This Settlement Agreement (“Agreement”), dated as of the 21st day of January, 1999, is entered into among WESTWOOD DEVELOPMENT CORPORATION, an Oregon corporation (“Westwood”), FRED MEYER STORES, INC., a Delaware corporation (“FM”) and the CITIZENS FOR FLORENCE, and Oregon nonprofit corporation (“CFF”), collectively referred to herein as “the parties.”

Recitals

A. Westwood and FM applied to the City of Florence (“City”) for design review approval for a proposed FM retail development (the “Project”) at a location on the west side of Highway 101, south of Munsel Lake Road, in Florence, Oregon (the “Site”). The application was approved by the Design Review Board (DRB) of the City, and CFF appealed this approval to the Florence City Council. On May 4, 1998, the Florence City Council issued its resolution (No. 8, Series 1998) affirming the DRB approval subject to certain conditions stated therein (the “Approval”).

B. CFF appealed the Approval to the Land Use Board of Appeals (LUBA No. 98089). This appeal was sustained in part and denied in part in a decision dated October 30, 1998. CFF filed a Petition for Review of the LUBA decision in the Court of Appeals, and Westwood, the City and FM filed Cross Petitions for Review in the Court of Appeals, all of which are presently pending (collectively referred to hereafter as the “Appeal”).

C. The parties have determined to resolve the remaining issues and disputes relating to the Project and the Appeal, on the terms set forth in this Agreement.

Agreements

The parties therefore agree as follows:

1. Site Plan Modifications. If FM elects to construct the Project, FM shall make the revisions to the existing approved site plan shown on the revision attached hereto as Exhibit “A” (the “Site Plan”). In addition, FM will require that, when each of the outparcel ‘pads’ is developed, each such pad will have a pedestrian walkway connection to the crosswalk connecting the pad to the FM store, as well as a pedestrian walkway connection to an adjacent public street. CFF recognizes that the changes to the site plan so proposed must be approved by the City staff, and that the changes must meet applicable code criteria, but FM does not anticipate any objection to such changes, and will use all commercially reasonable efforts to obtain such approvals.

2. Future Pedestrian/Bicycle Improvements. FM agrees to contribute $10,000 toward any project proposed by the City and/or CFF that would enhance pedestrian or bicycle access to the Project from the east side of Highway 101. This could include, without limitation, a contribution toward traffic signal improvements at Munsel lake Road, or a signalized pedestrian crossing located within 1/4 mile of the Project. This sum will be paid upon presentation of an invoice from the party constructing such an improvement upon its completion. The obligation to make this contribution will expire if no such invoice is submitted within five (5) years of the date of this Agreement.

3. Storm System. If FM elects to construct the Project, FM shall make the revisions to the storm drain plan described on the attached Exhibit “B”, in order to allow for connection to a public storm sewer system if such a system is installed in the future. FM will, if and when a public storm system, designed to accept these connections from the FM storm system, is installed in the public street(s) adjacent to the Project, connect to such public system as described in Exhibit B. CFF and FM each recognize that the development of a public storm system is a matter beyond the control of the parties, and that the City will control the design of such system, and the conditions and terms for connection to such a system.

4. Opening Date, Sewer Connection and Contingency Plan.

A. FM agrees that it will in no event open the Project for business prior to June 14, 2000.

B. FM agrees that it will not, except as stated in paragraph (C) below, connect to the public sewer system of the City prior to the date that the City’s new wastewater treatment plant is “substantially complete” within the meaning of Section IIA(1) of the Mutual Agreement and Order between the City and the Department of Environmental Quality.

C. FM may connect to the public sewer system of the City prior to the substantial completion of the new wastewater treatment plant if, and only if, the following conditions are satisfied:

(1) FM has installed a backup holding tank system with adequate capacity to receive 100% of the sanitary sewer effluent from the Project over a two day period. Said holding tank system shall consist of an above-ground storage tank with capacity of at least 20,000 gallons. The tank must include customary AST safeguards, including 100% containment in the event of a catastrophic spill. The tank, its fittings, and all procedures for filling and emptying the tank must receive all necessary governmental permits and follow state-of-the-art industry standards. CFF will not object to or oppose FM’s pursuit of such permits. The system must include a valve or other easily accessed and usable method for diverting effluent from the public sewer connection to the holding tank facility.

(2) FM has engaged a licensed and bonded hauler with equipment designed to pump and haul the effluent from the holding tank. The effluent shall be disposed of at the existing Florence facility only if the incoming effluent levels at the plant are below 1.0 mgd. Effluent discharged at other facilities will also only occur if that facility is permitted to and does accept such effluent, and that has adequate wastewater treatment capacity to accept such effluent.

(3) FM will direct its staff to divert all Project effluent from the public sewer system and use the backup holding tank system, immediately upon notification from the City or the City’s engineering firm, Brown and Caldwell or another independent professional engineering firm engaged by the City as the engineering firm of record for construction of the plant, that the daily effluent into the existing plant is likely to reach or exceed 1.0 million gallons per day (MGD) or the plant otherwise lacks adequate hydraulic and solids treatment capacity to receive effluent from the Fred Meyer facility. In addition, FM will ensure that trained store staff will contact the City Sewage Administrator on a daily basis to determine whether the level of daily effluent into the existing plant is approaching 1.0 mgd. In the event that effluent levels exceed 1.0 mgd, FM will immediately redirect the store’s effluent to the backup holding tank system until such time as the effluent levels are below 1.0 mgd.

(4) FM will keep records of reported effluent levels at the existing sewage treatment plant and will monitor the performance of the backup system on a daily basis and keep records of such monitoring. All such records kept by FM will be made available to CFF on request.

(5) If FM or any employee of FM breaches this Agreement, and such breach is not reasonably excused, FM agrees that it will divert all subsequent sewage generated by the FM store to the backup holding tank system, to be disposed of only in accordance with Paragraph (2) of this subsection, until the City’s new wastewater Treatment Plant is “substantially complete” within the meaning of Section IIA(1) of the Mutual Agreement and Order between the City and the Department of Environmental Quality.

6. Interpretive Sign. FM agrees that CFF may, at its expense, install an interpretive sign describing the “Cannery Dune” feature located to the west of the Project, at the location identified on Exhibit “A.” The design of such sign is subject to FM’s approval, not to be unreasonably withheld. CFF will be responsible for maintaining the sign in good condition. FM further agrees that six parking spaces adjacent to the interpretive sign area may be marked as available for use by persons viewing the dunes, subject to reasonable rules and regulations (such as prohibitions of overnight parking). FM also agrees to provide an easement for pedestrian access to the Bureau of Land Management property to the west of the FM that encompasses the Cannery Dune in the areas shown on Exhibit A.

7. Conditions Precedent to FM’s Obligations. FM’s obligations under Sections 1 through 6 and 9 through 10 of this Agreement are subject to (1) FM receiving all permits necessary for construction of the Project (the “Permits”); and (2) FM, in its sole discretion, making its final determination to proceed with construction of the Project. If FM does not receive such Permits, or if FM determines not to proceed with construction of the Project FM will not be obligated to establish the escrow fund or to perform the other obligations described in this Agreement.

8. Agreements of CFF. CFF agrees, in consideration of the covenants of FM set forth in this Agreement, to dismiss the Appeal with prejudice, and to execute such stipulated orders of dismissal, stipulated motion to vacate the LUBA decision, or other documentation as may be necessary to formally accomplish dismissal of the Appeal. CFF agrees not to file any other appeals or lawsuits to the Approval or to any other Permits necessary for construction of the Project (including, without limitation, permits issued by the Army Corps of Engineers, Bureau of Land Management, Division of State Lands, or the City of Florence). CFF may, in good faith, file comments on any of the above Permits with the appropriate agency, if in CFF’s opinion, such comments will favorably contribute to the environmental design of the permitted activity or minimize environmental or social impacts of such activity; provided, however, that CFF will provide such comments first to FM for FM’s consideration, and provided further that CFF will not appeal any decision on any such Permit notwithstanding CFF’s comments. If CFF or any acting officer of director of CFF breaches this Agreement, FM’s obligations in Sections 1 through 6 and 9 through 10 will be terminated.

9. Dismissal of City and FM Appeals. Westwood and FM agree to dismiss their Cross Petition in the Court of Appeals with prejudice and to execute a stipulated motion to vacate the LUBA decision. The parties understand that this Agreement will only take effect only if the City agrees in writing, before 5:00 p.m. on January 22, 1999, to dismiss its Cross Petition in the Court of Appeals with prejudice and to execute a stipulated motion to vacate the LUBA decision.

10. Scope of Agreement. It is understood that this Agreement applies only to the Project proposed for the FM parcel as shown on the site plan approved by the DRB, (as modified pursuant to this Agreement). This Agreement does not apply to development of future pad parcels 1 and 2; or to future alterations of the Property after completion of the Project in accordance with the approved Site Plan, which will be subject to a separate review process; provided, CFF acknowledges that the pad parcels will use the Project storm water system (which has been designed with capacity to drain the pads) and CFF will not object to the pad’s use of the Project storm water system.

11. Miscellaneous Provisions.

i. Negotiation. The parties acknowledge that each party has had the full benefit of advice of counsel, and that each party and its counsel has materially participated in the drafting of this Agreement, and that each party has participated in the hearings regarding the Project and is familiar with the details of the Project.

ii. Incorporation. All recitals, schedules and exhibits referenced in and attached to this Agreement are by this reference incorporated into and made a part of this Agreement.

iii. Relationship of the Parties. No party hereto shall be deemed an agent, partner, joint venturer, or related entity of any other by reason of this Agreement.

iv. Governing Law. The parties intend that this Agreement shall be governed by and construed in accordance with the laws of the State of Oregon.

v. Severability. Any provision of this Agreement that is deemed invalid or unenforceable shall be ineffective to the extent of such invalidity or unenforceability, without rendering invalid or unenforceable the remaining provisions of this Agreement. Furthermore, in lieu of each such invalid or unenforceable provision, there shall be added automatically as a part of this Agreement a provision as similar in terms to such invalid or unenforceable provision as may be possible and be valid and enforceable.

vi. Integration: Amendment. This Agreement constitutes the entire agreement of the parties relating to the subject matter hereof. There are no promises, terms, conditions, obligations or warranties other than those contained in this Agreement. This Agreement supersedes all prior communications, representations, or agreements, verbal or written, among the parties relating to the subject matter hereof. This Agreement may not be amended except in writing executed by the parties.

vii. Attorneys’ Fees. If any suit, arbitration or action arising out of material breach of this Agreement is brought by any part to this Agreement, the prevailing party or parties shall be entitled to recover the costs and fees (including without limitation reasonable attorneys’ fees) incurred in the action and any appeal thereof.

viii. Authority: Binding Effect. Each of the persons executing this Agreement represents that he or she is fully authorized to execute this Agreement in the capacity described, and that this Agreement has been authorized by any and all necessary corporate or organizational action. This Agreement shall bind and inure to the benefit of, and be enforceable by, the parties hereto and their respective successors and assigns.

ix. Standard of Conduct. To the extent that any party hereto or any successor or permitted assignee is entitled under this Agreement or by law to give or withhold its consent or otherwise to act or fail to act in connection with this Agreement or the transactions contemplated hereby, such party shall do so in good faith and in a reasonable manner.

x. No Third-Party Beneficial Rights. No person not a party to this Agreement is an intended beneficiary of this Agreement, and no person not a party to this Agreement shall have any right to enforce any term of this Agreement.

xi. Counterparts. This Agreement may be executed in any number of counterparts, all of which when taken together shall constitute one agreement binding on all parties, notwithstanding that all parties are not signatories to the same counterpart.

xii. Further Assurances. Each party agrees, at the request of any other party, at any time and from time to time after the date hereof, promptly to execute and deliver all such further documents, and promptly to take and forbear from all such action, as may be reasonably necessary or appropriate in order more effectively to confirm or carry out the provisions of this Agreement.

xiii. No Waiver. No provision of this Agreement shall be deemed to have been waived unless such waiver is in writing signed by the waiving party. No failure by any party to insist up on the strict performance of any provision of this Agreement, or to exercise any right or remedy consequent upon a breach thereof, shall constitute a waiver of any such breach, of such provision or of any other provision. No waiver of any provision of this Agreement shall be deemed a waiver of any other provision of this Agreement or a waiver of such provision with respect to any subsequent breach, unless expressly provided in writing.

xiv. Excavation. FM agrees that it will remove all contaminated or unconsolidated fill, including any impervious layers of fill in the areas where the stormwater system is to be installed, prior to development of infrastructure and site preparation. In the event hazardous materials are discovered in the course of any site preparation all excavation in the affected area will immediately cease pending notification and consultation with the Oregon Department of Environmental Quality.

xv. Joint Media Communication. FM and CFF agree to prepare and submit a joint press release acceptable to both parties to the local and/or regional media describing the terms of this Agreement and aspirations of the parties for future cooperation.

FRED MEYER STORES, INC., a Delaware corporation

WESTWOOD DEVELOPMENT CORPORATION, an Oregon corporation