CONSTRUCTION AGENCY AGREEMENT
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          CONSTRUCTION AGENCY AGREEMENT, dated as of March 11, 1998 (this
"Agreement"), between FMS TRUST 1997-1, a Delaware business trust (the
"Lessor"), and FRED MEYER, INC., a Delaware corporation (the "Construction
Agent").

                              PRELIMINARY STATEMENT

     A. The Lessor and the Construction Agent, in its capacity as lessee (the
"Lessee") are parties to that certain Lease Agreement, dated as of even date
herewith (as amended, supplemented or otherwise modified, the "Lease"), pursuant
to which the Lessee has agreed to lease certain Land and Improvements from the
Lessor (collectively, the "Properties").

     B. In connection with the execution and delivery of the Participation
Agreement, dated as of the date hereof, among the Lessee, the Lessor, the Owner
Trustee, the Investors, the Agents and the Lenders (the "Participation
Agreement"), the Lease and the other Operative Agreements, and subject to the
terms and conditions hereof, (i) the Lessor desires to appoint the Construction
Agent as its sole and exclusive agent in connection with the identification and
acquisition of the Properties (provided title to the Properties shall be held in
the name of the Lessor (except in the case of Ground Leases)) and construction
of such Improvements in accordance with the Plans and Specifications and (ii)
the Construction Agent desires, for the benefit of the Lessor, to identify and
acquire the Properties and to cause the construction of such Improvements in
accordance with the Plans and Specifications and to undertake such other
liabilities and obligations as are herein set forth.

          NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto covenant and agree as follows:


                             SECTION 1. DEFINITIONS

          1.1 Defined Terms. Capitalized terms used but not otherwise defined in
this Agreement shall have the meanings set forth in Annex A to the Participation
Agreement. The rules of usage set forth in Annex A to the Participation
Agreement shall apply to this Agreement.



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                                                  CONSTRUCTION AGENCY AGREEMENT

                  SECTION 2. APPOINTMENT OF CONSTRUCTION AGENT

          2.1 Appointment. Subject to the terms and conditions hereof, the
Lessor hereby irrevocably designates and appoints the Construction Agent as its
exclusive agent, and the Construction Agent accepts such appointment, in
connection with the identification and acquisition from time to time of the
Properties (provided title to the Properties shall be held in the name of the
Lessor or, solely in the case of Land subject to a ground lease, the Land shall
be leased to the Lessor pursuant to a Ground Lease) and construction of
Improvements on the Land, all in accordance with the terms of this Agreement,
the Participation Agreement and the other Operative Agreements. Notwithstanding
any provisions hereof or in any other Operative Agreement to the contrary, the
Construction Agent acknowledges and agrees that the Lessor shall advance no more
than $500,000,000 in the aggregate in regard to the Properties (including
without limitation any and all Advances in the aggregate from the Lenders under
the Credit Agreement and from the Investors under the Trust Agreement).

          2.2 Acceptance and Undertaking. The Construction Agent hereby
unconditionally accepts the agency appointment and undertakes, for the benefit
of the Lessor, to identify and acquire certain Properties (provided title to the
Properties shall be held in the name of the Lessor or, solely in the case of
Land subject to a ground lease, the Land shall be leased to the Lessor pursuant
to a Ground Lease) and to cause the construction of the Improvements in
accordance with the Plans and Specifications and the Operative Agreements.

          2.3 Supplements to this Agreement. On the Property Closing Date of
each Property on which Improvements are to be constructed, the Lessor and the
Construction Agent shall each execute and deliver a supplement to this Agreement
in the form of Exhibit A to this Agreement, appropriately completed, pursuant to
which the Lessor and the Construction Agent shall, among other things, each
acknowledge and agree that the construction and development of such Property
will be governed by the terms of this Agreement. Following the execution and
delivery of a supplement to this Agreement as provided above, such supplement
and all supplements previously delivered under this Agreement shall constitute a
part of this Agreement.

          2.4 Term. (a) This Agreement shall commence on the date hereof and
shall terminate with respect to any given Property upon the earlier to occur of:

               (i) payment by the Lessee of the Termination Value and
     termination of the Lease with respect to such Property in accordance with
     Section 16 of the Lease;


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                                                  CONSTRUCTION AGENCY AGREEMENT

               (ii) payment by the Lessee of the Purchase Option Price and
     termination of the Lease with respect to such Property in accordance with
     Section 20 of the Lease;

               (iii) the expiration of the Lease with respect to such Property
     or earlier termination of the Lease upon a sale of such Property pursuant
     to Section 21.1 of the Lease or otherwise; and

               (iv) the Completion Date with respect to such Property;

provided, however, that any termination of this Agreement shall not relieve the
Construction Agent of any liability for breach hereof.

          2.5 Scope of Authority.

          (a) The Lessor hereby expressly authorizes the Construction Agent, or
any agent or contractor of the Construction Agent, and the Construction Agent
unconditionally agrees, for the benefit of the Lessor, to take all action
necessary or desirable for the performance and satisfaction of any and all of
Lessor's obligations under any construction agreement and to fulfill all of the
obligations of the Construction Agent including, without limitation:

               (i) the identification and assistance with the acquisition of
     Properties in accordance with the terms and conditions of the Participation
     Agreement;

               (ii) all design and supervisory functions relating to the
     construction of the Improvements and performing all engineering work
     related to the construction, installation and testing of the Improvements;

               (iii) negotiating and entering into all contracts necessary to
     construct the Improvements, on such terms and conditions as are customary
     and reasonable in light of local standards and practices and the businesses
     in which the Lessee is engaged;

               (iv) obtaining all necessary permits, licenses, consents,
     approvals and other authorizations, including without limitation those
     required under applicable Environmental Laws, from all Governmental
     Authorities in connection with the development and construction of the
     Improvements on the Land in accordance with the Plans and Specifications;

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                                                  CONSTRUCTION AGENCY AGREEMENT

               (v) maintaining all books and records with respect to the
     construction, operation and management of the Properties, including the
     allocation of the Advances among the Properties so as to maintain an
     accurate record of each Project Cost; and

               (vi) performing any other acts necessary in connection with the
     identification and acquisition of the Properties and construction and
     development of the Improvements in accordance with the Plans and
     Specifications.

          (b) Neither the Construction Agent nor any of its Affiliates or agents
shall enter into any contract which would, directly or indirectly, impose any
liability or obligation on the Lessor and for which liability or obligation the
Lessor is not indemnified.

          (c) Subject to the terms and conditions of this Agreement, the
Construction Agent shall have sole management and control over the construction
means, methods, sequences and procedures with respect to the construction of the
Improvements.

          2.6 Delegation of Duties. The Construction Agent may execute any of
its duties under this Agreement by or through agents, contractors, employees or
attorneys-in-fact; provided that no such delegation shall limit or reduce in any
way the Construction Agent's duties and obligations under this Agreement.

          2.7 Covenants of the Construction Agent. The Construction Agent hereby
covenants and agrees that it will:

          (a) cause construction of the Improvements on each Property to be
     prosecuted diligently and continuously in accordance with the Plans and
     Specifications for such Property and in compliance with all Legal
     Requirements and Insurance Requirements;

          (b) cause the Completion Date for each Property to occur on or prior
     to the earlier to occur of (i) the twelve month anniversary of the
     Construction Commencement Date (which period may be extended for up to six
     (6) additional months to the extent that a delay in construction is caused
     by a Force Majeure Event) and (ii) the Construction Period Termination
     Date, in all cases free and clear (by removal or bonding) of Liens or
     claims for materials supplied or labor or services performed in connection
     with the construction of the Improvements;


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                                                  CONSTRUCTION AGENCY AGREEMENT

          (c) following the Completion Date for each Property, cause all
     outstanding punch list items with respect to the Improvements on such
     Property to be completed in a timely manner;

          (d) cause the Improvements on each Property to be constructed for an
     amount which when added to the Project Cost of the Land will be equal to or
     less than 110% of the Projected Completion Value with respect to such
     Properly;

          (e) upon Completion of the Improvements for a particular Property,
     promptly (and in any event within five (5) Business Days) deliver an
     Officer's Certificate to the Lessor and the Administrative Agent (i)
     certifying the Completion Date of such Property and (ii) certifying the
     aggregate Property Cost of such Property;

          (f) cause the sum of (i) the aggregate Property Cost for all
     Construction Period Properties, plus (ii) to the extent not included in
     Property Cost, the cost to complete the construction and development of
     Improvements on Construction Period Properties, plus (iii) the Property
     Cost for all Existing Properties to be in an amount that is not in excess
     of $500,000,000; and

          (g) procure insurance for the Properties during the Construction
     Period in accordance with the provisions of Article XIV of the Lease.


                           SECTION 3. THE IMPROVEMENTS

          3.1 Construction. The Construction Agent shall cause the Improvements
to be constructed, equipped, maintained and used in full compliance with the
Plans and Specifications therefor and all Legal Requirements and Insurance
Requirements.

          3.2 Amendments; Modifications. (a) The Construction Agent may at any
time revise, amend or modify (i) the Plans and Specifications without the
consent of the Lessor; provided that any such amendment to the Plans and
Specifications does not (x) result in the Completion Date of the Improvements
occurring after the earlier of the Outside Completion Date and the Construction
Period Termination Date, and/or (y) result in the Project Costs of any
Improvements subject to such amendment exceeding either (1) the sum of the then
Available Commitments and the then Available Investor Commitments (reduced by
the amount, if any, necessary to pay for the cost of construction and
development of Improvements on other Properties which are currently under
construction but have not yet

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                                                  CONSTRUCTION AGENCY AGREEMENT

been completed (such amount, the "Unfunded Amount")) or (2) 110% of the
Projected Completion Value with respect to such Improvements, and (ii) the
Budget; provided that such revisions, amendments or modifications to the Budget
do not result in any increase in the Project Costs greater than either (A) the
sum of the then Available Commitments and the then Available Investor
Commitments (reduced by the unfunded amount) or (B) 110% of the Projected
Completion Value with respect to such Property.

          (b) The Construction Agent agrees that it will not implement any
revision, amendment or modification to the Plans and Specifications for any
Property if the aggregate effect of such revision, amendment or modification
would be to reduce the fair market value of the Property when completed, unless
such revision, amendment or modification is required by Legal Requirements or
Insurance Requirements or unless required to prevent the Improvements from being
constructed in violation of Section 8.2 of the Lease.

          3.3 Failure to Complete Construction Period Properties and Purchase
Obligation.

          If at any time prior to the Completion Date with respect to any
Construction Period Property there occurs a Casualty, an Environmental
Violation, the commencement of a Condemnation or a Force Majeure Event, the
Construction Agent shall either (a) pay to Lessor, on a date designated by
Construction Agent (which date shall be not more than thirty (30) days after a
Responsible Officer of the Construction Agent gains knowledge of the occurrence
of the applicable event), an aggregate amount equal to the liquidated damages
amount referenced in Section 5.3(a) of this Agreement regarding such
Construction Period Property and on such date Lessor shall transfer and convey
to the Construction Agent all right, title and interest of Lessor in and to such
Construction Property or (b) other than in the event of an Environmental
Violation, notify Lessor in writing it intends to proceed with construction of
the Improvements with respect to such Construction Period Property (including
within such notice, if a Force Majeure Event is involved, an estimate as to the
delay caused by such Force Majeure Event), in which case the Construction Agent
shall promptly and diligently complete the construction of such Improvements in
accordance with the Plans and Specifications and with the terms hereof and cause
the Completion Date with respect to such Construction Period Property to occur
on or prior to the earlier of the Outside Completion Date and the Construction
Period Termination Date.



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                                                  CONSTRUCTION AGENCY AGREEMENT

                           SECTION 4. PAYMENT OF FUNDS

          4.1 Right to Receive Construction Cost.

          (a) In connection with the acquisition of any Property and during the
course of the construction of the Improvements on any Property, the Construction
Agent may request that the Lessor advance funds for the payment of Property
Acquisition Costs or Property Costs, and the Lessor will comply with such
request to the extent provided for under the Participation Agreement. The
Construction Agent and the Lessor acknowledge and agree that the Construction
Agent's right to request funds and the Lessor's obligation to advance such funds
for the payment of Property Acquisition Costs or Property Costs is subject in
all respects to the terms and conditions of the Participation Agreement and each
of the other Operative Agreements. Without limiting the generality of the
foregoing, it is specifically understood and agreed that in no event shall the
aggregate amounts advanced by the Lenders or the Investors for Property
Acquisition Costs or Property Costs and any other amounts due and owing
hereunder or under any of the other Operative Agreements exceed $500,000,000,
including without limitation such amounts owing for (a) the acquisition and
development of the Properties, (b) additional amounts which accrue or become due
and owing under the Credit Agreement or Trust Agreement as obligations of the
Lessor prior to any Completion Date (for interest payments on the Loans or
payments of the Investor Yield on the Investor Advances) or (c) any other
purpose.

          (b) The proceeds of any funds made available to the Lessor to pay
Project Costs shall be made available to the Construction Agent or its designee
in accordance with the Requisition relating thereto and the terms of the
Participation Agreement. The Construction Agent will use such proceeds only to
pay the Project Costs set forth in the Requisition relating to such funds.


           SECTION 5. CONSTRUCTION AGENCY AGREEMENT EVENTS OF DEFAULT

          5.1 Events of Default. If any one or more of the following events
(each an "Construction Agency Agreement Event of Default") shall occur:

          (a) the Construction Agent fails to apply any funds paid by the Lessor
     to the Construction Agent for the acquisition of the Properties and the
     construction of the Improvements to the payment of Property Acquisition
     Costs or Project Costs;


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                                                  CONSTRUCTION AGENCY AGREEMENT

          (b) the Construction Commencement Date with respect to any
     Improvements does not occur within 12 months of the Property Closing Date
     for the Land on which such Improvements are to be located if such Land is
     Store Land Property, or within 9 months of the Property Closing Date for
     the Land on which such Improvements are to be located, if such Land is not
     Store Land Property;

          (c) the Completion Date with respect to any Property (other than a
     Store Land Property) shall fail to occur for any reason on or prior to the
     earlier of the Outside Completion Date or the Construction Period
     Termination Date;

          (d) a Significant Casualty or a Significant Condemnation shall occur
     during the Construction Period;

          (e) any Lease Event of Default shall have occurred and not been cured
     within any cure period expressly permitted under the terms of the Lease; or

          (f) the Construction Agent shall breach any of its representations or
     warranties under any Operative Agreement or shall fail to observe or
     perform any term, covenant or condition of this Agreement or any other
     Operative Agreement other than as set forth in paragraphs (a), (b), (c),
     (d) or (e) of this Section 5.1, and such misrepresentation, breach of
     warranty or failure remains uncured for a period of thirty (30) days after
     receipt of written notice to the Construction Agent by the Lessor;

then, in any such event, and subject to Section 5.3(a), the Lessor may, in
addition to the other rights and remedies provided for in this Article,
terminate the Construction Agent's rights under this Agreement by giving notice
of such termination, and the Construction Agent's rights under this Agreement
shall terminate and all rights and obligations of the Construction Agent under
this Agreement shall cease. The Construction Agent shall pay all costs and
expenses incurred by or on behalf of the Lessor, including reasonable fees and
expenses of counsel, as a result of any Construction Agency Agreement Event of
Default.

          5.2 Damages. Any termination pursuant to Section 5.1 shall in no event
relieve the Construction Agent of its liability and obligations hereunder, all
of which shall survive any such termination.

          5.3 Remedies; Remedies Cumulative. (a) If a Construction Agency
Agreement Event of Default shall have occurred and be continuing, the Lessor
shall have all rights available at law, equity or otherwise. Notwithstanding the
foregoing, the Construction

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                                                  CONSTRUCTION AGENCY AGREEMENT

Agent shall have the right to cure a Construction Agency Agreement Event of
Default hereunder with respect to any given Property by purchasing such Property
from the Lessor for Termination Value for such Property.

          (b) No failure to exercise and no delay in exercising, on the part of
the Lessor, any right, remedy, power or privilege under this Agreement or under
any other Operative Agreement shall operate as a waiver thereof nor shall any
single or partial exercise of any right, remedy, power or privilege under this
Agreement preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. The rights, remedies, powers and
privileges provided in this Agreement are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.


                              SECTION 6. INSURANCE

          The Construction Agent shall procure insurance for the Improvements
during the Construction Period in accordance with the following provisions
(provided that to the extent such requirements are satisfied by Lessee in
accordance with Article XIV of the Lease, it shall be sufficient if Lessee's
insurance provides coverage for both Construction Agent and Lessee):

          6.1 Public Liability and Workers' Compensation Insurance. The
Construction Agent shall procure and carry, at the Construction Agent's sole
cost and expense, commercial general liability insurance for claims for injuries
or death sustained by persons or damage to property while on the Properties.
Such general liability insurance shall be on terms and in amounts that are no
less favorable than insurance maintained by the Construction Agent with respect
to similar properties that it constructs. The commercial general liability
insurance policy shall be endorsed to name each Participant as additional
insureds. Each policy shall also specifically provide that the policy shall be
considered primary insurance which shall apply to any loss or claim before any
contribution by any insurance which such parties may have in force. The
Construction Agent shall, in the operation of the Properties, comply with the
applicable workers' compensation laws and protect the Lessor against any
liability under such laws.

          6.2 Hazard and Other Insurance. The Construction Agent shall keep, or
cause to be kept, the Improvements and building materials insured against loss
or damage by fire and other risks on terms and in amounts that are no less
favorable than insurance covering other similar properties constructed and
developed by the Construction Agent and that are in

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                                                  CONSTRUCTION AGENCY AGREEMENT

accordance with normal industry practice, and are in amounts equal to the actual
replacement cost of the Improvements. During the construction of any
Improvements each Lessee shall also maintain or cause to be maintained builders'
risk insurance. So long as no Construction Agency Agreement Event of Default has
occurred and is continuing, any loss payable under the insurance policy required
by this Section will be paid to and adjusted solely by the Construction Agent.

          6.3 Coverage. The Construction Agent agrees that it shall furnish the
Lessor with certificates or, if requested by the Lessor, copies of policies
showing the insurance required to be in effect under Sections 6.1 and 6.2 and
naming the Participants as additional insureds and showing the mortgagee
endorsement in favor of the Administrative Agent required below. All such
insurance shall be at the cost and expense of the Construction Agent. Such
certificates shall include a provision for 30 days' advance written notice by
the insurer to the Lessor in the event of a cancellation of such insurance. The
Construction Agent agrees that the insurance policy or policies required by
Sections 6.1 and 6.2 shall include an appropriate clause pursuant to which such
policy shall provide that it will not be invalidated should the Construction
Agent waive, in writing, prior to a loss, any or all rights of recovery against
any party for losses covered by such policy. The Construction Agent hereby
waives any and all such rights against the Participants to the extent of
payments made under such policies. All property insurance policies required by
Section 6.2 shall include a "New York" or standard form mortgagee endorsement in
favor of the Administrative Agent. The Lessor may carry separate liability
insurance, at its own expense, so long as (i) the Construction Agent's insurance
is designated as primary and in no event excess or contributory to any insurance
the Lessor may have in force which would apply to a loss covered under the
Construction Agent's policy and (ii) each such insurance policy will not cause
the Construction Agent's insurance required under Section 6 to be subject to a
co-insurance exception of any kind. The Construction Agent shall pay as they
become due all premiums for the insurance required by Sections 6.1 and 6.2,
shall renew or replace each policy prior to the expiration date thereof and
shall promptly deliver to the Lessor and the Administrative Agent certificates
for renewal and replacement policies. Notwithstanding anything in this Section
6.3 to the contrary, any insurance which the Construction Agent is required to
obtain and maintain pursuant to Sections 6.1 and 6.2 may be carried under
"blanket" and umbrella covering other properties and liabilities of the
Construction Agent.


             SECTION 7. LESSOR'S RIGHTS; CONSTRUCTION AGENT'S RIGHTS


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          7.1 Exercise of the Lessor's Rights. Subject to the terms of the
Contract Assignment, the Construction Agent hereby acknowledges and agrees that
the rights and powers of the Lessor under this Agreement have been assigned to
the Administrative Agent.

          7.2 Lessor's Right to Cure Construction Agent's Defaults. Upon written
notice to the Construction Agent, except in emergencies, the Lessor, without
waiving or releasing any obligation or Construction Agency Agreement Event of
Default, may (but shall be under no obligation to) remedy any Construction
Agency Agreement Event of Default hereunder for the account of and at the sole
cost and expense of the Construction Agent. All out of pocket costs and expenses
so incurred (including reasonable fees and expenses of counsel), together with
interest thereon at the Overdue Rate from the date on which such sums or
expenses are paid by the Lessor, shall be paid by the Construction Agent to the
Lessor on demand.


                       SECTION 8. GUARANTEE OF COMPLETION

          8.1 Guarantee of Completion. The Construction Agent unconditionally
and irrevocably guaranties that:

          (a) it shall complete, on or before the Outside Completion Date, the
     construction, equipping and furnishing of each of the Properties
     substantially in accordance with (i) the Plans and Specifications (ii) all
     Legal Requirements (iii) all Insurance Requirements and (iv) the terms and
     conditions of the Construction Contract and this Agreement;

          (b) it shall fully and punctually pay and discharge any and all
     Project Costs in connection with the Properties, including, without
     limitation, the costs of constructing, equipping and furnishing each of the
     Properties and payment of all real estate taxes, insurance premiums and
     other items payable prior to Completion of a Property, as the same become
     due and payable;

          (c) each Property shall be, and remain, free and clear of all Liens of
     any and all Persons furnishing materials, labor or services in
     constructing, completing, equipping or furnishing the Properties, except to
     the extent that such Liens are (i) being contested in good-faith if
     permitted in accordance with the terms of the Participation Agreement, the
     Lease and the other Operative Agreements or (ii) Lessor Liens; and


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          (d) it shall comply fully and punctually with all of the terms,
     covenants and conditions on its part to be complied with under the
     Construction Contract and this Agreement.

The matters described in paragraphs (a) through (d) above are sometimes
collectively referred to as the "Guaranteed Obligations".

          8.2 Failure to Complete the Improvements. In the event that Completion
with respect to any Property has not occurred on or prior to the Outside
Completion Date, (a) the Construction Agent shall indemnify the Lessor against,
and save the Lessor harmless from all damages, liabilities, costs and expenses
that Lessor, or anyone claiming through or on behalf of the Lessor, may suffer
by reason of the Construction Agent's failure to achieve Completion of such
Improvements on or prior to the Outside Completion Date; (b) in the event that
the Lessor, or anyone claiming through or on behalf of the Lessor, shall pay any
costs in connection with (i) completing the construction of any Improvements
pursuant to the Participation Agreement or any other Operative Agreement, or
(ii) removing any Liens not permitted by the terms of the Participation
Agreement, the Lease and the other Operative Agreements, the Construction Agent
shall reimburse the Lessor, or such Person so claiming through or on behalf of
the Lessor, for all sums so paid by such Person; and (c) the Construction Agent
shall pay any and all expenses (including, without limitation, all reasonable
fees and disbursements of counsel) incurred by the Lessor, or anyone claiming
through or on behalf of the Lessor, in (i) enforcing, or obtaining advice of
counsel in respect of the enforcement of, any rights under this Article or (ii)
collecting, or obtaining advice of counsel in respect of the collection of, the
Guaranteed Obligations.

          8.3 Specific Enforcement. The Construction Agent acknowledges and
agrees that it will be impossible to measure accurately the damages to the
Lessor, or anyone claiming through or on behalf of the Lessor, resulting from a
breach of the covenants of the Construction Agent to complete (or to cause the
completion of) the construction, equipping and furnishing of the Improvements in
accordance with the Plans and Specifications, in compliance with all Legal
Requirements and all Insurance Requirements and in accordance with the terms and
conditions of the Construction Contract and this Agreement; that such a breach
will cause irreparable injury to the Lessor and that the Lessor has no adequate
remedy at law in respect of such breach and, as a consequence, agrees that such
covenant shall be specifically enforceable against the Construction Agent, and
the Construction Agent hereby waives and agrees not to assert any defense based
on the denial of any of the foregoing in an action for specific performance of
such covenant.


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          8.4 Right of Set-Off. Upon the occurrence and during the continuance
of a Construction Agency Agreement Event of Default or a Lease Event of Default,
the Construction Agent irrevocably authorizes the Lessor, or anyone claiming
through or on behalf of the Lessor, at any time without notice to the
Construction Agent to set-off and apply any and all deposits and any other
credits or claims held or owing by the Lessor, or anyone acting through or on
behalf of the Lessor, to or for the credit or the account of the Construction
Agent, in such amounts as the Lessor, or anyone claiming through or on behalf of
the Lessor, may elect, against and on account of the obligations and liabilities
of the Construction Agent to the Lessor under this Article, whether or not the
Lessor has made any demand for payment and although such obligations,
liabilities and claims may be contingent or unmatured.

          8.5 Amendments to Operative Agreements; Demands. The Construction
Agent shall remain obligated under this Agreement notwithstanding that, without
any reservation of rights against the Construction Agent and without notice to
or further consent by the Construction Agent, the obligations or the liability
of any other party upon or for any part of the obligations under the Operative
Agreements, may, from time to time, in whole or in part, be renewed, extended,
amended, modified, waived, surrendered or released by the Lessor, or anyone
acting through or on behalf of the Lessor, and any of the other Operative
Agreements may be amended, modified, supplemented or terminated, in whole or in
part. For the purposes of this Agreement, any reference to the Operative
Agreements shall mean such documents as they now exist and as they may be
modified, amended, supplemented, renewed or extended from time to time.

          8.6 Guarantee Absolute and Unconditional; Waivers. The Construction
Agent waives any and all notice of the creation, renewal, extension or accrual
of any of the obligations under this Agreement and notice of or proof of
reliance by the Lessor, or anyone acting through or on behalf of the Lessor,
upon this Agreement or acceptance of this Agreement. The obligations or
liabilities under this Agreement shall conclusively be deemed to have been
created, contracted or incurred, or renewed, extended, amended or waived, in
reliance upon the guarantee contained in this Article. The Construction Agent
understands and agrees that the guarantee contained in this Article shall be
construed as a continuing, absolute and unconditional guarantee without regard
to (a) the validity, regularity or enforceability of this Agreement or any of
the other Operative Agreements, (b) any defense, set-off or counterclaim which
at any time may be available to or be asserted by the Construction Agent against
the Lessor, or anyone acting through or on behalf of the Lessor, or (c) any
other circumstance (with or without notice to or knowledge of the Lessor or the
Construction Agent) whatsoever which constitutes, or might be construed to
constitute, an equitable or legal

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                                                  CONSTRUCTION AGENCY AGREEMENT

discharge of the Construction Agent for the obligations under this Agreement in
bankruptcy or in any other instance, except for performance of such obligations
under this Agreement. The Construction Agent waives any right to require the
Lessor, or anyone acting through or on behalf of the Lessor, to proceed against
any collateral security in any manner which would preserve any right of
subrogation which the Construction Agent might have against the Lessor and also
waives any defense arising from any action by the Lessor which may limit or
affect adversely any such right of subrogation. When pursuing its rights and
remedies against the Construction Agent, the Lessor, or anyone acting through or
on behalf of the Lessor, may, but shall be under no obligation to, pursue such
rights and remedies as it may have against the Construction Agent or any other
Person or against any collateral security or guarantee for the obligations under
this Agreement, and any failure by the Lessor, or anyone acting through or on
behalf of the Lessor, to pursue such other rights or remedies against the
Construction Agent or any such other Person or to realize upon any such
collateral security or guarantee, or any release of the Construction Agent or
any such other Person or any such collateral security or guarantee, shall not
relieve the Construction Agent of any liability, and shall not impair or affect
the rights and remedies of the Lessor, or anyone acting through or on behalf of
the Lessor, against the Construction Agent. The guarantee of completion
contained in this Article shall remain in full force and effect and be binding
in accordance with and to the extent of its terms upon the Construction Agent
until all the obligations under this Agreement shall have been satisfied by
performance in full.

          8.7 Reinstatement. The guarantee contained in this Article shall
continue to be effective, or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any of the obligations of the Construction
Agent under this Agreement is rescinded or otherwise must be restored or
returned by the Lessor, or anyone acting through or on behalf of the Lessor,
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
the Construction Agent, or upon or as a result of the appointment of a receiver,
intervenor or conservator of, or trustee or similar officer for, the
Construction Agent or any substantial part of its property, or otherwise, all as
though such payments had not been made.

          8.8 Subordination. (a) All liabilities and obligations of the Lessor
to the Construction Agent, whether secured or unsecured and whether or not
evidenced by any instrument, now existing or subsequently created or incurred,
are and shall be subordinate and junior in right of payment to the Obligations.

          (b) The Construction Agent shall not sell, assign or otherwise
transfer, in whole or in part, or create, incur or suffer to exist any security
interest, Lien, charge or other encumbrance with respect to any indebtedness,
liabilities or obligations of the Lessor to the

                                       14

<PAGE>
                                                  CONSTRUCTION AGENCY AGREEMENT

Construction Agent or any instrument or document evidencing or securing the same
unless, in any such case, the person or entity to whom such sale, assignment or
transfer is made or the beneficiary of such security interest, Lien, charge or
encumbrance acknowledges the foregoing subordination and agrees to be bound
thereby.

          (c) Should any payment or distribution or security, or any proceeds
thereof, be collected or received by the Construction Agent in respect of any
indebtedness, liabilities or obligations of the Lessor to the Construction
Agent, and such collection or receipt is not permitted under these subordination
provisions of this Agreement, the Construction Agent shall immediately turn over
such payment, distribution or security or proceeds to the Administrative Agent,
in the form received, and, until so turned over, the same shall be held in trust
by the Construction Agent as the property of the Lenders.

          (d) For purposes of this Agreement "subordinate and junior in right of
payment" shall mean no part of any subordinated indebtedness, liabilities or
obligations shall have any claim to the assets of the Lessor on a parity with or
prior to the claim of the Obligations or the principal amount of the Loans and
other amounts due to the Administrative Agent, the Lenders and the Investor.
Unless and until the Obligations shall have been fully paid and satisfied, the
Construction Agent will not take, demand or receive, directly or indirectly, by
set-off, redemption, purchase or in any manner, any payment or security for the
whole or any part of any subordinated indebtedness, liabilities or obligations,
and the Construction Agent will not accelerate the scheduled maturities of any
amounts owing on account of such indebtedness, liabilities or obligations or
demand payment thereof or enforce or take any action to enforce or collect any
subordinated indebtedness, liabilities or obligations or any part thereof or to
enforce any Lien or security interest securing payment or performance of
subordinated indebtedness, liabilities or obligations or exercise any claims,
rights, remedies or powers in connection with such indebtedness, liabilities or
obligations; provided that so long as no Default or Event of Default under the
Credit Agreement, the Notes or any other Operative Agreement exists or would be
in existence immediately after giving effect to such payment, the Construction
Agent may receive currently scheduled payments on account of such indebtedness,
liabilities and obligations.

          8.9 Payments. The Construction Agent hereby agrees that payments under
or with respect to the guarantee contained in this Article will be paid to the
Lessor, without set-off or counterclaim in U.S. Dollars, except that so long as
this Agreement is subject to the Contract Assignment payments will be paid to
the Administrative Agent at the office of the Administrative Agent located at
130 Liberty Street, New York, New York 10006.


                                       15

<PAGE>
                                                  CONSTRUCTION AGENCY AGREEMENT

                            SECTION 9. MISCELLANEOUS

          9.1 Notices. Unless otherwise specifically provided herein, all
notices, consents, directions, approvals, instructions, requests and other
communications required or permitted by the terms hereof to be given to any
Person shall be given in writing by United States mail, by nationally recognized
courier service or by hand and any such notice shall become effective five
Business Days after being deposited in the mails, certified or registered with
appropriate postage prepaid or one Business Day after delivery to a nationally
recognized courier service specifying overnight delivery or, if delivered by
hand, when received, and shall be directed to the address of such Person as
indicated:

          If to the Lessor, to it at:

                  FMS TRUST 1997-1
                  Wilmington Trust Company
                  Rodney Square North
                  1100 North Market Street
                  Wilmington, Delaware  19890-0001
                  Attn:  Corporate Trust Administration
                  Telecopier No.: (302) 651-1576

          If to the Construction Agent, to it at:

                  Fred Meyer, Inc.
                  3800 SE 22nd Avenue
                  PO Box 42121
                  Portland, Oregon 97242
                  Attn:  James C. Aalberg
                         Vice President and Corporate Treasurer
                  Telecopier No.:  (503) 797-5299

          With a copy of any default notices to:

                  Stoel Rives LLP
                  900 SW Fifth Avenue, Suite 2300
                  Portland, Oregon 97204
                  Attn:  Gary R. Barnum, Esq.
                  Telecopier No.: (503) 220-2480

                                       16

<PAGE>
                                                  CONSTRUCTION AGENCY AGREEMENT

          With copies of any notices to the Administrative Agent at:

                  Bankers Trust Company
                  130 Liberty Street
                  New York, New York 10006
                  Attn: Deal Administrator
                  Telecopier No.: (212) 250-7351

          From time to time any party may designate a new address for purposes
of notice hereunder by notice to each of the other parties hereto. It is
understood and agreed that the delivery of copies of notices to counsel as set
forth above is for courtesy purposes only and any failure to deliver such copy
shall not constitute failure with respect to any obligation to provide notices
hereunder.

          9.2 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Lessor, the Construction Agent and their respective
successors and assigns. The Construction Agent may not assign this Agreement or
any of its rights or obligations hereunder in whole or in part to any Person
without the prior written consent of the Lessor.

          9.3 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO CONFLICTS OF LAWS PRINCIPLES.

          9.4 Amendments and Waivers. Subject to the provisions of Section 13.4
of the Participation Agreement, the Lessor and the Construction Agent may from
time to time, enter into written amendments, supplements or modifications
hereto.

          9.5 Counterparts. This Agreement may be executed on any number of
separate counterparts and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.

          9.6 Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and

                                       17

<PAGE>
                                                  CONSTRUCTION AGENCY AGREEMENT

any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.

          9.7 Headings and Table of Contents. The headings and table of contents
contained in this Agreement are for convenience of reference only and shall not
limit or otherwise affect the meaning hereof.



                                       18

<PAGE>
                                                  CONSTRUCTION AGENCY AGREEMENT

          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.


                                   FRED MEYER, INC.

                                        JAMES C. AALBERG
                                        ------------------------
                                   By:  Name:  James C. Aalberg
                                        Title: Vice President, Treasurer



                                       S-1

<PAGE>
                                                  CONSTRUCTION AGENCY AGREEMENT



                                   FMS TRUST 1997-1

                                   By: WILMINGTON TRUST COMPANY,
                                       not in its individual capacity but solely
                                       as Owner Trustee

                                           PATRICIA A. EVANS
                                           ---------------------------
                                       By: Name:  Patricia A. Evans
                                           Title: Financial Services Officer



                                       S-2

<PAGE>
                                                  CONSTRUCTION AGENCY AGREEMENT

                                                                   Exhibit A
                                                                   ----------


                   Supplement to Construction Agency Agreement
                   -------------------------------------------


          SUPPLEMENT to Construction Agency Agreement, dated as of _____________
__, 199__ (the "Supplement"), between FMS TRUST 1997-1, a Delaware business
trust (the "Lessor"), and FRED MEYER, INC., a Delaware corporation (the
"Construction Agent"). Capitalized terms used but not otherwise defined herein
shall have the meanings given them in the Construction Agency Agreement.

          The Lessor and the Construction Agent are also parties to that certain
Construction Agency Agreement dated as of March __, 1998 (as amended,
supplemented or otherwise modified, the "Construction Agency Agreement"),
pursuant to which the Lessor has appointed the Construction Agent as its sole
and exclusive agent in connection with the acquisition of the Properties and
construction of the Improvements in accordance with the Plans and
Specifications.

          Subject to the terms and conditions of the Construction Agency
Agreement, the Lessor and the Construction Agent desire that the terms of the
Construction Agency Agreement apply to the Property described in Schedule 1 and
wish to execute this Supplement to provide therefore.

          NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto covenant and agree as follows:

          1. The Construction Agent agrees to act as Construction Agent and to
perform the obligations assumed under the Construction Agency Agreement in
connection with the completion of construction of the Improvements on the
Property in accordance with the Plans and Specifications set forth in Schedule
2, except that, if the Property described in Schedule 1 is a Store Land
Property, then in accordance with the Plans and Specifications to be delivered
pursuant to Section 9.4 of the Participation Agreement.

          2. Each of the Lessor and the Construction Agent acknowledges and
agrees that the construction and development of the Property shall be governed
by the terms of the Construction Agency Agreement.

                                       A-1

<PAGE>
                                                  CONSTRUCTION AGENCY AGREEMENT

          3. The Budget relating to the construction and development of the
Improvements on the Property is $[ ], except that, if the Property described in
Schedule 1 is a Store Land Property, the Budget will be as provided in
accordance with Section 9.4 of the Participation Agreement.

          4. This Supplement shall, upon its execution and delivery, constitute
a part of the Construction Agency Agreement.


                                       A-2

<PAGE>
                                                  CONSTRUCTION AGENCY AGREEMENT


          IN WITNESS WHEREOF, the parties hereto have caused this Supplement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.

                                   FRED MEYER, INC.


                                   By:  ____________________________________
                                        Name:
                                        Title:



                                       S-1
<PAGE>
                                                  CONSTRUCTION AGENCY AGREEMENT



                                   FMS TRUST 1997-1

                                   By:  WILMINGTON TRUST COMPANY,
                                        not in its individual capacity but
                                        solely as Owner Trustee

                                       By:  ______________________________
                                            Name:
                                            Title:



                                       S-2
<PAGE>
                                                       Schedule 1 to Supplement
                                                  CONSTRUCTION AGENCY AGREEMENT


                             Description of Property
                             -----------------------
<PAGE>
                                                       Schedule 2 to Supplement


                            Plans and Specifications
                            ------------------------