assets ....................       18
SECTION 2.14  Assets .........................................       18
SECTION 2.15  Contracts and Commitments ......................       20
SECTION 2.16  Absence of Breaches or Defaults ................       21
SECTION 2.17  Labor Matters ..................................       21
SECTION 2.18  Insurance ......................................       22
SECTION 2.19  Affiliate Transactions .........................       23
SECTION 2.20  Environmental Matters ..........................       23
SECTION 2.21  Forms S-3 and S-4; Offer to Purchase;
                            Proxy Statement ..................       24
SECTION 2.22  Opinion of Financial Advisor ...................       25
SECTION 2.23  Brokers ........................................       25
</TABLE>


                                       B-i


<PAGE>   260
<TABLE>
<CAPTION>
                                                                   Page
                                                                   ----
<S>                                                                <C>

SECTION 2.24  DGCL Section 203; State Takeover
                            Statutes .........................       25
SECTION 2.25  Vote Required ..................................       25
SECTION 2.26  Tax Matters ....................................       26

                                   ARTICLE III

             REPRESENTATIONS AND WARRANTIES OF
               PARENT AND SUB ................................       26
SECTION 3.1  Organization and Qualification ..................       26
SECTION 3.2  Authorization; Validity and Effect of
                            Agreement ........................       26
SECTION 3.3  Capitalization ..................................       27
SECTION 3.4  Subsidiaries ....................................       28
SECTION 3.5  Other Interests .................................       28
SECTION 3.6  No Conflict; Required Filings and
                            Consents .........................       28
SECTION 3.7  Compliance ......................................       29
SECTION 3.8  SEC Documents ...................................       29
SECTION 3.9  Litigation ......................................       30
SECTION 3.10  Absence of Certain Changes .....................       31
SECTION 3.11  Taxes ..........................................       31
SECTION 3.12  Employee Benefit Plans .........................       32
SECTION 3.13  Assets .........................................       33
SECTION 3.14  Contracts and Commitments ......................       35
SECTION 3.15  Absence of Breaches or Defaults ................       36
SECTION 3.16  Labor Matters ..................................       36
SECTION 3.17  Insurance ......................................       37
SECTION 3.18  Environmental Matters ..........................       37
SECTION 3.19  Forms S-3 and S-4; Offer to Purchase;
                            Proxy Statement ..................       39
SECTION 3.20  Brokers ........................................       39
SECTION 3.21  Vote Required ..................................       39
SECTION 3.22  Opinions of Financial Advisors .................       40
SECTION 3.23  Tax Matters ....................................       40

                                   ARTICLE IV

             CONDUCT OF BUSINESS PENDING THE MERGER...........       40
SECTION 4.1  Conduct of Business of the Company Pending
                            the Merger .......................       40
SECTION 4.2  Conduct of Business of Parent Pending the
                            Merger ...........................       43

                                    ARTICLE V

             ADDITIONAL AGREEMENTS ...........................       45
SECTION 5.1  Preparation of Form S-4 and the Proxy
                            Statement; Stockholder Meetings ..       45
SECTION 5.2  Accountants' Letters ............................       46
SECTION 5.3  Access to Information; Confidentiality ..........       47
SECTION 5.4  No Solicitation of Transactions .................       47
SECTION 5.5  Employee Benefits Matters .......................       48
</TABLE>


                                      B-ii


<PAGE>   261
<TABLE>
<CAPTION>
                                                                   Page
                                                                   ----
<S>                                                                <C>
SECTION 5.6  Directors' and Officers' Indemnification;
                            Insurance ........................       48
SECTION 5.7  Notification of Certain Matters .................       49
SECTION 5.8  Further Action ..................................       49
SECTION 5.9  Public Announcements ............................       52
SECTION 5.10  Stock Exchange Listing .........................       52
SECTION 5.11  Affiliates .....................................       53
SECTION 5.12  Directorships ..................................       53
SECTION 5.13  Treatment of Yucaipa Consulting
                            Agreement ........................       53
SECTION 5.14  Parent Representations and Warranties ..........       53
SECTION 5.15  Registration Rights Agreement ..................       53
SECTION 5.16  Subsequent Sale ................................       55
SECTION 5.17  Continuity of Business Enterprise ..............       55

                                   ARTICLE VI

             CONDITIONS OF MERGER ............................       55
SECTION 6.1  Conditions to Obligation of Each Party to
                            Effect the Merger ................       55
SECTION 6.2  Conditions to Obligations of the Company
                            to Effect the Merger .............       56
SECTION 6.3  Conditions to Obligations of Parent and
                            Sub to Effect the Merger .........       57

                                   ARTICLE VII

             TERMINATION, AMENDMENT AND WAIVER................       58
SECTION 7.1  Termination .....................................       58
SECTION 7.2  Effect of Termination ...........................       60
SECTION 7.3  Fees and Expenses ...............................       60
SECTION 7.4  Amendment .......................................       60
SECTION 7.5  Waiver ..........................................       60

                         ARTICLE VIII

             RELEASE OF ESCROWED SHARES.......................       60
SECTION 8.1  Delivery of the Escrowed Shares .................       60
SECTION 8.2  Voting of and Dividends on the Escrowed
                            Shares ...........................       61

                          ARTICLE IX

             GENERAL PROVISIONS ..............................       61
SECTION 9.1  Non-Survival of Representations,
                            Warranties and Agreements ........       61
SECTION 9.2  Notices .........................................       61
SECTION 9.3  Certain Definitions .............................       62
SECTION 9.4  Severability ....................................       68
SECTION 9.5  Entire Agreement; Assignment ....................       69
SECTION 9.6  Parties in Interest .............................       69
SECTION 9.7  Governing Law ...................................       69
SECTION 9.8  Headings ........................................       69
</TABLE>


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<PAGE>   262
<TABLE>
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SECTION 9.9  Counterparts ....................................       69
</TABLE>


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<PAGE>   263
                          AGREEMENT AND PLAN OF MERGER


                  AGREEMENT AND PLAN OF MERGER, dated as of November 6, 1997
(the "Agreement"), among Fred Meyer, Inc., a Delaware corporation ("Parent"),
FFL Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Parent ("Sub"), and Food 4 Less Holdings, Inc., a Delaware corporation (the
"Company").

                  WHEREAS, the Boards of Directors of Parent, Sub and the
Company have each approved the merger of the Company with Sub (the "Merger") in
accordance with the General Corporation Law of the State of Delaware ("DGCL")
upon the terms and subject to the conditions set forth herein;

                  WHEREAS, concurrently with the execution and delivery of this
Agreement and as a condition and inducement to Parent's willingness to enter
into this Agreement, Parent and certain Company stockholders (the
"Stockholders") have entered into stockholders agreements, each dated as of the
date hereof and attached as Annex A hereto (the "Stockholders Agreements"); and

                  WHEREAS, for federal income tax purposes, it is intended that
the Merger shall qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code").

                  NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, and intending to be legally
bound hereby, Parent, Sub and the Company hereby agree as follows:


                                    ARTICLE I

                                   THE MERGER

                  SECTION 1.1 The Merger. Upon the terms and subject to the
conditions of this Agreement and in accordance with the DGCL, at the Effective
Time (as defined in Section 1.2), Sub shall be merged with and into the Company.
As a result of the Merger, the separate corporate existence of Sub shall cease
and the Company shall continue as the surviving corporation of the Merger (the
"Surviving Corporation"). At Parent's election, the Merger may alternatively be
structured so that any direct wholly owned subsidiary of Parent may be
substituted for Sub as a constituent corporation in the Merger. In the event of
such an election, the parties agree to execute an appropriate amendment to this
Agreement in order to reflect such election. In the event that (i) all
conditions to the obligation of the Company to effect the Merger set forth in
Sections 6.1 and 6.2 other than the condition set forth in Section 6.2(b) are
fulfilled (or waived by the Company) and (ii) the condition set forth in Section
6.2(b) is not fulfilled solely by reason of the fact that the Company has


<PAGE>   264
outstanding Company Warrants (as defined in Section 1.7(d)), then, in lieu of
consummating the Merger as a merger of Sub with and into the Company, the Merger
shall (upon the terms and subject to the conditions (including Section 6.2(b))
of this Agreement and in accordance with the DGCL) be consummated as a merger of
the Company with and into Sub (the "Forward Merger").

                  SECTION 1.2 Effective Time. The parties hereto shall cause the
Merger to be consummated by filing a certificate of merger or a certificate of
ownership and merger (the "Certificate of Merger") on the Closing Date with the
Secretary of State of the State of Delaware, in such form as required by and
executed in accordance with the relevant provisions of the DGCL (the date and
time of the filing of the Certificate of Merger with the Secretary of State of
the State of Delaware (or such later time as is specified in the Certificate of
Merger) being the "Effective Time").

                  SECTION 1.3 Effects of the Merger. The Merger shall have the
effects set forth in the applicable provisions of the DGCL. Without limiting the
generality of the foregoing and subject thereto, at the Effective Time all the
property, rights, privileges, immunities, powers and franchises of the Company
and Sub shall vest in the Surviving Corporation, and all debts, liabilities and
duties of the Company and Sub shall become the debts, liabilities and duties of
the Surviving Corporation.

                  SECTION 1.4  Certificate of Incorporation; By-Laws.
                  (a)      At the Effective Time and without any further
action on the part of the Company and Sub, (i) unless the Forward Merger is to
be consummated, the text of the Certificate of Incorporation of the Company as
in effect immediately prior to the Effective Time shall be amended, restated and
integrated to read in its entirety as set forth in Exhibit A hereto, and as so
amended, restated and integrated shall be the Certificate of Incorporation of
the Surviving Corporation until thereafter and further amended as provided
therein and under the DGCL and (ii) if the Forward Merger is to be consummated,
the text of the Certificate of Incorporation of Sub, as in effect immediately
prior to the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter and further amended as provided therein
and under the DGCL, except that Article I of the Certificate of Incorporation of
the Surviving Corporation shall be amended to read in its entirety as follows:
"The name of this Corporation is 'Food 4 Less Holdings, Inc.'"

                  (b) At the Effective Time and without any further action on
the part of the Company and Sub, the By-Laws of Sub shall be the By-Laws of the
Surviving Corporation and thereafter may be amended or repealed in accordance
with their terms or the Certificate of Incorporation of the Surviving
Corporation and as provided by law.


                                       B-2


<PAGE>   265
                  SECTION 1.5 Directors and Officers. The directors of Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed (as the case may be) and qualified.

                  SECTION 1.6 Conversion of Securities. At the Effective Time,
by virtue of the Merger and without any action on the part of Parent, Sub, the
Company or the holders of any of the following securities:

                  (a)  Subject to Section 1.8:

                                    (A) each share of Common Stock, par value
         $.01 per share, of the Company ("Company Voting Common Stock") and each
         share of Non-Voting Common Stock, par value $.01 per share, of the
         Company ("Company Non-Voting Common Stock"; and, together with the
         Company Voting Common Stock, the "Company Common Stock") issued and
         outstanding immediately prior to the Effective Time (other than shares
         of Company Common Stock to be cancelled in accordance with Section
         1.6(b) hereof or shares of Company Common Stock ("Dissenting Shares")
         that are held by stockholders ("Dissenting Stockholders") properly
         exercising appraisal rights pursuant to Section 1.12) shall be
         converted into and represent the right to receive (a) a number (rounded
         to the nearest ten-thousandth of a share) of fully paid and
         nonassessable shares of Common Stock, par value $.01 per share, of
         Parent (the "Parent Common Stock") equal to the quotient of (i) the
         Applicable Percentage of the Per Share Value divided by (ii) the
         Average Parent Price, (the "Common Stock Consideration"), payable upon
         the surrender of the certificate formerly representing such share of
         Company Common Stock and (b) if the Applicable Percentage is less than
         100% at the Effective Time, a percentage interest (the "Escrow
         Percentage Interest") in any Escrowed Shares (as defined in Section
         1.11) equal to one (1) divided by the Fully-Diluted Basis, payments
         and/or distributions from which shall be made as provided in and
         subject to the terms and conditions of the Escrow Agreement in the form
         of Exhibit B hereto (the "Escrow Agreement") (the Common Stock
         Consideration and any Escrow Percentage Interest described in (ii)
         above hereinafter referred to as the "Common Merger Consideration");
         and

                                    (B) each share of Series A Preferred Stock,
         par value $.01 per share, of the Company ("Series A Preferred Stock")
         and each share of Series B Preferred Stock, par value $.01 per share,
         of the Company ("Series B Preferred Stock"; together with the Series A
         Preferred


                                       B-3


<PAGE>   266
         Stock, the "Company Preferred Stock; together with the Company Common
         Stock, the "Company Stock") issued and outstanding immediately prior to
         the Effective Time shall be converted into and represent the right to
         receive (i) a number of fully paid and nonassessable shares of Parent
         Common Stock equal to the Common Stock Consideration times the number
         of shares of Company Common Stock into which such share of Company
         Preferred Stock is then convertible (the "Preferred Stock
         Consideration"), payable upon the surrender of the certificate formerly
         representing such share of Company Preferred Stock and (ii) if the
         Applicable Percentage is less than 100% at the Effective Time, an
         Escrow Percentage Interest equal to the number of shares of Company
         Common Stock into which such share of Company Preferred Stock is then
         convertible divided by the Fully- Diluted Basis (the Preferred Stock
         Consideration and any Escrow Percentage Interest described in (ii)
         above hereinafter referred to as the "Preferred Merger Consideration"
         and, together with the Common Merger Consideration, as the "Merger
         Consideration").

         As of the Effective Time, all such shares of Company Stock shall no
         longer be outstanding and shall automatically be cancelled and retired
         and shall cease to exist, and each holder of a certificate representing
         any such shares of Company Stock shall cease to have any rights with
         respect thereto, except the right to receive the Merger Consideration
         and any cash in lieu of fractional shares of Parent Common Stock to be
         issued or paid in consideration therefor upon surrender of such
         certificate in accordance with Section 1.9 and (iii) any dividends and
         distributions in accordance with Section 1.9(e), in each case without
         interest.

                  (b) Each share of Company Common Stock that is (i) held in the
         treasury of the Company or (ii) owned by Parent, Sub or any other
         direct or indirect subsidiary of Parent or of the Company, in each case
         immediately prior to the Effective Time, shall be cancelled and retired
         without any conversion thereof and no payment or distribution shall be
         made with respect thereto.

                  (c) Each share of common, preferred or other capital stock of
         Sub issued and outstanding immediately prior to the Effective Time
         shall remain outstanding and shall be unchanged after the Merger and
         shall thereafter constitute all of the issued and outstanding capital
         stock of the Surviving Corporation.

                  SECTION 1.7 Treatment of Employee Options and Other Employee
Equity Rights. (a) Immediately prior to the Effective Time, each outstanding
option (a "Company Option") to purchase shares of Company Common Stock under any
stock option or equity incentive plan of the Company (collectively, the "Company
Option


                                       B-4


<PAGE>   267
Plans"), shall be cancelled in exchange for the following payments. With respect
to such portion of a Company Option which is exercisable immediately prior to
March 20, 1998 (a "Vested Option Portion"), the Company shall pay to each holder
of the Company Option a cash payment in an amount equal to the excess, if any,
of the Per Value Share minus the per share exercise price of such Company
Option, multiplied by the number of shares of Company Common Stock subject to
such Vested Option Portion, subject to applicable income tax withholding and
employer taxes. With respect to such portion of a Company Option which is not
exercisable immediately prior to the Effective Time (an "Unvested Option
Portion"), subject to Section 1.7(b) and the following sentence, if the holder
(a "Qualifying Employee") of the Company Option is employed by the Company or
any successor employer to the Company on the first anniversary of the Effective
Time (the "First Anniversary"), the Company shall pay to the Qualifying Employee
within 10 days after the First Anniversary, a cash payment in an amount equal to
the excess, if any, of the Per Share Value minus the per share exercise price of
such Company Option, multiplied by the number of shares of Company Common Stock
subject to such Unvested Option Portion, plus a pro rata portion (based on the
ratio of the amounts payable to Qualifying Employees under this sentence) of any
amounts which would have been payable to holders under this sentence but who are
not Qualifying Employees, subject to applicable income tax withholding and
employer taxes. If the Company or any successor employer to the Company
terminates the employment of a holder of a Company Option after the Effective
Time and prior to the First Anniversary without "cause" or such holder
terminates such employment for "good reason," as determined by the Company on a
case by case basis, such holder shall be a "Qualifying Employee" and such holder
shall be entitled to receive the payments prescribed by the preceding sentence
with respect to the Unvested Option Portion of such holder's Company Options.

         (b) Any amount payable to a Qualifying Employee under Section 1.7(a)
with respect to the Qualifying Employee's Unvested Option Portion shall not
exceed the maximum amount which would not be subject to disallowance of
deductibility under Section 280G of the Code, as determined by the Company,
unless the payment of such excess amount is approved by the Company's
shareholders pursuant to Section 280G(b)(5) of the Code.

         (c) Prior to the Effective Time, the Board of Directors of the Company
(or, if appropriate, a committee thereof) shall adopt appropriate resolutions
and take all other actions necessary to provide for the cancellation of the
Company Options and the payments prescribed by Section 1.7(a).

         (d) Prior to the Effective Time, the Board of Directors of Parent (or,
if appropriate, any Committee thereof) shall adopt appropriate resolutions and
take all other actions necessary to provide that, effective at the Effective
Time, all the outstanding Common Stock Purchase Warrants (the "Company


                                       B-5


<PAGE>   268
Warrants") heretofore granted under the Warrant Agreement of the Company dated
December 31, 1992 (but not including the Yucaipa Warrant) shall be assumed by
Parent and converted automatically into a warrant to purchase shares of Parent
Common Stock and Escrow Percentage Interests (collectively, a "New Warrant") in
an amount and, if applicable, at an exercise price determined as provided below:

                  (i) The number of shares of Parent Common Stock to be subject
         to the New Warrant shall be equal to the product of the number of
         shares of Company Common Stock remaining subject (as of immediately
         prior to the Effective Time) to the Company Warrants times the quotient
         of (i) the Applicable Percentage of the Per Share Value divided by (ii)
         the Average Parent Price, provided that any fractional shares of Parent
         Common Stock resulting from such multiplication shall be rounded down
         to the nearest share;

                  (ii) the Escrow Percentage Interest to be subject to the New
         Warrant shall be equal to the quotient of the number of shares of
         Company Common Stock remaining subject (as of immediately prior to the
         Effective Time) to the Company Warrants divided by the Fully-Diluted
         Basis and

                  (iii) the exercise price per share of Parent Common Stock
         under the New Warrant shall be equal to the product of (i) the exercise
         price per share of the Company Common Stock under the Company Warrants
         divided by the Per Share Value, multiplied by (ii) Average Parent
         Price, provided that such exercise price shall be rounded down to the
         nearest cent.

         (e) As provided herein, the Company Options, Company Warrants and any
other plan, program or arrangement providing for the issuance or grant of any
other interest in respect of the capital stock of the Company or any Subsidiary
of the Company shall terminate as of the Effective Time and the Company shall
take all reasonable steps to ensure that following the Effective Time no
participant in any Company Option Plans shall have any right thereunder to
acquire capital stock of the Company, Sub or the Surviving Corporation, provided
that, unless exercised prior to the Effective Time, the Company Warrants shall
represent the ongoing right to acquire Parent Common Stock as set forth above.
The Company will take all reasonable steps to ensure that, as of the Effective
Time, none of Sub, the Company, the Surviving Corporation or any of their
respective Subsidiaries is or will be bound by any Company Options, Company
Warrants, other options, warrants, rights or agreements which would entitle any
person, other than Sub or its affiliates, to own any capital stock of the
Company, Sub, the Surviving Corporation or any of their respective subsidiaries
or to receive any payment in respect thereof, except as otherwise provided
herein.

                  SECTION 1.8  Fractional Interests.  No certificates or
scrip representing fractional shares of Parent Common Stock shall


                                       B-6


<PAGE>   269
be issued in connection with the Merger, and such fractional interests will not
entitle the owner thereof to any rights of a stockholder of Parent. In lieu of
any such fractional interests, each holder of shares of Company Stock exchanged
pursuant to Section 1.6(a) who would otherwise have been entitled to receive a
fraction of a share of Parent Common Stock (after taking into account all shares
of Company Stock then held of record by such holder) shall receive cash (without
interest) in an amount equal to the product of such fractional part of a share
of Parent Common Stock multiplied by the Average Parent Price (as defined
below).

                  SECTION 1.9 Surrender of Shares of Company Stock; Stock
Transfer Books. (a) Prior to the Closing Date, Sub shall designate a bank or
trust company reasonably acceptable to the Company to act as agent for the
holders of shares of Company Stock in connection with the Merger (the "Exchange
Agent") to receive the shares of Parent Common Stock (and any cash payable in
lieu of any fractional shares of Parent Common Stock) to which holders of shares
of Company Stock shall become entitled pursuant to Sections 1.6(a) and 1.8.
Immediately before the Effective Time, Parent will, or will cause Sub to, make
available to the Exchange Agent sufficient shares of Parent Common Stock and
cash to make all exchanges pursuant to Section 1.9(b).

                  (b) Promptly after the Effective Time, Parent shall, or shall
cause the Surviving Corporation to, cause to be mailed to each record holder, as
of the Effective Time, of an outstanding certificate or certificates which
immediately prior to the Effective Time represented shares of Company Stock (the
"Certificates"), a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to the Exchange Agent) and
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Parent Common Stock therefor. Upon
surrender to the Exchange Agent of a Certificate, together with such letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, and such other documents as may be reasonably required
pursuant to such instructions, the holder of such Certificate shall be entitled
to receive in exchange therefor, (i) a certificate representing that number of
whole shares of Parent Common Stock which such holder has the right to receive
pursuant to the provisions of Section 1.6(a), (ii) cash in lieu of any
fractional shares of Parent Common Stock to which such holder is entitled
pursuant to Section 1.8, after giving effect to any required tax withholdings,
and (iii) any dividends or distributions to which such holder is entitled
pursuant to Section 1.9(e), and the Certificate so surrendered shall forthwith
be cancelled. If the exchange of certificates representing shares of Parent
Common Stock is to be made to a person other than the person in whose name the
surrendered Certificate is registered, it shall be a condition of exchange that
the Certificate so surrendered shall


                                       B-7


<PAGE>   270
be properly endorsed or shall be otherwise in proper form for transfer and that
the person requesting such exchange shall have paid any transfer and other taxes
required by reason of the exchange of certificates representing shares of Parent
Common Stock to a person other than the registered holder of the Certificate
surrendered or shall have established to the satisfaction of the Surviving
Corporation that such tax either has been paid or is not applicable.

                  (c) At any time following 12 months after the Effective Time,
Parent shall be entitled to require the Exchange Agent to deliver to it or the
Surviving Corporation any shares of Parent Common Stock (and any cash payable in
lieu of any fractional shares of Parent Common Stock and dividends or other
distributions in respect thereof) which had been made available to the Exchange
Agent and which have not been disbursed to holders of Certificates, and
thereafter such holders shall be entitled to look to the Surviving Corporation
(subject to abandoned property, escheat or other similar laws) only as general
creditors thereof with respect to the shares of Parent Common Stock (and any
cash payable in lieu of any fractional shares of Parent Common Stock) payable
upon due surrender of their Certificates. Notwithstanding the foregoing, neither
Parent, the Surviving Corporation nor the Exchange Agent shall be liable to any
holder of a Certificate for shares of Parent Common Stock (and any cash payable
in lieu of any fractional shares of Parent Common Stock) delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.

                  (d) At the Effective Time, the stock transfer books of the
Company shall be closed and thereafter there shall be no further registration of
transfers of shares of Company Stock on the records of the Company. From and
after the Effective Time, the holders of Certificates evidencing ownership of
shares of Company Stock outstanding immediately prior to the Effective Time
shall cease to have any rights with respect to such shares of Company Stock
except as otherwise provided for herein or by applicable law.

                  (e) No dividends or other distributions declared or made after
the Effective Time with respect to shares of Parent Common Stock shall be paid
to the holder of any unsurrendered Certificate with respect to the shares of
Parent Common Stock it is entitled to receive and no cash payment in lieu of
fractional interests shall be paid pursuant to Section 1.8 until the holder of
such Certificate shall surrender such Certificate in accordance with the
provisions of this Agreement. Upon such surrender, Parent shall cause to be paid
to the person in whose name the certificates representing such shares of Parent
Common Stock shall be issued, any dividends or distributions with respect to
such shares of Parent Common Stock which have a record date after the Effective
Time and shall have become payable between the Effective Time and the time of
such surrender. In no


                                       B-8


<PAGE>   271
event shall the person entitled to receive such dividends or distributions be
entitled to receive interest thereon.

                  (f) If, at any time after the Effective Time, the Surviving
Corporation shall consider or be advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of either Sub or the Company acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with, the Merger or
otherwise to carry out this Agreement, the officers of the Surviving Corporation
shall be authorized to execute and deliver, in the name and on behalf of each of
Sub and the Company or otherwise, all such deeds, bills of sale, assignments and
assurances and to take and do, in such names and on such behalves or otherwise,
all such other actions and things as may be necessary or desirable to vest,
perfect or confirm any and all right, title and interest in, to and under such
rights, properties or assets in the Surviving Corporation or otherwise to carry
out the purposes of this Agreement.

                  SECTION 1.10 Closing and Closing Date. Unless this Agreement
shall have been terminated and the transactions herein contemplated shall have
been abandoned pursuant to the provisions of Section 7.1, the closing (the
"Closing") of the transactions contemplated by this Agreement shall take place
(a) at 10:00 a.m. (Pacific time) on the second business day after all of the
conditions to the respective obligations of the parties set forth in Article VI
hereof shall have been satisfied or waived or (b) at such other time and date as
Parent and the Company shall agree (such date and time on and at which the
Closing occurs being referred to herein as the "Closing Date"). The Closing
shall take place at such location as Parent and the Company shall agree.

                  SECTION 1.11 Escrow. Immediately prior to the Effective Time,
to the extent required by Section 1.6(a) above, (i) Parent, the Stockholders'
Representatives (as defined in Section 1.13) and an escrow agent selected by
Parent and reasonably acceptable to the Company (the "Escrow Agent") shall enter
into the Escrow Agreement and (ii) Parent shall deposit with the Escrow Agent,
in trust, a number of fully paid and nonassessable shares of Parent Common Stock
("Escrowed Shares") equal to the quotient of (A) the product of (i) one (1)
minus the Applicable Percentage (expressed as a decimal) times (ii) the product
of the (a) Per Share Value times (b) the Fully-Diluted Basis divided by (B) the
Average Parent Price. All matters relating to the Escrowed Shares, to the extent
not referred to in this Agreement, shall be governed by the Escrow Agreement;
provided, that, in the event of any conflict between the terms of this Agreement
and the Escrow Agreement, the terms of this Agreement shall be controlling. The
Stockholders' Representatives shall have full power and authority to act on


                                       B-9


<PAGE>   272
behalf of the holders of the Escrow Percentage Interests with respect to all
matters relating to the Escrowed Shares and the Escrow Agreement. The Escrow
Agent shall hold and disburse the Escrowed Shares in accordance with Article
VIII hereof and the Escrow Agreement. The Escrowed Shares shall not be used for
any other purpose.

                  SECTION 1.12 Appraisal Rights. Notwithstanding any other
provision of this Agreement to the contrary, shares of Company Common Stock
outstanding immediately prior to the Effective Time ("Dissenting Shares") and
held by a holder (a "Dissenting Stockholder") who has not voted in favor of the
Merger or consented thereto in writing and who has demanded appraisal for such
Company Common Stock in accordance with the DGCL shall not be converted into a
right to receive the Common Merger Consideration, unless such holder fails to
perfect or withdraws or otherwise loses its right to appraisal or it is
determined that such holder does not have appraisal rights in accordance with
the DGCL. If after the Effective Time such holder fails to perfect or withdraws
or loses its right to appraisal, or if it is determined that such holder does
not have an appraisal right, such shares of Company Common Stock shall be
treated as if they had been exchanged as of the Effective Time for a right to
receive the Common Merger Consideration. The Company shall give Parent and Sub
prompt notice of any demands received by the Company for appraisal of shares of
Company Common Stock, and Parent and Sub shall have the right to participate in
all negotiations and proceedings with respect to such demands except as required
by applicable law. The Company shall not, except with the prior written consent
of Parent and Sub, make any payment with respect to, or settle or offer to
settle, any such demands.

                  SECTION 1.13 Stockholders' Representatives. Ronald W. Burkle,
George G. Golleher and John Kissick (the "Stockholders' Representatives") are
hereby appointed as the Stockholders' Representatives on behalf of the Company's
stockholders and irrevocably constituted and appointed as each stockholder's
attorney-in-fact, to act, by majority action, in each stockholder's name, place
and stead in any way in which such stockholder could do any or all of the
following: (i) to execute and deliver in their capacity as the Stockholders'
Representatives any and all notices documents or certificates to be executed by
the Stockholders' Representatives in accordance with this Agreement; and (ii) to
take all other actions and do other things provided in or contemplated by this
Agreement to be taken or performed by the Stockholders' Representatives.


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<PAGE>   273
                                   ARTICLE II

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

                  The Company hereby represents and warrants to Parent and Sub
that:

                  SECTION 2.1 Organization and Qualification. The Company and
each of its Subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, with the
corporate power and authority to own and operate its business as presently
conducted. The Company and each of its Subsidiaries is duly qualified as a
foreign corporation or other entity to do business and is in good standing in
each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary, except
for such failures of the Company and any of its Subsidiaries to be so qualified
as would not, individually or in the aggregate, have a Material Adverse Effect
(as defined in Section 9.3). The Company has previously made available to Parent
true and correct copies of its certificate of incorporation and bylaws or other
organizational documents and the charter documents and bylaws or other
organizational documents of each of its Subsidiaries, as currently in effect.

                  SECTION 2.2 Authorization; Validity and Effect of Agreement.
The Company has the requisite corporate power and authority to execute, deliver
and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Company and the performance by the Company of its obligations hereunder
and the consummation of the transactions contemplated hereby have been duly
authorized by the Board of Directors of the Company and all other necessary
corporate action on the part of the Company, other than the adoption and
approval of this Agreement by the stockholders of the Company, and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement and the transactions contemplated hereby and the execution, delivery
and performance of the Stockholders Agreements by the parties thereto. The Board
of Directors of the Company has approved for the purposes of Section 251(b) of
the DGCL the agreement of merger contained in this Agreement. This Agreement has
been duly and validly executed and delivered by the Company and constitutes a
legal, valid and binding obligation of the Company, enforceable against it in
accordance with its terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.


                                      B-11


<PAGE>   274
                  SECTION 2.3 Capitalization. The authorized capital stock of
the Company consists of 60,000,000 shares of Company Voting Common Stock,
25,000,000 shares of Company Non-Voting Common Stock and 50,000,000 shares of
preferred stock, each having a par value of $.01 per share (of which 25,000,000
shares have been designated as Series A Preferred Stock and 25,000,000 shares
have been designated as Series B Preferred Stock), of which 16,976,595 shares of
Company Voting Common Stock, 16,683,244 shares of Series A Preferred Stock (none
of which are held in the Company treasury) and 3,100,000 shares of Series B
Preferred Stock (none of which are held in the Company treasury), are issued and
outstanding and 3,304,114 shares of Company Voting Common Stock are subject to
Company Options. There are no outstanding shares of Company Non-Voting Common
Stock. All of the issued and outstanding shares of Company Common Stock are
validly issued, fully paid and non-assessable. As of the date hereof, except as
otherwise disclosed in Section 2.3 of the disclosure schedule delivered by the
Company to Parent and Sub prior to the execution of this Agreement (the
"Disclosure Schedule"), there are no existing options, warrants, calls,
subscriptions, convertible securities or other securities, agreements,
commitments, or obligations which would require the Company or any of its
Subsidiaries to issue or sell shares of Company Common Stock, Company Preferred
Stock or any other equity securities, or securities convertible into or
exchangeable or exercisable for shares of Company Common Stock, Company
Preferred Stock or any other equity securities of the Company or any of its
Subsidiaries. Except as set forth in Section 2.3 of the Disclosure Schedule, the
Company has no commitments or obligations to purchase or redeem any shares of
Company Common Stock.

                  SECTION 2.4 Subsidiaries. The only Subsidiaries of the Company
are those set forth in Section 2.4 of the Disclosure Schedule. All of the
outstanding shares of capital stock and other ownership interests of each of the
Company's Subsidiaries are validly issued, fully paid, non-assessable and free
of preemptive rights, rights of first refusal or similar rights. Except as set
forth in Section 2.4 of the Disclosure Schedule, the Company owns, directly or
indirectly, all of the issued and outstanding capital stock and other ownership
interests of each of its Subsidiaries, free and clear of all Encumbrances (as
defined in Section 9.3), and there are no existing options, warrants, calls,
subscriptions, convertible securities or other securities, agreements,
commitments or obligations of any character relating to the outstanding capital
stock or other securities of any Subsidiary of the Company or which would
require any Subsidiary of the Company to issue or sell any shares of its capital
stock, ownership interests or securities convertible into or exchangeable for
shares of its capital stock or ownership interests.

                  SECTION 2.5  Other Interests.  Except as set forth in
Section 2.5 of the Disclosure Schedule, neither the Company nor


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any of the Company's Subsidiaries owns, directly or indirectly, any interest or
investment in the equity or debt for borrowed money of any corporation,
partnership, limited liability company, joint venture, business, trust or other
Person (other than the Company's Subsidiaries).

                  SECTION 2.6 No Conflict; Required Filings and Consents. (a)
Except as set forth in Section 2.6 of the Disclosure Schedule, neither the
execution and delivery of this Agreement nor the performance by the Company of
its obligations hereunder, nor the consummation of the transactions contemplated
hereby, will: (i) conflict with the Company's certificate of incorporation or
bylaws; (ii) assuming satisfaction of the requirements set forth in Section
2.6(b) below, violate any statute, law, ordinance, rule or regulation,
applicable to the Company or any of its Subsidiaries or any of their properties
or assets; or (iii) violate, breach, be in conflict with or constitute a default
(or an event which, with notice or lapse of time or both, would constitute a
default) under, or permit the termination of any provision of, or result in the
termination of, the acceleration of the maturity of, or the acceleration of the
performance of any obligation of the Company or any of its Subsidiaries, or
cause an indemnity payment to be made by the Company or any of its Subsidiaries
under, or result in the creation or imposition of any lien upon any properties,
assets or business of the Company or any of its Subsidiaries under, any note,
bond, indenture, mortgage, deed of trust, lease, franchise, permit,
authorization, license, contract, instrument or other agreement or commitment or
any order, judgment or decree to which the Company or any of its Subsidiaries is
a party or by which the Company or any of its Subsidiaries or any of their
respective assets or properties is bound or encumbered, or give any Person the
right to require the Company or any of its Subsidiaries to purchase or
repurchase any notes, bonds or instruments of any kind except, in the case of
clauses (ii) and (iii), for such violations, breaches, conflicts, defaults or
other occurrences which, individually or in the aggregate, would not have a
Material Adverse Effect.

                  (b) Except (i) for applicable requirements, if any, of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (the "Exchange Act"), the Securities Act of 1933, as amended, and the
rules and regulations thereunder (the "Securities Act"), and state securities or
"blue sky" laws ("Blue Sky Laws"), (ii) for the pre-merger notification
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder (the "HSR Act"), (iii) for the
filing of a certificates of merger pursuant to the DGCL, and (iv) with respect
to matters set forth in Sections 2.6(a) or 2.6(b) of the Disclosure Schedule, no
consent, approval or authorization of, permit from, or declaration, filing or
registration with, any governmental or regulatory authority, or any other Person
(as defined in Section 9.3) or entity is required to be made or obtained by the
Company


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or its Subsidiaries in connection with the execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby,
except where the failure to obtain such consent, approval, authorization, permit
or declaration or to make such filing or registration would not, individually or
in the aggregate, have a Material Adverse Effect.

                  SECTION 2.7 Compliance. Except as set forth in Section 2.7 of
the Disclosure Schedule, the Company and each of its Subsidiaries is in
compliance with all foreign, federal, state and local laws and regulations
applicable to its operations or with respect to which compliance is a condition
of engaging in the business thereof (including, without limitation, all
Environmental Laws), except to the extent that failure to comply would not,
individually or in the aggregate, have a Material Adverse Effect. To the
knowledge of the Company, except as set forth in Section 2.7 of the Disclosure
Schedule, neither the Company nor any of its Subsidiaries has received any
notice asserting a failure, or possible failure, to comply with any such law or
regulation, the subject of which notice has not been resolved as required
thereby or otherwise to the satisfaction of the party sending the notice, except
for such failure as would not, individually or in the aggregate, have a Material
Adverse Effect. The Company and its Subsidiaries have all permits, licenses and
franchises from governmental agencies required to conduct their respective
businesses as they are now being conducted and all such permits, licenses and
franchises will remain in effect after the Effective Time, except for such
failures to have such permits, licenses and franchises or failures to remain
effective that would not, individually or in the aggregate, have a Material
Adverse Effect.

                  SECTION 2.8 SEC Documents. (a) The Company has delivered or
made available to Parent true and complete copies of each registration
statement, proxy or information statement, form, report and other documents
required to be filed by it with the Securities and Exchange Commission (the
"SEC") since January 1, 1996 (collectively, the "Company SEC Reports"). As of
their respective dates, the Company SEC Reports and any registration statements,
reports, forms, proxy or information statements and other documents filed by the
Company with the SEC after the date of this Agreement (i) complied, or, with
respect to those not yet filed, will comply, in all material respects with the
applicable requirements of the Securities Act and the Exchange Act and (ii) did
not, or, with respect to those not yet filed, will not, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in the light of
the circumstances under which they were made, not misleading.

                  (b) Each of the consolidated balance sheets of the Company
included in or incorporated by reference into the Company SEC Reports (including
the related notes and schedules) presents fairly, in all material respects, the
consolidated financial


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position of the Company and its consolidated Subsidiaries as of its date, and
each of the consolidated statements of income, retained earnings and cash flows
of the Company included in or incorporated by reference into the Company SEC
Reports (including any related notes and schedules) presents fairly, in all
material respects, the results of operations, retained earnings or cash flows,
as the case may be, of the Company and its Subsidiaries for the periods set
forth therein (subject, in the case of unaudited statements, to normal year-end
audit adjustments), in each case in accordance with GAAP consistently applied
during the periods involved, except as may be noted therein.

                  (c) Except as set forth in the Recent Company SEC Reports (as
defined below) or in Section 2.8 of the Disclosure Schedule and except for the
transactions expressly contemplated hereby, neither the Company nor any of its
Subsidiaries has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) that would be required to be reflected on, or
reserved against in, a balance sheet of the Company or in the notes thereto,
prepared in accordance with GAAP consistently applied, except for (i)
liabilities or obligations that were so reserved on, or reflected in (including
the notes to), the consolidated balance sheet of the Company as of February 2,
1997 and (ii) liabilities or obligations arising in the ordinary course of
business (including trade indebtedness) since February 2, 1997 which would not,
individually or in the aggregate, have a Material Adverse Effect.

                  SECTION 2.9 Litigation. Except as set forth in the Company SEC
Reports filed prior to the date of this Agreement (the "Recent Company SEC
Reports") or in Section 2.9 of the Disclosure Schedule, there is no Action
instituted, pending or, to the knowledge of the Company, threatened, in each
case against the Company or any of its Subsidiaries, which would, individually
or in the aggregate, directly or indirectly, have a Material Adverse Effect, nor
is there any outstanding judgment, decree or injunction, in each case against
the Company or any of its Subsidiaries, or any statute, rule or order of any
domestic or foreign court, governmental department, commission or agency
applicable to the Company or any of its Subsidiaries which has or will have,
individually or in the aggregate, any Material Adverse Effect.

                  SECTION 2.10 Absence of Certain Changes. Except as set forth
in the Recent Company SEC Reports or in Section 2.10 of the Disclosure Schedule
and except for the transactions expressly contemplated hereby, since February 2,
1997, the Company and its Subsidiaries have conducted their respective
businesses only in the ordinary and usual course consistent with past practices
and there has not been any (i) change in the Company's business, operations,
condition (financial or otherwise), results of operations, assets or
liabilities, except for changes contemplated hereby or changes which have not,
individually or in the aggregate, had a Material Adverse Effect, or (ii)
condition,


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event or occurrence which, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect. Except as set forth in the
Recent Company SEC Reports or in Section 2.10 of the Disclosure Schedule, from
February 2, 1997 through the date of this Agreement, neither the Company nor any
of its Subsidiaries has taken any of the actions prohibited by Section 4.1
hereof.

                  SECTION 2.11 Taxes. Except as set forth in Section 2.11 of the
Disclosure Schedule:

                           (a) the Company and its Subsidiaries have (A) duly
         filed (or there have been filed on their behalf) with the appropriate
         governmental authorities all Tax Returns (as defined in Section 9.3)
         required to be filed by them and such Tax Returns are true, correct and
         complete in all respects, except where any such failure to file, or
         failure to be true, correct and complete, would not, individually or in
         the aggregate, have a Material Adverse Effect, and (B) duly paid in
         full all Taxes shown to be due on such Tax Returns;

                           (b) the Company and its Subsidiaries have complied in
         all material respects with all applicable laws, rules and regulations
         relating to the withholding of Taxes and the payment of such withheld
         Taxes to the proper governmental authorities, except where any such
         failure to comply, withhold or pay over would not, individually or in
         the aggregate, have a Material Adverse Effect;

                           (c) all federal income Tax Returns of the Company and
         its Subsidiaries have been audited, and no federal or material state,
         local or foreign audits or other administrative proceedings or court
         proceedings are presently being conducted with regard to any Taxes or
         Tax Returns of the Company or its Subsidiaries and neither the Company
         nor its Subsidiaries has received a written notice of any pending
         audits with respect to material Taxes or material Tax Returns of the
         Company, and neither the Company nor any of its Subsidiaries has waived
         in writing any statute of limitations with respect to material Taxes;

                           (d) neither the Internal Revenue Service nor any
         other taxing authority (whether domestic or foreign) has asserted in
         writing against the Company or any of its Subsidiaries any deficiency
         or claim for Taxes, except where any such deficiency or claim for
         Taxes, if decided adversely to the Company or any of its Subsidiaries,
         would not, individually or in the aggregate, have a Material Adverse
         Effect;

                           (e) There are no material liens for Taxes upon any
         Property or Assets of the Company or any Subsidiary thereof, except for
         liens for Taxes not yet due and payable


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         and liens for Taxes that are being contested in good faith by
         appropriate proceedings, and no material written power of attorney that
         has been granted by the Company or its Subsidiaries (other than to the
         Company or a Subsidiary) currently is in force with respect to any
         matter relating to Taxes;

                           (f) Neither the Company nor any of its Subsidiaries
         has, with regard to any assets or property held or acquired by any of
         them, agreed to have Section 341(f)(2) of the Code apply to any
         disposition of a subsection (f) asset (as such term is defined in
         Section 341(f)(4) of the Code) owned by the Company or any of its
         Subsidiaries; and

                           (g) Since June 14, 1995, none of the Company or its
         Subsidiaries has been a member of an Affiliated Group filing a
         consolidated federal income tax return other than a group the common
         parent of which is the Company.

                  SECTION 2.12  Employee Benefit Plans.

                  (a) Section 2.12 of the Disclosure Schedule contains a
complete list of all Employee Plans of the Company and its Subsidiaries. True
and complete copies or written descriptions of the Employee Plans of the Company
and its Subsidiaries, including, without limitation, trust instruments, if any,
that form a part thereof, and all amendments thereto have been furnished or made
available to Parent and its counsel.

                  (b) Except as described in Section 2.12 of the Disclosure
Schedule, each of the Employee Plans of the Company and of its ERISA Affiliates
(other than any Multiemployer Plan) has been administered and is in compliance
with the terms of such Employee Plan and all applicable laws, rules and
regulations except for noncompliance which could not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect.

                  (c) No "reportable event" (as such term is used in section
4043 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), "prohibited transaction" (as such term is used in section 406 of
ERISA or section 4975 of the Code), "nondeductible contributions" (as such term
is used in Section 4972 of the Code) or "accumulated funding deficiency" (as
such term is used in section 412 or 4971 of the Code) has heretofore occurred
with respect to any Employee Plan (other than any Multiemployer Plan) of the
Company or any ERISA Affiliate, except for such events which would not,
individually or in the aggregate, have a Material Adverse Effect.

                  (d) No litigation or administrative or other proceeding
involving any Employee Plans of the Company or any of its ERISA Affiliates
(other than any Multiemployer Plan) has


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occurred or are threatened where an adverse determination could, individually or
in the aggregate, have a Material Adverse Effect.

                  (e) Except as set forth in Section 2.12 of the Disclosure
Schedule, neither the Company nor any ERISA Affiliate of the Company has
incurred any withdrawal liability with respect to any Multiemployer Plan under
Title IV of ERISA which remains unsatisfied, except for such liabilities as
would not, individually or in the aggregate, have a Material Adverse Effect.

                  (f) All of the Employee Plans of the Company or its
Subsidiaries (other than any Multiemployer Plan) can be terminated by the
Company without incurring any material liability. The Company and its
Subsidiaries can withdraw from participation in any Employee Plan that is a
Multiemployer Plan. Any termination of, or withdrawal from, any Employee Plans
of the Company or its Subsidiaries, on or prior to the Closing Date, would not
subject the Company to any liability under Title IV of ERISA that would
individually, or in the aggregate, have a Material Adverse Effect.

                  (g) Neither the Company nor any of its Affiliates is aware of
any situation with respect to a Multiemployer Plan described in (b), (c) or (d)
above, except as described in Section 2.12 of the Disclosure Schedule.

                  (h) The transactions contemplated by this Agreement will not
cause the occurrence of a situation described in Section 2.12 (b), (c), (d) or
(e) as of the Effective Time.

                  SECTION 2.13 No Other Agreements to Sell the Company or its
Assets. The Company has no legal obligation, absolute or contingent, to any
other Person to sell any material portion of the Assets of the Company, to sell
any material portion of the capital stock or other ownership interests of the
Company or any of its Subsidiaries, or to effect any merger, consolidation or
other reorganization of the Company or any of its Subsidiaries or to enter into
any agreement with respect thereto.

                  SECTION 2.14 Assets. (a) Except as set forth in Section
2.14(a) of the Disclosure Schedule, the Company and its Subsidiaries have good
and marketable title to or a valid leasehold estate in all of the material
properties and assets, real or personal, reflected on the Company's balance
sheet at February 2, 1997 (except for properties or assets subsequently sold in
the ordinary course of business consistent with past practice). Except as set
forth in Section 2.14(a) of the Disclosure Schedule, the Company and its
Subsidiaries have good and marketable title or a valid right to use all of the
real properties that are necessary, and all of the personal assets and
properties that are materially necessary, for the conduct of the business of the
Company or any of its Subsidiaries free and clear of all Encumbrances (other
than Permitted Encumbrances).


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                  (b) Section 2.14(b) of the Disclosure Schedule sets forth a
complete and accurate list of each improved or unimproved real property (whether
owned or leased, "Property") and/or store, office, plant or warehouse
("Facility") owned or leased by the Company or any of its Subsidiaries, and the
current use of such Property or Facility and indicating whether the Property or
Facility is owned or leased.

                  (c) There are no pending or, to the best knowledge of the
Company, threatened condemnation or similar proceedings against the Company or
any of its Subsidiaries or to the knowledge of the Company, otherwise relating
to any of the Properties or Facilities of the Company and its Subsidiaries
except for such proceedings which would not, individually or in the aggregate,
have a Material Adverse Effect.

                  (d) Section 2.14(d) of the Disclosure Schedule sets forth a
complete and accurate list of all Leases (including subleases and licenses) of
personal property entered into by the Company or any of its Subsidiaries and
involving any annual expense to the Company or any such Subsidiary in excess of
$250,000 and/or not cancelable (without material liability) within two (2)
years.

                  (e) Section 2.14(e) of the Disclosure Schedule indicates each
Lease entered into by the Company or any of its Subsidiaries, as a tenant or
subtenant.

                  (f) The Company or its Subsidiaries, as the case may be, has
in all material respects performed all obligations on its part required to have
been performed with respect to (i) all Assets leased by it or to it (whether as
lessor or lessee), and (ii) all Leases and there exists no material default or
event which, with the giving of notice or lapse of time or both, would become a
default on the part of the Company or any of its Subsidiaries under any Lease,
in each case except where the failure to perform or such default or event would
not, individually or in the aggregate, have a Material Adverse Effect.

                  (g) To the knowledge of the Company, each of the Leases is
valid, binding and enforceable in accordance with its terms (subject to the
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered in a proceeding in
equity or at law) and an implied covenant of good faith and fair dealing) and is
in full force and effect, and assuming all consents required by the terms
thereof or applicable law have been obtained, the Leases will continue to be
valid, binding and enforceable in accordance with their respective terms and in
full force and effect immediately following the consummation of the transactions
contemplated hereby, in each case except where the failure to be valid, binding
and


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enforceable and in full force and effect would not, individually or in the
aggregate, have a Material Adverse Effect.

                  (h) Except as shown on Section 2.14(h) of the Disclosure
Schedule, the Company has delivered to Parent, or otherwise made available,
originals or true copies of all material Leases (as the same may have been
amended or modified, in any material respect, from time to time).

                  (i) The company has provided to Parent a true and complete
list of all "radius clauses" to which it is bound under any real property
leases.

                  SECTION 2.15 Contracts and Commitments. Section 2.15 of the
Disclosure Schedule contains a complete and accurate list of all contracts
(written or oral), plans, undertakings, commitments or agreements ("Contracts")
of the following categories to which the Company or any of its Subsidiaries is a
party or by which any of them is bound as of the date of this Agreement:

                  (a) employment contracts, including, without limitation,
contracts to employ executive officers and other contracts with officers,
directors or stockholders of the Company, and all severance, change in control
or similar arrangements with any officers, employees or agents of the Company
that will result in any obligation (absolute or contingent) of the Company or
any of its Subsidiaries to make any payment to any officers, employees or agents
of the Company following either the consummation of the transactions
contemplated hereby, termination of employment, or both;

                  (b) labor contracts;

                  (c) material distribution, franchise, license, sales, agency
         or advertising contracts;

                  (d) Contracts for the purchase of inventory which are not
         cancelable (without material penalty, cost or other liability) within
         one (1) year (other than Contracts for the purchase of holiday goods in
         accordance with customary industry practices) and other Contracts made
         in the ordinary course of business involving annual expenditures or
         liabilities in excess of $400,000 which are not cancelable (without
         material penalty, cost or other liability) within ninety (90) days,
         other than purchase orders made in the ordinary course of business
         consistent with past practice;

                  (e) promissory notes, loans, agreements, indentures, evidences
         of indebtedness or other instruments providing for the lending of
         money, whether as borrower, lender or guarantor, in excess of $250,000;


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                  (f) Contracts (other than Leases) containing covenants
         limiting the freedom of the Company or any of its Subsidiaries to
         engage in any line of business or compete with any Person or operate at
         any location;

                  (g) joint venture or partnership agreements or joint
         development or similar agreements pursuant to which any third party is
         entitled to develop any Property and/or Facility on behalf of the
         Company or its Subsidiaries; and

                  (h) any Contract where the customer under such Contract is a
         federal, state or local government.

                  True copies of the written Contracts identified in Section
2.15 of the Disclosure Schedule have been delivered or made available to Parent.

                  SECTION 2.16 Absence of Breaches or Defaults. Neither the
Company nor any of its Subsidiaries is and, to the knowledge of the Company, no
other party is in default under, or in breach or violation of, any Contract
identified on Section 2.15 of the Disclosure Schedule and, to the knowledge of
the Company, no event has occurred which, with the giving of notice or passage
of time or both would constitute a default under any Contract identified on
Section 2.15 of the Disclosure Schedule, except for defaults, breaches,
violations or events which, individually or in the aggregate, would not have a
Material Adverse Effect. Other than Contracts which have terminated or expired
in accordance with their terms, each of the Contracts identified on Section 2.15
of the Disclosure Schedule is valid, binding and enforceable in accordance with
its terms (subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles (whether
considered on a proceeding in equity or at law) and an implied covenant of good
faith and fair dealing) and is in full force and effect, and assuming all
consents required by the terms thereof or applicable law have been obtained,
such Contracts will continue to be valid, binding and enforceable in accordance
with their respective terms and in full force and effect immediately following
the consummation of the transactions contemplated hereby, in each case except
where the failure to be valid, binding, enforceable and in full force and effort
would not, individually or in the aggregate, have a Material Adverse Effect. No
event has occurred which either entitles, or would, on notice or lapse of time
or both, entitle the holder of any indebtedness for borrowed money affecting the
Company or any of its Subsidiaries (except for the execution or consummation of
this Agreement and the Stockholders Agreements) to accelerate, or which does
accelerate, the maturity of any indebtedness affecting the Company or any of its
Subsidiaries, except as set forth in Section 2.16 of the Disclosure Schedule.

                  SECTION 2.17 Labor Matters.


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                  (a) Section 2.17(a) of the Disclosure Schedule contains a
complete list of all organizations representing the employees of the Company or
any of its Subsidiaries. As of the date hereof, there is no strike, work
stoppage or labor disturbance, pending or, to the best knowledge of the Company,
threatened, which involves any employees of the Company or any of its
Subsidiaries.

                  (b) Section 2.17(b) of the Disclosure Schedule contains as of
the date hereof (i) a list of all material unfair employment or labor practice
charges which are presently pending which to the knowledge of the Company have
been filed with any governmental authority by or on behalf of any employee
against the Company or any of its Subsidiaries and (ii) a list of all material
employment-related litigation, including, without limitation, arbitrations or
administrative proceedings which are presently pending, filed by or on behalf of
any former, current or prospective employee against the Company or any of its
Subsidiaries.

                  (c) Except as described in Sections 2.17(a) and (b) of the
Disclosure Schedule, there are not presently pending or, to the best knowledge
of the Company, threatened, against the Company or any of its Subsidiaries any
claims by any governmental authority, labor organization, or any former, current
or prospective employee alleging that the Company or any such employer has
violated any applicable laws respecting employment practices except where such
claims would not, individually or in the aggregate, have a Material Adverse
Effect. Except as set forth in Section 2.17 of the Disclosure Schedule, the
Company and each of its Subsidiaries is in compliance in all respects with its
obligations under all statutes, executive orders and other governmental
regulations or judicial decrees governing its employment practices, including,
without limitation, provisions relating to wages, hours, equal opportunity and
payment of social security and other taxes and has timely filed all regular
federal and state employment related reports and other documents, except for
such failures to be in compliance which would not, individually or in the
aggregate, have a Material Adverse Effect.

                  SECTION 2.18 Insurance. All material fire and casualty,
general liability, business interruption, product liability, and sprinkler and
water damage insurance policies maintained by the Company or any of its
Subsidiaries, are with reputable insurance carriers, provide adequate coverage
for normal risks incident to the business of the Company and its Subsidiaries
and their respective Properties and Assets, and are in character and amount
comparable to that carried by Persons engaged in similar businesses and subject
to the same or similar perils or hazards, except for any such failures to
maintain insurance policies that, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect.


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                  SECTION 2.19 Affiliate Transactions. Except for the
transactions expressly contemplated hereby or as set forth in the Recent Company
SEC Reports and as set forth in Section 2.19 of the Disclosure Schedule, from
January 28, 1996 through the date of this Agreement there have been no
transactions, agreements, arrangements or understandings between the Company or
any of its Subsidiaries, on the one hand, and Company affiliates (other than
wholly owned Subsidiaries of the Company) or other Persons, on the other hand,
that would be required to be disclosed under Item 404 of Regulation S-K under
the Securities Act.

                  SECTION 2.20 Environmental Matters. Except as set forth in
Section 2.20 of the Disclosure Schedule, each of the Properties and Facilities
and each previously owned, operated or leased property and facility of the
Company or any of its Subsidiaries (collectively, the "Company Historic and
Current Properties") has been and was maintained by the Company in compliance
with all Environmental Laws, except where the failure to so comply, or any
aggregation of such failures, would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Except as set forth in
Section 2.20 of the Disclosure Schedule, to the best knowledge of the Company,
no conditions exist with respect to the soil, surface waters, groundwaters,
land, stream sediments, surface or subsurface strata, ambient air, and any other
environmental medium on or off the Company Historic and Current Properties,
which, individually or in the aggregate, could result in any damage, claim, or
liability to or against the Company or any of its Subsidiaries by any third
party (including without limitation, any government entity), including, without
limitation, any condition resulting from the operation of Company business
and/or operations in the vicinity of any of the Company Historic and Current
Properties and/or any activity or operation formerly conducted by any Person on
the Company Historic and Current Properties, except in any such case which would
not, individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect. With the exception of retail consumer products sold in the
ordinary course of business and materials and supplies used in the ordinary
course of business or except as set forth in Section 2.20 of the Disclosure
Schedule, the Company has not generated, manufactured, refined, transported,
treated, stored, handled, disposed, transferred, produced, or processed any
Hazardous Materials, except in any such case which would not, individually or in
the aggregate, be reasonably expected to have a Material Adverse Effect. Except
as set forth in Section 2.20 of the Disclosure Schedule, (i) there are no
existing uncured notices of noncompliance, notices of violation, administrative
actions, or lawsuits against the Company or any of its Subsidiaries arising
under Environmental Laws or relating to the use, handling, storage, treatment,
recycling, generation, or release of Hazardous Materials, nor has the Company
received any uncured notification of any allegation of any responsibility for
any disposal, release, or threatened release at any location of any Hazardous
Materials, except in any such case which would not,


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individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect; (ii) there have been no spills or releases of Hazardous
Materials at any of the Company Historic and Current Properties in excess of
quantities reportable under Environmental Laws, except in any such case which
would not be reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect; (iii) there are no consent decrees, consent orders,
judgments, judicial or administrative orders, or liens by any governmental
authority relating to any Environmental Law which have not already been fully
satisfied and which regulate, obligate, or bind the Company or any of its
Subsidiaries, except in any such case which would not, individually or in the
aggregate, be reasonably expected to have a Material Adverse Effect; and (iv) to
the knowledge of the Company, except as set forth in Section 2.20 of the
Disclosure Schedule, no Company Historic and Current Properties or Facilities
are listed on the federal National Priorities List, the federal Comprehensive
Environmental Response Compensation Liability Information System list, or any
similar state listing of sites known to be contaminated with Hazardous
Materials. Except as set forth in Section 2.20 of the Disclosure Schedule, there
are no projected expenses or capital costs that will be required in the next two
years to maintain compliance with Environmental Laws, except in any such case
which would not be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect.

                  SECTION 2.21 Forms S-3 and S-4; Offer to Purchase; Proxy
Statement. None of the information supplied by the Company for inclusion or
incorporation by reference in (i) either the registration statement on Form S-4
to be filed with the SEC by Parent in connection with the issuance of shares of
Parent Common Stock in the Merger, or any of the amendments or supplements
thereto (collectively, the "Form S-4"), or the registration statement on Form
S-3 to be filed by Parent, QFC, the Company and their respective subsidiaries
relating to the debt securities that may be sold by Parent prior to or following
the Merger (the "Form S-3") will, at the time such Form is filed with the SEC,
at any time it is amended or supplemented and at the time it becomes effective
under the Securities Act, contain any untrue statement of a material fact or
omit to state any material fact required to be stated herein or necessary to
make the statements therein not misleading, (ii) the proxy statement for use
relating to the approval by the stockholders of Parent of the issuance of shares
of Parent Common Stock in the Merger or any of the amendments or supplements
thereto (collectively, the "Proxy Statement"), will, at the date it is first
mailed to Parent's stockholders and at the time of the meeting of Parent's
stockholders held to vote on approval of the issuance of the shares of Parent
Common Stock in the Merger, contain any untrue statement of material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading and (iii) the Offer to Purchase and Consent
Solicitation Statement of


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the Company in connection with the consummation of the transactions pursuant to
this Agreement (the "Offer to Purchase"), will, at the date it is first mailed
to bondholders and at each consent date thereunder, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement
will comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations thereunder, except that no
representation is made by the Company with respect to statements made or
incorporated by reference therein based on information supplied by Parent or Sub
for inclusion or incorporation by reference in the Proxy Statement.

                  SECTION 2.22 Opinion of Financial Advisor. The Company has
received the written opinion of Donaldson, Lufkin & Jenrette Securities
Corporation and Morgan Stanley Dean Witter (the "Company Financial Advisors"),
dated the date hereof, to the effect that the consideration to be received in
the Merger by the Company's stockholders is fair to such stockholders from a
financial point of view. An executed copy of such opinion has been delivered to
Parent. The Company has been authorized by the Company Financial Advisors to
permit, subject to prior review and consent by such Company Financial Advisors
(such consent not to be unreasonably withheld), the inclusion of such fairness
opinion (or a reference thereto) in the Form S-4 and the Proxy Statement.

                  SECTION 2.23 Brokers. No broker, finder or investment banker
(other than the Company Financial Advisors) is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company. The Company has heretofore furnished to Parent a complete and
correct copy of all agreements between the Company and the Company Financial
Advisors pursuant to which such firm would be entitled to any payment relating
to the transactions contemplated hereby.

                  SECTION 2.24 DGCL Section 203; State Takeover Statutes. To the
Company's knowledge, neither Section 203 of the DGCL nor any other state
takeover statute or similar statute or regulation applies or purports to apply
to the Merger, this Agreement, the Stockholders Agreements or any of the
transactions contemplated hereby or thereby and no provision of the certificate
of incorporation, by-laws or other governing instruments of the Company or any
of its Subsidiaries would, directly or indirectly, restrict or impair the
ability of Parent to vote, or otherwise to exercise the rights of a stockholder
with respect to, shares of the Company and its Subsidiaries that may be acquired
or controlled by Parent.

                  SECTION 2.25 Vote Required. The affirmative vote of the
holders of a majority of the outstanding shares of Company Voting Common Stock
and Series A Preferred Stock (voting together


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as a single class) entitled to vote thereon is the only vote of the holders of
any class or series of the Company's capital stock necessary to approve the
Merger. The Board of Directors of the Company (the "Company Board") (at a
meeting duly called and held) has (i) unanimously approved this Agreement, (ii)
determined that the Merger is fair to and in the best interests of the holders
of Company Common Stock, (iii) resolved to recommend this Agreement and the
Merger to such holders for approval and adoption and (iv) directed that this
Agreement be submitted to the Company's stockholders. The Company hereby agrees
to the inclusion in the Form S-4 and the Proxy/Consent Solicitation Statement of
the recommendations of the Company Board described in this Section 2.25.

                  SECTION 2.26 Tax Matters. Neither the Company nor any of its
Affiliates, has taken or agreed to take any action, or knows of any
circumstances, that (without regard to any action taken or agreed to be taken by
Parent or any of its Affiliates) would prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a)(1)(A) of the Code and (i)
unless the Forward Merger is to be consummated, Section 368(a)(2)(E) of the Code
or (ii) if the Forward Merger is to be consummated, Section 368(a)(2)(D) of the
Code.


                                   ARTICLE III

                        REPRESENTATIONS AND WARRANTIES OF
                                 PARENT AND SUB

                  Parent and Sub hereby, jointly and severally, represent and
warrant to the Company that:

                  SECTION 3.1 Organization and Qualification. Each of Parent and
Sub is duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization, with the corporate power and authority to
own and operate its businesses as presently conducted. Each of Parent and Sub is
duly qualified as a foreign corporation or other entity to do business and is in
good standing in each jurisdiction where the character of its properties owned
or held under lease or the nature of its activities makes such qualification
necessary, except for such failures of Parent and Sub to be so qualified as
would not, individually or in the aggregate, have a Material Adverse Effect.
Parent has previously made available to the Company true and correct copies of
the certificate of incorporation and bylaws of each of Parent and Sub.

                  SECTION 3.2 Authorization; Validity and Effect of Agreement.
Each of Parent and Sub has the requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Parent and Sub and the performance by them of


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their respective obligations hereunder and the consummation by them of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of Parent and Sub, and all other necessary corporate action on the
part of Parent or Sub, other than the approval of the issuance of the shares of
Parent Common Stock in the Merger by the stockholders of Parent, and no other
corporate proceedings on the part of Parent or Sub are necessary to authorize
this Agreement and the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by Parent and Sub and constitutes a
legal, valid and binding obligation of Parent and Sub, enforceable against them
in accordance with its terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.

                  SECTION 3.3 Capitalization. (a) The authorized capital stock
of Parent consists of (i) 400,000,000 shares of Parent Common Stock and (ii)
100,000,000 shares of preferred stock, par value $.01 per share ("Parent
Preferred Stock"). As of November 5, 1997, 91,506,211 shares of Parent Common
Stock and no shares of Parent Preferred Stock were issued and outstanding; and
no shares of Parent Common Stock are held in Parent's treasury as of the date
hereof. All of the issued and outstanding shares of Parent Common Stock are
validly issued, fully paid and non-assessable. Except pursuant to the exercise
of employee options prior to the date hereof, since November 5, 1997, no shares
of Parent Common Stock or Parent Preferred Stock have been issued. As of the
date hereof, except as set forth on Section 3.3 of the disclosure schedule
delivered by Parent to the Company prior to the execution of this Agreement (the
"Parent Disclosure Schedule"), there are no existing options, warrants, calls,
subscriptions, convertible securities or other securities, agreements (other
than this Agreement), commitments or obligations which would require Parent to
issue or sell shares of Parent Common Stock, Parent Preferred Stock or any other
equity securities, or securities convertible into or exchangeable or exercisable
for shares of Parent Common Stock, Parent Preferred Stock or any other equity
securities of Parent as of the date hereof. Except as set forth on Section 3.3
of the Parent Disclosure Schedule, Parent has no commitments or obligations to
purchase or redeem any shares of capital stock of any class of Parent Common
Stock.

                  (b) The authorized capital stock of Sub consists of 100 shares
of common stock, par value $.01 per share, 100 shares of which are duly
authorized, validly issued and outstanding, fully paid and nonassessable and
owned by Parent free and clear of all liens, claims and encumbrances. Sub was
formed solely for the purpose of engaging in a business combination transaction
with the Company and has engaged in no other business activities and has
conducted its operations only as contemplated hereby.


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                  SECTION 3.4 Subsidiaries. The only Subsidiaries of Parent are
those set forth in Section 3.4 of the Parent Disclosure Schedule. All of the
outstanding shares of capital stock and other ownership interests of each of
Parent's Subsidiaries are validly issued, fully paid, non-assessable and free of
preemptive rights, rights of first refusal or similar rights. Except as set
forth in Section 3.4 of the Parent Disclosure Schedule, Parent owns, directly or
indirectly, all of the issued and outstanding capital stock and other ownership
interests of each of its Subsidiaries, free and clear of all Encumbrances, and
there are no existing options, warrants, calls, subscriptions, convertible
securities or other securities, agreements, commitments or obligations of any
character relating to the outstanding capital stock or other securities of any
Subsidiary of Parent or which would require any Subsidiary of Parent to issue or
sell any shares of its capital stock, ownership interests or securities
convertible into or exchangeable for shares of its capital stock or ownership
interests.

                  SECTION 3.5 Other Interests. Except as set forth in Section
3.5 of the Parent Disclosure Schedule, neither Parent nor any of Parent's
Subsidiaries owns, directly or indirectly, any interest or investment in the
equity or debt for borrowed money of any corporation, partnership, limited
liability company, joint venture, business, trust or other Person (other than
Parent's Subsidiaries).

                  SECTION 3.6 No Conflict; Required Filings and Consents. (a)
Except as set forth in Section 3.6 of the Parent Disclosure Schedule, neither
the execution and delivery of this Agreement nor the performance by Parent and
Sub of their obligations hereunder, nor the consummation of the transactions
contemplated hereby, will: (i) conflict with Parent's or Sub's certificate of
incorporation or bylaws; (ii) assuming satisfaction of the requirements set
forth in Section 3.6(b) below, violate any statute, law, ordinance, rule or
regulation, applicable to Parent or any of its Subsidiaries or any of their
properties or assets; or (iii) violate, breach, be in conflict with or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or permit the termination of any provision
of, or result in the termination of, the acceleration of the maturity of, or the
acceleration of the performance of any obligation of Parent or any of its
Subsidiaries, or cause an indemnity payment to be made by Parent or any of its
Subsidiaries under, or result in the creation of imposition of any lien upon any
properties, assets or business of Parent or any of its Subsidiaries under, any
note, bond, indenture, mortgage, deed of trust, lease, franchise, permit,
authorization, license, contract, instrument or other agreement or commitment or
any order, judgment or decree to which Parent or any of its Subsidiaries is a
party or by which Parent or any of its Subsidiaries or any of their respective
assets or properties is bound or encumbered, or give any Person the right


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<PAGE>   291
to require Parent or any of its Subsidiaries to purchase or repurchase any
notes, bonds or instruments of any kind except, in the case of clauses (ii) and
(iii), for such violations, breaches, conflicts, defaults or other occurrences
which, individually or in the aggregate, would not have a Material Adverse
Effect.

                  (b) Except (i) for applicable requirements, if any, of the
Exchange Act, the Securities Act and Blue Sky Laws, (ii) for the pre-merger
notification requirements of the HSR Act, (iii) for the filing of a certificate
of merger pursuant to the DGCL, and (iv) with respect to matters set forth in
Section 3.6(a) or 3.6(b) of the Parent Disclosure Schedule, no consent, approval
or authorization of, permit from, or declaration, filing or registration with,
any governmental or regulatory authority, or any other Person or entity is
required to be made or obtained by Parent or Sub in connection with the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby, except where the failure to obtain such
consent, approval, authorization, permit or declaration or to make such filing
or registration would not, individually or in the aggregate, have a Material
Adverse Effect.

                  SECTION 3.7 Compliance. Parent and each of its Subsidiaries is
in compliance with all foreign, federal, state and local laws and regulations
applicable to its operations or with respect to which compliance is a condition
of engaging in the business thereof (including, without limitation, all
Environmental Laws), except to the extent that failure to comply would not,
individually or in the aggregate, have a Material Adverse Effect. To the
knowledge of Parent, neither Parent nor any of its Subsidiaries has received any
notice asserting a failure, or possible failure, to comply with any such law or
regulation, the subject of which notice has not been resolved as required
thereby or otherwise to the satisfaction of the party sending the notice, except
for such failure as would not, individually or in the aggregate, have a Material
Adverse Effect. Parent and its Subsidiaries have all permits, licenses and
franchises from governmental agencies required to conduct their respective
businesses as they are now being conducted, except for such failures to have
such permits, licenses and franchises that would not, individually or in the
aggregate, have a Material Adverse Effect.

                  SECTION 3.8 SEC Documents. (a) Parent has delivered or made
available to the Company true and complete copies of each registration
statement, proxy or information statement, form, report and other documents
required to be filed by it (or by Fred Meyer Stores, Inc. ("FMSI") or Smith's
Food & Drug Centers, Inc. ---- ("Smith's") with the SEC since January 1, 1996
(collectively, the "Parent SEC Reports"). As of their respective dates, the
Parent SEC Reports and any registration statements, reports, forms, proxy or
information statements and other documents filed by


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<PAGE>   292
Parent with the SEC after the date of this Agreement (i) complied, or, with
respect to those not yet filed, will comply, in all material respects with the
applicable requirements of the Securities Act and the Exchange Act and (ii) did
not, or, with respect to those not yet filed, will not, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in the light of
the circumstances under which they were made, not misleading.

                  (b) Each of the consolidated balance sheets included in or
incorporated by reference into Parent SEC Reports (including the related notes
and schedules) presents fairly, in all material respects, the consolidated
financial position of Parent (or FMSI or Smith's, as the case may be) and its
consolidated Subsidiaries as of its date, and each of the consolidated
statements of income, retained earnings and cash flows of Parent (or FMSI or
Smith's, as the case may be) included in or incorporated by reference into
Parent SEC Reports (including the related notes and schedules) presents fairly,
in all material respects, the results of operations, retained earnings or cash
flows, as the case may be, of Parent (or FMSI or Smith's as the case may be) and
its Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments), in each case in
accordance with GAAP consistently applied during the periods involved, except as
may be noted therein.

                  (c) Except as set forth in the Parent SEC Reports filed prior
to the date of this Agreement or reports filed by Smith's with the SEC prior to
the date of this Agreement (together, the "Recent Parent SEC Reports"), neither
Parent nor any of its Subsidiaries has any liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise) that would be
required to be reflected on, or reserved against in, a balance sheet of Parent
or in the notes thereto, prepared in accordance with GAAP consistently applied,
except for (i) liabilities or obligations that were so reserved on, or reflected
in (including the notes to), the consolidated balance sheets of FMSI and Smith's
as of February 1, 1997, (ii) liabilities and obligations incurred or acquired in
connection with the transactions pursuant to the Smith's Merger Agreement and
(iii) liabilities or obligations arising in the ordinary course of business
(including trade indebtedness) since February 1, 1997 which would not,
individually or in the aggregate, have a Material Adverse Effect.

                  SECTION 3.9 Litigation. Except as set forth in Section 3.9 of
the Parent Disclosure Schedule or in the Recent Parent SEC Reports, there is no
Action instituted, pending or, to the knowledge of Parent, threatened, in each
case against Parent or any of its Subsidiaries, which would, individually or in
the aggregate, directly or indirectly, have a Material Adverse Effect, nor is
there any outstanding judgment, decree or


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<PAGE>   293
injunction, in each case against Parent or any of its Subsidiaries, or any
statute, rule or order of any domestic or foreign court, governmental
department, commission or agency applicable to Parent or any of its Subsidiaries
which has or will have, individually or in the aggregate, any Material Adverse
Effect.

                  SECTION 3.10 Absence of Certain Changes. Except as set forth
in Section 3.10 of the Parent Disclosure Schedule or the Recent Parent SEC
Reports (including, without limitation, the transactions contemplated by the
proxy statement of Parent dated August 6, 1997) and except for the transactions
expressly contemplated hereby, since February 2, 1997, Parent and its
Subsidiaries have conducted their respective businesses only in the ordinary and
usual course consistent with past practices and there has not been any (i)
change in Parent's business, operations, condition (financial or otherwise),
results of operations, assets or liabilities, except for changes contemplated
hereby or changes which have not, individually or in the aggregate, had a
Material Adverse Effect, or (ii) condition, event or occurrence which,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect.

                  SECTION 3.11 Taxes. Except as set forth in Section 3.11 of the
Parent Disclosure Schedule:

                  (a) Parent and its Subsidiaries have (A) duly filed (or there
have been filed on their behalf) with the appropriate governmental authorities
all Tax Returns required to be filed by them and such Tax Returns are true,
correct and complete in all respects, except where any such failure to file, or
failure to be true, correct and complete, would not, individually or in the
aggregate, have a Material Adverse Effect, and (B) duly paid in full all Taxes
shown to be due on such Tax Returns;

                  (b) Parent and its Subsidiaries have complied in all material
respects with all applicable laws, rules and regulations relating to the
withholding of Taxes and the payment of such withheld Taxes to the proper
governmental authorities except where any such failure to comply, withhold or
pay over would not, individually or in the aggregate, have a Material Adverse
Effect;

                  (c) all federal income Tax Returns of Parent and its
Subsidiaries for periods since January 29, 1994 have been audited, and no
federal or material state, local or foreign audits or other administrative
proceedings or court proceedings are presently being conducted with regard to
any Taxes or Tax Returns of Parent or its Subsidiaries and neither Parent nor
its Subsidiaries has received a written notice of any pending audits or
proceedings with respect to material Taxes or material Tax Returns of Parent,
and neither Parent nor any of its Subsidiaries has waived in writing any statute
of limitations with respect to material Taxes;


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<PAGE>   294
                  (d) neither the Internal Revenue Service nor any other taxing
authority (whether domestic or foreign) has asserted in writing against Parent
or any of its Subsidiaries (other than to Parent as a Subsidiary) any deficiency
or claim for Taxes, except where any such deficiency or claim for Taxes, if
decided adversely to Parent or any of its Subsidiaries, would not, individually
or in the aggregate, have a Material Adverse Effect;

                  (e) there are no material liens for Taxes upon any Property or
Assets of Parent or any Subsidiary thereof, except for liens for Taxes not yet
due and payable and liens for Taxes that are being contested in good faith by
appropriate proceedings, and no material written power of attorney that has been
granted by Parent or its Subsidiaries other than to Parent or a Subsidiary
currently is in force with respect to any matter relating to Taxes;

                  (f) neither Parent nor any of its Subsidiaries has, with
regard to any assets or property held or acquired by any of them, agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as such term is defined in Section 341(f)(4) of the Code) owned by Parent or
any of its Subsidiaries; and

                  (g) since June 14, 1995, none of Parent or its Subsidiaries
has been a member of an Affiliated Group filing a consolidated federal income
tax return other than a group the common parent of which is Parent.

                  SECTION 3.12  Employee Benefit Plans.

                  (a) Section 3.12 of the Parent Disclosure Schedule contains a
complete list of all Employee Plans of Parent and its Subsidiaries. True and
complete copies or written descriptions of the Employee Plans of Parent and its
Subsidiaries, including, without limitation, trust instruments, if any, that
form a part thereof, and all amendments thereto have been furnished or made
available to the Company and its counsel.

                  (b) Except as described in Section 3.12 of the Parent
Disclosure Schedule, each of the Employee Plans of Parent and of its ERISA
Affiliates (other than any Multiemployer Plan) has been administered and is in
compliance with the terms of such Employee Plan and all applicable laws, rules
and regulations except for noncompliance which could not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect.

                  (c) No "reportable event" (as such term is used in section
4043 of the Employee Retirement Income Security Act of 1974 ("ERISA")),
"prohibited transaction" (as such term is used in section 406 of ERISA or
section 4975 of the Code), "nondeductible contributions" (as such term is used
in Section 4972 of the Code) or "accumulated funding deficiency" (as such


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term is used in section 412 or 4971 of the Code) has heretofore occurred with
respect to any Employee Plan (other than any Multiemployer Plan) of Parent or
any ERISA Affiliate, except for such events which would not, individually or in
the aggregate, have a Material Adverse Effect.

                  (d) No litigation or administrative or other proceeding
involving any Employee Plans of Parent or any of its ERISA Affiliates (other
than any Multiemployer Plan) has occurred or are threatened where an adverse
determination could, individually or in the aggregate, have a Material Adverse
Effect.

                  (e) Except as set forth in Section 3.12 of the Parent
Disclosure Schedule, neither Parent nor any ERISA Affiliate of Parent has
incurred any withdrawal liability with respect to any Multiemployer Plan under
Title IV of ERISA which remains unsatisfied, except for such liabilities as
would not, individually or in the aggregate, have a Material Adverse Effect.

                  (f) All of the Employee Plans of Parent or its Subsidiaries
(other than any Multiemployer Plan) can be terminated by Parent without
incurring any material liability. Parent and its Subsidiaries can withdraw from
participation in any Employee Plan that is a Multiemployer Plan. Any termination
of, or withdrawal from, any Employee Plans of Parent or its Subsidiaries, on or
prior to the Closing Date, would not subject Parent to any material liability
under Title IV of ERISA that would, individually or in the aggregate, have a
Material Adverse Effect.

                  (g) Neither Parent nor any of its Affiliates is aware of any
situation with respect to a Multiemployer Plan described in (b), (c) or (d)
above, except as described in Section 3.12 of the Parent Disclosure Schedule.

                  (h) The transactions contemplated by this Agreement will not
cause the occurrence of a situation described in Section 3.12 (b), (c), (d) or
(e) as of the Effective Time.

                  SECTION 3.13 Assets. (a) Except as set forth in Section
3.13(a) of the Parent Disclosure Schedule, Parent and its Subsidiaries have good
and marketable title to or a valid leasehold estate in all of the material
properties and assets, real or personal, reflected on Parent's balance sheet at
February 1, 1997 (except for properties or assets subsequently sold in the
ordinary course of business consistent with past practice). Except as set forth
in Section 3.13(a) of the Parent Disclosure Schedule, Parent and its
Subsidiaries have good and marketable title or a valid right to use all of the
real properties that are necessary, and all of the personal assets and
properties that are materially necessary, for the conduct of the business of
Parent or any of its Subsidiaries free and clear of all Encumbrances (other than
Permitted Encumbrances).


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<PAGE>   296
                  (b) Section 3.13(b) of the Parent Disclosure Schedule sets
forth a complete and accurate list of each Property and/or Facility owned or
leased by Parent or any of its Subsidiaries, and the current use of such
Property or Facility and indicating whether the Property or Facility is owned or
leased.

                  (c) There are no pending or, to the knowledge of Parent,
threatened condemnation or similar proceedings against Parent or any of its
Subsidiaries or, to the knowledge of Parent, otherwise relating to any of the
Properties or Facilities of Parent and its Subsidiaries except for such
proceedings which would not, individually or in the aggregate, have a Material
Adverse Effect.

                  (d) Section 3.13(d) of the Parent Disclosure Schedule sets
forth a complete and accurate list of all Leases (including subleases and
licenses) of personal property entered into by Parent or any of its Subsidiaries
and involving any annual expense to Parent or any such Subsidiary in excess of
$250,000 and not cancelable (without material liability) within two (2) years.

                  (e) Section 3.13(e) of the Parent Disclosure Schedule
indicates each Lease entered into by Parent or any of its Subsidiaries as a
tenant or subtenant.

                  (f) Parent or its Subsidiaries, as the case may be, has in all
material respects performed all obligations on its part required to have been
performed with respect to (i) all Assets leased by it or to it (whether as
lessor or lessee), and (ii) all Leases and there exists no material default or
event which, with the giving of notice or lapse of time or both, would become a
default on the part of Parent or any of its Subsidiaries under any Lease, in
each case except where the failure to perform or such default or event would
not, individually or in the aggregate, have a Material Adverse Effect.

                  (g) To the knowledge of Parent, each of the Leases is valid,
binding and enforceable in accordance with its terms (subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing) and is in full force and
effect, and assuming all consents required by the terms thereof or applicable
law have been obtained, the Leases will continue to be valid, binding and
enforceable in accordance with their respective terms and in full force and
effect immediately following the consummation of the transactions contemplated
hereby, in each case except where the failure to be valid, binding and
enforceable and in full force and effect would not, individually or in the
aggregate, have a Material Adverse Effect.


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<PAGE>   297
                  (h) Except as shown on Section 3.13(h) of the Parent
Disclosure Schedule, Parent has delivered to the Company, or otherwise made
available, originals or true copies of all material Leases (as the same may have
been amended or modified, in any material respect, from time to time).

                  SECTION 3.14 Contracts and Commitments. Section 3.14 of the
Parent Disclosure Schedule contains a complete and accurate list of all
Contracts of the following categories to which Parent or any of its Subsidiaries
is a party or by which any of them is bound as of the date of this Agreement:

                  (a) employment contracts, including, without limitation,
         contracts to employ executive officers and other contracts with
         officers, directors or stockholders of Parent, and all severance,
         change in control or similar arrangements with any officers, employees
         or agents of Parent that will result in any obligation (absolute or
         contingent) of Parent or any of its Subsidiaries to make any payment to
         any officers, employees or agents of Parent following either the
         consummation of the transactions contemplated hereby, termination of
         employment, or both;

                  (b) labor contracts;

                  (c) material distribution, franchise, license, sales, agency
         or advertising contracts;

                  (d) Contracts for the purchase of inventory which are not
         cancelable (without material penalty, cost or other liability) within
         one (1) year (other than Contracts for the purchase of holiday goods in
         accordance with customary industry practices) and other Contracts made
         in the ordinary course of business involving annual expenditures or
         liabilities in excess of $400,000 which are not cancelable (without
         material penalty, cost or other liability) within ninety (90) days;

                  (e) promissory notes, loans, agreements, indentures, evidences
         of indebtedness or other instruments providing for the lending of
         money, whether as borrower, lender or guarantor, in excess of $250,000;

                  (f) Contracts containing covenants limiting the freedom of
         Parent or any of its Subsidiaries to engage in any line of business or
         compete with any Person or operate at any location;

                  (g) joint venture or partnership agreements or joint
         development or similar agreements pursuant to which any third party is
         entitled to develop any Property and/or Facility on behalf of Parent or
         its Subsidiaries;


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                  (h) any Contract where the customer under such Contract is a
         federal, state or local government; and

                  (i) any Contract providing for the acquisition, directly or
indirectly (by merger or otherwise) of material assets or capital stock of
another Person.

                  True copies of the written Contracts identified in Section
3.14 of the Parent Disclosure Schedule have been delivered or made available to
the Company.

                  SECTION 3.15 Absence of Breaches or Defaults. Neither Parent
nor any of its Subsidiaries is and, to the knowledge of Parent, no other party
is in default under, or in breach or violation of, any Contract identified on
Section 3.14 of the Parent Disclosure Schedule and, to the knowledge of Parent,
no event has occurred which, with the giving of notice or passage of time or
both would constitute a default under any Contract identified on Section 3.14 of
the Parent Disclosure Schedule, except for defaults, breaches, violations or
events which, individually or in the aggregate, would not have a Material
Adverse Effect. Other than Contracts which have terminated or expired in
accordance with their terms, each of the Contracts identified on Section 3.14 of
the Parent Disclosure Schedule is valid, binding and enforceable in accordance
with its terms (subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of good
faith and fair dealing) and is in full force and effect, and assuming all
consents required by the terms thereof or applicable law have been obtained,
such Contracts will continue to be valid, binding and enforceable in accordance
with their respective terms and in full force and effect immediately following
the consummation of the transactions contemplated hereby, in each case, except
where the failure to be valid, binding, enforceable and in full force and effect
would not, individually or in the aggregate, have a Material Adverse Effect. No
event has occurred which either entitles, or would, on notice or lapse of time
or both, entitle the holder of any indebtedness for borrowed money affecting
Parent or any of its Subsidiaries to accelerate, or which does accelerate, the
maturity of any indebtedness affecting Parent or any of its Subsidiaries, except
as set forth in Section 3.15 of the Parent Disclosure Schedule.

                  SECTION 3.16 Labor Matters.

                  (a) Section 3.16(a) of the Parent Disclosure Schedule contains
a complete list of all organizations representing the employees of Parent or any
of its Subsidiaries. As of the date hereof, there is no strike, work stoppage or
labor disturbance, pending or, to the knowledge of Parent, threatened, which
involves any employees of Parent or any of its Subsidiaries.


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                  (b) Section 3.16(b) of the Parent Disclosure Schedule contains
as of the date hereof (i) a list of all material unfair employment or labor
practice charges which are presently pending which, to the knowledge of Parent,
have been filed with any governmental authority by or on behalf of any employee
against Parent or any of its Subsidiaries and (ii) a list of all material
employment-related litigation, including, without limitation, arbitrations or
administrative proceedings which are presently pending, filed by or on behalf of
any former, current or prospective employee against Parent or any of its
Subsidiaries.

                  (c) Except as described in Sections 3.16(a) and (b) of the
Parent Disclosure Schedule, there are not presently pending or, to the knowledge
of Parent, threatened, against Parent or any of its Subsidiaries any material
claims by any governmental authority, labor organization, or any former, current
or prospective employee alleging that Parent or any such employer has violated
any applicable laws respecting employment practices, except where such claims
would not, individually or in the aggregate, have a Material Adverse Effect.
Parent and each of its Subsidiaries is in compliance in all material respects
with its obligations under all statutes, executive orders and other governmental
regulations or judicial decrees governing its employment practices, including,
without limitation, provisions relating to wages, hours, equal opportunity and
payment of social security and other taxes and has timely filed all regular
federal and state employment related reports and other documents, except for
such failures to be in compliance which would not, individually or in the
aggregate, have a Material Adverse Effect.

                  SECTION 3.17 Insurance. All material fire and casualty,
general liability, business interruption, product liability, and sprinkler and
water damage insurance policies maintained by Parent or any of its Subsidiaries
are with reputable insurance carriers, provide adequate coverage for normal
risks incident to the business of Parent and its Subsidiaries and their
respective Properties and Assets, and are in character and amount comparable to
that carried by Persons engaged in similar businesses and subject to the same or
similar perils or hazards, except for any such failures to maintain insurance
policies that, individually or in the aggregate, are not reasonably likely to
have a Material Adverse Effect.

                  SECTION 3.18 Environmental Matters. Except as set forth in
Section 3.18 of the Parent Disclosure Schedule, each of the Properties and
Facilities or each previously owned, operated or leased property and facility of
Parent or any of its Subsidiaries (collectively, the "Parent Historic and
Current Properties") has been and was maintained by Parent in compliance with
all Environmental Laws, except where the failure to so comply, or any
aggregation of such failures, would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Except as set forth in
Section 3.18 of the Parent Disclosure Schedule, to the best knowledge of


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Parent, no conditions exist with respect to the soil, surface waters,
groundwaters, land, stream sediments, surface or subsurface strata, ambient air,
and any other environmental medium on or off the Parent Historic and Current
Properties, which, individually or in the aggregate, could result in any damage,
claim, or liability to or against Parent or any of its Subsidiaries by any third
party (including without limitation, any government entity), including, without
limitation, any condition resulting from the operation of Parent business and/or
operations in the vicinity of any of the Parent Historic and Current Properties
and/or any activity or operation formerly conducted by any Person on the Parent
Historic and Current Properties, except in any such case which would not,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect. With the exception of retail consumer products sold in the
ordinary course of business and materials and supplies used in the ordinary
course of business or except as set forth in Section 3.18 of the Parent
Disclosure Schedule, Parent has not generated, manufactured, refined,
transported, treated, stored, handled, disposed, transferred, produced, or
processed any Hazardous Materials, except in any such case which would not,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect. Except as set forth in Section 3.18 of the Parent Disclosure
Schedule, (i) there are no existing uncured notices of noncompliance, notices of
violation, administrative actions, or lawsuits against Parent or any of its
Subsidiaries arising under Environmental Laws or relating to the use, handling,
storage, treatment, recycling, generation, or release of Hazardous Materials,
nor has Parent received any uncured notification of any allegation of any
responsibility for any disposal, release, or threatened release at any location
of any Hazardous Materials, except in any such case which would not,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect; (ii) there have been no spills or releases of Hazardous
Materials at any of the Parent Historic and Current Properties in excess of
quantities reportable under Environmental Laws, except in any such case which
would not be reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect; (iii) there are no consent decrees, consent orders,
judgments, judicial or administrative orders, or liens by any governmental
authority relating to any Environmental Law which have not already been fully
satisfied and which regulate, obligate, or bind Parent or any of its
Subsidiaries, except in any such case which would not, individually or in the
aggregate, be reasonably expected to have a Material Adverse Effect; and (iv) to
the knowledge of Parent, except as set forth in Section 3.18 of the Parent
Disclosure Schedule, no Parent Historic and Current Properties or Facilities are
listed on the federal National Priorities List, the federal Comprehensive
Environmental Response Compensation Liability Information System list, or any
similar state listing of sites known to be contaminated with Hazardous
Materials. Except as set forth in Section 3.18 of the Disclosure Schedule, there
are no projected expenses or capital costs that will be required in the next two


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years to maintain compliance with Environmental Laws, except in any such case
which would not be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect.

                  SECTION 3.19 Forms S-3 and S-4; Offer to Purchase; Proxy
Statement. None of the information supplied by Parent or Sub for inclusion or
incorporation by reference in (i) either the Form S-4 or the Form S-3 will, at
the time such Form is filed with the SEC, at any time it is amended or
supplemented and at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, (ii) the Proxy Statement will, at the date it is first mailed to
the Company's stockholders and Parent's stockholders and at the time the
Company's stockholders deliver consents to approve this Agreement and at the
time of the meeting of Parent's stockholders held to vote on approval of the
issuance of the shares of Parent Common Stock in the Merger, contain any untrue
statement of material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading and (iii) the Offer
to Purchase will, at the date it is first mailed to bondholders and at each
Consent Date thereunder, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading. The Proxy Statement, the Form S-3, the Form S-4 and
the Offer to Purchase will comply as to form in all material respects with the
requirements of the Securities Act, the Exchange Act and the rules and
regulations thereunder, except that no representation is made by Parent or Sub
with respect to statements made or incorporated by reference therein based on
information supplied by the Company for inclusion or incorporation by reference
in the Proxy Statement, the Form S-3, the Form S-4 and the Offer to Purchase.

                  SECTION 3.20 Brokers. No broker, finder or investment banker
(other than Goldman, Sachs & Co. and Salomon Brothers Inc, the fees and expenses
of which shall be paid by Parent) is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Parent or Sub.

                  SECTION 3.21 Vote Required. The affirmative vote of the
holders of a majority of the shares of Parent Common Stock present in person or
represented by proxy, entitled to vote and voted at a meeting of Parent's
stockholders at which the holders of a majority of the outstanding shares of
Parent Common Stock cast votes on the proposal to approve the issuance of Parent
Common Stock in the Merger is the only vote of the holders of any class or
series of Parent's capital stock necessary to approve such issuance. The Board
of Directors of Parent (the "Parent


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Board") (at a meeting duly called and held) has (i) unanimously approved this
Agreement, (ii) determined that the transactions contemplated hereby are fair to
and in the best interests of the holders of Parent Common Stock, (iii) resolved
to recommend this Agreement, the issuance of Parent Common Stock in the Merger
and the other transactions contemplated hereby to such holders for approval and
adoption and (iv) directed that the issuance of Parent Common Stock in the
Merger be submitted to Parent's stockholders. Parent hereby agrees to the
inclusion in the Form S-4 and the Joint Proxy Statement of the recommendations
of the Parent Board described in this Section 3.21.

                  SECTION 3.22 Opinions of Financial Advisors. Parent has
received the opinions of Goldman, Sachs & Co. and Salomon Brothers Inc, dated
the date of this Agreement, to the effect that the consideration to be paid by
Parent in connection with the Merger is fair to Parent and the holders of the
Parent Common Stock from a financial point of view.

                  SECTION 3.23 Tax Matters. Neither Parent nor Sub has taken or
agreed to take any action, or knows of any circumstances, that (without regard
to any action taken or agreed to be taken by the Company or any of its
Affiliates) would prevent the Merger from qualifying as a reorganization within
the meaning of Section 368(a)(1)(A) of the Code and (i) unless the Forward
Merger is to be consummated, Section 368(a)(2)(E) of the Code or (ii) if the
Forward Merger is to be consummated, Section 368(a)(2)(D) of the Code.


                                   ARTICLE IV

                     CONDUCT OF BUSINESS PENDING THE MERGER

                  SECTION 4.1 Conduct of Business of the Company Pending the
Merger. Except as set forth in Section 4.1 of the Disclosure Schedule, the
Company covenants and agrees that, during the period from the date hereof to the
Effective Time (except as otherwise contemplated by the terms of this
Agreement), unless Parent shall otherwise agree in writing in advance, the
businesses of the Company and its Subsidiaries shall be conducted, in all
material respects, only in, and the Company and its Subsidiaries shall not take
any action except in, the ordinary course of business and in a manner consistent
with past practice and, in all material respects, in compliance with applicable
laws; and the Company and its Subsidiaries shall each use its reasonable best
efforts consistent with the foregoing to preserve substantially intact the
business organization of the Company and its Subsidiaries, to keep available the
services of the present officers, employees and consultants of the Company and
its Subsidiaries and to preserve the present relationships of the Company and
its Subsidiaries with customers, suppliers, advertisers, distributors and other
persons with which the Company or any of its Subsidiaries has significant
business


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relations. By way of amplification and not limitation, neither the Company nor
any of its Subsidiaries shall (except as set forth in Section 4.1 of the
Disclosure Schedule and except as otherwise contemplated by the terms of this
Agreement) between the date of this Agreement and the Effective Time, directly
or indirectly do, or propose or commit to do, any of the following without the
prior written consent of Parent:

                  (a) make or commit to make any capital expenditures in excess
         of amounts reflected in the most recent financial model disclosed to
         Parent prior to the date of this Agreement;

                  (b) incur any indebtedness for borrowed money or guarantee
         such indebtedness of another Person (other than the Company or a
         wholly-owned Subsidiary of the Company) or enter into any "keep well"
         or other agreement to maintain the financial condition of another
         Person (other than the Company or a wholly-owned Subsidiary of the
         Company) or make any loans, or advances of borrowed money or capital
         contributions to, or equity investments in, any other Person (other
         than the Company or a wholly owned Subsidiary of the Company) or issue
         or sell any debt securities, other than borrowings under existing lines
         of credit in the ordinary course of business consistent with past
         practice;

                  (c)(i) amend its certificate of incorporation or bylaws or the
         charter or bylaws of any of its Subsidiaries; (ii) split, combine or
         reclassify the outstanding shares of its capital stock or other
         ownership interests or declare, set aside or pay any dividend payable
         in cash, stock or property or make any other distribution with respect
         to such shares of capital stock or other ownership interests; (iii)
         redeem, purchase or otherwise acquire, directly or indirectly, any
         shares of its capital stock or other ownership interests; or (iv) sell
         or pledge any stock of any of its Subsidiaries;

                  (d)(i) Other than upon exercise of options or warrants or the
         conversion of Company Preferred Stock or as required by the terms of
         Employee Plans disclosed in Section 2.3 of the Disclosure Schedule,
         issue or sell or agree to issue or sell any additional shares of, or
         grant, confer or award any options, warrants or rights of any kind to
         acquire any shares of, its capital stock of any class; (ii) enter into
         any agreement, contract or commitment out of the ordinary course of its
         business, to dispose of or acquire, or relating to the disposition or
         acquisition of, a segment of its business; (iii) except in the ordinary
         course of business consistent with past practice, sell, pledge, dispose
         of or encumber any material Assets (including without limitation, any
         indebtedness owed to them or any claims held by them); or (iv) acquire
         (by merger, consolidation, acquisition of stock or assets or otherwise)


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         any corporation, partnership or other business organization or division
         thereof or any material Assets (other than inventory in the ordinary
         course of business consistent with past practice) or make any material
         investment, either by purchase of stock or other securities, or
         contribution to capital, in any case, in any material amount of
         property or assets, in or of any other Person;

                  (e) enter into any employment or severance agreement with any
         officer or director or, except in the ordinary course of business
         consistent with past practice, grant any severance or termination pay
         (other than pursuant to policies or agreements in effect on the date
         hereof as disclosed in the Recent Company SEC Reports or set forth in
         Section 4.1(e) of the Disclosure Schedule) or increase the benefits
         payable under its severance or termination pay policies or agreements
         in effect on the date hereof;

                  (f) adopt or amend any bonus, profit sharing, compensation,
         stock option, pension, retirement, deferred compensation, employment or
         other employee benefit plan, agreement, trust, fund or other
         arrangement for the benefit or welfare of any director, officer or
         employee or increase in any manner the compensation or fringe benefits
         of any director, officer or employee or grant, confer, award or pay any
         forms of cash incentive, bonuses or other benefit not required by any
         existing plan, arrangement or agreement except as required by law,
         except for incentives, merit increases and promotional increases in the
         ordinary course of business consistent with past practice;

                  (g) enter into or amend any Contract for the purchase of
         inventory with a term in excess of three years which is not cancelable
         within one (1) year without penalty, cost or liability;

                  (h) negotiate, enter into, or modify any material collective
         bargaining agreements, other than renewals in the ordinary course of
         business consistent with past practice;

                  (i) make any material change in its tax or accounting policies
         or any material reclassification of assets or liabilities except as
         required by law or GAAP;

                  (j) pay, discharge or satisfy any claims, liabilities or
         obligations (absolute, accrued, asserted or unasserted, contingent or
         otherwise), except the payment, discharge or satisfaction of (i)
         liabilities or obligations in the ordinary course of business
         consistent with past practice or in accordance with the terms thereof
         as in effect on the date hereof or (ii) claims settled or compromised
         to the extent permitted by Section 4.1(k), or waive, release, grant or
         transfer any rights of material value or modify or change in any
         material respect any existing Contract, in each case


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<PAGE>   305
         other than in the ordinary course of business consistent with past 
         practice;

                  (k) settle or compromise any litigation, other than litigation
         not in excess of amounts reserved for in the most recent consolidated
         financial statements of the Company included in the Recent Company SEC
         Documents or, if not so reserved for, in an aggregate amount not in
         excess of $1,500,000 (but not more than $1,000,000 on any one case)
         (provided in either case such settlement documents do not involve any
         material non-monetary obligations on the part of the Company and its
         Subsidiaries);

                  (l) intentionally take any action (without regard to any
         action taken or agreed to be taken by Parent or any of its affiliates)
         with knowledge that such action would prevent (x) Parent from
         accounting for the business combination to be effected by the Merger as
         a pooling of interests or (y) the Merger from qualifying as a
         reorganization within the meaning of Section 368(a)(1)(A) and either
         Section 368(a)(2)(D) or 368(a)(2)(E) of the Code; and

                  (m) take, or offer or propose to take, or agree to take in
         writing or otherwise, any of the actions described in Sections 4.1(a)
         through 4.1(m) or any action which would result in any of the
         conditions set forth in Article VI not being satisfied.

                  SECTION 4.2 Conduct of Business of Parent Pending the Merger.
(a) Parent covenants and agrees that, during the period from the date hereof to
the Effective Time (except as otherwise contemplated by the terms of this
Agreement and except that nothing in this Agreement shall restrict Parent from
taking any actions in respect of the consummation of the transactions pursuant
to the QFC Merger Agreement), unless the Company shall otherwise agree in
writing in advance, the businesses of Parent and its Subsidiaries shall be
conducted, in all material respects, only in, and Parent and its Subsidiaries
shall not take any action except in, the ordinary course of business and in a
manner consistent with past practice and, in all material respects, in
compliance with applicable laws; and Parent and its Subsidiaries shall each use
its reasonable efforts consistent with the foregoing to preserve substantially
intact the business organization of Parent and its Subsidiaries, to keep
available the services of the present officers, employees and consultants of
Parent and its Subsidiaries and to preserve the present relationships of Parent
and its Subsidiaries with customers, suppliers, advertisers, distributors and
other persons with which Parent or any of its Subsidiaries has significant
business relations.

                  (b)  By way of amplification and not limitation,
neither Parent nor any of its Subsidiaries shall (except as


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otherwise contemplated by the terms of this Agreement), between the date of this
Agreement and the Effective Time, directly or indirectly do, or propose or
commit to do, any of the following without the prior written consent of the
Company:

                           (i) amend Parent's certificate of incorporation or
         increase or decrease the size of its Board of Directors (except as
         contemplated hereby and in the QFC Merger Agreement);

                           (ii) other than in connection with acquisitions
         having a value (on a per-acquisition basis) of not more than
         $50,000,000, issue, deliver, sell, pledge, dispose of or encumber, or
         authorize or commit to the issuance, sale, pledge, disposition or
         encumbrance of, any shares of capital stock of any class, or any
         options, warrants, convertible securities or other rights of any kind
         to acquire any shares of capital stock, or any other ownership interest
         (including but not limited to stock appreciation rights or phantom
         stock), of Parent or any of its Subsidiaries (except for the issuance
         of shares of Parent Common Stock issuable in accordance with the terms
         of Parent's employee benefit plans and arrangements or other existing
         stock-based contractual requirements, directors' deferred compensation
         plan and the warrant issued to Yucaipa and except for the issuance of
         shares of Parent Common Stock pursuant to the QFC Merger Agreement);

                           (iii) (A) split, combine or reclassify or otherwise
         alter the Parent Common Stock or issue or authorize the issuance of any
         other securities in respect of, in lieu of or in substitution for
         shares of Parent Common Stock, or (B) redeem, purchase or otherwise
         acquire, directly or indirectly, any shares of Parent Common Stock;

                           (iv) other than pursuant to the QFC Merger Agreement,
         acquire (by merger, consolidation or acquisition of stock or assets)
         any corporation, partnership or other business organization or division
         thereof, if any such action could reasonably be expected to (A) delay
         materially the date of mailing of the Joint Proxy Statement, (B) delay
         materially obtaining the antitrust clearances referenced in Section
         5.8(a)(iii), (C) increase the amount in respect of Lost EBITDA or (D)
         if it were to occur after such date of mailing, require an amendment of
         the Proxy Statement;

                            (v) consummate any acquisition pursuant to any
         Contract disclosed pursuant to Section 3.14(i) other than substantially
         in accordance with the terms so disclosed (including without waiver of
         any condition to Parent's obligations to consummate such acquisition)
         excluding insignificant deviations from such terms; or


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                  (vi) take, or offer or propose to take, or agree to take in
         writing or otherwise, any of the actions described in Sections
         4.2(b)(i) through 4.2(b)(v) or any action which would result in any of
         the conditions set forth in Article VI not being satisfied.

                  (c) Parent shall not, and shall not permit any of its
Subsidiaries to, intentionally take any action that (without regard to any
action taken or agreed to be taken by the Company or any of its Affiliates) with
knowledge that such action would prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a)(1)(A) and Section
368(a)(2)(D) or Section 368(a)(2)(E) of the Code.


                                    ARTICLE V

                              ADDITIONAL AGREEMENTS

                  SECTION 5.1 Preparation of Form S-4 and the Proxy Statement;
Stockholder Meetings. (a) Promptly following the date of this Agreement, the
Company and Parent shall prepare the Proxy Statement, and Parent shall prepare
and file with the SEC the Form S-4, in which the Proxy Statement may be included
as a prospectus. Each of the Company and Parent shall use its reasonable best
efforts to have the Form S-4 declared effective under the Securities Act as
promptly as practicable after such filing. Each of the Company and Parent will
use its reasonable best efforts to cause the Proxy Statement to be mailed to its
respective stockholders as promptly as practicable after the Form S-4 is
declared effective under the Securities Act. Parent shall also take any action
(other than qualifying to do business in any jurisdiction in which it is not now
so qualified) required to be taken under any applicable state securities law in
connection with the issuance of Parent Common Stock in the Merger, and the
Company shall furnish all information concerning the Company and the holders of
the Company Common Stock and rights to acquire Company Common Stock pursuant to
the Stock Plans as may be reasonably required in connection with any such
action. Each of Parent and the Company shall furnish all information concerning
itself to the other as may be reasonably requested in connection with any such
action and the preparation, filing and distribution of the Form S-4 and the
preparation, filing and distribution of the Proxy Statement. The Company, Parent
and Sub each agree to correct any information provided by it for use in the Form
S-4 or the Proxy Statement which shall have become false or misleading. The
Company acknowledges that Parent will include in the Proxy Statement such
information concerning the transactions pursuant to the QFC Merger Agreement as
may be required to be included to permit Parent and QFC to seek any approvals of
stockholders which may be required to be obtained in connection with the
transactions pursuant to the QFC Merger Agreement.


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<PAGE>   308
                  (b) The Company, acting through its Board of Directors, shall,
in accordance with its Certificate of Incorporation and By-Laws and subject to
the other provisions of this Section 5.1(b), promptly and duly solicit consents
as soon as practicable following the date upon which the Form S-4 becomes
effective for the purpose of voting to approve and adopt this Agreement and the
transactions contemplated hereby and (i) recommend approval and adoption of this
Agreement and the Merger by the stockholders of the Company and include in the
Proxy Statement such recommendation and (ii) take all reasonable and lawful
action to solicit and obtain such approval. Parent, acting through its Board of
Directors, shall, subject to and in accordance with applicable law and its
certificate of incorporation and by-laws, promptly and duly call, give notice
of, convene and hold as soon as practicable following the date upon which the
Form S-4 becomes effective a meeting of the holders of Parent Common Stock for
the purpose of voting to approve the issuance of the Parent Common Stock in the
Merger, and (i) recommend approval of the issuance of the Parent Common Stock in
the Merger by the stockholders of Parent and include in the Proxy Statement such
recommendation and (ii) take all reasonable and lawful action to solicit and
obtain such approval.

                  (c) The Company will cause its transfer agent to make stock
transfer records relating to the Company available to the extent reasonably
necessary to effectuate the intent of this Agreement and the Stockholders
Agreements.

                  SECTION 5.2 Accountants' Letters. (a) The Company shall use
its reasonable best efforts to cause to be delivered to Parent a "comfort"
letter of Arthur Andersen LLP, the Company's independent public accountants,
dated a date within two business days before the date on which the Form S-4
shall become effective and addressed to Parent, in form and substance reasonably
satisfactory to Parent and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Form S-4. In connection with the Company's efforts to
obtain such letter, if requested by Arthur Andersen LLP, Parent shall provide a
representation letter to Arthur Andersen LLP, complying with the Statement on
Auditing Standards No. 72 ("SAS 72"), if then required.

                  (b) Parent shall use its reasonable best efforts to cause to
be delivered to the Company a "comfort" letter of Deloitte & Touche LLP
(Portland office), Parent's independent public accountants, dated a date within
two business days before the date on which the Form S-4 shall become effective
and addressed to the Company, in form and substance reasonably satisfactory to
the Company and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Form S-4. In connection with Parent's efforts to obtain such
letter, if requested by Deloitte & Touche LLP, the Company shall provide a


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representation letter to Deloitte & Touche LLP complying with SAS 72, if then
required.

                  SECTION 5.3 Access to Information; Confidentiality. (a) From
the date hereof to the Effective Time, each of the Company and Parent shall, and
shall cause its Subsidiaries, officers, directors, employees, auditors and other
agents to, afford the officers, employees, auditors and other agents of Parent
or the Company, respectively, who shall agree to be bound by the provisions of
this Section 5.3 as though a party hereto, complete access at all reasonable
times to its officers, employees, agents, properties, offices, plants and other
facilities and to all books and records, and shall furnish Parent or the
Company, respectively, with all financial, operating and other data and
information as Parent or the Company, respectively, through its officers,
employees or agents may from time to time request; provided, that the Company
shall not be required to make available to Parent any books and records or other
information relating to potential Transactions (as defined in Section 5.4) which
were considered by the Company prior to the date of this Agreement to the extent
that any confidentiality agreement in existence on the date hereof with the
Company prohibits the Company from making such books, records and other
information available to Parent; and provided, further, that the Company may
provide information which is of a sensitive competitive nature in a form which
minimizes the potential of unauthorized disclosure.

                  (b) Each of the Company and Parent will hold and will cause
its directors, officers, employees, agents, advisors (including, without
limitation, counsel and auditors) and controlling persons to hold any such
information which is nonpublic in confidence on the same terms and conditions as
set forth in the letter agreements, as amended from time to time, between the
Company and Parent (the "Confidentiality Agreements").

                  (c) No investigation pursuant to this Section 5.3 shall affect
any representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.

                  SECTION 5.4 No Solicitation of Transactions. The Company
shall, and shall cause its Subsidiaries and their respective officers,
directors, employees, representatives and agents to, immediately cease any
existing discussions or negotiations, if any, with any parties conducted
heretofore with respect to any acquisition or exchange of all or any material
portion of the assets of, or more than 20% of the outstanding equity interest in
the Company or any material equity interest in any of its Subsidiaries, or any
business combination with the Company or any of its Subsidiaries. Neither the
Company or any of its Subsidiaries, nor any of its or their respective officers,
directors, employees, representatives or agents, shall, directly


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or indirectly, encourage, solicit, participate in, facilitate or initiate
discussions or negotiations with, or provide any information to, any Person or
group (other than Parent and Sub or any designees of Parent or Sub) concerning
any merger, sale of assets, sale of more than 20% of the outstanding shares of
capital stock or similar transactions (including an exchange of stock or assets)
involving the Company or any Subsidiary or division of the Company or any
business combination with the Company or any of its Subsidiaries (each a
"Transaction"). The Company shall notify Parent immediately if it receives any
unsolicited proposal concerning a Transaction, the identity of the person making
any such proposal and all the terms and conditions thereof and shall keep Parent
promptly advised of all developments relating thereto. Nothing contained in this
Section 5.4 shall prohibit the Company from taking and disclosing to its
stockholders a position contemplated by Rule 14e-2(a) promulgated under the
Exchange Act.

                  SECTION 5.5 Employee Benefits Matters. The Company shall or
Parent shall cause the Company and the Surviving Corporation to promptly pay or
provide when due all compensation and benefits earned through or prior to the
Effective Time as provided pursuant to the terms of any Employee Plans in
existence as of the date hereof for all employees (and former employees) and
directors (and former directors) of the Company. Parent and the Company agree
that the Company and the Surviving Corporation shall pay promptly or provide
when due all compensation and benefits required to be paid pursuant to the terms
of any individual agreement with any employee, former employee, director or
former director in effect and disclosed to Parent as of the date hereof. Nothing
herein shall require the continued employment of any person or prevent the
Company and/or the Surviving Corporation from taking any action or refraining
from taking any action which the Company could take or refrain from taking prior
to or after the Effective Time, including, without limitation, any action the
Company or the Surviving Corporation could take to terminate any plan under its
terms as in effect as of the date hereof.

                  SECTION 5.6 Directors' and Officers' Indemnification;
Insurance. (a) The By-Laws of the Surviving Corporation shall contain provisions
no less favorable with respect to indemnification and exculpation from liability
than are set forth in the Certificate of Incorporation and By-Laws of the
Company, which provisions shall not be amended, repealed or otherwise modified
for a period of six years from the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who at the Effective Time
were directors, officers, employees or agents of the Company. Without limiting
the generality of the foregoing, in the event any person entitled to
indemnification under this Section 5.6 becomes involved in any claim, action,
proceeding or investigation after the Effective Time, the Surviving Corporation
shall periodically advance to such person his or her reasonable legal and other
reasonably


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incurred expenses (including the cost of any investigation and preparation
incurred in connection therewith), subject to such person providing an
undertaking to reimburse all amounts so advanced in the event of a final
non-appealable determination by a court of competent jurisdiction that such
person is not entitled thereto.

                  (b) For six years from the Effective Time, Parent shall
maintain in effect the current directors' and officers' liability insurance
covering those persons who are currently covered by the Company's directors' and
officers' liability insurance policy to the extent that it provides coverage for
events occurring on or prior to the Effective Time (a copy of which has been
heretofore delivered to Parent), so long as the annual premium therefor would
not be in excess of 150% of the last annual premium paid prior to the date of
this Agreement (the "Company's Current Premium"). If such premiums for such
insurance would at any time exceed 150% of the Company's Current Premium, then
Parent shall cause to be maintained policies of insurance which in Parent's good
faith determination, provide the maximum coverage available at an annual premium
equal to 150% of the Company's Current Premium. The Company represents to Parent
that the Company's Current Premium is $412,715.

                  (c) Parent hereby covenants not to take or permit to be taken,
any action that would limit, restrict or otherwise prevent the Surviving
Corporation from performing, or render it unable to perform, each of its
obligation under this Section 5.6. From and after the Effective Time, Parent
shall guarantee the obligations of the Surviving Corporation under this Section
5.6.

                  (d) The provision of this Section 5.6 are intended for the
benefit of, and shall be enforceable by, each person entitled to indemnification
under this Section 5.6, his or her heirs and his or her personal
representatives.

                  SECTION 5.7 Notification of Certain Matters. The Company shall
give prompt notice to Parent, and Parent shall give prompt notice to the
Company, of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate and (ii) any failure of
the Company, Parent or Sub, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 5.7 shall not limit or otherwise affect the remedies available hereunder
to the party receiving such notice.

                  SECTION 5.8 Further Action. (a) Upon the terms and subject to
the conditions hereof, each of the parties hereto shall use its reasonable best
efforts to take, or cause to be taken, all appropriate action, and to do or
cause to be done, all things necessary, proper or advisable under applicable
laws and


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regulations to consummate and make effective the transactions contemplated by
this Agreement, including, without limitation, (i) cooperating in the
preparation and filing of the Form S-4, the Proxy Statement, and required
filings under the HSR Act and any amendments to any thereof, (ii) using its
reasonable best efforts to make all required regulatory filings and applications
and to obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and parties to contracts
with the Company and its Subsidiaries as are necessary for the consummation of
the transactions contemplated by this Agreement and to fulfill the conditions to
the Merger, (iii) in the case of Parent, promptly, if required by the FTC or its
staff, the Assistant Attorney General in charge of the Antitrust Division or her
staff, any state attorney general or its staff or any other similar governmental
entity, in each case in order to consummate the Merger, taking all steps and
making all undertakings to secure antitrust clearance (including steps to effect
the sale or other disposition of particular Store Facilities of Parent, its
Subsidiaries, QFC, its Subsidiaries and/or the Company and its Subsidiaries and
to hold separate such Store Facilities pending such sale or other disposition),
(iv) cooperating in all respects with each other in connection with any
investigation or other inquiry, including any proceeding initiated by a private
party, in connection with the transactions contemplated hereby or pursuant to
the QFC Merger, (v) keeping the other party informed in all material respects of
any material communication received by such party from, or given by such party
to, the FTC, the Antitrust Division of the Department of Justice (the "DOJ") or
any other governmental authority and of any material communication received or
given in connection with any proceeding by a private party, in each case
regarding any of the transactions contemplated hereby or pursuant to the QFC
Merger, and (vi) permitting the other party to review any material communication
given by it to, and consult with each other in advance of any meeting or
conference with, the FTC, the DOJ or any such other governmental authority or,
in connection with any proceeding by a private party, with any other Person, and
to the extent permitted by the other Person, give the other party the
opportunity to attend and participate in such meetings and conferences. In case
at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each party to this Agreement shall use their reasonable best
efforts to take all such necessary action. In furtherance and not in limitation
of the covenants of the parties contained in this Section 5.8, if any
administrative or judicial action or proceeding, including any proceeding by a
private party, is instituted (or threatened to be instituted) challenging any
transaction contemplated by this Agreement as violative of any Antitrust Law,
each of the parties shall cooperate in all respects with each other and use its
reasonable best efforts to contest and resist any such action or proceeding, and
to have vacated, lifted, reversed or overturned any decree, judgment,


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injunction or other order, whether temporary, preliminary or permanent, that is
in effect and that prohibits, prevents or restricts, and to resolve any
challenge or objection raised by any governmental authority or private party.
For purposes of meeting, holding discussions and entering into any proposed
settlement with such governmental authorities, Parent shall appoint a committee
consisting of Ronald W. Burkle (or his designee), Roger A. Cooke (or his
designee) and one representative designated by each of the Company and QFC.

                  (b) The Company shall make, subject to the condition that the
transactions contemplated herein and therein actually occur, any undertakings
(including undertakings to make sales or other dispositions) provided that such
divestitures need not themselves be made until after the transactions
contemplated hereby actually occur) required in order to obtain the antitrust
clearances referred to in Section 5.8(a)(iii).

                  (c) Within five business days after such time as any agreement
is reached by Parent with the FTC or its staff, the Assistant Attorney General
in charge of the Antitrust Division or her staff, any state attorney general or
its staff or any other similar governmental entity in accordance with Section
5.8(a)(iii) to sell or dispose of any Store Facilities (the "Settlement
Agreement"), Parent shall furnish or cause to be furnished to the Company a
report (the "Preliminary Report"), based on such information as Parent shall
determine to be relevant, stating in reasonable detail Parent's good faith
determination of the Estimated Gain and Lost EBITDA with respect to such Store
Facilities. Unless the Company provides specific written notice to Parent of an
objection to any aspect of the Preliminary Report before the close of business
on the 10th business day after the Company's receipt thereof, the Preliminary
Report shall then become binding upon Parent and the Company, and shall be the
"Final Report". If the Company, by delivering its own report (the "Company
Report") stating in reasonable detail the Company's good faith determination of
the Estimated Gain and Lost EBITDA to Parent before the close of business on
such business day, makes any good faith objection to any aspect of Parent's
proposed Estimated Gain set forth in the Preliminary Report, then those aspects
as to which the objection was made shall not become binding, Parent and the
Company shall discuss such objection in good faith and, if they reach written
agreement amending the Preliminary Report (or portions thereof), the Preliminary
Report, as amended by such written agreement, shall become binding upon Parent
and the Company, and shall be the Final Report. If Parent and the Company do not
reach such written agreement within five days after the Company gives such
notices of objection, those aspects as to which such objection was made
(relating to Estimated Gain, and not Lost EBITDA) and as to which written
agreement has not been reached shall be submitted for arbitration to one or more
independent business and/or real estate appraisal firm of recognized national
standing with expertise in the valuation of businesses and/or properties


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comparable to the Store Facilities chosen by agreement of Parent and the Company
(whose fees shall be shared equally by Parent and the Company). Such firm shall
prepare a valuation report with respect to the real estate and other assets
comprising the Store Facilities, which report, when delivered to Parent and the
Company, shall become binding upon Parent and the Company for purposes of
determining the Estimated Gain, and shall (unless a determination made in such
report is higher or lower than both the determination set forth in the
Preliminary Report and the determination set forth in the Company Report, in
which case the determination set forth in the Preliminary Report or the Company
Report, whichever is closer to such firm's determination, shall), together with
those aspects of the Preliminary Report as to which no objection was made or as
to which written agreement has been reached, be the Final Report. The "Estimated
Gain" is the amount set forth in the Final Report and is equal to the aggregate
net proceeds estimated to be realized by Parent or any of its Subsidiaries on
the sale or other disposition of any Store Facilities pursuant to this Section
5.8 in excess of the book value of the Store Facilities to be so divested as of
the date of determination thereof. The foregoing notwithstanding, if within
three (3) days following issuance of the Final Report, the Company shall produce
a signed bona fide offer from a qualified buyer to purchase any or all of the
Store Facilities to be disposed of at a price higher than that contained in the
Final Report, then, in such event, the Estimated Gain shall be increased by the
amount by which such offer exceeds the valuation in the Final Report for such
Store Facility or Facilities.

                  (d) For purpose of this Section 5.8, the book value of the
Store Facilities shall be based on historical cost of fixtures, equipment, and
leasehold improvements (on land and buildings, if owned).

                  (e) Any action to be taken or determination to be made by the
Company under this Section 5.8 that is not taken or made until after the
Effective Time shall be taken or made by the Stockholders' Representatives in
lieu of the Company.

                  SECTION 5.9 Public Announcements. Parent and the Company shall
consult with each other before issuing any press release or otherwise making any
public statements with respect to the Merger and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by law or any listing agreement with its securities exchange.

                  SECTION 5.10 Stock Exchange Listing. Parent shall use its
reasonable best efforts to have approved for listing on the NYSE prior to the
Effective Time, subject to official notice of issuance, the Parent Common Stock
to be issued pursuant to the Merger.


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<PAGE>   315
                  SECTION 5.11 Affiliates. Prior to the Closing Date, the
Company shall deliver to Parent a letter identifying all persons who are, at the
time this Agreement is submitted for approval to the stockholders of the
Company, "affiliates" of the Company for purposes of Rule 145 under the
Securities Act. The Company shall use its reasonable best efforts to cause each
such person to deliver to Parent on or prior to the Closing Date a written
agreement substantially in the form attached as Exhibit C hereto.

                  SECTION 5.12 Directorships. On or prior to the Effective Time
of the Merger, Parent's Board of Directors will increase its size by two and
elect Mr. Robert Beyer and one other person designated by the Company to be
directors of Parent, with such elections to become effective at the Effective
Time.

                  SECTION 5.13 Treatment of Yucaipa Consulting Agreement and
Warrant. (a) It is also contemplated that the Consulting Agreement between the
Company and Yucaipa will be terminated and the Company or Parent will make a
termination payment to Yucaipa or its assignee in the amount of $20,000,000 in
lieu of all other payments required thereunder (the "Yucaipa Payment"). Prior to
the Effective Time, the parties will negotiate the arrangements for such
termination and payment with Yucaipa. Subject to Section 5.13(b), at the
Effective Time, Yucaipa's Common Stock Purchase Warrant dated June 14, 1995 (the
"Yucaipa Warrant") shall be terminated in consideration for Parent's delivery at
the Effective Time to Yucaipa, or its assignee, shares of Parent Common Stock
and Escrow Percentage Interests equal to the number of shares of Parent Common
Stock and Escrow Percentage Interests which the holder of 2% of the Company
Common Stock, measured on a Fully Diluted Basis (after giving effect to such 2%
of the Company Common Stock as though it were outstanding), would have received
in the Merger, so that the total consideration payable under Section 1.6, 1.7,
1.11 and this 5.13 equals the Aggregate Purchase Price.

                  SECTION 5.14 Parent Representations and Warranties. The
Company agrees and acknowledges that the representations and warranties set
forth in Article III hereof are being made without any regard to QFC, the QFC
Merger Agreement or the transactions contemplated thereby and that no facts or
developments relating to QFC, the QFC Merger Agreement or the transactions
contemplated thereby shall constitute a breach of such representations and
warranties as initially made and as made on the Closing Date in accordance with
Section 6.2(a), except that, after Closing, QFC shall be treated as a Subsidiary
of Parent for purposes of Section 4.2 and Section 3.10 of this Agreement.

                  SECTION 5.15 Registration Rights Agreement. (a) On the Closing
Date, Parent and the Stockholders shall enter into a registration rights
agreement (the "Registration Rights Agreement") providing for (i) "shelf" and
"demand" registration rights to the Stockholders (except that Yucaipa and its


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Affiliates shall not have such "demand" rights) in substantially the form of
Sections 5.15(b) and (c), respectively, and (ii) other customary provisions for
agreements of this nature (but not providing for registration in addition to
those contemplated by Sections 5.15(b) and (c)) as mutually agreed between such
parties. After the date hereof, each of such parties shall endeavor in good
faith to negotiate and finalize the form of the Registration Rights Agreement.

                  (b) As soon as practicable following the mailing of the Proxy
Statement, Parent shall prepare and file with the SEC a shelf registration
statement on an appropriate form that shall include all shares of Parent Common
Stock to be acquired by the Stockholders pursuant to the Merger ("Registrable
Securities"), and may include securities of Parent for sale for Parent's own
account. Parent shall use its reasonable best efforts to cause such shelf
registration statement to be declared effective as soon as practicable after the
Effective Time; provided, however, that to the extent necessary to preserve
"pooling-of-interest" accounting treatment for the transactions contemplated by
the QFC Merger Agreement (as reasonably determined by Parent and its independent
public accountants), Parent shall have no such obligation to effect such
registration until 15 days after the first public release by Parent of the
combined financial results of Parent and the Company. Parent shall only be
obligated to keep such shelf registration statement effective until the one year
anniversary date of the date such shelf registration statement has been declared
effective ("Shelf Termination Date").

                  (c) Upon written notice to Parent from a Stockholder or
Stockholders at any time after the Shelf Termination Date (but not later than
the date that is 180 days after the Shelf Termination Date) (the "Demand
Request") requesting that Parent effect the registration under the Securities
Act of any or all of the Registrable Securities held by such requesting
Stockholders, which notice shall specify the intended method or methods of
disposition of such Registrable Securities, Parent shall prepare and, within 60
days after such request, file with the SEC a registration statement with respect
to such Registrable Securities and thereafter use its reasonable best efforts to
cause such registration statement to be declared effective under the Securities
Act for purposes of dispositions in accordance with the intended method or
methods of disposition stated in such request. Notwithstanding any other
provision of this Section 5.15 to the contrary: (i) the Stockholders may
collectively exercise their rights to request registration under this Section
5.15(c) on not more than one occasion (such registration being referred to
herein as the "Demand Registration"), (ii) Parent shall not be required to
effect any Demand Registration unless the aggregate number of Registrable
Securities to be registered pursuant to the Demand Registration is equal to or
more than 35% of the initial Registrable Securities shares, and (iii) the method
of disposition requested by Stockholders in connection with any Demand
Registration may not, without Parent's written


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consent, be an offering on a delayed or continuous basis pursuant to Rule 415
promulgated under the Securities Act.

                  (d) Parent agrees to amend the existing Registration Rights
Agreement dated September 9, 1997, among it, Affiliates of Yucaipa and the other
stockholders of Parent identified therein, to provide for the shares issuable to
Yucaipa and its Affiliates under this Agreement to be "Registrable Securities"
for purposes thereof.

                  SECTION 5.16 Subsequent Sale. From and after the date of this
Agreement and for a period of 12 months following the Effective Time, Parent
shall not sell, transfer or (other than in connection with a sale, merger or
other business combination involving all or substantially all of the capital
stock or assets of Parent or its affiliates) otherwise dispose of the Company or
its principal Subsidiary, or all or substantially all of their respective
assets, or enter into an agreement with respect thereto, without the prior
written approval of the Company or, following the Effective Time, the
Stockholder Representatives.

                  SECTION 5.17 Continuity of Business Enterprise. Parent will
continue at least one significant historic business line of the Company or use
at least a significant portion of the Company's historic business assets in a
business, in each case within the meaning of Treasury Regulation Section
1.368-1(d).

                  SECTION 5.18 Form S-3. In the event of any termination of this
Agreement pursuant to Section 7.1, the parties will use their reasonable best
efforts to withdraw from registration the Form S-3 or, if the Form S-3 has been
declared effective, to terminate the effectiveness of the Form S-3.


                                   ARTICLE VI

                              CONDITIONS OF MERGER

                  SECTION 6.1 Conditions to Obligation of Each Party to Effect
the Merger. The respective obligations of each party to effect the Merger shall
be subject to the satisfaction at or prior to the Closing Date of the following
conditions:

                  (a) This Agreement shall have been approved by the affirmative
         vote of the holders of a majority of the outstanding shares of Company
         Voting Common Stock and Series A Preferred Stock (voting together as a
         single class) entitled to vote thereon. The issuance of Parent Common
         Stock in the Merger shall have been approved by the affirmative vote of
         the holders of a majority of the shares of Parent Common Stock present
         in person or represented by proxy, entitled to vote and voted at the
         meeting of Parent's stockholders, and the holders of a majority of the


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         outstanding shares of Parent Common Stock shall have cast votes on the
         proposal to approve such issuance.

                  (b) No statute, rule, regulation, executive order, decree,
         ruling, injunction or other order (whether temporary, preliminary or
         permanent) shall have been enacted, entered, promulgated or enforced by
         any court or governmental authority of competent jurisdiction which
         prohibits, restrains, enjoins or restricts the consummation of the
         Merger; provided, however, that the parties shall use their reasonable
         best efforts to cause any such decree, ruling, injunction or other
         order to be vacated or lifted.

                  (c) Any waiting period applicable to the Merger under the HSR
         Act shall have terminated or expired.

                  (d) The Form S-4 and any required post-effective amendment
         thereto shall have become effective under the Securities Act and shall
         not be the subject of any stop order or proceedings seeking a stop
         order, and any material "blue sky" and other state securities laws
         applicable to the registration of the Parent Common Stock to be
         exchanged for Company Common Stock shall have been complied with.

                  (e) The shares of Parent Common Stock issuable to the holders
         of Company Common Stock pursuant to this Agreement shall have been
         approved for listing on the NYSE, subject to official notice of
         issuance.

                  SECTION 6.2 Conditions to Obligations of the Company to Effect
the Merger. The obligation of the Company to effect the Merger shall be subject
to the fulfillment at or prior to the Closing Date of the following additional
conditions:

                  (a) Parent and Sub shall have performed or complied with in
         all material respects their agreements and covenants contained in this
         Agreement required to be performed or complied with at or prior to the
         Closing Date and the representations and warranties of Parent and Sub
         contained in this Agreement qualified as to materiality shall be true
         in all respects, and those not so qualified shall be true in all
         material respects, in each case when made and on and as of the Closing
         Date with the same force and effect as if made on and as of such date,
         except as expressly contemplated or otherwise expressly permitted by
         this Agreement. The Company shall have received a certificate signed on
         behalf of Parent by the chief executive officer and chief financial
         officer of Parent to such effect.

                  (b) The opinion, based on appropriate representations of
         Parent, the Company, and certain stockholders of the Company, of Latham
         & Watkins, counsel to the Company, to the effect that the Merger will
         be treated for Federal income tax purposes as a reorganization within
         the meaning of


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<PAGE>   319
         Section 368(a) of the Code, dated on or about the date of and referred
         to in the Proxy Statement as first mailed to stockholders of the
         Company, shall not have been withdrawn or modified in any material
         respect.

                  (c) There shall not be pending or threatened by any
         governmental entity any suit, action or proceeding, which could
         reasonably be expected, if adversely determined, to result in criminal
         or material uninsured and unindemnified or unindemnifiable personal
         liability on the part of one or more directors of the Company, (i)
         challenging or seeking to restrain or prohibit the consummation of the
         Merger or any of the other transactions contemplated by this Agreement
         or (ii) seeking to prohibit or limit the ownership or operation by the
         Company, Parent or any of their respective Subsidiaries of any material
         portion of the business or assets of the Company, Parent or any of
         their respective Subsidiaries, or to dispose of or hold separate any
         material portion of the business or assets of the Company, Parent or
         any of their respective Subsidiaries, as a result of the Merger or any
         of the other transactions contemplated by this Agreement.

                  (d) To the extent required hereunder, each of Parent and the
         Escrow Agent shall have executed and delivered the Escrow Agreement in
         the form of Exhibit B hereto and Parent shall have deposited the
         Escrowed Shares with the Escrow Agent.

                  (e) Parent shall have executed and delivered the Registration
         Rights Agreement.

                  SECTION 6.3 Conditions to Obligations of Parent and Sub to
Effect the Merger. The obligations of Parent and Sub to effect the Merger shall
be subject to the fulfillment at or prior to the Closing Date of the following
additional conditions:

                  (a) The Company shall have performed or complied with in all
         material respects its agreements and covenants contained in this
         Agreement required to be performed or complied with at or prior to the
         Closing Date and the representations and warranties of the Company
         contained in this Agreement qualified as to materiality shall be true
         in all respects, and those not so qualified shall be true in all
         material respects, in each case when made and on and as of the Closing
         Date with the same force and effect as if made on and as of such date,
         except as expressly contemplated or otherwise expressly permitted by
         this Agreement. Parent shall have received a certificate signed on
         behalf of the Company by the chief executive officer and chief
         financial officer of the Company to such effect.

                  (b) The opinion, dated on or about the date of and referred to
         in the Proxy Statement as first mailed to


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         stockholders of the Company, based on appropriate representations of
         the Company and Parent and principal stockholders of the Company, of
         Simpson Thacher & Bartlett, counsel to Parent, to the effect that
         Parent, Sub and the Company will not recognize income, gain or loss for
         Federal income tax purposes as a result of the Merger, shall not have
         been withdrawn or modified in any material respect, unless if such
         opinion is withdrawn or modified, the amount of income, gain or loss
         potentially recognizable will not have, or could not reasonably be
         expected to have, a Material Adverse Effect with respect of Parent.

                  (c) Subject to Parent's compliance with Section 5.8, there
         shall not be pending or threatened by any governmental entity any suit,
         action or proceeding (i) challenging or seeking to restrain or prohibit
         the consummation of the Merger or any of the other transactions
         contemplated by this Agreement or seeking to obtain from Parent or any
         of its Subsidiaries any damages that are material in relation to Parent
         and its Subsidiaries taken as a whole, (ii) seeking to prohibit or
         limit the ownership or operation by the Company, Parent or any of their
         respective Subsidiaries of any material portion of the business or
         assets of the Company, Parent or any of their respective Subsidiaries,
         to dispose of or hold separate any material portion of the business or
         assets of the Company, Parent or any of their respective Subsidiaries,
         as a result of the Merger or any of the other transactions contemplated
         by this Agreement, or (iii) seeking to prohibit Parent or any of its
         Subsidiaries from effectively controlling in any material respect the
         business or operations of the Company or its Subsidiaries.

                  (d) No more than 5% of the outstanding shares of Company
         Common Stock shall be held by Dissenting Stockholders.

                                   ARTICLE VII

                        TERMINATION, AMENDMENT AND WAIVER

                  SECTION 7.1 Termination. This Agreement may be terminated and
the Merger contemplated hereby may be abandoned at any time prior to the Closing
Date, whether before or after approval of matters presented in connection with
the Merger by the stockholders of the Company:

                  (a)  By mutual written consent of Parent and the
         Company;

                  (b) By either Parent or the Company, if the Merger shall not
         have been consummated on or before August 31, 1998 (other than due to
         the failure of the party seeking to terminate this Agreement to perform
         its obligations under


                                      B-58


<PAGE>   321
         this Agreement required to be performed at or prior to the
         Effective Time);

                  (c) By Parent or the Company, if any required approval of the
         stockholders of the Company for this Agreement or the Merger shall not
         have been obtained by reason of the failure to obtain the required vote
         upon a vote held at a duly held meeting of stockholders or at any
         adjournment thereof;

                  (d) By the Company or Parent, if the required approval of the
         stockholders of Parent for the issuance of Parent Common Stock pursuant
         to this Agreement shall not have been obtained by reason of the failure
         to obtain the required vote upon a vote held at a duly held meeting of
         stockholders or at any adjournment thereof;

                  (e) By Parent (subject to Parent's compliance with Section
         5.8) or the Company if any court or other governmental body of
         competent jurisdiction shall have issued a final order, decree or
         ruling or taken any other final action restraining, enjoining or
         otherwise prohibiting the Merger and such order, decree, ruling or
         other action is or shall have become final and nonappealable;

                  (f) By the Company if prior to the Closing Date (i) any
         representation or warranty on the part of Parent contained in this
         Agreement is incorrect in any material respect and which could
         reasonably be expected to have a Material Adverse Effect with respect
         to Parent or which could reasonably be expected to materially adversely
         affect (or materially delay) the consummation of the Merger or (ii)
         there shall have been a breach of any covenant or agreement on the part
         of Parent contained in this Agreement which could reasonably be
         expected to have a Material Adverse Effect with respect to Parent or
         which could reasonably be expected to materially adversely affect (or
         materially delay) the consummation of the Merger, which breach, in the
         case of clause (ii), shall not have been cured prior to 10 days
         following notice thereof; or

                  (g) By Parent if prior to the Closing Date (i) there shall
         have been a breach of any representation or warranty on the part of the
         Company contained in this Agreement which could reasonably be expected
         to have a Material Adverse Effect with respect to the Company or which
         could reasonably be expected to materially adversely affect (or
         materially delay) the consummation of the Merger, (ii) there shall have
         been a breach of any covenant or agreement on the part of the Company
         contained in this Agreement which could reasonably be expected to have
         a Material Adverse Effect with respect to the Company or which could
         reasonably be expected to materially adversely affect (or materially
         delay) the consummation of the Merger, which breach, in the


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<PAGE>   322
         case of clause (ii), shall not have been cured prior to 10 days
         following notice thereof.

                  SECTION 7.2 Effect of Termination. In the event of the
termination of this Agreement pursuant to Section 7.1, this Agreement shall
forthwith become void and there shall be no liability on the part of any party
hereto except as set forth in Section 7.3 and Section 8.1; provided, however,
that nothing herein shall relieve any party from liability for any willful
breach hereof.

                  SECTION 7.3 Fees and Expenses. Each party shall bear its own
expenses in connection with this Agreement, the Stockholders Agreement and the
transactions contemplated hereby and thereby. In the event that the Merger
Agreement is terminated pursuant to Section 7.1, Parent will, promptly after
request by the Company (accompanied by reasonably detailed documentation to the
extent reasonably requested by Parent), pay all of the Company's reasonable
out-of-pocket expenses actually incurred in connection with the Form S-3 and
Offer to Purchase.

                  SECTION 7.4 Amendment. This Agreement may be amended by the
parties hereto by action taken by or on behalf of their respective Boards of
Directors at any time before or after any required approval of matters presented
in connection with the Merger by the stockholders of either the Company or
Parent; provided, however, that after any such approval, there shall be made no
amendment that by law requires further approval by such stockholders without the
further approval of such stockholders. This Agreement may not be amended except
by an instrument in writing signed by the parties hereto.

                  SECTION 7.5 Waiver. At any time prior to the Closing Date, any
party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any such extension or waiver shall be
valid if set forth in an instrument in writing signed by the party or parties to
be bound thereby. The failure of any party to this Agreement to assert any of
its rights under this Agreement or otherwise shall not constitute a waiver of
such rights.


                                  ARTICLE VIII

                           RELEASE OF ESCROWED SHARES

                  SECTION 8.1 Delivery of the Escrowed Shares. The Escrow Agent
shall deliver to each Holder no later than the fifth business day (the
"Distribution Date") after the earliest of (i) the termination of the QFC Merger
Agreement, (ii) the


                                      B-60


<PAGE>   323
execution of the Settlement Agreement (as defined below) or (iii) six months
following the Effective Time, any Escrowed Shares required to be so delivered
under the Escrow Agreement. The amount of Escrowed Shares to be released from
Escrow pursuant to any Settlement Agreement following the Effective Time shall
be determined in accordance with the terms of the Escrow Agreement.

                  SECTION 8.2 Voting of and Dividends on the Escrowed Shares.
All Escrowed Shares shall be deemed to be owned by the Holders in accordance
with their Escrow Percentage Interests and the Holders shall be entitled to vote
the same; provided, however, that there shall also be deposited in escrow and
held by the Escrow Agent, subject to the terms of this Article VIII, all shares
of Parent Common Stock issued as a result of any non-taxable stock dividend or
stock split, with respect to the Escrowed Shares. Any cash dividends or taxable
distributions on the shares of Parent Common Stock held by the Escrow Agent as
part of the Escrowed Shares shall be payable promptly to the Holders.


                                   ARTICLE IX

                               GENERAL PROVISIONS

                  SECTION 9.1 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 7.1, as the case may be, except that the agreements set
forth in Article I and Sections 5.5, 5.6, 5.8, 5.16 and 5.17 shall survive the
Effective Time and those set forth in Section 5.3 and Section 7.3 shall survive
termination of this Agreement.

                  SECTION 9.2 Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt) by delivery in person, by
cable, telecopy, telegram or telex or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):

                  if to Parent or Sub:

                           Fred Meyer, Inc.
                           3800 SE 22nd Avenue
                           Portland, OR  97201
                           Attention:  General Counsel
                           Fax: (503) 797-5623


                                      B-61


<PAGE>   324
                  with an additional copy to:

                           Simpson Thacher & Bartlett
                           425 Lexington Avenue
                           New York, NY  10017
                           Attention:  William E. Curbow, Esq.
                           Fax: (212) 455-2502

                  if to the Company:

                           Food 4 Less Holdings, Inc.
                           c/o Ralphs Grocery Company
                           1100 W. Artesia Blvd.
                           Compton, CA  90220
                           Attention:  Legal Dept.
                           Fax: (310) 884-2610

                  with a copy to:

                           Latham & Watkins
                           633 W. Fifth Street, Suite 4000
                           Los Angeles, CA 90071
                           Attention:  Thomas C. Sadler, Esq.
                           Fax: (213) 891-8763


                  SECTION 9.3 Certain Definitions. For purposes of this
Agreement, the term:

                  "Action" shall mean any action, order, writ, injunction,
         judgment or decree outstanding or claim, suit, litigation, proceeding,
         arbitration or investigation by or before any court, governmental or
         other regulatory or administrative agency or commission or any other
         Person.

                  "Affiliate" shall mean, with respect to any Person, any other
         Person that directly, or through one or more intermediaries, controls
         or is controlled by or is under common control with such Person.

                  "Aggregate Exercise Price" shall mean the sum of (i) the
         aggregate cash consideration payable to the Company upon the exercise
         of all Company Options outstanding immediately prior to their
         cancellation as provided in Section 1.7 and (ii) the aggregate cash
         consideration received by the Company from the issuance of shares of
         Company Common Stock after the date hereof and prior to the Effective
         Time, to the extent permitted by this Agreement.

                  "Aggregate Purchase Price" shall mean the following:

                           (i) the Average Parent Price times 22,500,000, if
                           the Average Parent Price is greater than $26.6667;


                                      B-62


<PAGE>   325
                           (ii) $600,000,000, if the Average Parent Price is
                           less than or equal to $26.6667 but greater than
                           $25.00; or

                           (iii) the Average Parent Price times 24,000,000, if
                           the Average Parent Price is less than or equal to
                           $25.00.

                  "Applicable Percentage" shall mean a percentage equal to the
         greater of (a) 90% and (b) the percentage determined by (i) subtracting
         the Total Deduction Amount attributable to any Pending Settlement
         Proposal from (ii) the Aggregate Purchase Price and (iii) dividing the
         resulting amount by the Aggregate Purchase Price; provided that if the
         Settlement Agreement has been entered into as of the Effective Time,
         the Applicable Percentage shall be 100%.

                  "Assets" shall mean, with respect to any Person, all land,
         buildings, improvements, leasehold improvements, Fixtures and Equipment
         and other assets, real or personal, tangible or intangible, owned,
         leased or licensed by such Person or any of its Subsidiaries.

                  "Average Parent Price" shall be equal to the average of the
         closing prices of the Parent Common Stock on the New York Stock
         Exchange ("NYSE") as reported on the NYSE Composite Transaction Tape
         for the 15 trading days randomly selected by lot out of the 35 trading
         days ending on the second trading day preceding the Effective Time.

                  "Benefit Arrangement" shall mean, with respect to any Person,
         any employment, consulting, severance, change in control or other
         similar contract, arrangement or policy and each plan, arrangement
         (written or oral), program, agreement or commitment providing for
         insurance coverage (including without limitation any self-insured
         arrangements), workers' compensation, disability benefits, life,
         health, disability or accident benefits (including without limitation
         any "voluntary employees' beneficiary association" as defined in
         Section 501(c)(9) of the Code providing for the same or other benefits)
         or for deferred compensation, profit-sharing bonuses, stock options,
         stock appreciation rights, stock purchases or other forms of incentive
         compensation, which is (A) not a Welfare Plan, Pension Plan or
         Multiemployer Plan, (B) is entered into, maintained, contributed to or
         required to be contributed to, as the case may be, by such Person or
         any ERISA Affiliate or under which such Person or any ERISA Affiliate
         may incur any liability, and (C) covers any employee or former employee
         of such Person or any ERISA Affiliate (with respect to their
         relationship with such entities).

                  "Contract" shall mean any contract (written or oral), plan,
         undertaking or other commitment or agreement.


                                      B-63


<PAGE>   326
                  "Employee Plans" shall mean all Benefit Arrangements,
         Multiemployer Plans, Pension Plans and Welfare Plans.

                  "ERISA Affiliate" shall mean, with respect to any Person, any
         entity which is (or at any relevant time was) a member of a "controlled
         group of corporations" with, under "common control" with, or a member
         of as "affiliated service group" with, such Person as defined in
         Section 414(b), (c), (m) or (o) of the Code.

                  "Encumbrances" shall mean any claim, lien, pledge, option,
         charge, easement, security interest, deed of trust, mortgage,
         right-of-way, covenant, condition, restriction, encumbrance or other
         rights of third parties.

                  "Environmental Laws" shall mean any federal, state or
         local law, statute, ordinance, order, decree, rule or
         regulation relating to releases, discharges, emissions or
         disposals to air, water, land or groundwater of Hazardous
         Materials; to the withdrawal or use of groundwater; to the
         use handling or disposal of polychlorinated byphenyls,
         asbestos or urea formaldehyde or any other Hazardous
         Material; to the treatment, storage, disposal or management
         of Hazardous Materials; to exposure to toxic, hazardous or
         other controlled, prohibited or regulated substances; and to
         the transportation, release or any other use of Hazardous
         Materials, including the Comprehensive Environmental
         Response, Compensation and Liability Act, 42 U.S.C. 9601, et
         seq. ("CERCLA"), the Resource Conservation and Recovery Act,
         42 U.S.C. 6901, et seq. ("RCRA"), the Toxic Substances
         Control Act, 15 U.S.C. 2601, et seq. ("TSCA"), the
         Occupational, Safety and Health Act, 29 U.S.C. 651, et seq.,
         the Clean Air Act, 42 U.S.C. 7401, et seq., the Federal
         Water Pollution Control Act, 33 U.S.C. 1251, et seq., the
         Safe Drinking Water Act, 42 U.S.C. 300f, et seq., the
         Hazardous Materials Transportation act, 49 U.S.C. 1802 et
         seq. ("HMTA") and the Emergency Planning and Community Right
         to Know Act, 42 U.S.C. 11001 et seq. ("EPCRA"), and other
         comparable state and local laws and all rules, regulations
         and guidance documents promulgated pursuant thereto or
         published thereunder.

                  "Fixtures and Equipment" shall mean, with respect to any
         Person, all of the furniture, fixtures, furnishings, machinery and
         equipment owned, leased or licensed by such Person and located in, at
         or upon the facilities of such Person.

                  "Fully Diluted Basis" shall mean the Total Share Amount minus
         the quotient of (i) the Aggregate Exercise Price divided by (ii) the
         Per Share Value.


                                      B-64


<PAGE>   327
                  "GAAP" shall mean generally accepted accounting principles in
         the United States of America, as in effect from time to time,
         consistently applied.

                  "Hazardous Materials" shall mean each and every element,
         compound, chemical mixture, contaminant, pollutant, material, waste or
         other substance which is defined, determined or identified as hazardous
         or toxic under Environmental Laws or the release of which is regulated
         under Environmental Laws. Without limiting the generality of the
         foregoing, the term includes: "hazardous substances" as defined in
         CERCLA; "extremely hazardous substances" as defined in EPCRA;
         "hazardous waste" as defined in RCRA; "hazardous materials" as defined
         in HMTA; "chemical substance or mixture" as defined in TSCA; crude oil,
         petroleum products or any fraction thereof; radioactive materials
         including source, byproduct or special nuclear materials; asbestos or
         asbestos-containing materials; chlorinated fluorocarbons ("CFCs"); and
         radon.

                  "Leases" shall mean, with respect to any Person, all leases
         (including subleases, licenses, any occupancy agreement and any other
         agreement) of real or personal property, in each case to which such
         Person or any of its Subsidiaries is a party, whether as lessor,
         lessee, guarantor or otherwise, or by which any of them or their
         respective properties or assets are bound, or which otherwise relate to
         the operation of their respective businesses.

                  "Lost EBITDA" shall be equal to the aggregate earnings (or
         losses) before interest, taxes, corporate allocation costs for
         administration (including costs for management information systems),
         depreciation and amortization from the continuing operations of any
         Store Facilities to be divested pursuant to Section 5.8 during the
         twelve-month period ending on the second most recent month-end prior to
         the earlier of (i) the agreement of Parent with the applicable
         governmental or regulatory authority to divest such Store Facilities
         pursuant to Section 5.8 and (ii) the Effective Time; provided, that,
         for any new Store Facility to be divested which has not been in
         operation for such twelve-month period (each a "New Facility"), Lost
         EBITDA for such New Facility shall be an amount equal to 80% of the
         Average Facility EBITDA. "Average Facility EBITDA" is equal to the
         aggregate Lost EBITDA of all Facilities (other than New Facilities)
         owned by the company which is divesting such New Facility, assuming all
         such Store Facilities are to be divested pursuant to Section 5.8,
         divided by the total number of such Store Facilities (other than New
         Facilities).

                  "Material Adverse Effect" shall mean, with respect to either
         of the Company or Parent, as the context requires, a material adverse
         change in or effect on the business,


                                      B-65


<PAGE>   328
         results of operations, or condition (financial or otherwise) of such
         Person and its Subsidiaries taken as a whole or any change which
         materially impairs or materially delays the ability of such Person to
         consummate the transactions contemplated by this Agreement; provided,
         that (i) the failure of Parent to consummate the transactions pursuant
         to the QFC Merger Agreement and (ii) changes or effects as a result of
         any sales or dispositions of Facilities pursuant to Section 5.8 shall
         not constitute a Material Adverse Effect.

                  "Multiemployer Plan" shall mean, with respect to any Person,
         any "multiemployer plan," as defined in Section 4001(a)(3) of ERISA,
         (A) which such Person or any ERISA Affiliate maintains, administers,
         contributes to or is required to contribute to, or, after September 25,
         1980, maintained, administered, contributed to or was required to
         contribute to, or under which such Person or any ERISA Affiliate may
         incur any liability and (B) which covers any employee or former
         employee of such Person or any ERISA Affiliate (with respect to their
         relationship with such entities).

                  "Multiemployer Welfare Plan" shall mean a Welfare Plan that is
         a "multiemployer plan," as defined in Section 3(37) of ERISA.

                  "Pending Settlement Proposal" shall mean a proposal made by
         any regulatory authority referred to in Section 5.8 with respect to the
         divestiture of Store Facilities which is outstanding or otherwise under
         consideration by Parent and the Company at the Effective Time.

                  "Pension Plan" shall mean, with respect to any Person, any
         "employee pension benefit plan" as defined in Section 3(2) of ERISA
         (other than a Multiemployer Plan) (A) which such Person or any ERISA
         Affiliate maintains, administers, contributes to or is required to
         contribute to, or, within the six years prior to the Closing Date,
         maintained, administered, contributed to or was required to contribute
         to, or under which such Person or any ERISA Affiliate may incur any
         liability and (B) which covers any employee or former employee of such
         Person or any ERISA Affiliate (with respect to their relationship with
         such entities).

                  "Per Share Value" shall mean an amount equal to the result
         obtained by dividing (a) the sum of (i) 0.98 times the Aggregate
         Purchase Price plus (ii) the Aggregate Exercise Price by (b) the Total
         Share Amount.

                  "Permitted Encumbrances" shall mean any Encumbrances resulting
         from (i) all statutory or other liens for Taxes or assessments which
         are not yet due or delinquent or the validity of which are being
         contested in good faith by


                                      B-66


<PAGE>   329
         appropriate proceedings for which adequate reserves are being
         maintained in other accordance with GAAP; (ii) all cashiers',
         landlords', workers' and repairers' liens, and other similar liens
         imposed by law, incurred in the ordinary course of business; (iii) all
         laws and governmental rules, regulations, ordinances and restrictions;
         (iv) all leases, subleases, licenses, concessions or service contracts
         to which any Person or any of its Subsidiaries is a party; (v)
         Encumbrances identified on title policies or preliminary title reports
         or other documents or writing delivered or made available for
         inspection to any Person prior to the date hereof [or included in the
         Public Records]; and (vi) all other liens and mortgages (but solely to
         the extent such liens or mortgages secure indebtedness described or
         referred to in the Disclosure Schedule), covenants, imperfections in
         title, charges, easements, restrictions and other Encumbrances which,
         in the case of any such Encumbrances pursuant to clause (i) through
         (vi), do not materially detract from or materially interfere with the
         value or present use of the asset subject thereto or affected thereby.

                  "Person" shall mean any individual, corporation, partnership,
         limited liability company, joint venture, governmental agency or
         instrumentality, or any other entity.

                  "QFC" shall mean Quality Food Centers, Inc., a
         Washington corporation.

                  "QFC Merger Agreement" shall mean the Agreement and
         Plan of Merger dated as of November 6, 1997, among QFC, Q-
         Acquisition Corp. and Fred Meyer, Inc.

                  "Smith's Merger Agreement" shall mean the Agreement and
         Plan of Reorganization and Merger by and between Smith's
         Food & Drug Centers, Inc. and Parent, dated as of May 11,
         1997.

                  "Store Facilities" shall mean any retail supermarket operated
         by the Company or its Subsidiaries or by QFC or its Subsidiaries in the
         State of California (including any real property, leasehold interest,
         equipment or inventory associated therewith).

                  "Subsidiary" shall mean, with respect to any Person, any
         corporation or other organization, whether incorporated or
         unincorporated, of which such Person directly or indirectly owns or
         controls at least a majority of the securities or other interests
         having by their terms ordinary voting power to elect a majority of the
         board of directors or others performing similar functions.

                  "Tax" or "Taxes" shall mean all federal, state, local,
         foreign and other taxes, levies, imposts, assessments,


                                      B-67


<PAGE>   330
         impositions or other similar government charges, including, without
         limitation, income, estimated income, business, occupation, franchise,
         real property, payroll, personal property, sales, transfer, stamp, use,
         employment, commercial rent or withholding, occupancy, premium, gross
         receipts, profits, windfall profits, deemed profits, license, lease,
         severance, capital, production, corporation, ad valorem, excise, duty
         or other taxes, including interest, penalties and additions (to the
         extent applicable) thereto, whether disputed or not.

                  "Tax Return" shall mean any report, return, document,
         declaration or other information or filing required to be supplied to
         any taxing authority or jurisdiction (foreign or domestic) with respect
         to Taxes, including, without limitation, information returns, any
         documents with respect to or accompanying payments of estimated Taxes,
         or with respect to or accompanying requests for the extension of time
         in which to file any such report, return, document, declaration or
         other information.

                  "Total Deduction Amount" shall be equal to (i) the product of
         (A) four and (B) the Lost EBITDA in excess of $15 million, minus (ii)
         50% of the Estimated Gain (as defined in Section 5.8).

                  "Total Share Amount" shall mean the sum of the following, all
         measured immediately prior to the Effective Time: (i) the total number
         of shares of Company Common Stock then issued and outstanding plus (ii)
         the total number of shares of Company Common Stock then issuable upon
         conversion into shares of Company Common Stock of the shares of Company
         Preferred Stock then outstanding plus (iii) the total number of shares
         of Company Common Stock issuable upon exercise of the Company Options
         then outstanding plus (iv) the total number of shares of Company Common
         Stock issuable upon exercise of the Common Stock Purchase Warrants or
         any other rights to acquire any Company Common Stock then outstanding
         (without duplication of clauses (ii) or (iii) above), but excluding the
         Yucaipa Warrant referred to in Section 5.13.

                  "Welfare Plan" shall mean, with respect to any Person, any
         "employee welfare benefit plan" as defined in Section 3(1) of ERISA,
         (A) which such Person or any ERISA Affiliate maintains, administers,
         contributes to or is required to contribute to, or under which such
         Person or any ERISA Affiliate may incur any liability and (B) which
         covers any employee or former employee of such Person or any ERISA
         Affiliate (with respect to their relationship with such entities).

                  SECTION 9.4 Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other


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conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the fullest extent possible.

                  SECTION 9.5 Entire Agreement; Assignment. This Agreement,
together with the Stockholders Agreement and the Confidentiality Agreement,
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all prior agreements and undertakings, both written
and oral, among the parties, or any of them, with respect to the subject matter
hereof. Any attempted assignment which does not comply with the provisions of
this Section 9.5 shall be null and void ab initio.

                  SECTION 9.6 Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and, except
as provided in the following sentence, nothing in this Agreement, express or
implied, is intended to or shall confer upon any other person any rights,
benefits or remedies of any nature whatsoever under or by reason of this
Agreement. The parties hereto expressly intend the provisions of Section 5.6 to
confer a benefit upon and be enforceable by, as third party beneficiaries of
this Agreement, the third persons referred to in, or intended to be benefitted
by, such provisions.

                  SECTION 9.7 Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware.

                  SECTION 9.8 Headings. The descriptive headings contained in
this Agreement are included for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement.

                  SECTION 9.9 Counterparts. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.


                                      B-69


<PAGE>   332
                  IN WITNESS WHEREOF, Parent, Sub and the Company have caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.

<TABLE>
<S>                                        <C>
                                           FRED MEYER, INC.
Attest:


KENNETH THRASHER                           By:  ROBERT G. MILLER
-------------------------------               -------------------------------
                                              Title:President and Chief
                                                    Executive Officer


                                           FFL ACQUISITION CORP.

Attest:

DANIEL CLIVNER                             By:  ROGER A. COOKE
-------------------------------               -------------------------------
                                              Title:Senior Vice President


                                           FOOD 4 LESS HOLDINGS, INC.

Attest:

JOHN STANDLEY                              By:  GEORGE M. GOLLEHER
-------------------------------               -------------------------------
                                              Title:
</TABLE>


                                      B-70


<PAGE>   333
                                                                      APPENDIX C

                         [SALOMON BROTHERS LETTERHEAD]

November 6, 1997

Board of Directors
Fred Meyer, Inc.
3800 SE 22nd Avenue
Portland, OR 97202

Members of the Board:

You have requested our opinion as investment bankers as to the fairness, from a
financial point of view, of the consideration to be paid by Fred Meyer, Inc.
("Fred Meyer") in connection with the proposed merger (the "QFC Merger") of
Q-Acquisition Corp. ("Fred Meyer Sub Q"), a wholly owned subsidiary of Fred
Meyer, with and into Quality Food Centers, Inc. ("QFC") pursuant to the
Agreement and Plan of Merger (the "QFC Merger Agreement"), dated as of November
6, 1997, by and among Fred Meyer, Fred Meyer Sub Q and QFC.

We understand that pursuant to the terms of the QFC Merger Agreement, each
issued and outstanding share of common stock of QFC (other than shares held in
treasury of QFC or owned by Fred Meyer, Fred Meyer Sub Q or any other wholly
owned subsidiary of Fred Meyer) ("QFC Common Stock") will be converted into a
number of fully paid and non assessable shares of common stock, par value $.01,
of Fred Meyer ("FMI Common Stock") equal to the greater of (i) 1.9 shares and
(ii) the lesser of (A) 2.3 shares and (B) a number of shares with a market value
(determined in the manner set forth in the QFC Merger Agreement) equivalent to
$55.00 (the "QFC Exchange Ratio"). We understand that the QFC Exchange Ratio is
subject to a downwards adjustment (in the amounts and in the manner set forth in
the QFC Merger Agreement) in the event certain divestitures of QFC facilities
are required by regulatory authorities.

We also are aware that Fred Meyer has entered into an Agreement and Plan of
Merger (the "Ralphs Merger Agreement") which provides for the merger (the
"Ralphs Merger") of R-Acquisition Corp., a wholly owned subsidiary of Fred Meyer
("Fred Meyer Sub R"), with and into Food 4 Less Holdings ("Ralphs"). We
understand that Fred Meyer intends to consummate both the Ralphs Merger and the
QFC Merger.

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<PAGE>   334
                         [SALOMON BROTHERS LETTERHEAD]

In connection with rendering our opinion, we have reviewed (i) certain publicly
available information concerning Fred Meyer, QFC and Ralphs, respectively; (ii)
certain internal information, primarily financial in nature, including forecasts
and pro forma financial information giving effect to the QFC Merger and the
Ralphs Merger, concerning the business and operations of each of Fred Meyer, QFC
and Ralphs provided to us by Fred Meyer, QFC and Ralphs respectively for
purposes of our analysis; (iii) certain publicly available information
concerning the trading of, and the trading market for, FMI Common Stock and QFC
Common Stock; (iv) certain publicly available information with respect to
certain companies that we believe to be comparable to Fred Meyer, QFC or Ralphs
and the trading markets for such other companies' securities; and (v) certain
publicly available information concerning the nature and terms of certain other
transactions that we consider relevant to our inquiry. We have discussed the
strategic rationale for, and the potential benefits of, the QFC Merger and the
Ralphs Merger and the past and current business operations, financial condition
and prospects of Fred Meyer, QFC and Ralphs with certain officers and employees
of Fred Meyer, QFC and Ralphs, respectively. We have also considered such other
information, financial studies, analyses, investigations and financial, economic
and market criteria that we deemed relevant.

In our review and analysis and in arriving at our opinion, we have assumed and
relied upon the accuracy and completeness of all of the financial and other
information reviewed by us for the purpose of this opinion and have neither
attempted to independently verify nor assumed responsibility for verifying any
of such information. With respect to the financial forecasts (including pro
forma financial information) and supporting assumptions (including anticipated
synergies and cost savings resulting from the combination of Fred Meyer, QFC and
Ralphs), we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
respective managements of Fred Meyer, QFC and Ralphs as to their respective
future financial performance. We express no opinion with respect to such
forecasts or the assumptions on which they were based. We have not conducted a
physical inspection of any of the properties or facilities of Fred Meyer, QFC or
Ralphs, nor have we made or obtained or assumed responsibility for making or
obtaining any independent evaluations or appraisals of any assets (including
properties and facilities) or liabilities of Fred Meyer, QFC or Ralphs. We have
also assumed that the conditions precedent to the QFC Merger Agreement will be
satisfied and the QFC Merger will be consummated in accordance with the terms of
the QFC Merger Agreement. In addition, with your consent, we have taken into
account the advice of your independent accountants with respect to the likely
accounting treatment of the QFC Merger.

Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof and we assume no responsibility to update or revise
our opinion based upon circumstances and events occurring after the date hereof.
Our opinion as expressed below does not imply any conclusion as to the likely
trading range for FMI Common Stock following the consummation of the QFC Merger,
which may vary depending upon, among other factors, changes in interest rates,
dividend rates, market conditions, general economic conditions and other factors
that generally influence the price of securities. Our opinion is limited to the


                                      C-2



<PAGE>   335
                          [SALOMON BROTHERS LETTERHEAD]

fairness, from a financial point of view, of the QFC Exchange Ratio to Fred
Meyer and does not address Fred Meyer's underlying business decision to effect
the QFC Merger or constitute a recommendation concerning how holders of FMI
Common Stock should vote with respect to the QFC Merger.

We have acted as financial advisor to Fred Meyer in connection with both the QFC
Merger and the Ralphs Merger and will receive a fee for our services, a portion
of which is contingent upon consummation of the QFC Merger and the Ralphs
Merger. In the ordinary course of business, we may actively trade the securities
of Fred Meyer, QFC and Ralphs for our own account and for the accounts of
customers and, accordingly, may at any a time hold a long or short position in
such securities. In addition, we have previously rendered certain investment
banking and financial advisory and other services to Fred Meyer for which we
have received customary compensation. We have also previously provided
investment banking, financial advisory and other services to QFC and Ralphs
and/or their predecessors and affiliates.

Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the QFC Exchange Ratio is fair, from a financial point of view, to Fred
Meyer.

                                      Very truly yours,

                                      /S/ SALOMON BROTHERS INC

                                      SALOMON BROTHERS INC


                                      C-3


<PAGE>   336
                                                                      APPENDIX D



                        [GOLDMAN, SACHS & CO. LETTERHEAD]

November 6, 1997

Board of Directors
Fred Meyer, Inc.
3800 S.E. 22nd Avenue
Portland, OR  97202

Ladies and Gentlemen:

You have requested our opinion as to the fairness from a financial point of view
to Fred Meyer, Inc. ("Fred Meyer") of the QFC Exchange Ratio (as defined below)
of shares of Common Stock, par value $.01 per share (the "Fred Meyer Common
Stock"), of Fred Meyer to be issued for each share of Common Stock, par value
$.001 per share (other than shares held in treasury of QFC (as defined below) or
owned by Fred Meyer, QFC Merger Sub (as defined below) or any other wholly owned
subsidiary of Fred Meyer or QFC and other than shares the holders of which have
perfected their appraisal rights under Washington law) (the "QFC Common Stock"),
of Quality Food Centers, Inc. ("QFC"), pursuant to the Agreement and Plan of
Merger dated as of November 6, 1997 among Fred Meyer, Q-Acquisition Corp., a
wholly owned subsidiary of Fred Meyer ("QFC Merger Sub") and QFC (the "QFC
Agreement"). Pursuant to the QFC Agreement, QFC Merger Sub will be merged with
and into QFC (the "QFC Merger") and each outstanding share of QFC Common Stock
will be converted into and represent the right to receive a number of shares of
Fred Meyer Common Stock (the "QFC Exchange Ratio") equal to the greater of (i)
1.9 or (ii) the lesser of (A) 2.3 and (B) the number determined by dividing
$55.00 by the Average Parent Price (as defined in the QFC Agreement), subject to
adjustment. We understand that Fred Meyer has also entered into an Agreement and
Plan of Merger dated as of November 6, 1997 among Fred Meyer, FFL Acquisition
Corp., a wholly- owned subsidiary of Fred Meyer ("Food 4 Less Merger Sub") and
Food 4 Less Holdings, Inc. ("Food 4 Less") (the "Food 4 Less Agreement")
pursuant to which Food 4 Less Merger Sub will be merged with and into Food 4
Less (the "Food 4 Less Merger") whereby Fred Meyer will acquire all of the
outstanding equity securities of Food 4 Less in exchange for Fred Meyer Common
Stock.

Goldman, Sachs & Co., as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
Fred Meyer, having acted as managing underwriter of its public offering of
3,850,000 shares of Fred Meyer Common Stock in September 1996 and having acted
as its financial advisor in connection with, and having participated in certain
of the negotiations leading to, the QFC Agreement and the Food 4 Less Agreement.
We have also provided certain investment banking services to QFC from time to
time, having acted as its financial advisor in connection with its
recapitalization in 1995, which included acting as dealer-manager of its
self-tender for 7,000,000 shares of QFC Common Stock. 


                                      D-1


<PAGE>   337
Board of Directors
Fred Meyer, Inc.
November 6, 1997
Page Two

As of the date hereof, Goldman, Sachs & Co. accumulated a long position of
1,427,680 shares of Fred Meyer Common Stock and a short position of $3,500,000
principal amount of 8.70% Series B Senior Subordinated Notes due 2007 of QFC.

In connection with this opinion, we have reviewed, among other things, the QFC
Agreement; the Registration Statement on Form S-4 of QFC dated July 23, 1997;
Annual Reports to Stockholders and Annual Reports on Form 10-K of QFC for the
five fiscal years ended December 28, 1996; certain interim reports to
stockholders and Quarterly Reports on Form 10-Q of QFC; certain other
communications from QFC to its stockholders; and certain internal financial
analyses and forecasts for QFC prepared by its management. We have also reviewed
the Food 4 Less Agreement, including the Shareholders Agreement attached as an
annex thereto; Annual Reports on Form 10-K of Food 4 Less for the five fiscal
years ended February 2, 1997; certain Quarterly Reports on Form 10-Q of Food 4
Less; the Registration Statement on Form S-4 of Ralphs Grocery Company
("Ralphs"), a wholly owned subsidiary of Food 4 Less, dated October 6, 1997;
Annual Reports on Form 10-K of Ralphs for the five fiscal years ended February
2, 1997; certain Quarterly Reports on Form 10-Q of Ralphs; and certain internal
financial analyses and forecasts for Food 4 Less prepared by its management. We
have also reviewed the Registration Statement on Form S-4, including the Joint
Proxy Statement/Prospectus, dated August 6, 1997 relating to the Special
Meetings of Stockholders of Fred Meyer and Smith's Food & Drug Centers, Inc.
held on September 8, 1997; Annual Reports to Stockholders and Annual Reports on
Form 10-K of Fred Meyer for the five fiscal years ended February 1, 1997;
certain interim reports to stockholders and Quarterly Reports on Form 10-Q of
Fred Meyer; certain other communications from Fred Meyer to its stockholders;
and certain internal financial analyses and forecasts for Fred Meyer prepared by
its management without, and after giving effect to, the QFC Merger and the Food
4 Less Merger. We also have held discussions with members of the senior
management of Fred Meyer, QFC and Food 4 Less regarding the strategic rationale
for, and the potential benefits of, the QFC Merger and the Food 4 Less Merger
and the past and current business operations, financial condition and future
prospects of their respective companies. In addition, we have reviewed the
reported price and trading activity for the Fred Meyer Common Stock and the QFC
Common Stock, compared certain financial information for Fred Meyer, QFC and
Food 4 Less with similar information for certain other companies the securities
of which are publicly traded, compared certain stock market information for Fred
Meyer and QFC with similar information for certain other companies the
securities of which are publicly traded, reviewed the financial terms of certain
recent business combinations in the supermarket industry specifically and in
other industries generally and performed such other studies and analyses as we
considered appropriate.

We have relied upon the accuracy and completeness of all of the financial and
other information reviewed by us and have assumed such accuracy and completeness
for purposes of rendering this opinion and have neither attempted to
independently verify nor assumed responsibility for verifying any of such
information. In that regard, we have assumed with your consent that the
financial forecasts, including the underlying assumptions, provided to us and
discussed with us with respect to Fred Meyer, QFC and Food 4 Less after giving
effect to the QFC Merger and the Food 4 Less 


                                      D-2


<PAGE>   338
Board of Directors
Fred Meyer, Inc.
November 6, 1997
Page Three

Merger, including, without limitation, the projected cost savings and operating
synergies resulting from the QFC Merger and the Food 4 Less Merger, have been
reasonably prepared on a basis reflecting the best currently available judgments
and estimates of Fred Meyer, QFC and Food 4 Less. We express no opinion with
respect to such forecasts or the assumptions on which they were based. In
addition, with your consent we have taken into account the advice of your
independent accountants with respect to the likely accounting treatment of the
QFC Merger. In addition, we have not made an independent constitute a
recommendation as to how any holder of Fred Meyer Common Stock should vote with
respect to the QFC Merger. Our opinion is necessarily based upon conditions as
they exist and can be evaluated on the date hereof and we assume no
responsibility to update or revise our opinion based upon circumstances and
events occurring after the date hereof. Our opinion as expressed below does not
imply any conclusion as to the likely trading range of Fred Meyer Common Stock
following consummation of the QFC Merger, which may vary depending upon, among
other factors, changes in interest rates, dividend rates, market conditions,
general economic conditions and other factors that generally influence the price
of securities. Our opinion is limited to the fairness, from a financial point of
view, of the QFC Exchange Ratio to Fred Meyer and does not address Fred Meyer's
underlying business decision to effect the QFC Merger.

Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the QFC Exchange
Ratio pursuant to the QFC Agreement is fair from a financial point of view to
Fred Meyer.

Very truly yours,



/s/   GOLDMAN, SACHS & CO.
-------------------------------
(GOLDMAN, SACHS & CO.)


                                      D-3


<PAGE>   339
                                                                      APPENDIX E

                           [MERRILL LYNCH LETTERHEAD]

                                                                November 6, 1997


Board of Directors
Quality Food Centers, Inc.
10112 N.E. 10th Street
Bellevue, Washington 98004

Members of the Board of Directors:

           Quality Food Centers, Inc. (the "Company"), Fred Meyer, Inc. ("Fred
Meyer"), and a direct wholly-owned subsidiary of Fred Meyer ("Acquisition Sub")
propose to enter into an Agreement and Plan of Merger (the "Agreement") pursuant
to which Acquisition Sub would be merged with the Company in a merger
transaction (the "Merger Transaction") in which each outstanding share of common
stock, par value $.001 per share, of the Company (the "Company Shares"), other
than Company Shares held in treasury or as to which dissenter's rights have been
perfected, would be converted into the right to receive shares of the common
stock of Fred Meyer (the "Fred Meyer Common Shares") at an exchange ratio per
Company Share (as such exchange ratio may be adjusted as set forth in the
Agreement, the "Exchange Ratio") equal to the greater of (i) 1.9 and (ii) the
lesser of (A) 23 and (B) the number determined by dividing $55.00 by the average
of the closing prices of the Fred Meyer Common Shares on the New York Stock
Exchange for the 15 trading days randomly selected by lot out of the 35 trading
days ending on the second trading day preceding the closing date of the Merger
Transaction, subject to possible reduction based upon dispositions that may be
required in connection with antitrust approval.

           We are aware that Fred Meyer is considering entering into a business
combination (the "Other Transaction") with another party (the "Other Party").
Fred Meyer has advised the Company that the proposed Merger Transaction and the
Other Transaction are independent and are not conditioned upon each other. The
opinion expressed herein is not contingent upon consummation of the Other
Transaction.

           You have asked us whether, in our opinion, the Exchange Ratio
pursuant to the Agreement is fair from a financial point of view to holders of
Company Shares, other than Fred Meyer and its affiliates.

           In arriving at the opinion set forth below, we have, among other
things:

           (1)  Reviewed certain publicly available business and financial
                information relating to the Company, Fred Meyer and the Other
                Party that we deemed to be relevant;


                                      E-1


<PAGE>   340
           (2)  Reviewed certain information, including financial forecasts,
                relating to the business, earnings, cash flow, assets,
                liabilities and prospects of the Company, Fred Meyer and the
                Other Party furnished to us by the Company, Fred Meyer and the
                Other Party, as the case may be;

           (3)  Conducted discussions with members of the senior management of
                the Company, Fred Meyer and Other Party concerning the matters
                described in clauses 1 and 2 above;

           (4)  Reviewed the market prices and valuation multiples for the
                Company Shares and the Fred Meyer Common Shares and compared
                them with those of certain publicly traded companies that we
                deemed to be relevant;

           (5)  Reviewed the results of operations of the Company, Fred Meyer
                and the Other Party and compared them with those of certain
                publicly traded companies that we deemed to be relevant;

           (6)  Compared the proposed financial terms of the Merger Transaction
                and the Other Transaction with the financial terms of certain
                other transactions that we deemed to be relevant;

           (7)  Participated in certain discussions and negotiations among
                representatives of the Company, Fred Meyer and the Other Party
                and their financial and legal advisors;

           (8)  Reviewed a draft of the Agreement and a draft of the agreement
                relating to the Other Transaction  (collectively,  the 
                "Agreements");

           (9)  Conducted discussions with antitrust counsel to the Company
                relating to the possibility of divestitures that may be required
                in connection with antitrust approval; and

           (10) Reviewed such other financial studies and analyses and took into
                account such other matters as we deemed necessary, including our
                assessment of general economic, market and monetary conditions.

           We have also been advised of a proposal from a third party offering
to acquire the Company Shares for cash, which proposal has been presented to the
Company's Board of Directors (the "Alternative Proposal").

           In preparing our opinion, we have assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company, Fred Meyer or the Other Party or been furnished with
any such evaluation or appraisal. In addition, we have not assumed any
obligation to conduct any physical inspection of the properties or facilities of
the Company, Fred Meyer or the Other Party. With respect to the financial
forecast information furnished to or discussed with us by the Company, Fred
Meyer and Other Party, we have assumed that they have been reasonably prepared
and reflect the best currently available estimates and judgment of the
management of the Company, Fred Meyer and the Other Party, as the case may be,
as to the expected future financial performance of the Company, Fred Meyer and
the Other Party, as the case may be. We have also assumed that the final form of
the Agreements will be substantially similar to the last drafts thereof reviewed
by us.

           Our opinion is necessarily based upon market, economic and other
conditions as they exist and can be evaluated on, and on the information made
available to us as of the date hereof.


                                      E-2


<PAGE>   341
           In connection with our engagement by the Company we have contacted a
limited number of persons whom we determined to be likely to have a significant
interest in entering into a business combination with the Company. We have not
been authorized to conduct, and we have not conducted, a solicitation of a broad
group of potentially interested parties.

           As financial advisor to the Company in connection with the Merger
Transaction, we will receive a fee from the Company for our services, which is
contingent upon the consummation of the Merger Transaction. In addition, the
Company has agreed to indemnify us for certain liabilities arising out of our
engagement. We have, in the past, provided financial advisory and financing
services to the Company and certain of its affiliates and may continue to do so
and have received, and may receive, fees for the rendering of such services. In
addition, in the ordinary course of our business, we may actively trade the
Company Shares and other securities of the Company, as well as securities of
Fred Meyer and the Other Party, for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.

           This opinion is for the use and benefit of the Board of Directors of
the Company. Our opinion does not address the merits of the underlying decision
by the Company to engage in the Merger Transaction and does not constitute a
recommendation to any shareholder as to how such shareholder should vote on the
Merger Transaction or any matter related thereto if such a vote occurs. We are
also not expressing any opinion herein with respect to the fairness from a
financial point of view to the holders of Company Shares of the Alternative
Proposal.

           We are not expressing any opinion herein as to the prices at which
the Company Shares or the Fred Meyer Common Shares will trade following the
announcement or consummation of the Merger Transaction.

           On the basis of and subject to the foregoing, we are of the opinion
that, as of the date hereof, the Exchange Ratio is fair from a financial point
of view to the holders of the Company Shares (other than Fred Meyer and its
affiliates).

                                        Very truly yours,


                                        /s/MERRILL LYNCH PIERCE FENNER & SMITH


                                      E-3


<PAGE>   342
                                                                      APPENDIX F

                       [SALOMON BROTHERS INC LETTERHEAD]



November 6, 1997




Board of Directors
Fred Meyer, Inc.
3800 SE 22nd Avenue
Portland, OR 97202

Members of the Board:

You have requested our opinion as investment bankers as to the fairness, from a
financial point of view, of the consideration to be paid by Fred Meyer, Inc.
("Fred Meyer") in connection with the proposed merger (the "Ralphs Merger") of
FFL Acquisition Corp. ("FFL Sub"), a wholly owned subsidiary of Fred Meyer, with
and into Food 4 Less Holdings ("Ralphs"), pursuant to the Agreement and Plan of
Merger (the "Ralphs Merger Agreement"), dated as of November 6, 1997, by and
among Fred Meyer, FFL Sub and Ralphs.

We understand that pursuant to the terms of the Ralphs Merger Agreement, each
issued and outstanding share of common stock (voting and non-voting) of Ralphs
(other than shares held in treasury of Ralphs or owned by Fred Meyer, FFL Sub or
any other subsidiary of Fred Meyer or Ralphs) ("Ralphs Common Stock") will be
converted into a number of fully paid and non assessable shares of common stock,
par value $.01, of Fred Meyer ("FMI Common Stock") equal to the quotient of (i)
the Per Share Value (as defined, and determined in the manner set forth, in the
Ralphs Merger Agreement) divided by (ii) the average market price of FMI Common
Stock (determined as of the times and in the 


                                      F-1
<PAGE>   343
                       [SALOMON BROTHERS INC LETTERHEAD]

manner set forth in the Ralphs Merger Agreement) (the "Ralphs Exchange Ratio").
Each issued and outstanding share of preferred stock of Ralphs ("Ralphs
Preferred Stock") will be converted into a number of fully paid and
nonassessable shares of FMI Common Stock equal to the Ralphs Exchange Ratio
multiplied by the number of shares of Ralphs Common Stock into which the Ralphs
Preferred Stock is then convertible. In accordance with the Ralphs Merger
Agreement, a portion of the consideration into which Ralphs Common Stock and the
Ralphs Preferred Stock will be converted will be payable at the effective time
and the remainder will be held in escrow and subject to reduction at the times
and in accordance with the terms of the Ralphs Merger Agreement. We also
understand that the Ralphs Exchange Ratio is subject to a downwards adjustment
(in the amounts and in the manner set forth in the Ralphs Merger Agreement) in
the event certain divestitures of Ralphs facilities are required by regulatory
authorities.

We also are aware that Fred Meyer has entered into an Agreement and Plan of
Merger (the "QFC Merger Agreement") which provides for the merger (the "QFC
Merger") of Q-Acquisition Corp., a wholly owned subsidiary of Fred Meyer with
and into Quality Food Centers, Inc. ("QFC"). We understand that Fred Meyer
intends to consummate both the Ralphs Merger and the QFC Merger.

In connection with rendering our opinion, we have reviewed (i) certain publicly
available information concerning Fred Meyer, QFC and Ralphs, respectively; (ii)
certain internal information, primarily financial in nature, including forecasts
and pro forma financial information giving effect to the QFC Merger and the
Ralphs Merger, concerning the business and operations of each of Fred Meyer, QFC
and Ralphs provided to us by Fred Meyer, QFC and Ralphs respectively for
purposes of our analysis; (iii) certain publicly available information
concerning the trading of, and the trading market for, FMI Common Stock and QFC
Common Stock; (iv) certain publicly available information with respect to
certain companies that we believe to be comparable to Fred Meyer, QFC or Ralphs
and the trading markets for such other companies' securities; and (v) certain
publicly available information concerning the nature and terms of certain other
transactions that we consider relevant to our inquiry. We have discussed the
strategic rationale for, and the potential benefits of, the QFC Merger and the
Ralphs Merger and the past and current business operations, financial condition
and prospects of Fred Meyer, QFC and Ralphs with certain officers and employees
of Fred Meyer, QFC and Ralphs, respectively. We have also considered such other
information, financial studies, analyses, investigations and financial, economic
and market criteria that we deemed relevant.

In our review and analysis and in arriving at our opinion, we have assumed and
relied upon the accuracy and completeness of all of the financial and other
information reviewed by us for the purpose of this opinion and have neither
attempted to independently verify nor assumed responsibility for verifying any
of such information. With respect to the financial forecasts (including pro
forma financial information) and supporting assumptions (including anticipated
synergies and cost savings resulting from the combination of Fred Meyer, QFC and
Ralphs), we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
respective managements of Fred Meyer, QFC and Ralphs as to their respective
future financial performance. We express no opinion with respect to such
forecasts or the assumptions on which they were based. We have not conducted a
physical inspection of any of the properties or facilities of Fred Meyer, QFC or
Ralphs, nor have we made or obtained or assumed responsibility for making or
obtaining any independent evaluations or appraisals of any assets (including
properties and facilities) or liabilities of Fred Meyer, QFC or Ralphs. We have
also assumed that the conditions precedent to the Ralphs Merger Agreement will
be satisfied and the Ralphs Merger will be consummated in accordance with the
terms of the Ralphs Merger Agreement.

                                      F-2


<PAGE>   344
                       [SALOMON BROTHERS INC LETTERHEAD]

Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof and we assume no responsibility to update or revise
our opinion based upon circumstances and events occurring after the date hereof.
Our opinion as expressed below does not imply any conclusion as to the likely
trading range for FMI Common Stock following the consummation of the Ralphs
Merger, which may vary depending upon, among other factors, changes in interest
rates, dividend rates, market conditions, general economic conditions and other
factors that generally influence the price of securities. Our opinion is limited
to the fairness, from a financial point of view, of the Ralphs Exchange Ratio
and does not address Fred Meyer's underlying business decision to effect the
Ralphs Merger or constitute a recommendation concerning how holders of FMI
Common Stock should vote with respect to the Ralphs Merger.

We have acted as financial advisor to Fred Meyer in connection with both the
Ralphs Merger and the QFC Merger and will receive a fee for our services, a
portion of which is contingent upon consummation of the Ralphs Merger and the
QFC Merger. In the ordinary course of business, we may actively trade the
securities of Fred Meyer, Ralphs and QFC for our own account and for the
accounts of customers and, accordingly, may at any a time hold a long or short
position in such securities. In addition, we have previously rendered certain
investment banking and financial advisory and other services to Fred Meyer for
which we have received customary compensation. We have also previously provided
investment banking, financial advisory and other services to QFC and Ralphs
and/or their predecessors and affiliates.

Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Ralphs Exchange Ratio is fair, from a financial point of view, to
Fred Meyer.

                                        Very truly yours,

                                        /s/ SALOMON BROTHERS INC

                                        SALOMON BROTHERS INC


                                      F-3


<PAGE>   345
                                                                      APPENDIX G
                           [GOLDMAN SACHS LETTERHEAD]

November 6, 1997


Board of Directors
Fred Meyer, Inc.
3800 S.E. 22nd Avenue
Portland, OR  97202

Ladies and Gentlemen:

You have requested our opinion as to the fairness from a financial point of view
to Fred Meyer, Inc. ("Fred Meyer") of the Food 4 Less Exchange Ratio (as defined
below) of shares of Common Stock, par value $.01 per share (the "Fred Meyer
Common Stock"), of Fred Meyer to be issued for each share of Common Stock, par
value $.01 per share, each share of Non-Voting Common Stock, par value $.01 per
share (other than shares held in treasury of Food 4 Less (as defined below) or
owned by Fred Meyer, Food 4 Less Merger Sub (as defined below) or any other
wholly owned subsidiary of Fred Meyer or Food 4 Less and other than shares the
holders of which have perfected their appraisal rights under Delaware law)
(together, the "Food 4 Less Common Stock"), each share of Series A Preferred
Stock, par value $.01 per share, and each share of Series B Preferred Stock, par
value $.01 per share (together, the "Food 4 Less Preferred Stock"), of Food 4
Less Holdings, Inc. ("Food 4 Less"), pursuant to the Agreement and Plan of
Merger dated as of November 6, 1997 among Fred Meyer, FFL Acquisition Corp., a
wholly owned subsidiary of Fred Meyer ("Food 4 Less Merger Sub") and Food 4 Less
(the "Food 4 Less Agreement"). Pursuant to the Food 4 Less Agreement, Food 4
Less Merger Sub will be merged with and into Food 4 Less (the "Food 4 Less
Merger") and each share of Food 4 Less Common Stock will be converted into and
represent the right to receive a number of shares of Fred Meyer Common Stock
equal to the quotient of (i) the Applicable Percentage of the Per Share Value
(each as defined in the Food 4 Less Agreement) divided by (ii) the Average
Parent Price (as defined in the Food 4 Less Agreement) (the "Common Stock
Exchange Ratio"). In addition, pursuant to the Food 4 Less Agreement, each share
of Food 4 Less Preferred Stock will be converted into and represent the right to
receive a number of shares of Fred Meyer Common Stock equal to the Common Stock
Exchange Ratio times the number of shares of Food 4 Less Common Stock into which
such share of Food 4 Less Preferred Stock is then convertible (the "Preferred
Stock Exchange Ratio," and, together with the Common Stock Exchange Ratio, the
"Food 4 Less Exchange Ratio").

Goldman, Sachs & Co., as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
Fred Meyer, having acted as managing underwriter of its public offering of
3,850,000 shares of Fred Meyer Common Stock in September 1996 and having acted
as its financial advisor in connection 


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<PAGE>   346
Board of Directors
Fred Meyer, Inc.
November 6, 1997
Page Two

with, and having participated in certain of the negotiations leading to, the
Food 4 Less Agreement. As of the date hereof, Goldman, Sachs & Co. accumulated a
long position of 1,427,680 shares of Fred Meyer Common Stock and a short
position of $5,000,000 principal amount of 11% Senior Subordinated Notes due
2005 of Ralphs Grocery Company ("Ralphs"), a wholly owned subsidiary of Food 4
Less.

In connection with this opinion, we have reviewed, among other things, the Food
4 Less Agreement, including the Shareholders Agreement attached as an annex
thereto; Annual Reports on Form 10-K of Food 4 Less for the five fiscal years
ended February 2, 1997; certain Quarterly Reports on Form 10-Q of Food 4 Less;
the Registration Statement on Form S-4 of Ralphs dated October 6, 1997; Annual
Reports on Form 10-K of Ralphs for the five fiscal years ended February 2, 1997;
certain Quarterly Reports on Form 10-Q of Ralphs; and certain internal financial
analyses and forecasts for Food 4 Less prepared by its management. We have also
reviewed the Registration Statement on Form S-4, including the Joint Proxy
Statement/Prospectus, dated August 6, 1997 relating to the Special Meetings of
Stockholders of Fred Meyer and Smith's Food & Drug Centers, Inc. held on
September 8, 1997; Annual Reports to Stockholders and Annual Reports on Form
10-K of Fred Meyer for the five fiscal years ended February 1, 1997; certain
interim reports to stockholders and Quarterly Reports on Form 10-Q of Fred
Meyer; certain other communications from Fred Meyer to its stockholders; and
certain internal financial analyses and forecasts for Fred Meyer prepared by its
management without, and after giving effect to, the Food 4 Less Merger. We also
have held discussions with members of the senior management of Fred Meyer and
Food 4 Less regarding the strategic rationale for, and the potential benefits
of, the Food 4 Less Merger and the past and current business operations,
financial condition and future prospects of their respective companies. In
addition, we have reviewed the reported price and trading activity for the Fred
Meyer Common Stock, compared certain financial information for Fred Meyer and
Food 4 Less with similar information for certain other companies the securities
of which are publicly traded, compared certain stock market information for Fred
Meyer with similar information for certain other companies the securities of
which are publicly traded, reviewed the financial terms of certain recent
business combinations in the supermarket industry specifically and in other
industries generally and performed such other studies and analyses as we
considered appropriate.

We have relied upon the accuracy and completeness of all of the financial and
other information reviewed by us and have assumed such accuracy and completeness
for purposes of rendering this opinion and have neither attempted to
independently verify nor assumed responsibility for verifying any of such
information. In that regard, we have assumed with your consent that the
financial forecasts, including the underlying assumptions, provided to us and
discussed with us with respect to Fred Meyer and Food 4 Less after giving effect
to the Food 4 Less Merger, including, without limitation, the projected cost
savings and operating synergies resulting from the Food 4 Less Merger, have been
reasonably prepared on a basis reflecting the best currently available judgments
and estimates of Fred Meyer and Food 4 Less and that such forecasts will be
realized in the amounts and at the times contemplated thereby. We express no
opinion with respect to such forecasts or the assumptions on which they were
based. In addition, we have not made an independent evaluation 


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<PAGE>   347
Board of Directors
Fred Meyer, Inc.
November 6, 1997
Page Three

or appraisal of the assets and liabilities of Fred Meyer or Food 4 Less or any
of their subsidiaries and we have not been furnished with any such evaluation or
appraisal. Our advisory services and the opinion expressed herein are provided
for the information and assistance of the Board of Directors of Fred Meyer in
connection with its consideration of the Food 4 Less Merger and such opinion
does not constitute a recommendation as to how any holder of Fred Meyer Common
Stock should vote with respect to the Food 4 Less Merger. Our opinion is
necessarily based upon conditions as they exist and can be evaluated on the date
hereof, and we assume no responsibility to update or revise our opinion based
upon circumstances and events occurring after the date hereof. Our opinion as
expressed below does not imply any conclusion as to the likely trading range of
Fred Meyer Common Stock following consummation of the Food 4 Less Merger, which
may vary depending upon, among other factors, changes in interest rates,
dividend rates, market conditions, general economic conditions and other factors
that generally influence the price of securities. Our opinion is limited to the
fairness, from a financial point of view, of the Food 4 Less Exchange Ratio to
Fred Meyer and does not address Fred Meyer's underlying business decision to
effect the Food 4 Less Merger.

Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the Food 4 Less
Exchange Ratio pursuant to the Food 4 Less Agreement is fair from a financial
point of view to Fred Meyer.

Very truly yours,

/s/ GOLDMAN, SACHS & CO.
-------------------------------
(GOLDMAN, SACHS & CO.)


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<PAGE>   348
                                                                      APPENDIX H

                    [DONALDSON, LUFKIN & JENRETTE LETTERHEAD]

                                November 6, 1997


Board of Directors
Food 4 Less Holdings, Inc.
1100 West Artesia Boulevard
Compton, CA  90220

Dear Sirs:

           You have requested our opinion as to the fairness from a financial
point of view to the stockholders of Food 4 Less Holdings, Inc. (the "Company")
of the consideration to be received by such stockholders pursuant to the terms
of the Agreement and Plan of Merger, dated as of November 6, 1997 (the
"Agreement"), by and among the Company, Fred Meyer, Inc. (the "Buyer"), and FFL
Acquisition Corp. ("Acquisition Sub"), a wholly owned subsidiary of the Buyer.

           Pursuant to the Agreement, among other things, (i) Acquisition Sub
will merge (the "Merger") with and into the Company, with the Company surviving
the Merger and becoming a wholly owned subsidiary of the Buyer and (ii) holders
of common stock, par value $.01 per share, of the Company (the "Company Common
Stock") (other than Company Common Stock held in treasury of the Company or
owned by the Buyer, Acquisition Sub or any of their direct or indirect
subsidiaries) will receive an aggregate of (subject to reduction as specified in
the Agreement if the holders of any shares of Company Common Stock properly
exercise appraisal rights) the greater of (A) 22.5 million shares of common
stock, par value $.01 per share, of the Buyer ("Buyer Common Stock") or (B) the
lesser of (I) the number of shares of Buyer Common Stock equal to $600 million
divided by the average closing price of Buyer Common Stock on the New York Stock
Exchange for 15 out of the 35 trading days ending on the second trading day
preceding the effective time of the Merger or (II) 24 million shares of Buyer
Common Stock; provided, however, that such aggregate number of shares of Buyer
Common Stock will be reduced by (A) the number of shares of Buyer Common Stock
having a value equal to net cash amounts that will be paid to retire all options
outstanding under the Company's 1995 Stock Option Plan, (B) the number of shares
of Buyer Common Stock required to be reserved for issuance upon the exercise of
any warrants to purchase the Common Stock which remain outstanding at the
effective time of the merger and (C) the number of shares of Buyer Common Stock
issued to The Yucaipa Companies ("Yucaipa") to cancel Yucaipa's Common Stock
Purchase Warrant dated June 14, 1995; and provided, further, that such aggregate
number of shares of Buyer Common Stock may be reduced under certain
circumstances as a result of store divestitures in California which may be
required by state or federal regulatory authorities (collectively, the "Merger
Consideration"), all as more fully described in the Agreement.


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<PAGE>   349
           We also understand that Quality Food, Inc. ("QFC"), the Buyer and
Q-Acquisition Corp., a wholly owned subsidiary of the Buyer ("Q-Acquisition
Corp."), propose to enter into an Agreement and Plan of Merger dated as of
November 6, 1997 (the "Q Merger Agreement") which provides, among other things,
for the merger (the "Q Merger") of Q-Acquisition Corp. with and into QFC.
Pursuant to the Q Merger Agreement, Q-Acquisition Corp. will become a wholly
owned subsidiary of the Buyer and each outstanding share of common stock, par
value $.001 per share, of QFC (the "QFC Common Stock"), subject to certain
exceptions, will be converted into the right to receive a certain number of
shares of Buyer Common Stock, determined pursuant to a certain formula set forth
in the Q Merger Agreement. The terms and conditions of the Q Merger are more
fully set forth in the Q Merger Agreement.

           In arriving at our opinion, we have reviewed the Agreement and the
exhibits and the Q Merger Agreement. We also have reviewed financial and other
information that was publicly available or furnished to us by the Company, the
Buyer and QFC including information provided during discussions with their
respective managements. Included in the information provided during discussions
with the respective managements were certain financial projections prepared by
the management of the Company, the Buyer and QFC. In addition, we have compared
certain financial and securities data of the Company, the Buyer and QFC with
various other companies whose securities are traded in public markets, reviewed
the historical stock prices and trading volumes of the common stock of the
Company, the Buyer and QFC, reviewed prices and premiums paid in certain other
business combinations and conducted such other financial studies, analyses and
investigations as we deemed appropriate for purposes of this opinion. We were
not requested to, nor did we, solicit the interest of any other party in
acquiring the Company.

           In rendering our opinion, we have relied upon and assumed the
accuracy and completeness of all of the financial and other information that was
available to us from public sources, that was provided to us by the Company, the
Buyer, QFC or their respective representatives, or that was otherwise reviewed
by us. In particular, we have relied upon the estimates of the management of the
Company of the operating synergies achievable as a result of the Merger and upon
our discussion of such synergies with the management of the Buyer and QFC. With
respect to the financial projections supplied to us, we have assumed that they
have been reasonably prepared on the basis reflecting the best currently
available estimates and judgments of the management of the Company, the Buyer
and QFC as to the future operation and financial performance of the Company, the
Buyer and QFC, respectively. We have not assumed any responsibility for making
an independent evaluation of any assets or liabilities or for making any
independent verification of any of the information reviewed by us. We have
relied as to certain legal matters on advice of counsel to the Company.

           Our opinion is necessarily based on economic, market, financial and
other conditions as they exist on, and on the information made available to us
as of, the date of this letter. It should be understood that, although
subsequent developments may affect this opinion, we do not have any obligation
to update, revise or reaffirm this opinion. We are expressing no opinion herein
as to the prices at which the Buyer Common Stock will actually trade at any
time. Our opinion does not address the Board's decision to proceed with the
Merger nor does our opinion constitute 


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<PAGE>   350
a recommendation to any stockholder as to how such stockholder should vote on
the proposed transaction.

           Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part
of its investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. DLJ and its
affiliates own approximately 1,000,000 million shares of Series A Preferred
Stock which was acquired in June 1996 in connection with the merger between
Ralphs Grocery Company and Food 4 Less Supermarkets, Inc. DLJ has performed
investment banking and other services for the Company, the buyer and QFC in the
past and has been compensated for such services. During the past year, DLJ has
(i) co-managed a $155 million offering of Senior Subordinated Notes of the
Company, (ii) acted as the financial advisor of Smith's Food & Drug Centers,
Inc. ("Smith's") in connection with Smith's merger with the Buyer, (iii) lead
managed a $150 million offering of Senior Subordinated Notes for QFC and (iv)
co-managed a $175.5 million of QFC common stock for QFC, for which, in each
case, it received usual and customary compensation.

           Based upon the foregoing and such other factors as we deem relevant,
we are of the opinion that the Merger Consideration to be received by the
stockholders of the Company in the Merger pursuant to the terms of the Agreement
is fair to such stockholders from a financial point of view.

                                      Very truly yours,

                                      DONALDSON, LUFKIN & JENRETTE
                                      SECURITIES CORPORATION



                                      By: /s/ KENNETH A. VIELLIEU
                                          -------------------------------
                                          Kenneth A. Viellieu
                                          Managing Director


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<PAGE>   351
                                                                      APPENDIX I


                          [MORGAN STANLEY LETTERHEAD]

                                                                November 5, 1997



Board of Directors
Food 4 Less Holdings, Inc.
1100 West Artesia Boulevard
Compton, CA 90220

Gentlemen:

We understand that Food 4 Less Holdings, Inc. ("Target" or the "Company"), Fred
Meyer, Inc. ("Buyer") and FFL Acquisition Corp., a wholly owned subsidiary of
Buyer ("Acquisition Sub"), propose to enter into an Agreement and Plan of
Merger, substantially in the form of the draft dated as of November 5, 1997 (the
"Merger Agreement"), which provides, among other things, for the merger (the
"Merger") of Acquisition Sub with and into the Company. Pursuant to the Merger,
Target will become a wholly owned subsidiary of Buyer and each issued and
outstanding share of voting common stock, par value $0.01 per share, of the
Company (the "Company Voting Common Stock"), and each issued and outstanding
share of non-voting common stock, par value $0.01 per share, of the Company (the
"Company Non-Voting Stock" and, together with the Company Voting Common Stock
the "Company Common Stock"), other than shares held in treasury or as to which
dissenters' rights have been perfected, will be converted into the right to
receive a certain number of shares of common stock, par value $0.01 per share,
of the Buyer (the "Buyer Common Stock" and collectively the "Consideration"),
determined pursuant to a certain formula set forth in the Merger Agreement. We
understand that pursuant to the Merger Agreement a number of shares of Buyer
Common Stock to be received by the shareholders of the Company may be subject to
adjustment under certain circumstances. We also understand that, in connection
with the Merger, certain existing agreements between the Company and its
controlling stockholder may be canceled in exchange for cash or Company Common
Stock as contemplated by the Merger Agreement.

We also understand that, in a separate transaction, Quality Food Centers, Inc.
("QFC"), Buyer and Q-Acquisition Corp., a wholly owned subsidiary of Buyer,
("Q-Acquisition Corp."), propose to enter into an Agreement and Plan of Merger,
substantially in the form of the draft dated as of November 5, 1997 (the "Q
Merger Agreement"), which provides, among other things, for the merger (the "Q
Merger") of Q-Acquisition Corp. with and into Buyer. Pursuant to the Q Merger
Agreement, Q-Acquisition Corp. will become a wholly owned subsidiary of Buyer
and each issued and outstanding share of common stock, par value $0.001 per
share, of QFC (the "QFC Common Stock"), other than shares held in treasury or
held by the Buyer or any affiliate of Buyer or as to which dissenters' rights
have been perfected, will be converted into the right to receive a certain
number of shares of Buyer Common Stock, determined pursuant to a certain formula
set forth in the Q Merger Agreement. We further understand the consummation of
the Merger is not 


                                      I-1


<PAGE>   352
                          [MORGAN STANLEY LETTERHEAD]

contingent upon the consummation of the Q Merger. The terms and conditions of
the Merger and the Q Merger are more fully set forth in the Merger Agreement and
the Q Merger Agreement.

You have asked for our opinion as to (i) assuming that the Q Merger is not
consummated, whether the Consideration to be received by the holders of shares
of Company Common Stock pursuant to the terms of the Merger Agreement is fair
from a financial point of view to such holders and (ii) assuming that the Q
Merger is consummated, whether the Consideration to be received by holders of
shares of Company Common Stock pursuant to the terms of the Merger Agreement is
fair from a financial point of view to such holders.

For purposes of the opinion set forth herein, we have:

           (i)        reviewed certain publicly available financial statements
                      and other information of the Company, the Buyer and QFC;

           (ii)       reviewed certain internal financial statements and other
                      financial and operating data concerning the Company, the
                      Buyer and QFC prepared by the respective management of the
                      companies;

           (iii)      analyzed certain financial projections prepared by the
                      managements of the Company, the Buyer and QFC;

           (iv)       discussed the past and current operations and financial
                      condition and the prospects of the Company, the Buyer and
                      QFC with the senior executives of each of the respective
                      companies;

           (v)        reviewed the pro forma financial impact of the Merger and
                      the Q Merger on the Buyer;

           (vi)       reviewed the reported prices and trading activity for the
                      Buyer Common Stock and QFC Common Stock;

           (vii)      compared the financial performance of the Buyer and QFC
                      and the prices and trading activity of the Buyer Common
                      Stock and QFC Common Stock with that of certain other
                      comparable publicly-traded companies and their securities;

           (viii)     compared the financial performance of the Company with
                      that of certain comparable publicly-traded companies and
                      their securities;

           (ix)       reviewed and discussed with the managements of the
                      Company, Buyer and QFC their estimates of the strategic,
                      operational and financial benefits of the Merger and the
                      Q-Merger;

           (x)        reviewed the financial terms, to the extent publicly
                      available, of certain comparable acquisition transactions;

           (xi)       participated in discussions and negotiations among
                      representatives of the Company and the Buyer and their
                      financial and legal advisors;

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<PAGE>   353
                          [MORGAN STANLEY LETTERHEAD]

           (xii)      reviewed the draft Merger Agreement and the draft Q Merger
                      Agreement and certain related documents; and

           (xiii)     performed such other analyses and considered such other
                      factors as we have deemed appropriate.

We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by use for the purposes of this
opinion. With respect to the financial projections, including information
relating to the strategic, operational and financial benefits anticipated from
the Merger and the Q Merger, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the future financial performance of the Company, Buyer and QFC. We
have not made any independent valuation or appraisal of the assets or
liabilities of the Company, the Buyer or QFC, nor have we been furnished with
any such appraisals. Our opinion is necessarily based on economic, market and
other conditions as in effect on, and the information made available to use as
of, the date hereof.

In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition of the Company
or any of its assets.

We have acted as financial advisor to the Board of Directors of the Company in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for the Company and have received fees
for the rendering of these services.

It is understood that this letter is for the information of the Board of
Directors of the Company only and may not be used for any other purpose without
our prior written consent.

Based on the foregoing, we are of the opinion on the date hereof (i) that the
Consideration to be received by holders of Company Common Stock pursuant to the
terms of the Merger Agreement is fair from a financial point of view to such
holders and (ii) that if the Q Merger is consummated, the Consideration to be
received by holders of Company Common Stock pursuant to the terms of the Merger
Agreement is fair from a financial point of view to such holders.

                                       Very truly yours,

                                       MORGAN STANLEY & CO. INCORPORATED




                                       By:       /s/ C. Daniel Ewell
                                          -------------------------------
                                                 C. Daniel Ewell
                                                 Managing Director


                                      I-3


<PAGE>   354
                                                                      APPENDIX J


                 TITLE 23B. WASHINGTON BUSINESS CORPORATION ACT
                       CHAPTER 23B.13. DISSENTERS' RIGHTS


23B.13.010. DEFINITIONS

As used in this chapter:

(1) "Corporation" means the issuer of the shares held by a dissenter before the
corporate action, or the surviving or acquiring corporation by merger or share
exchange of that issuer.

(2) "Dissenter" means a shareholder who is entitled to dissent from corporate
action under RCW 23B.13.020 and who exercises that right when and in the manner
required by RCW 23B.13.200 through 23B.13.280.

(3) "Fair value," with respect to a dissenter's shares, means the value of the
shares immediately before the effective date of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.

(4) "Interest" means interest from the effective date of the corporate action
until the date of payment, at the average rate currently paid by the corporation
on its principal bank loans or, if none, at a rate that is fair and equitable
under all the circumstances.

(5) "Record shareholder" means the person in whose name shares are registered in
the records of a corporation or the beneficial owner of shares to the extent of
the rights granted by a nominee certificate on file with a corporation.

(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.

(7) "Shareholder" means the record shareholder or the beneficial shareholder.

23B.13.020. RIGHT TO DISSENT

(1) A shareholder is entitled to dissent from, and obtain payment of the fair
value of the shareholder's shares in the event of, any of the following
corporate actions:


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<PAGE>   355
           (a) Consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger by RCW 23B.11.030,
23B.11.080, or the articles of incorporation and the shareholder is entitled to
vote on the merger, or (ii) if the corporation is a subsidiary that is merged
with its parent under RCW 23B.11.040;

           (b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan;

           (c) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
year after the date of sale;

           (d) An amendment of the articles of incorporation that materially
reduces the number of shares owned by the shareholder to a fraction of a share
if the fractional share so created is to be acquired for cash under RCW
23B.06.040; or

           (e) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.

(2) A shareholder entitled to dissent and obtain payment for the shareholder's
shares under this chapter may not challenge the corporate action creating the
shareholder's entitlement unless the action fails to comply with the procedural
requirements imposed by this title, RCW 25.10.900 through 25.10.955, the
articles of incorporation, or the bylaws, or is fraudulent with respect to the
shareholder or the corporation.

(3) The right of a dissenting shareholder to obtain payment of the fair value of
the shareholder's shares shall terminate upon the occurrence of any one of the
following events:

           (a)       The proposed corporate action is abandoned or rescinded;

           (b) A court having jurisdiction permanently enjoins or sets aside the
corporate action; or

           (c) The shareholder's demand for payment is withdrawn with the
written consent of the corporation.


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<PAGE>   356
23B.13.030. DISSENT BY NOMINEES AND BENEFICIAL OWNERS

(1) A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in the shareholder's name only if the shareholder dissents
with respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the shareholder asserts dissenters' rights. The rights of a partial dissenter
under this subsection are determined as if the shares as to which the dissenter
dissents and the dissenter's other shares were registered in the names of
different shareholders.

(2) A beneficial shareholder may assert dissenters' rights as to shares held on
the beneficial shareholder's behalf only if: (a) The beneficial shareholder
submits to the corporation the record shareholder's written consent to the
dissent not later than the time the beneficial shareholder asserts dissenters'
rights; and (b) The beneficial shareholder does so with respect to all shares of
which such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote.

23B.13.200. NOTICE OF DISSENTERS' RIGHTS

(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this chapter and be accompanied by a copy of this chapter.

(2) If corporate action creating dissenters' rights under RCW 23B.13.020 is
taken without a vote of shareholders, the corporation, within ten days after
[the] effective date of such corporate action, shall notify in writing all
shareholders entitled to assert dissenters' rights that the action was taken and
send them the dissenters' notice described in RCW 23B.13.220.

23B.13.210. NOTICE OF INTENT TO DEMAND PAYMENT

(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights must (a) deliver to the corporation before
the vote is taken written notice of the shareholder's intent to demand payment
for the shareholder's shares if the proposed action is effected, and (b) not
vote such shares in favor of the proposed action.

(2) A shareholder who does not satisfy the requirements of subsection (1) of
this section is not entitled to payment for the shareholder's shares under this
chapter.


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<PAGE>   357
23B.13.220. DISSENTERS' NOTICE

(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of RCW 23B.13.210.

(2) The dissenters' notice must be sent within ten days after the effective date
of the corporate action, and must:

           (a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;

           (b) Inform holders of uncertificated shares to what extent transfer
of the shares will be restricted after the payment demand is received;

           (c) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not the person acquired beneficial ownership of the shares
before that date;

           (d) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty nor more than sixty days after
the date the notice in subsection (1) of this section is delivered; and

           (e) Be accompanied by a copy of this chapter.

23B.13.230. DUTY TO DEMAND PAYMENT

(1) A shareholder sent a dissenters' notice described in RCW 23B.13.220 must
demand payment, certify whether the shareholder acquired beneficial ownership of
the shares before the date required to be set forth in the dissenters' notice
pursuant to RCW 23B.13.220(2)(c), and deposit the shareholder's certificates in
accordance with the terms of the notice.

(2) The shareholder who demands payment and deposits the shareholder's share
certificates under subsection (1) of this section retains all other rights of a
shareholder until the proposed corporate action is effected.

(3) A shareholder who does not demand payment or deposit the shareholder's share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for the shareholder's shares under this chapter.


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<PAGE>   358
23B.13.240. SHARE RESTRICTIONS

(1) The corporation may restrict the transfer of uncertificated shares from the
date the demand for their payment is received until the proposed corporate
action is effected or the restriction is released under RCW 23B.13.260.

(2) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until the effective date of the
proposed corporate action.

23B.13.250. PAYMENT

(1) Except as provided in RCW 23B.13.270, within thirty days of the later of the
effective date of the proposed corporate action, or the date the payment demand
is received, the corporation shall pay each dissenter who complied with RCW
23B.13.230 the amount the corporation estimates to be the fair value of the
shareholder's shares, plus accrued interest.

(2) The payment must be accompanied by:

           (a) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for that
year, and the latest available interim financial statements, if any;

           (b) An explanation of how the corporation estimated the fair value of
the shares;

           (c) An explanation of how the interest was calculated;

           (d) A statement of the dissenter's right to demand payment under RCW
23B.13.280; and

           (e) A copy of this chapter.

23B.13.260. FAILURE TO TAKE ACTION

(1) If the corporation does not effect the proposed action within sixty days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release any transfer
restrictions imposed on uncertificated shares.

(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it must
send a new dissenters' notice under RCW 23B.13.220 and repeat the payment demand
procedure.



                                      J-5


<PAGE>   359
23B.13.270. AFTER-ACQUIRED SHARES

(1) A corporation may elect to withhold payment required by RCW 23B.13.250 from
a dissenter unless the dissenter was the beneficial owner of the shares before
the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.

(2) To the extent the corporation elects to withhold payment under subsection
(1) of this section, after taking the proposed corporate action, it shall
estimate the fair value of the shares, plus accrued interest, and shall pay this
amount to each dissenter who agrees to accept it in full satisfaction of the
dissenter's demand. The corporation shall send with its offer an explanation of
how it estimated the fair value of the shares, an explanation of how the
interest was calculated, and a statement of the dissenter's right to demand
payment under RCW 23B.13.280.

23B.13.280. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER

(1) A dissenter may notify the corporation in writing of the dissenter's own
estimate of the fair value of the dissenter's shares and amount of interest due,
and demand payment of the dissenter's estimate, less any payment under RCW
23B.13.250, or reject the corporation's offer under RCW 23B.13.270 and demand
payment of the dissenter's estimate of the fair value of the dissenter's shares
and interest due, if:

           (a) The dissenter believes that the amount paid under RCW 23B.13.250
or offered under RCW 23B.13.270 is less than the fair value of the dissenter's
shares or that the interest due is incorrectly calculated;

           (b) The corporation fails to make payment under RCW 23B.13.250 within
sixty days after the date set for demanding payment; or

           (c) The corporation does not effect the proposed action and does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within sixty days after the date set for demanding
payment.

(2) A dissenter waives the right to demand payment under this section unless the
dissenter notifies the corporation of the dissenter's demand in writing under
subsection (1) of this section within thirty days after the corporation made or
offered payment for the dissenter's shares.

23B.13.300. COURT ACTION

(1) If a demand for payment under RCW 23B.13.280 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not 


                                      J-6


<PAGE>   360
commence the proceeding within the sixty-day period, it shall pay each dissenter
whose demand remains unsettled the amount demanded.

(2) The corporation shall commence the proceeding in the superior court of the
county where a corporation's principal office, or, if none in this state, its
registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.

(3) The corporation shall make all dissenters, whether or not residents of this
state, whose demands remain unsettled, parties to the proceeding as in an action
against their shares and all parties must be served with a copy of the petition.
Nonresidents may be served by registered or certified mail or by publication as
provided by law.

(4) The corporation may join as a party to the proceeding any shareholder who
claims to be a dissenter but who has not, in the opinion of the corporation,
complied with the provisions of this chapter. If the court determines that such
shareholder has not complied with the provisions of this chapter, the
shareholder shall be dismissed as a party.

(5) The jurisdiction of the court in which the proceeding is commenced under
subsection (2) of this section is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision on
the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The dissenters are entitled to
the same discovery rights as parties in other civil proceedings.

(6) Each dissenter made a party to the proceeding is entitled to judgment (a)
for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation,
or (b) for the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under RCW 23B.13.270.

23B.13.310. COURT COSTS AND COUNSEL FEES

(1) The court in a proceeding commenced under RCW 23B.13.300 shall determine all
costs of the proceeding, including the reasonable compensation and expenses of
appraisers appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess the costs against all or some of
the dissenters, in amounts the court finds equitable, to the extent the court
finds the dissenters acted arbitrarily, vexatiously, or not in good faith in
demanding payment under RCW 23B.13.280.

(2) The court may also assess the fees and expenses of counsel and experts for
the respective parties, in amounts the court finds equitable:


                                      J-7


<PAGE>   361
           (a) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of RCW 23B.13.200 through 23B.13.280; or

           (b) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by chapter 23B.13 RCW.

(3) If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.


                                      J-8


<PAGE>   362
                                                                      APPENDIX K

                        DELAWARE GENERAL CORPORATION LAW

           Section 262 Appraisal Rights. -- (a) Any stockholder of a corporation
of this State who holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with respect to such shares, who
continuously holds such shares through the effective date of the merger or
consolidation, who has otherwise complied with subsection (d) of this section
and who has neither voted in favor of the merger or consolidation nor consented
thereto in writing pursuant to ss. 228 of this title shall be entitled to an
appraisal by the Court of Chancery of the fair value of his shares of stock
under the circumstances described in subsections (b) and (c) of this section. As
used in this section, the word "stockholder" means a holder of record of stock
in a stock corporation and also a member of record of a nonstock corporation;
the words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.

           (b) Appraisal rights shall be available for the shares of any class
or series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to ss. 251 (other than a merger effected pursuant to
subsection (g) of Section 251), ss. 252, ss. 254, ss. 257, ss. 258, ss. 263 or
ss. 264 of this title:

                     (1) Provided, however, that no appraisal rights under this
           section shall be available for the shares of any class or series of
           stock, which stock, or depository receipts in respect thereof, at the
           record date fixed to determine the stockholders entitled to receive
           notice of and to vote at the meeting of stockholders to act upon the
           agreement of merger or consolidation, were either (i) listed on a
           national securities exchange or designated as a national market
           system security on an interdealer quotation system by the National
           Association of Securities Dealers, Inc. or (ii) held of record by
           more than 2,000 holders; and further provided that no appraisal
           rights shall be available for any shares of stock of the constituent
           corporation surviving a merger if the merger did not require for its
           approval the vote of the stockholders of the surviving corporation as
           provided in subsection (f) of ss. 251 of this title.

                     (2) Notwithstanding paragraph (1) of this subsection,
           appraisal rights under this section shall be available for the shares
           of any class or series of stock of a constituent corporation if the
           holders thereof are required by the terms of an agreement of merger
           or consolidation pursuant to ss.ss. 251, 252, 254, 257, 258, 263 and
           264 of this title to accept for such stock anything except:


                                      K-1


<PAGE>   363
                             a. Shares of stock of the corporation surviving or
               resulting from such merger or consolidation, or depository
               receipts in respect thereof;

                             b. Shares of stock of any other corporation, or
               depository receipts in respect thereof, which shares of stock (or
               depository receipts in respect thereof) or depository receipts at
               the effective date of the merger or consolidation will be either
               listed on a national securities exchange or designated as a
               national market system security on an interdealer quotation
               system by the National Association of Securities Dealers, Inc. or
               held of record by more than 2,000 holders;

                             c. Cash in lieu of fractional shares or fractional
               depository receipts described in the foregoing subparagraphs a.
               and b. of this paragraph; or

                             d. Any combination of the shares of stock,
               depository receipts and cash in lieu of fractional shares or
               fractional depository receipts described in the foregoing
               subparagraphs a., b. and c. of this paragraph.

                     (3) In the event all of the stock of a subsidiary Delaware
           corporation party to a merger effected under ss. 253 of this title is
           not owned by the parent corporation immediately prior to the merger,
           appraisal rights shall be available for the shares of the subsidiary
           Delaware corporation.

           (c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.

           (d) Appraisal rights shall be perfected as follows:

                     (1) If a proposed merger or consolidation for which
           appraisal rights are provided under this section is to be submitted
           for approval at a meeting of stockholders, the corporation, not less
           than 20 days prior to the meeting, shall notify each of its
           stockholders who was such on the record date for such meeting with
           respect to shares for which appraisal rights are available pursuant
           to subsections (b) or (c) hereof that appraisal rights are available
           for any or all of the shares of the constituent corporations, and
           shall include in such notice a copy of this section. Each stockholder
           electing to demand the appraisal of his shares shall deliver to the
           corporation, before the taking of the vote on the merger or
           consolidation, a written demand for appraisal of his shares. Such
           demand will be sufficient if it reasonably informs the corporation of
           the identity of the stockholder and 


                                      K-2


<PAGE>   364
           that the stockholder intends thereby to demand the appraisal of his
           shares. A proxy or vote against the merger or consolidation shall not
           constitute such a demand. A stockholder electing to take such action
           must do so by a separate written demand as herein provided. Within 10
           days after the effective date of such merger or consolidation, the
           surviving or resulting corporation shall notify each stockholder of
           each constituent corporation who has complied with this subsection
           and has not voted in favor of or consented to the merger or
           consolidation of the date that the merger or consolidation has become
           effective; or

                     (2) If the merger or consolidation was approved pursuant to
           ss. 228 or ss. 253 of this title, each constituent corporation,
           either before the effective date of the merger or consolidation or
           within ten days thereafter, shall notify each of the holders of any
           class or series of stock of such constituent corporation who are
           entitled to appraisal rights of the approval of the merger or
           consolidation and that appraisal rights are available for any or all
           shares of such class or series of stock of such constituent
           corporation, and shall include in such notice a copy of this section;
           provided that, if the notice is given on or after the effective date
           of the merger or consolidation, such notice shall be given by the
           surviving or resulting corporation to all such holders of any class
           or series of stock of a constituent corporation that are entitled to
           appraisal rights. Such notice may, and, if given on or after the
           effective date of the merger or consolidation, shall, also notify
           such stockholders of the effective date of the merger or
           consolidation. Any stockholder entitled to appraisal rights may,
           within 20 days after the date of mailing of the notice, demand in
           writing from the surviving or resulting corporation the appraisal of
           his shares. Such demand will be sufficient if it reasonably informs
           the corporation of the identity of the stockholder and that the
           stockholder intends thereby to demand the appraisal of his shares. If
           such notice did not notify stockholders of the effective date of the
           merger or consolidation, either (i) each such constituent corporation
           shall send a second notice before the effective date of the merger or
           consolidation notifying each of the holders of any class or series of
           stock of such constituent corporation that are entitled to appraisal
           rights of the effective date of the merger or consolidation or (ii)
           the surviving or resulting corporation shall send such a second
           notice to all such holders on or within 10 days after such effective
           date; provided, however, that if such second notice is sent more than
           20 days following the sending of the first notice, such second notice
           need only be sent to each stockholder who is entitled to appraisal
           rights and who has demanded appraisal of such holder's shares in
           accordance with this subsection. An affidavit of the secretary or
           assistant secretary or of the transfer agent of the corporation that
           is required to give either notice that such notice has been given
           shall, in the absence of fraud, be prima facie evidence of the facts
           stated therein. For purposes of determining the stockholders entitled
           to receive either notice, each constituent corporation may fix, in
           advance, a record date that shall be not more than 10 days prior to
           the date the notice is given; provided that, if the notice is given
           on or after the effective date of the merger or consolidation, the
           record date shall be such effective date. If no record date is fixed
           and the notice is given prior to the effective date, the 


                                      K-3


<PAGE>   365
           record date shall be the close of business on the day next proceeding
           the day on which the notice is given.

           (e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.

           (f) Upon the filing of any such petition by a stockholder, service of
a copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall by borne by the
surviving or resulting corporation.

           (g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.


                                      K-4


<PAGE>   366
           (h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.

           (i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of any
state.

           (j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.

           (k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an 


                                      K-5


<PAGE>   367
appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in
the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.

           (l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.


                                      K-6


<PAGE>   368
 
                                    PART II
 
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
 
     Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") grants each corporation the power to indemnify officers and directors
under certain circumstances. Article VII.A of Fred Meyer's Certificate of
Incorporation (the "Certificate") and Article V of Fred Meyer's Bylaws (the
"Bylaws") provide for indemnification to the fullest extent permitted by Section
145. Reference is made to the Certificate and the Bylaws of Fred Meyer, which
are filed by incorporation by reference as Exhibits 3.1 and 3.2 hereto,
respectively.
 
     As authorized by Section 102 of the DGCL, Fred Meyer has included in the
Certificate a provision eliminating the liability of a director to Fred Meyer or
its stockholders for monetary damages for breaches of a director's fiduciary
duty to Fred Meyer. Liability may not be and has not been limited for breaches
of the duty of loyalty, intentional misconduct, distributions made in
contravention of Section 174 of the DGCL or for any transaction in which a
director derives an improper personal benefit. Reference is made to the
Certificate incorporated by reference as Exhibit 3.1 hereto.
 
     Fred Meyer has a directors and officers liability insurance policy that,
under certain circumstances, insures its directors and officers against the
costs of defense, settlement or payment of a judgment.
 
     The rights of indemnification described above are not exclusive of any
other rights of indemnification to which the persons indemnified may be entitled
under any agreement, vote of stockholders or directors or otherwise.
 
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
<TABLE>
<CAPTION>
EXHIBIT
  NO.                                          DESCRIPTION
-------   -------------------------------------------------------------------------------------
<S>       <C>
 2.1      Agreement and Plan of Merger between Fred Meyer, Inc., Quality Food Centers, Inc. and
          Q-Acquisition Corp., dated as of November 6, 1997, as amended (Incorporated by
          reference to Appendix A to the Joint Proxy and Consent Solicitation
          Statement/Prospectus that is a part of this filing)
 2.2      Agreement and Plan of Merger between Fred Meyer, Inc., Food 4 Less Holdings, Inc. and
          FFL Acquisition Corp., dated as of November 6, 1997, as amended (Incorporated by
          reference to Appendix B to the Joint Proxy and Consent Solicitation
          Statement/Prospectus that is a part of this filing)
 3.1      Restated Certificate of Incorporation of Fred Meyer (Incorporated by reference to
          Exhibit 3.1 to Fred Meyer's Quarterly Report on Form 10-Q for the quarter ended
          November 8, 1997 (File No. 1-13339))
 3.2      Bylaws of Fred Meyer (Incorporated by reference to Exhibit 3.2 to Fred Meyer's
          Quarterly Report on Form 10-Q for the quarter ended November 8, 1997 (File No.
          1-13339))
 4.1      Specimen Stock Certificate (Incorporated by reference to Exhibit 4.1 to the
          Registration Statement on Form S-4 (No. 333-32927))
 5.1      Opinion of Stoel Rives LLP as to the legality of the securities being registered
 8.1      Opinions of Simpson Thacher & Bartlett regarding certain tax matters
 8.2      Opinion of Latham & Watkins regarding certain tax matters
 8.3      Opinion of Sidley & Austin regarding certain tax matters
21.1      Subsidiaries of Fred Meyer
23.1      Consent of Deloitte & Touche LLP on behalf of Fred Meyer
23.2      Consents of Deloitte & Touche LLP on behalf of QFC
23.3      Consents of Arthur Andersen LLP
</TABLE>
 
                                      II-1
<PAGE>   369
 
<TABLE>
<CAPTION>
EXHIBIT
  NO.                                          DESCRIPTION
-------   -------------------------------------------------------------------------------------
<S>       <C>
23.4      Consent of Stoel Rives LLP (included in Exhibit 5.1)
23.5      Consent of Simpson Thacher & Bartlett (included in Exhibit 8.1)
23.6      Consent of Latham & Watkins (included in Exhibit 8.2)
23.7      Consent of Sidley & Austin (included in Exhibit 8.3)
23.8      Consent of Salomon Brothers Inc
23.9      Consents of Goldman, Sachs & Co.
23.10     Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated
23.11     Consent of Donaldson, Lufkin & Jenrette Securities Corporation
23.12     Consent of Morgan Stanley & Co. Incorporated
24.1      Powers of Attorney
99.1      Fred Meyer, Inc. Proxy Card
99.2      Quality Food Centers, Inc. Proxy Card
99.3      Food 4 Less Holdings, Inc. Consent Form
</TABLE>
 
ITEM 22. UNDERTAKINGS
 
     (a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended (the
"Securities Act"), each filing of Fred Meyer's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
 
     (b) Insofar as indemnification for liabilities arising under the Securities
Act, may be permitted to directors, officers and controlling persons of Fred
Meyer pursuant to the foregoing provisions, or otherwise, Fred Meyer has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Fred Meyer of expenses
incurred or paid by a director, officer or controlling person of Fred Meyer 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, Fred Meyer will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
 
     (c) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Joint Proxy and Consent
Solicitation Statement/Prospectus pursuant to Items 4, 10(b) or 13 of this Form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
 
     (d) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
 
                                      II-2
<PAGE>   370
 
     (e) The undersigned registrant hereby undertakes:
 
          (1) 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;
 
             (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 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 end 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 a 20% change in the
        maximum aggregate offering price set forth in the "Calculation 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.
 
          (2) That, for the purpose of determining any liability under the
     Securities Act, 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.
 
          (3) 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.
 
                                      II-3
<PAGE>   371
 
                                   SIGNATURES
 
     Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Portland, State of
Oregon, on January 26, 1998.
 
                                          FRED MEYER, INC.
 
                                          By:     /s/ ROBERT G. MILLER
 
                                            ------------------------------------
                                                      Robert G. Miller
                                               President and Chief Executive
                                                           Officer
 
     Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons on January
26, 1998 in the capacities indicated.
 
<TABLE>
<CAPTION>
                  SIGNATURE                                         TITLE
---------------------------------------------   ----------------------------------------------
 
<C>                                             <S>
 
            /s/ ROBERT G. MILLER                President and Chief Executive Officer
---------------------------------------------     (Principal Executive Officer)
              Robert G. Miller
            /s/ DAVID R. JESSICK                Senior Vice President and Chief Financial
---------------------------------------------     Officer (Principal Financial and Accounting
              David R. Jessick                    Officer)
 
           /s/ * RONALD W. BURKLE               Chairman of the Board
---------------------------------------------
              Ronald W. Burkle
 
            /s/ * VIVIAN A. BULL                Director
---------------------------------------------
               Vivian A. Bull
 
            /s/ * JAMES J. CURRAN               Director
---------------------------------------------
               James J. Curran
 
              /s/ *A.M. GLEASON                 Director
---------------------------------------------
                A.M. Gleason
 
             /s/ * BRUCE KARATZ                 Director
---------------------------------------------
                Bruce Karatz
 
             /s/ * JOHN G. KING                 Director
---------------------------------------------
                John G. King
 
            /s/ * ROGER S. MEIER                Director
---------------------------------------------
               Roger S. Meier
 
           /s/ * ROBERT G. MILLER               Director
---------------------------------------------
              Robert G. Miller
 
            /s/ * STEVEN R. ROGEL               Director
---------------------------------------------
               Steven R. Rogel
</TABLE>
 
                                      II-4
<PAGE>   372
 
<TABLE>
<CAPTION>
                  SIGNATURE                                         TITLE
---------------------------------------------   ----------------------------------------------
 
<C>                                             <S>
 
             /s/ * FRED L. SMITH                Director
---------------------------------------------
                Fred L. Smith
 
           /s/ * JEFFREY P. SMITH               Director
---------------------------------------------
              Jeffrey P. Smith
 
           *By: /s/ ROGER A. COOKE
---------------------------------------------
               Roger A. Cooke
             As Attorney-in-Fact
</TABLE>
 
                                      II-5
<PAGE>   373
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
                                                                                     SEQUENTIALLY
    EXHIBIT                                                                            NUMBERED
    NUMBER                                DESCRIPTION                                    PAGE
    ------   ----------------------------------------------------------------------  ------------
    <S>      <C>                                                                     <C>
     2.1     Agreement and Plan of Merger by and between Fred Meyer, Inc., Quality
             Food Centers, Inc. and Q-Acquisition Corp., dated as of November 6,
             1997, as amended (incorporated by reference to Appendix A to the Joint
             Proxy and Consent Solicitation Statement/Prospectus that is a part of
             this filing)..........................................................
     2.2     Agreement and Plan of Merger by and between Fred Meyer, Inc., Food 4
             Less Holdings, Inc. and FFL Acquisition Corp., dated as of November 6,
             1997, as amended (incorporated by reference to Appendix B to the Joint
             Proxy and Consent Solicitation Statement/Prospectus that is a part of
             this filing)..........................................................
     3.1     Restated Certificate of Incorporation of Fred Meyer (incorporated by
             reference to Exhibit 3.1 to Fred Meyer's Quarterly Report on Form 10-Q
             for the quarter ended November 8, 1997 (File No. 1-13339))............
     3.2     Bylaws of Fred Meyer (incorporated by reference to Exhibit 3.2 to Fred
             Meyer's Quarterly Report on Form 10-Q for the quarter ended November
             8, 1997 (File No. 1-13339))...........................................
     4.1     Specimen Stock Certificate (incorporated by reference to Exhibit 4.1
             to Fred Meyer's Registration Statement on Form S-4 (No. 333-32927))...
     5.1     Opinion of Stoel Rives LLP as to the legality of the securities being
             registered............................................................
     8.1     Opinions of Simpson Thacher & Bartlett regarding certain tax
             matters...............................................................
     8.2     Opinion of Latham & Watkins regarding certain tax matters.............
     8.3     Opinion of Sidley & Austin regarding certain tax matters..............
    21.1     Subsidiaries of Fred Meyer............................................
    23.1     Consent of Deloitte & Touche LLP on behalf of Fred Meyer..............
    23.2     Consents of Deloitte & Touche LLP on behalf of QFC....................
    23.3     Consents of Arthur Andersen LLP.......................................
    23.4     Consent of Stoel Rives LLP (included in Exhibit 5.1)..................
    23.5     Consent of Simpson Thacher & Bartlett (included in Exhibit 8.1).......
    23.6     Consent of Latham & Watkins (included in Exhibit 8.2).................
    23.7     Consent of Sidley & Austin (included in Exhibit 8.3)..................
    23.8     Consent of Salomon Brothers Inc.......................................
    23.9     Consents of Goldman, Sachs & Co.......................................
    23.10    Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.........
    23.11    Consent of Donaldson, Lufkin & Jenrette Securities Corporation........
    23.12    Consent of Morgan Stanley & Co. Incorporated..........................
    24.1     Powers of Attorney....................................................
    99.1     Fred Meyer, Inc. Proxy Card...........................................
    99.2     Quality Food Center, Inc. Proxy Card..................................
    99.3     Food 4 Less Holdings, Inc. Consent Form...............................
</TABLE>