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Filed Pursuant to Rule No. 424(b)(3)
File No. 333-85725
THE KROGER CO.
Exchange Offer for
$250,000,000 6.34% Senior Notes due 2001
$350,000,000 7.25% Senior Notes due 2009
$300,000,000 7.70% Senior Notes due 2029
----------------------
Guaranteed by our subsidiaries listed on page 36 of this prospectus.
------------------------
- Expires 5:00 p.m., New York City time, on October 18, 1999, unless
extended.
- All old notes issued on June 25, 1999 that are validly tendered and not
withdrawn will be exchanged for new notes.
- The only conditions to completing the exchange offer are that it does not
violate applicable law or any applicable interpretation of the staff of
the SEC and that no injunction, order or decree has been issued that
would prohibit, prevent or materially impair our ability to proceed with
the exchange offer.
- You may withdraw your tender of old notes at any time prior to the
expiration of the exchange offer.
- The exchange will not be a taxable event for U.S. federal income tax
purposes.
- The terms of the new notes to be issued in the exchange offer are
substantially identical to those of the old notes, except for some
transfer restrictions, registration rights and liquidated damages
relating to the old notes.
- The old notes are, and the new notes will be, fully and unconditionally
guaranteed, jointly and severally, on a senior unsecured basis by most of
the subsidiaries of our company.
- Affiliates of our company may not participate in the exchange offer.
- There is no existing market for the new notes, and we do not intend to
apply for their listing on any securities exchange.
Please refer to "Risk Factors" beginning on page 11 of this document for
important information.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------------
The date of this prospectus is September 7, 1999.
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THIS PROSPECTUS INCORPORATES BY REFERENCE IMPORTANT BUSINESS AND FINANCIAL
INFORMATION IN DOCUMENTS THAT ARE NOT CONTAINED IN OR DELIVERED WITH THE
PROSPECTUS. THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE UPON REQUEST FROM PAUL
HELDMAN, 1014 VINE STREET, CINCINNATI, OHIO 45202-1100, TELEPHONE NUMBER (513)
762-4000. TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE
BY OCTOBER 13, 1999.
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TABLE OF CONTENTS
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WHERE YOU CAN FIND MORE INFORMATION......................... 1
PROSPECTUS SUMMARY.......................................... 2
THE COMPANY................................................. 2
THE EXCHANGE OFFER.......................................... 2
SUMMARY OF THE TERMS OF THE NEW NOTES....................... 7
SELECTED FINANCIAL DATA..................................... 9
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES............. 10
RISK FACTORS................................................ 11
Our significant indebtedness could adversely affect us by
reducing our flexibility to respond to changing
business and economic conditions and increasing our
borrowing costs........................................ 11
We cannot assure you that Kroger and Fred Meyer will be
successfully combined or that Fred Meyer's recent
acquisitions will be successfully combined............. 11
We may not achieve the expected cost savings and other
benefits of the merger and we will have significant
merger related costs that will have a material negative
effect on our results of operations.................... 12
The guarantees of the notes by our subsidiaries may be
inadequate............................................. 12
Federal and state statutes permit courts, under specific
circumstances, to void guarantees and require the
return of payments received from guarantors............ 12
You may not be able to sell your notes easily............. 13
The liquidity of any market for the old notes is likely to
decline after the completion of the exchange offer..... 13
If you do not exchange your old notes for new notes, you
will remain subject to transfer restrictions........... 13
USE OF PROCEEDS............................................. 14
THE EXCHANGE OFFER.......................................... 14
DESCRIPTION OF THE NEW NOTES................................ 22
FEDERAL INCOME TAX CONSIDERATIONS........................... 30
PLAN OF DISTRIBUTION........................................ 33
LEGAL MATTERS............................................... 34
EXPERTS..................................................... 34
FORWARD-LOOKING STATEMENTS.................................. 35
LIST OF SUBSIDIARY GUARANTORS............................... 36
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-4 under the
Securities Act of 1933 with respect to the new notes to be issued in the
exchange offer. This prospectus, which forms a part of the registration
statement, does not contain all of the information in the registration statement
and the exhibits and schedules to the registration statement. Some parts of the
registration statement are omitted here in accordance with the SEC's rules and
regulations. Any statements made in this prospectus concerning the provisions of
various documents are not necessarily complete. In each instance, we refer you
to the copy of those documents filed as an exhibit to the registration statement
for the full text of those provisions. Each statement is qualified in its
entirety by that reference.
Our common stock is listed on the New York Stock Exchange (symbol KR) and
we file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms at 450 Fifth Street, N.W., Washington, D.C. 20549;
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511; and 7 World Trade Center, Suite 1300, New York, New York 10048.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our electronic SEC filings are also available to the public
from the SEC's web site at http://www.sec.gov. In addition, our company
maintains a web site at http://www.kroger.com that contains additional
information, including news releases about our business and operations.
The SEC allows us to "incorporate by reference" in this prospectus the
information we file with the SEC. This means that we can disclose important
information to you by referring you to these documents. The information
incorporated by reference is an important part of this prospectus, and
information that we file later with the SEC will automatically update and
supersede this information. We incorporate by reference the documents listed
below, which we have already filed with the SEC, and any future filings we make
with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until
the completion of the exchange offer:
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KROGER SEC FILINGS (FILE NO. 1-303) PERIOD
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Annual Report on Form 10-K................... Year ended January 2, 1999, as amended.
Quarterly Report on Form 10-Q................ Quarter ended May 22, 1999.
Current Reports on Form 8-K or Form 8-K/A.... January 8, 1999; January 15, 1999; January
28, 1999; April 30, 1999; May 10, 1999; May
28, 1999, as amended as of the same date;
June 17, 1999; June 23, 1999; June 25, 1999;
July 20, 1999; August 20, 1999; September 10,
1999; and September 14, 1999.
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You may request a copy of any filings made by us with the SEC, or any of
the agreements or other documents that constitute exhibits to those filings, at
no cost, by writing or telephoning us at the following address or phone number:
The Kroger Co.
1014 Vine Street
Cincinnati, Ohio 45202-1100
(513) 762-4000
Attention: Paul Heldman
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PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus and may
not contain all information that is important to you. This prospectus includes
specific terms of the exchange offer, as well as information regarding our
business and detailed financial data. We encourage you to read this prospectus
in its entirety and the other documents referred to in this prospectus.
THE COMPANY
Kroger was founded in 1883 and was incorporated in 1902. We maintain our
corporate offices in Cincinnati, Ohio, and are the nation's largest supermarket
operator measured by sales in 1998. Our mailing address is The Kroger Co., 1014
Vine Street, Cincinnati, Ohio 45202-1100, telephone (513) 762-4000.
On May 27, 1999, we completed our previously announced merger with Fred
Meyer, Inc., creating the nation's largest supermarket company, with combined
annual sales of $43.1 billion during 1998. Fred Meyer is now a wholly-owned
subsidiary of Kroger. You should consider the new circumstances of Kroger that
result from the merger. See "Risk Factors" contained in this prospectus. Audited
supplemental consolidated financial statements for the combined company are
available to you on our Current Report on Form 8-K dated May 28, 1999, which has
been filed with the SEC.
As of the completion of our merger with Fred Meyer, Inc., we operated
approximately 2,200 supermarkets and multidepartment stores in 31 states, 797
convenience stores in 15 states and 381 fine jewelry stores in 25 states. One
hundred thirteen of the convenience stores are franchised to third parties in
three states. We also operate manufacturing facilities that permit us to offer
quality, low-cost private label products.
THE EXCHANGE OFFER
On June 25, 1999, we completed the private placement of $250 million
principal amount of our 6.34% Senior Notes due 2001, $350 million principal
amount of our 7.25% Senior Notes due 2009 and $300 million principal amount of
our 7.70% Senior Notes due 2029. The notes are guaranteed by most of our
subsidiaries. A list of these subsidiary guarantors can be found on page 36 of
this prospectus.
The notes were not registered under the Securities Act and, therefore, they
are subject to significant restrictions on resale. When we sold those notes, we
and the subsidiary guarantors entered into a registration rights agreement with
the initial purchasers -- Goldman, Sachs & Co., Banc One Capital Markets, Inc.,
Banc of America Securities LLC, Chase Securities Inc. and Salomon Smith Barney
Inc. In this registration rights agreement, we agreed to deliver to you this
prospectus and to permit you to exchange those old notes for new notes that have
substantially identical terms and have been registered under the Securities Act.
We believe that the new notes may be resold by you without compliance with
the registration and prospectus delivery provisions of the Securities Act,
subject to limited conditions. Following the exchange offer, any old notes that
you did not exchange for new notes will continue to be subject to restrictions
on resale and we will have no obligation to you to register those old notes
under the Securities Act.
We issued the old notes under an indenture, dated June 25, 1999, between
our company and Firstar Bank, National Association, as trustee, as supplemented
by the first supplemental indenture (relating to the 7.25% notes), the second
supplemental indenture (relating to the 7.70% notes) and the third supplemental
indenture (relating to the 6.34% notes), each dated June 25, 1999, among our
company, the subsidiary guarantors and Firstar Bank, National Association, as
trustee. Any reference to the "indenture" in this prospectus refers to the
indenture as supplemented, unless the context otherwise requires. The indenture
grants you certain rights. The new notes also will be issued under
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that indenture and you will have the same rights under the indenture that you
had as a holder of old notes. Any reference to "notes" in this prospectus refers
to both old notes and new notes, unless the context otherwise requires. You
should read the discussion under the headings "The Exchange Offer" and
"Description of the New Notes" for further information regarding the new notes.
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THE EXCHANGE OFFER........................ We are offering to exchange $1,000 principal amount of
Series B:
- $250,000,000 6.34% Senior Notes due 2001;
- $350,000,000 7.25% Senior Notes due 2009; and
- $300,000,000 7.70% Senior Notes due 2029
that have been registered under the Securities Act for
each $1,000 principal amount of the corresponding
Series A:
- $250,000,000 6.34% Senior Notes due 2001;
- $350,000,000 7.25% Senior Notes due 2009; and
- $300,000,000 7.70% Senior Notes due 2029
that were issued on June 25, 1999 in a private
placement.
In order to be exchanged, an old note must be properly
tendered and accepted. All old notes that are validly
tendered and not validly withdrawn will be exchanged.
We will issue the new notes promptly after the
expiration of the exchange offer.
RESALE.................................... We believe that the new notes that you receive in the
exchange offer may be offered for resale, resold and
otherwise transferred by you without compliance with
the registration and prospectus delivery provisions of
the Securities Act if you meet the following
conditions:
(1) you acquire the new notes in the ordinary course
of your business;
(2) you are not engaging in and do not intend to
engage in a distribution of the new notes;
(3) you do not have an arrangement or understanding
with any person to participate in the distribution
of the new notes; and
(4) you are not an affiliate of our company as the
term "affiliate" is defined in Rule 405 under
the Securities Act.
If you do not meet the above conditions, you may incur
liability under the Securities Act if you transfer any
new note without delivering a prospectus meeting the
requirements of the Securities Act. We do not assume
or indemnify you against that liability. Each
broker-dealer that receives new notes in the exchange
offer for its own account in exchange for old notes
that it acquired as a result of market-making
activities or other trading activities must
acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection
with any resale of the new notes. A broker-dealer may
use this
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prospectus for an offer to resell, resale or other
transfer of the new notes.
EXPIRATION DATE........................... The exchange offer will expire at 5:00 p.m., New York
City time, on October 18, 1999, unless we decide to
extend the exchange offer. We do not intend to extend
the exchange offer, although we reserve the right to
do so. If we determine to extend the exchange offer,
we do not intend to extend it beyond February 5, 2000.
CONDITIONS TO THE EXCHANGE OFFER.......... The only conditions to completing the exchange offer
are that it does not violate applicable law or any
applicable interpretation of the staff of the SEC and
that no injunction, order or decree has been issued
which would prohibit, prevent or materially impair our
ability to proceed with the exchange offer. See "The
Exchange Offer -- Conditions."
PROCEDURES FOR TENDERING OLD NOTES HELD IN
THE FORM OF BOOK-ENTRY INTERESTS.......... The old notes were issued as global securities.
Beneficial interests in the old notes that are held by
direct or indirect participants in The Depository
Trust Company through certificateless depositary
interests are shown on, and transfers of the old notes
can be made only through, records maintained in
book-entry form by DTC with respect to its
participants. If you are a holder of an old note held
in the form of a book-entry interest and you wish to
tender your old note for exchange, you must transmit
to Firstar Bank, National Association, as exchange
agent, on or before the expiration date, either:
- a properly completed and duly executed letter of
transmittal, or a facsimile of the letter of
transmittal, together with any other required
documentation; or
- a computer-generated message transmitted by means of
DTC's Automated Tender Offer Program system and
forming a part of a confirmation of book-entry
transfer in which you acknowledge and agree to be
bound by the terms of the letter of transmittal.
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The exchange agent must also receive on or before the
expiration date either:
- a timely confirmation of book-entry transfer of your
old notes into the exchange agent's account at DTC, in
accordance with the procedure for book-entry
transfers described in this prospectus under the
heading "The Exchange Offer -- Book-Entry Transfer;"
or
- the documents necessary for compliance with the
guaranteed delivery procedures described below.
A letter of transmittal accompanies this prospectus.
By executing the letter of transmittal or delivering a
computer-generated message through DTC's Automated
Tender Offer Program system, you will represent to us
that, among other things:
(1) the new notes to be acquired by you in the
exchange offer are being acquired in the ordinary
course of your business;
(2) you are not engaging in and do not intend to
engage in a distribution of the new notes;
(3) you do not have an arrangement or understanding
with any person to participate in the distribution
of the new notes; and
(4) you are not our affiliate.
PROCEDURES FOR TENDERING CERTIFICATED OLD
NOTES..................................... If you are a holder of book-entry interests in the old
notes, you are entitled to receive, in limited
circumstances, in exchange for your book-entry
interests, certificated notes which are in equal
principal amounts to your book-entry interests. See
"Description of the New Notes -- Form of New Notes."
No certificated notes are issued and outstanding as of
the date of this prospectus. If you acquire
certificated old notes prior to the expiration of the
exchange offer, you must tender your certificated old
notes in accordance with the procedures described in
this prospectus under the heading "The Exchange
Offer -- Procedures for Tendering -- Certificated Old
Notes."
SPECIAL PROCEDURES FOR BENEFICIAL OWNER... If you are the beneficial owner of old notes that are
registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and you wish to
tender those old notes for exchange, you should
promptly contact the registered holder and instruct
that person to tender on your behalf. If you wish to
tender those notes yourself, you must either make
appropriate arrangements to register ownership of the
old notes in your name or obtain a properly completed
bond power from the registered holder. The transfer of
registered ownership
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may take considerable time and you may not be able to
complete the transfer prior to the expiration date.
See "The Exchange Offer -- Procedures for Tendering --
Procedures Applicable to All Holders."
GUARANTEED DELIVERY PROCEDURES............ If you wish to tender your old notes and:
(1) they are not immediately available;
(2) time will not permit your old notes or other
required documents to reach the exchange agent
before the expiration of the exchange offer; or
(3) you cannot complete the procedure for book-entry
transfer on a timely basis,
you may tender your old notes in accordance with the
guaranteed delivery procedures described in "The
Exchange Offer -- Procedures for Tendering --
Guaranteed Delivery Procedures."
ACCEPTANCE OF OLD NOTES AND DELIVERY OF
NEW NOTES................................. Subject to the conditions described in "The Exchange
Offer -- Conditions," we will accept for exchange all
old notes which are properly tendered in the exchange
offer prior to 5:00 p.m., New York City time, on the
expiration date. The new notes to be issued to you in
the exchange offer will be delivered promptly
following the expiration date. See "The Exchange
Offer -- Terms of the Exchange Offer."
WITHDRAWAL................................ You may withdraw the tender of your old notes at any
time prior to 5:00 p.m., New York City time, on the
expiration date. We will return to you any old notes
not accepted for exchange for any reason without
expense to you as promptly as we can after the
expiration or termination of the exchange offer.
EXCHANGE AGENT............................ Firstar Bank, National Association is serving as the
exchange agent in connection with the exchange offer.
CONSEQUENCES OF FAILURE TO EXCHANGE....... If you do not participate in the exchange offer, upon
completion of the exchange offer, the liquidity of the
market for your old notes could be adversely affected.
See "The Exchange Offer -- Consequences of Failure to
Exchange."
FEDERAL INCOME TAX CONSEQUENCES........... The exchange of the old notes will not be a taxable
event for federal income tax purposes. See "Federal
Income Tax Considerations."
USE OF PROCEEDS........................... We will not receive any cash proceeds upon completion
of the exchange offer.
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SUMMARY OF THE TERMS OF THE NEW NOTES
SECURITIES OFFERED........................ $250,000,000 6.34% Senior Notes due 2001
$350,000,000 7.25% Senior Notes due 2009
$300,000,000 7.70% Senior Notes due 2029
ISSUER.................................... The Kroger Co.
MATURITY.................................. June 1, 2001
June 1, 2009
June 1, 2029
INTEREST PAYMENT DATES.................... June 1 and December 1 of each year, beginning December
1, 1999. Interest on the new notes that we will issue
will accrue from the last interest payment date on
which interest was paid on the old notes surrendered
in exchange, or, if no interest has been paid on the
old notes, from June 25, 1999, which was the date of
original issuance of the old notes.
OPTIONAL REDEMPTION....................... At our option, we may redeem some or all of the 7.25%
notes and 7.70% notes at any time at the redemption
prices listed under "Description of the New Notes --
Optional Redemption."
The 6.34% notes are not subject to optional
redemption.
GUARANTEES................................ The new notes will be guaranteed on a senior unsecured
basis by most of our subsidiaries. The guarantees will
be equal in right of payment with all other unsecured
and unsubordinated indebtedness of each guarantor
subsidiary. The guarantees are subject to release in
the circumstances described in "Description of the New
Notes -- Subsidiary Guarantees."
RANKING................................... The new notes will be senior to all of our existing
and future subordinated indebtedness and will be equal
in right of payment with all of our existing and
future unsecured senior debt.
BASIC COVENANTS OF INDENTURE.............. The indenture contains covenants that, subject to
specified exceptions, restrict our ability and the
ability of our restricted subsidiaries to:
- assume or guarantee any secured debt;
- merge with or into other companies; and
- enter into some sale and lease-back transactions.
In the future, some of our subsidiaries that we
designate as non-restricted subsidiaries will not be
subject to the covenants in the indenture. More
detailed information about these covenants is included
under "Description of New Notes -- Material
Covenants."
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FORM OF NEW NOTES......................... The new notes will be represented by one or more
global securities deposited with Firstar Bank,
National Association for the benefit of DTC. You will
not receive new notes in certificated form unless one
of the events described under the heading "Description
of the New Notes -- Form of New Notes" occurs.
Instead, beneficial interests in the new notes will be
shown on, and transfers of these interests will be
effected only through, records maintained in
book-entry form by DTC with respect to its
participants.
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SELECTED FINANCIAL DATA
Included below is selected financial data for the periods shown. You should
read this summary in conjunction with the audited and unaudited consolidated
financial statements of Kroger and accompanying notes as well as with the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included in Kroger's Annual Report on Form 10-K for
the fiscal year ended January 2, 1999 and in Kroger's Quarterly Report for the
period ended May 22, 1999.
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QUARTER ENDED FISCAL YEARS ENDED
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MAY 22, MARCH 21, JANUARY 2, DECEMBER 27, DECEMBER 28, DECEMBER 30, DECEMBER 31,
1999 1998 1999 1997 1996 1995 1994
(16 WEEKS) (12 WEEKS) (53 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS)
---------- ---------- ------------ ------------ ------------ ------------ ------------
(IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
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Sales.................. $8,789 $6,389 $28,203 $26,567 $25,171 $23,938 $22,959
Earnings before
extraordinary loss... 176 51 450 444 353 319 269
Extraordinary loss (net
of income tax
benefit) (A)......... -- (4) (39) (32) (3) (16) (27)
Net earnings........... 176 47 411 412 350 303 242
Diluted earnings per
share
Earnings before
extraordinary
loss............... 0.33 0.10 1.70 1.69 1.36 1.28 1.10
Extraordinary Loss
(A)................ -- (0.01) (0.15) (0.12) (0.01) (0.06) (0.10)
Net Earnings......... 0.33 0.09 1.55 1.57 1.35 1.22 1.00
Total assets........... 6,734 6,779 6,700 6,301 5,892 5,045 4,708
Long-term obligations,
including obligations
under capital
leases............... 3,212 3,302 3,229 3,493 3,659 3,490 3,889
Shareowners' deficit... (164) (349) (388) (785) (1,182) (1,603) (2,154)
Cash dividends per
common share......... (B) (B) (B) (B) (B) (B) (B)
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(A) The extraordinary loss relates to premiums paid to retire certain
indebtedness early and the write-off of related deferred financing costs.
(B) The Company is prohibited from paying cash dividends under the terms of its
Credit Agreement.
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CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
The tables below present the calculation of our historical and supplemental
consolidated ratio of earnings to fixed charges for the periods shown. The
supplemental consolidated ratio of earnings to fixed charges reflects the
retroactive effect given to the merger of Kroger and Fred Meyer, Inc., which has
been accounted for as a pooling of interests.
HISTORICAL CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
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QUARTER ENDED FISCAL YEARS ENDED
----------------------- ------------------------------------------------------------------------
MAY 22, MARCH 21, JANUARY 2, DECEMBER 27, DECEMBER 28, DECEMBER 30, DECEMBER 31,
1999 1998 1999 1997 1996 1995 1994
(16 WEEKS) (12 WEEKS) (53 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS)
---------- ---------- ------------ ------------ ------------ ------------ ------------
(IN MILLIONS OF DOLLARS)
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Earnings
Earnings from
continuing
operations before
tax expense and
extraordinary
loss............... $280 $ 83 $ 713 $ 713 $ 567 $510 $421
Fixed charges.......... 139 113 479 482 483 490 501
Capitalized interest... (2) (2) (8) (9) (11) (7) (3)
---- ---- ------ ------ ------ ---- ----
$417 $194 $1,184 $1,186 $1,039 $993 $919
==== ==== ====== ====== ====== ==== ====
Fixed charges
interest............. $ 79 $ 66 $ 276 $ 295 $ 312 $320 $331
Portion of rental
payments deemed to
be interest........ 60 47 203 187 171 170 170
---- ---- ------ ------ ------ ---- ----
$139 $113 $ 479 $ 482 $ 483 $490 $501
==== ==== ====== ====== ====== ==== ====
Ratio of earnings to
fixed charges........ 3.0 1.7 2.5 2.5 2.2 2.0 1.8
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SUPPLEMENTAL CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
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QUARTER ENDED FISCAL YEARS ENDED
----------------------- ------------------------------------------------------------------------
MAY 22, MARCH 21, JANUARY 2, DECEMBER 27, DECEMBER 28, DECEMBER 30, DECEMBER 31,
1999 1998 1999 1997 1996 1995 1994
(16 WEEKS) (12 WEEKS) (53 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS)
---------- ---------- ------------ ------------ ------------ ------------ ------------
(IN MILLIONS OF DOLLARS)
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Earnings
Earnings (loss) from
continuing
operations before
tax expense and
extraordinary
loss............... $347 ($ 7) $ 871 $ 954 $ 701 $ 591 $ 473
Fixed charges.......... 325 268 1,038 679 595 596 582
Capitalized interest... 2 2 (9) (10) (12) (11) (5)
---- ---- ------ ------ ------ ------ ------
$674 $263 $1,900 $1,623 $1,284 $1,176 $1,050
==== ==== ====== ====== ====== ====== ======
Fixed charges
interest............. $201 $166 $ 654 $ 397 $ 361 $ 369 $ 356
Portion of rental
payments deemed to
be interest........ 124 102 384 282 234 227 226
---- ---- ------ ------ ------ ------ ------
$325 $268 $1,038 $ 679 $ 595 $ 596 $ 582
==== ==== ====== ====== ====== ====== ======
Ratio of earnings to
fixed charges........ 2.1 1.0 1.8 2.4 2.2 2.0 1.8
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RISK FACTORS
You should carefully consider the risks described below before making a
decision to tender your old notes for exchange. Unless otherwise noted, amounts
provided below are for the combined company as if the merger between Kroger and
Fred Meyer took place prior to May 22, 1999.
OUR SIGNIFICANT INDEBTEDNESS COULD ADVERSELY AFFECT US BY REDUCING OUR
FLEXIBILITY TO RESPOND TO CHANGING BUSINESS AND ECONOMIC CONDITIONS AND
INCREASING OUR BORROWING COSTS.
As of May 22, 1999, our total outstanding indebtedness, including capital
leases and the current portion thereof, was approximately $8.5 billion,
including approximately $4.0 billion under several bank credit facilities. As of
May 22, 1999, we had credit facilities totaling $5.5 billion, with approximately
$1.5 billion available for additional borrowings under these credit facilities.
As of the date of this prospectus, we have permanently reduced the commitments
under our credit facilities by $1.5 billion. In addition, as of May 22, 1999, we
had a $500 million synthetic lease credit facility and a $125 million money
market line with unused balances of $128 million and $108 million, respectively.
This significant amount of indebtedness could reduce our ability to obtain
additional financing for working capital, acquisitions or other purposes and
could make us more vulnerable to economic downturns and competitive pressures.
Our needs for cash in the future will depend on many factors that are difficult
to predict. These factors include results of operations, the timing and cost of
acquisitions and efforts to expand existing operations.
We believe that we will have sufficient funds from all sources to meet our
needs over the next several years. We cannot assure you, however, that our
business will generate cash flow at or above current levels or that anticipated
cost savings from the merger with Fred Meyer can be fully achieved. If we are
unable to generate sufficient cash flow from operations in the future to pay our
debt and make necessary investments, we will be required to:
- refinance all or a portion of our existing debt;
- seek new borrowings;
- forego strategic opportunities; or
- delay, scale back or eliminate some aspects of our operations.
If necessary, any of these actions could have a material negative impact on
our business, financial condition or results of operations.
Some of our subsidiaries will guarantee the notes. As a result, the notes
will effectively rank equal in right of payment with approximately $7.6 billion
of indebtedness of these subsidiaries as of July 17, 1999. If one of these
subsidiaries becomes insolvent, however, the guarantee of that subsidiary could
be held by a court to be unenforceable under applicable fraudulent transfer or
similar laws. The notes will effectively rank junior in right of payment to
indebtedness of our subsidiaries that do not guarantee the notes. As of July 17,
1999, the indebtedness of the subsidiaries who will not guarantee the notes
totaled approximately $252 million.
WE CANNOT ASSURE YOU THAT KROGER AND FRED MEYER WILL BE SUCCESSFULLY COMBINED OR
THAT FRED MEYER'S RECENT ACQUISITIONS WILL BE SUCCESSFULLY COMBINED.
If we cannot successfully combine our operations we may experience a
material negative effect on our business, financial condition or results of
operations. The merger involves the combining of companies that have previously
operated separately. This involves a number of risks, including:
- demands on management related to the significant increase in size of
Kroger after the merger, including the combining of operations resulting
from Fred Meyer's recent acquisitions of Smith's Food & Drug Centers,
Inc., Quality Food Centers, Inc. and Food 4 Less Holdings, Inc.;
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- the diversion of management's attention to the combining of operations;
- difficulties in the combining of operations and systems, including plans
to update systems for "Year 2000" compliance;
- difficulties in the assimilation and retention of employees;
- challenges in keeping customers; and
- potential adverse short-term effects on operating results.
We may not be able to maintain the levels of operating efficiency that we
have previously achieved or might achieve separately. Because of difficulties in
combining operations, we may not be able to achieve the cost savings and other
size related benefits that we hope to achieve from the merger. Also, an element
of our growth strategy has been the pursuit of strategic acquisitions that
either expand or complement our business. Future acquisitions may further
complicate this process.
WE MAY NOT ACHIEVE THE EXPECTED COST SAVINGS AND OTHER BENEFITS OF THE MERGER
AND WE WILL HAVE SIGNIFICANT MERGER RELATED COSTS THAT WILL HAVE A MATERIAL
NEGATIVE EFFECT ON OUR RESULTS OF OPERATIONS.
We expect that the cost savings and other benefits from the merger will
exceed those which we could achieve separately. However, our cost savings
estimates are based on many assumptions, including future sales levels and other
operating results, the availability of funds for investment, the timing of
events, as well as general industry and business conditions and other matters.
Many of these factors are beyond our control. Our actual cost savings, if any,
could differ from our estimates and these differences could be material. There
may be unforeseen costs and expenses or other factors that will offset the
estimated cost savings or other components of our plan. They also may result in
delays in the realization of cost savings.
We will have substantial costs in connection with the merger. The merger
resulted in a charge to operations in the second quarter 1999 of approximately
$85 million for transaction fees and costs. This charge represents direct costs
only. The costs of combining our companies will also result in other one-time
charges to the results of operations of the combined company. These one-time
charges totaled approximately $145 million in the second quarter 1999. The total
amount of these charges cannot be determined until the plan for combining the
companies is completed. We expect that these charges will have a material
negative effect on the combined company's results of operations for the third
quarter of fiscal year 1999. We also expect to have significant charges
resulting from the merger in the future.
THE GUARANTEES OF THE NOTES BY OUR SUBSIDIARIES MAY BE INADEQUATE.
Although most of our subsidiaries have guaranteed our obligation to pay the
notes, the available assets of those subsidiaries may be insufficient for these
purposes. Some of those subsidiaries are direct borrowers under, or guarantors
of, our bank credit facility.
FEDERAL AND STATE STATUTES PERMIT COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES AND REQUIRE THE RETURN OF PAYMENTS RECEIVED FROM GUARANTORS.
Under the U.S. Bankruptcy Code and comparable provisions of state
fraudulent transfer laws, a court has the power to void a guarantee, or to
subordinate claims in respect of a guarantee to all other debts of the
guarantor, if, among other things, at the time the guarantor incurred the
indebtedness evidenced by its guarantee, it received less than reasonably
equivalent value or fair consideration for the incurrence of the guarantee, and
either
- was insolvent or rendered insolvent by reason of that incurrence;
- was engaged in a business or transaction for which its remaining assets
constituted unreasonably small capital; or
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- intended to incur, or believed that it would incur, debts beyond its
ability to pay as those debts mature.
In addition, the court may void any payment by that guarantor pursuant to
its guarantee and require the return of that payment to the guarantor or to a
fund for the benefit of the creditors of the guarantor.
The measures of insolvency for these purposes will vary depending upon the
law applied in any proceeding to determine whether a fraudulent transfer has
occurred. Generally, however, a guarantor would be considered insolvent if:
- the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of all of its assets;
- the present fair saleable value of its assets were less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
- it could not pay its debts as they become due.
On the basis of our historical financial results, recent operating history
and other factors, we believe that each subsidiary that has guaranteed the
notes, after giving effect to that guarantee, will not be insolvent, will not
have unreasonably small capital for the business in which it is engaged and will
not have incurred debts beyond its ability to pay as those debts mature.
However, we cannot assure you of the particular standard that might be applied
by a court in making its determinations or that a court would agree with our
conclusions in this regard.
YOU MAY NOT BE ABLE TO SELL YOUR NOTES EASILY.
There is no established trading market for the notes and we cannot assure
you that an active or liquid trading market will develop for the notes. The
notes are expected to be eligible for trading in the PORTAL Market, a subsidiary
of The Nasdaq Stock Market, Inc. However, we do not intend to apply for listing
of the old notes, or the new notes that may be issued in exchange for the old
notes, on any securities exchange or automated dealer quotation system. The
liquidity of any market for the notes will depend upon the number of holders of
the notes, our own financial performance, the market for similar securities, the
interest of securities dealers in making a market in the notes and other
factors.
THE LIQUIDITY OF ANY MARKET FOR THE OLD NOTES IS LIKELY TO DECLINE AFTER THE
COMPLETION OF THE EXCHANGE OFFER.
After old notes are tendered and accepted in the exchange offer, the
principal amount of old notes remaining after the completion of the exchange
offer will decrease. This decrease will reduce the liquidity of the trading
market for the original notes. We cannot assure you that any trading market that
has developed for the old notes will continue to exist after the completion of
the exchange offer. Please refer to the section entitled "The Exchange
Offer -- Consequences of Failure to Exchange."
IF YOU DO NOT EXCHANGE YOUR OLD NOTES FOR NEW NOTES, YOU WILL REMAIN SUBJECT TO
TRANSFER RESTRICTIONS.
We have not registered the old notes under the federal securities laws. Old
notes that are not exchanged after the completion of this exchange offer will
remain subject to the transfer restrictions under applicable securities laws.
This means that you will not be able to transfer, sell or trade your old notes
except based upon an exemption from the registration requirements of the federal
securities laws. Please refer to the section entitled "The Exchange
Offer -- Consequences of a Failure to Exchange."
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USE OF PROCEEDS
This exchange offer does not involve the sale of securities for cash.
Therefore, we will not receive any proceeds from the issuance of the new notes
in exchange for the old notes. The net proceeds from the sale of old notes were
approximately $893 million, after deducting the discount to the initial
purchasers and other offering expenses that were payable by us. We used these
proceeds to prepay a portion of the amounts outstanding under our 1998 Senior
Credit Facility dated as of March 1998 between Fred Meyer and the lenders under
that credit agreement.
The interest rates for borrowings under the credit facilities, as amended,
are detailed in the supplemental consolidated financial statements attached to
our Current Report on Form 8-K dated May 28, 1999 which has been filed with the
SEC.
THE EXCHANGE OFFER
PURPOSE AND EFFECT
We issued the old notes on June 25, 1999, in a private placement. In
connection with this issuance, we and the subsidiary guarantors entered into a
registration rights agreement dated June 25, 1999, with the initial
purchasers -- Goldman, Sachs & Co., Banc One Capital Markets, Inc., Banc of
America Securities LLC, Chase Securities Inc. and Salomon Smith Barney Inc. This
registration rights agreement requires that we file a registration statement
under the Securities Act for the new notes that we are issuing in the exchange
offer and, upon the effectiveness of the registration statement, offer to you
the opportunity to exchange your notes for a like principal amount of new,
registered notes. We will issue registered notes without a restrictive legend
and, except as described below, they may be reoffered and resold by you without
registration under the Securities Act. After we complete the exchange offer, our
obligations with respect to the registration of the old notes and the registered
notes will terminate, except as provided in the last paragraph of this section.
A copy of the indenture relating to the notes and the registration rights
agreement have been filed as exhibits to the registration statement of which
this prospectus is a part. As a result of the filing and the effectiveness of
the registration statement, of which this prospectus is a part, assuming we
complete the exchange offer by February 5, 2000, certain prospective increases
in the interest rate on the old notes provided for in the registration rights
agreement will not occur.
Based on an interpretation by the staff of the SEC contained in no-action
letters issued to third parties, if you are not our "affiliate" within the
meaning of Rule 405 under the Securities Act or a broker-dealer referred to in
the next paragraph, we believe that you may offer for resale, resell or
otherwise transfer the registered notes that we are issuing to you in the
exchange offer, without compliance with the registration and prospectus delivery
provisions of the Securities Act. This interpretation, however, is based on your
representation to us that:
(1) the registered notes that we are issuing to you in the exchange offer
are acquired in the ordinary course of your business;
(2) you are not engaging in and do not intend to engage in a distribution
of the registered notes that we are issuing to you in the exchange
offer;
(3) you have no arrangement or understanding with any person to participate
in the distribution of the registered notes that we are issuing to you
in the exchange offer; and
(4) you are not our "affiliate," as defined in Rule 405 under the
Securities Act.
If you tender your notes in the exchange offer for the purpose of
participating in a distribution of the registered notes that we are issuing to
you in the exchange offer, you cannot rely on this interpretation by the staff
of the SEC. Under those circumstances, you must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale
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transaction. Each broker-dealer that receives registered notes in the exchange
offer for its own account in exchange for old notes that were acquired by the
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of those
registered notes. We have agreed that a broker-dealer may use this prospectus
for a period of 180 days after the expiration date, or, if earlier, when a
broker-dealer has disposed of all the new notes. See "Plan of Distribution."
If you will not receive freely tradeable registered notes in the exchange
offer or are not eligible to participate in the exchange offer, you can elect,
by indicating on the letter of transmittal and providing the additional
necessary information, to have your old notes registered in a "shelf"
registration statement on an appropriate form under Securities Act Rule 415. In
the event that we are obligated to file a shelf registration statement, we will
be required to keep the shelf registration statement effective for a period of
two years or for a shorter period that will terminate when all of the old notes
covered by the shelf registration statement have been sold pursuant to the shelf
registration statement. Other than as described in this paragraph, you will not
have the right to require us to register your old notes under the Securities
Act. See " -- Procedures for Tendering."
CONSEQUENCES OF FAILURE TO EXCHANGE
After we complete the exchange offer, if you have not tendered your old
notes, you will not have any further registration rights, except as described
above. Your old notes will continue to be subject to various restrictions on
transfer. Therefore, the liquidity of the market for your old notes could be
adversely affected upon completion of the exchange offer if you do not
participate in the exchange offer.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions described in this prospectus
and in the letter of transmittal, we will accept all old notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time, on the expiration
date. After the trustee authenticates the registered notes, we will issue $1,000
principal amount of registered notes in exchange for each $1,000 principal
amount of old notes we accept in the exchange offer. You may tender some or all
of your old notes in the exchange offer. However, old notes may be tendered only
in integral multiples of $1,000 in principal amount.
The form and terms of the registered notes are substantially the same as
the form and terms of the old notes, except that the registered notes that we
are issuing in the exchange offer have been registered under the Securities Act
and will not bear legends restricting their transfer. We will issue the
registered notes under, and they will be entitled to the benefits of, the
indenture. The indenture also governs the old notes. The registered notes and
the old notes will be deemed one issue of notes under the indenture.
As of the date of this prospectus, $900,000,000 aggregate principal amount
of the old notes is outstanding, consisting of $250,000,000 6.34% Senior Notes
due 2001, $350,000,000 7.25% Senior Notes due 2009 and $300,000,000 7.70% Senior
Notes due 2029. This prospectus, together with the letter of transmittal, is
being sent to all registered holders and to others believed to have beneficial
interests in the old notes. We intend to conduct the exchange offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the SEC.
We will be deemed to have accepted validly tendered old notes when we have
given oral or written notice of our acceptance to the exchange agent. The
exchange agent will receive the new notes from us and deliver them to the
tendering holders. If we do not accept any tendered notes because of an invalid
tender, the occurrence of various other events described in this prospectus or
otherwise, we will return certificates for any unaccepted old notes at our cost,
to the tendering holder as promptly as practicable after the expiration date.
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You will not be required to pay brokerage commissions or fees or, except as
described below under " -- Transfer Taxes," transfer taxes for the exchange of
your old notes in the exchange offer. We will pay all charges and expenses,
other than specific applicable taxes, in connection with the exchange offer. See
" -- Fees and Expenses" below.
EXPIRATION DATE; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time, on October
18, 1999, unless we determine, in our sole discretion, to extend the exchange
offer, in which case, it will expire at the later date and time to which it is
extended. We do not intend to extend the exchange offer, although we reserve the
right to do so. If we determine to extend the exchange offer, we do not intend
to extend it beyond February 5, 2000. If we extend the exchange offer, we will
give oral or written notice of the extension to the exchange agent and give each
registered holder notice by means of a press release or other public
announcement of any extension prior to 9:00 a.m., New York City time, on the
next business day after the scheduled expiration date.
We also reserve the right, in our sole discretion,
(1) to delay accepting any old notes or, if any of the conditions described
below under " -- Conditions" have not been satisfied or waived, to
terminate the exchange offer; or
(2) to amend the terms of the exchange offer in any manner, by giving oral
or written notice of the delay or termination to the exchange agent,
and by complying with Rule 14e-l(d) under the Exchange Act to the
extent that rule applies.
We acknowledge and undertake to comply with the provisions of Rule 14e-l(c)
under the Exchange Act, which requires us to pay the consideration offered, or
return the old notes surrendered for exchange, promptly after the termination or
withdrawal of the exchange offer. We will notify you as promptly as we can of
any extension, termination or amendment.
PROCEDURES FOR TENDERING
Book-Entry Interests. The old notes were issued as global securities.
Beneficial interests in the global securities, held by direct or indirect
participants in DTC, are shown on, and transfers of these interests are effected
only through, records maintained in book-entry form by DTC with respect to its
participants.
If you hold your old notes in the form of book-entry interests and you wish
to tender your old notes for exchange in the exchange offer, you must transmit
to the exchange agent on or prior to the expiration date either:
(1) a written or facsimile copy of a properly completed and duly executed
letter of transmittal, including all other documents required by the
letter of transmittal, to the exchange agent at the address shown on
the cover page of the letter of transmittal; or
(2) a computer-generated message transmitted by means of DTC's Automated
Tender Offer Program system and received by the exchange agent and
forming a part of a confirmation of book-entry transfer, in which you
acknowledge and agree to be bound by the terms of the letter of
transmittal.
In addition, in order to deliver old notes held in the form of book-entry
interests:
(1) a timely confirmation of book-entry transfer of the notes into the
exchange agent's account at DTC under the procedure for book-entry
transfers described below under " -- Book-Entry Transfer" must be
received by the exchange agent prior to the expiration date; or
(2) you must comply with the guaranteed delivery procedures described
below.
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THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR ELECTION AND RISK.
INSTEAD OF DELIVERY BY MAIL, WE RECOMMEND THAT YOU USE AN OVERNIGHT OR HAND
DELIVERY SERVICE. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ASSURE
DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. YOU SHOULD NOT SEND
THE LETTER OF TRANSMITTAL OR OLD NOTES TO US. YOU MAY REQUEST THAT YOUR BROKER,
DEALER, COMMERCIAL BANK, TRUST COMPANY OR NOMINEE COMPLETE THE ABOVE
TRANSACTIONS FOR YOU.
Certificated Old Notes. Only registered holders of certificated old notes
may tender those notes in the exchange offer. If your old notes are certificated
notes and you wish to tender those notes for exchange under the exchange offer,
you must transmit to the exchange agent on or prior to the expiration date, a
written or facsimile copy of a properly completed and duly executed letter of
transmittal, including all other required documents, to the address shown below
under " -- Exchange Agent." In addition, in order to validly tender your
certificated old notes:
(1) the certificates representing your old notes must be received by the
exchange agent prior to the expiration date; or
(2) you must comply with the guaranteed delivery procedures described
below.
Procedures Applicable To All Holders. If you tender an old note and you do
not withdraw the tender prior to the expiration date, you will have made an
agreement with us in accordance with the terms and subject to the conditions
contained in this prospectus and in the letter of transmittal.
If your old notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and you wish to tender your
notes, you should contact the registered holder promptly and instruct the
registered holder to tender on your behalf. If you wish to tender on your own
behalf, you must, prior to completing and executing the letter of transmittal
and delivering your old notes, either make appropriate arrangements to register
ownership of the old notes in your name or obtain a properly completed bond
power from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by an eligible institution unless:
(1) old notes tendered in the exchange offer are tendered either
(a) by a registered holder who has not completed the box entitled
"Special Delivery Instructions" on the letter of transmittal; or
(b) for the account of an eligible institution; and
(2) the box entitled "Special Registration Instructions" on the letter of
transmittal has not been completed.
If signatures on a letter of transmittal or a notice of withdrawal are
required to be guaranteed, the guarantee must be by an eligible financial
institution. This includes most banks, savings and loan associations and
brokerage houses, that are participants in the Securities Transfer Agents
Medallion Program, the New York Stock Exchange Medallion Program or the Stock
Exchanges Medallion Program.
If the letter of transmittal is signed by a person other than you, your old
notes must be endorsed or accompanied by a properly completed bond power and
signed by you as your name appears on those old notes.
If the letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, those
persons should so indicate when signing. Unless we waive this
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requirement, in this instance you must submit with the letter of transmittal
proper evidence satisfactory to us of their authority to act on your behalf.
We will determine, in our sole discretion, all questions regarding the
validity, form, eligibility, including time of receipt, acceptance and
withdrawal of tendered old notes. This determination will be final and binding.
We reserve the absolute right to reject any old notes not properly tendered or
any old notes our acceptance of which would, in the opinion of our counsel, be
unlawful. We also reserve the right to waive any defects, irregularities or
conditions of tender as to particular old notes. Our interpretation of the terms
and conditions of the exchange offer, including the instructions in the letter
of transmittal, will be final and binding on all parties.
You must cure any defects or irregularities in connection with tenders of
your old notes within the time period we will determine unless we waive that
defect or irregularity. Although we intend to notify you of defects or
irregularities with respect to your tender of old notes, neither we, the
exchange agent nor any other person will incur any liability for failure to give
this notification. Your tender will not be deemed to have been made and your
notes will be returned to you if:
- you improperly tender your old notes;
- you have not cured any defects or irregularities in your tender; and
- we have not waived those defects, irregularities or improper tender.
The exchange agent will return your notes, unless otherwise provided in the
letter of transmittal, as soon as practicable following the expiration of the
exchange offer.
By tendering, you will represent to us that, among other things:
- the registered notes to be acquired by you in the exchange offer are
being acquired in the ordinary course of your business;
- you are not engaging in and do not intend to engage in a distribution of
the registered notes that you are acquiring in the exchange offer;
- you do not have an arrangement or understanding with any person to
participate in the distribution of the registered notes that you are
acquiring in the exchange offer; and
- you are not our "affiliate," as defined in Rule 405 under the Securities
Act.
In all cases, we will issue registered notes for old notes that are
accepted for exchange in the exchange offer only after timely receipt of the
following by the exchange agent:
- certificates for your old notes or a timely book-entry confirmation of
your old notes into the exchange agent's account at DTC;
- a properly completed and duly executed letter of transmittal, or a
computer-generated message instead of the letter of transmittal; and
- all other required documents.
If we do not accept any tendered old notes for any reason described in the
terms and conditions of the exchange offer or if you submit old notes for a
greater principal amount than you desire to exchange, we will return the
unaccepted or non-exchanged old notes without expense to you. In addition, in
the case of old notes tendered by book-entry transfer into the exchange agent's
account at DTC under the book-entry transfer procedures described below, we will
credit the non-exchanged old notes to your account maintained with DTC, as
promptly as practicable after the expiration or termination of the exchange
offer.
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Guaranteed Delivery Procedures. If you desire to tender your old notes and
your old notes are not immediately available or one of the situations described
in the immediately preceding paragraph occurs, you may tender if:
(1) you tender through an eligible financial institution;
(2) on or prior to 5:00 p.m., New York City time, on the expiration date,
the exchange agent receives from an eligible institution, a written or
facsimile copy of a properly completed and duly executed letter of
transmittal and notice of guaranteed delivery, substantially in the
form provided by us; and
(3) the exchange agent receives the certificates for all certificated old
notes, in proper form for transfer, or a book-entry confirmation, and
all other documents required by the letter of transmittal, within three
NYSE trading days after the date of execution of the notice of
guaranteed delivery.
You may send the notice of guaranteed delivery by facsimile transmission,
mail or hand delivery. The notice of guaranteed delivery must include:
(1) your name and address;
(2) the amount of old notes you are tendering; and
(3) a statement that your tender is being made by the notice of guaranteed
delivery and that you guarantee that within three NYSE trading days
after the execution of the notice of guaranteed delivery, the eligible
institution will deliver the following documents to the exchange agent:
(a) the certificates for all certificated old notes being tendered, in
proper form for transfer or a book-entry confirmation of tender;
(b) a written or facsimile copy of the letter of transmittal, or a
book-entry confirmation instead of the letter of transmittal; and
(c) any other documents required by the letter of transmittal.
Book-Entry Transfer. The exchange agent will establish an account for the
book-entry interests at DTC for purposes of the exchange offer promptly after
the date of this prospectus. You must deliver your book-entry interest by
book-entry transfer to the account maintained by the exchange agent at DTC. Any
financial institution that is a participant in DTC's systems may make book-entry
delivery of book-entry interests by causing DTC to transfer the book-entry
interests into the exchange agent's account at DTC in accordance with DTC's
procedures for transfer.
If one of the following situations occur:
(1) you cannot deliver a book-entry confirmation of book-entry delivery of
your book-entry interests into the exchange agent's account at DTC; or
(2) you cannot deliver all other documents required by the letter of
transmittal to the exchange agent prior to the expiration date,
then you must tender your book-entry interests according to the guaranteed
delivery procedures discussed above.
Depositary Procedures. We provide the following description of the
operations and procedures of DTC solely as a matter of convenience. These
operations and procedures are solely within the control of this settlement
system and are subject to change by it. We take no responsibility for these
operations and procedures and urge investors to contact the system or their
participants directly to discuss these matters.
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When the global notes are deposited with DTC, DTC will credit the accounts
of participants designated by the initial purchasers with portions of the
principal amount of the global notes. The ownership of interests in the global
notes will be shown on, and the transfer of these interests will be effected
only through, records maintained by DTC or by its participants. The conveyance
of notices and other communications by DTC to its participants and by the
participants to owners of beneficial interests in the notes will be governed by
arrangements among them, subject to any statutory or regulatory requirements.
Since the laws of some states require people to take physical delivery of
securities that they own, the ability to transfer beneficial interests in a
global note to these persons will be limited.
Except as described below, the global notes will not be registered in the
name of the owners of beneficial interest in the notes. These owners will not
receive certificated notes and will not be considered as the registered owners
or holders of these notes under the indenture for any purpose.
Principal and interest payments on the global notes will be made to DTC or
its nominee as the sole registered owner of the global notes. Therefore, we and
the exchange agent will not have any responsibility or liability for:
- any aspect of DTC's or its participants' records relating to, or payments
made on account of, beneficial ownership interests in the global notes;
- maintaining, supervising or reviewing any of DTC's or its participants'
records; or
- any other matter relating to the actions and practices of DTC or its
participants.
DTC has advised us that when DTC receives any payment on a global note, it
immediately credits the accounts of the relevant participants with the payment
on the payment date, in amounts proportionate to their holdings in the principal
amount of the relevant global note. Payments by the participants to owners of
beneficial interests in a global note are governed by standing instructions and
customary practices and will be the sole responsibility of the participants.
DTC will take an action permitted to be taken by a holder of notes:
- only if a participant to whose account DTC has credited the interests in
the global notes directs DTC to take that action; and
- only in respect of that portion of the principal amount of the notes as
to which that participant has given that direction.
However, if there is an event of default under the notes, DTC may exchange the
global notes for certificated notes, and distribute the certificated notes to
its participants.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the global notes among participants in DTC, it is not required
to perform these procedures. Neither we nor the exchange agent will have any
responsibility for the performance by DTC or its participants of their
obligations under the rules and procedures governing their operations.
Same Day Settlement and Payment. We must make payments in respect of the
global notes by wire transfer of immediately available funds to the accounts
specified by the global note holders. For certificated notes, we will make all
payments of principal and interest:
- by wire transfer of immediately available funds to the accounts specified
by the holders of the certificated notes; or
- if no account is specified, by mailing a check to each holder's
registered address.
Interests in global notes are expected to be eligible to trade in the
PORTAL Market and to trade in DTC's Same-Day Funds Settlement System. Therefore,
permitted secondary market trading activity in
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interests in global notes will have to be settled in immediately available
funds. We expect that secondary trading in any certificated notes will also be
settled in immediately available funds.
WITHDRAWAL RIGHTS
You may withdraw tenders of your old notes at any time prior to 5:00 p.m.,
New York City time, on the expiration date.
For your withdrawal to be effective, the exchange agent must receive a
written or facsimile transmission notice of withdrawal at its address included
below under " -- Exchange Agent" prior to 5:00 p.m., New York City time, on the
expiration date.
The notice of withdrawal must:
- state your name;
- identify the specific old notes to be withdrawn, including the
certificate number or numbers and the principal amount of withdrawn
notes;
- be signed by you in the same manner as you signed the letter of
transmittal when you tendered your old notes, including any required
signature guarantees or be accompanied by documents of transfer
sufficient for the exchange agent to register the transfer of the old
notes into your name; and
- specify the name in which the old notes are to be registered, if
different from yours.
We will determine all questions regarding the validity, form, and
eligibility, including time of receipt, of withdrawal notices. Our determination
will be final and binding on all parties. Any old notes withdrawn will be deemed
not to have been validly tendered for exchange for purposes of the exchange
offer. Any old notes which have been tendered for exchange but which are not
exchanged for any reason will be returned to you without cost as soon as
practicable after withdrawal, rejection of tender, or termination of the
exchange offer. Properly withdrawn old notes may be retendered by following one
of the procedures described under " -- Procedures for Tendering" above at any
time on or prior to 5:00 p.m., New York City time, on the expiration date.
CONDITIONS
Notwithstanding any other provision of the exchange offer and subject to
our obligations under the registration rights agreement, we will not be required
to accept for exchange, or to issue registered notes in exchange for, any old
notes and may terminate or amend the exchange offer, if at any time before the
acceptance of any old notes for exchange any of the following events occur:
(1) any injunction, order or decree is issued by any court or any
governmental agency that prohibits, prevents or otherwise materially
impairs our ability to proceed with the exchange offer; or
(2) the exchange offer violates any applicable law or any applicable
interpretation of the staff of the SEC.
These conditions are for our sole benefit and we may assert them regardless
of the circumstances giving rise to any condition, subject to applicable law. We
also may waive in whole or in part at any time and from time to time any
particular condition in our sole discretion. If we waive a condition, we may be
required in order to comply with applicable securities laws, to extend the
expiration date of the exchange offer. Our failure at any time to exercise any
of the foregoing rights will not be deemed a waiver of these rights and these
rights will be deemed ongoing rights which may be asserted at any time and from
time to time.
In addition, we will not accept for exchange any old notes tendered, and we
will not register any notes that we will issue in exchange for any of those old
notes, if at the time the notes are tendered any
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stop order is threatened by the SEC or in effect with respect to the
registration statement of which this prospectus is a part or the qualification
of the indenture under the Trust Indenture Act of 1939.
The exchange offer is not conditioned on any minimum principal amount of
old notes being tendered for exchange.
EXCHANGE AGENT
We have appointed Firstar Bank, National Association as exchange agent for
the exchange offer. You should direct questions, requests for assistance and
requests for additional copies of the prospectus, the letter of transmittal and
other related documents to the exchange agent addressed as follows:
(By Registered or Certified Mail or by Hand or Overnight Courier)
Firstar Bank, N.A.
425 Walnut Street
6th Floor
Cincinnati, Ohio 45202
By Facsimile: (513) 632-5511
By Telephone: (513) 632-4278
Firstar Bank, National Association also acts as trustee under the indenture,
performs banking and other services for us, and is a lender under some of our
credit facilities.
FEES AND EXPENSES
We will not pay brokers, dealers, or others soliciting acceptances of the
exchange offer. The principal solicitation is being made by mail. Additional
solicitations, however, may be made in person or by telephone by our officers
and employees.
We will pay the estimated cash expenses to be incurred in connection with
the exchange offer. We estimate that these expenses will be approximately
$350,000 in the aggregate, which includes registration fees, fees and expenses
of the exchange agent, accounting, legal, printing and related fees and
expenses.
TRANSFER TAXES
You will not be obligated to pay any transfer taxes in connection with a
tender of your old notes for exchange unless you instruct us to register
registered notes in the name of, or request that old notes not tendered or not
accepted in the exchange offer be returned to, a person other than the
registered tendering holder, in which event the registered tendering holder will
be responsible for the payment of any applicable transfer tax.
ACCOUNTING TREATMENT
We will not recognize any gain or loss for accounting purposes upon the
consummation of the exchange offer. We will amortize the expense of the exchange
offer over the term of the registered notes under generally accepted accounting
principles.
DESCRIPTION OF THE NEW NOTES
In this section, the words "we," "our," "our company" and "us" refer only
to The Kroger Co., as a separate entity, and do not include any of our
subsidiaries.
We will issue the new notes under the indenture, dated June 25, 1999, as
supplemented, among our company, the subsidiary guarantors and Firstar Bank,
National Association, as trustee, which we
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entered into in connection with the issuance of the old notes. A copy of the
indenture has been filed as an exhibit to the registration statement of which
this prospectus is a part. The terms of the new notes include those stated in
the indenture and those made part of the indenture by reference to the Trust
Indenture Act of 1939.
The following description of the new notes is only a summary of the
material provisions of the indenture. We urge you to read the indenture because
that document, and not this description, defines your rights as holders of the
new notes. You may obtain a copy of the indenture by following the procedures
described under "Where You Can Find More Information."
Any reference to "notes" in this section refers to both old notes and new
notes, unless the context otherwise requires. The new notes:
- are our senior unsecured obligations;
- rank equally in right of payment with all of our unsecured and
unsubordinated senior debt;
- rank senior in right of payment to all of our existing and future
subordinated debt; and
- are effectively junior to all of our secured obligations, to the extent
of the collateral securing those obligations.
The new notes are guaranteed by each of our existing subsidiaries, except
those prohibited from so doing and those without any significant assets or
operations, subject to certain limitations described below. Future subsidiaries
of ours will be required to guarantee the new notes under the circumstances
described below under the caption " -- Certain Covenants -- Additional
Subsidiary Guarantees." The guarantees:
- are senior unsecured obligations of each guarantor;
- rank equally in right of payment with all other unsecured and
unsubordinated debt of each guarantor;
- rank senior in right of payment to all subordinated debt of each
guarantor; and
- are effectively junior to the secured obligations of each guarantor, to
the extent of the collateral securing those obligations.
PRINCIPAL, MATURITY AND INTEREST
We will issue new notes with a maximum aggregate principal amount of
$900,000,000, comprised of $250,000,000 6.34% Senior Notes due 2001;
$350,000,000 7.25% Senior Notes due 2009 and $300,000,000 7.70% Senior Notes due
2029, in denominations of $1,000 and integral multiples of $1,000. The new notes
will mature on June 1, 2001, June 1, 2009 and June 1, 2029, respectively.
Interest on the new notes will be payable semi-annually on June 1 and
December 1 of each year, commencing on December 1, 1999. We will make each
interest payment to those holders of the new notes who were holders of record on
the immediately preceding May 15 or November 15, respectively.
Interest on the new notes will accrue from June 25, 1999 or, if interest
has already been paid, from the date it was most recently paid. If you tender
your old notes and they are accepted for exchange, you will receive accrued
interest on your old notes to, but not including, the date of issuance of the
new notes. This interest will be payable with the first interest payment on the
new notes and you will not receive any payment in respect of interest on your
old notes accrued after the issuance of the new notes. Interest will be computed
on the basis of a 360-day year comprised of twelve 30-day months.
We are permitted by the indenture to issue additional senior debt in the
future.
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FORM OF NEW NOTES
The certificates representing the new notes will be issued in fully
registered form, without coupons. Except as described in the next paragraph, the
new notes will be deposited with, or on behalf of, DTC, and registered in the
name of Cede & Co., as DTC's nominee, in the form of a global note. Holders of
the new notes will own book-entry interests in the global note evidenced by
records maintained by DTC.
Book-entry interests may be exchanged for certificated notes of like tenor
and equal aggregate principal amount, if:
(1) DTC notifies us that it is unwilling or unable to continue as
depositary for the global securities or DTC at any time ceases to be a
clearing agency registered under the Exchange Act and, in either case,
a successor depositary is not appointed by us within 90 days;
(2) we determine that the book-entry interests will no longer be
represented by global notes and we execute and deliver to the trustee
instructions to that effect; or
(3) a default has occurred and is continuing with respect to the notes.
As of the date of this prospectus, no certificated notes are issued and
outstanding.
METHODS OF RECEIVING PAYMENTS ON THE NEW NOTES
All payments on the new notes will be made at the office or agency of our
company in the City of Cincinnati, State of Ohio, unless we elect to make
interest payments by check mailed to the holders at their address shown in the
register of holders.
PAYING AGENT AND REGISTRAR FOR THE NEW NOTES
The trustee will initially act as paying agent and registrar. We may change
the paying agent or registrar without prior notice to you.
TRANSFER AND EXCHANGE
You may transfer or exchange your notes in accordance with the indenture.
The registrar and the trustee may require you to furnish, among other things,
appropriate endorsements and transfer documents and we may require you to pay
any taxes and fees required by law or permitted by the indenture. We are not
required to transfer or exchange any note selected for redemption. We also are
not required to transfer or exchange any note for a period of 15 days before the
day of the mailing of a notice of redemption of the notes.
The registered holder of a new note will be treated as the owner of the new
note for all purposes.
SUBSIDIARY GUARANTEES
All of our subsidiaries, except those prohibited from so doing and those
without any significant assets or operations, will guarantee our obligations
under the new notes, subject to the limitations described below. In addition,
if, in the future, any of our existing or future subsidiaries guarantees any of
our indebtedness, that subsidiary will also be required to guarantee our
obligations under the notes, unless it is prohibited from doing so. If we
default in payment of the principal, interest or any premium due under the
notes, the guarantors will be obligated to pay these amounts.
Each guarantee will rank equal in right of payment with all other unsecured
and unsubordinated indebtedness of the guarantor and will rank senior in right
of payment to all subordinated indebtedness of the guarantor. As a result, the
notes will effectively rank equal in right of payment with approximately $7.6
billion of indebtedness of these subsidiaries as of July 17, 1999. We used the
proceeds from the sale of the old notes as part of a $900 million permanent
reduction of the commitments under our 1998 Senior Credit Facility dated as of
March 1998 between Fred Meyer and the lenders under that
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credit agreement. Kroger and the guarantors had approximately $8.3 billion of
indebtedness outstanding as of July 17, 1999, of which approximately $7.3
billion was unsecured and unsubordinated indebtedness, $273 million was secured
and unsubordinated, and the balance of which was unsecured and subordinated
indebtedness.
The notes will effectively rank junior in right of payment to indebtedness
of our subsidiaries that do not guarantee the notes. As of July 17, 1999, the
indebtedness of the subsidiaries who will not guarantee the notes totaled
approximately $252 million.
If one of these subsidiaries becomes insolvent, however, the guarantee of
that subsidiary could be held by a court to be unenforceable under applicable
fraudulent transfer or similar laws. Accordingly, the obligations of each
guarantor under its guarantee are limited to the maximum amount enforceable
under applicable fraudulent conveyance or fraudulent transfer laws. This maximum
amount will be calculated after giving effect to all other liabilities of the
guarantor and after giving effect to all contribution and other obligations
among the guarantors under the indenture. Each guarantor that makes a payment or
distribution under its guarantee will be entitled to a contribution from each
other guarantor in a pro rata amount based on the net assets of each guarantor.
For information about the meaning and consequences of a fraudulent conveyance,
we refer you to the discussion under the heading "Federal and state statutes
permit courts, under specific circumstances, to void guarantees and require the
return of payments received from guarantors" in the "Risk Factors" section of
this prospectus.
A guarantee issued by a guarantor will automatically and unconditionally be
released and discharged in the following situations if doing so will not result
in any downgrade of the notes by Moody's Investors Service and Standard & Poor's
Ratings Services:
- upon any sale, exchange or transfer to any person of all of the capital
stock, or all or substantially all of the assets, of the guarantor in a
transaction that complies with the indenture, except that such a
transaction will not release or discharge a guarantee if the guarantor
continues to be a guarantor of any of our bank credit facilities; or
- at our request at any time if we no longer have in force guarantees under
our bank credit facilities.
Except as otherwise described above, as long as the notes are guaranteed we
will add comparable release provisions to any existing debt that we modify after
the date of this prospectus to add guarantees, and to any future debt securities
(excluding asset backed securities) issued by us and guaranteed by our
subsidiaries. We have recently added guarantees to most of our existing debt
with similar release provisions as described above. As of August 14, 1999,
approximately $3.5 billion of debt issued by Fred Meyer and its subsidiaries is
guaranteed by Fred Meyer's subsidiaries, and does not contain similar guarantee
release provisions.
OPTIONAL REDEMPTION
The 7.25% notes and 7.70% notes will be redeemable, in whole or in part, at
our option at any time. The redemption price for these notes will equal the
greater of:
- 100% of the principal amount of the notes; and
- the sum of the present values of the remaining scheduled payments of
principal and interest on the notes being redeemed, excluding accrued
interest on the date of redemption, from the redemption date to the
maturity date. The discount to the redemption date will be made on a
semiannual basis based on a 360-day year, with each month consisting of
30 days. The discount rate will equal the equivalent yield to maturity of
U.S. Treasury securities having a comparable maturity to the notes being
redeemed, plus 10 basis points for the 7.25% notes and 15 basis points
for the 7.70% notes, plus, in each case, accrued interest to the
redemption date. The determination of the rate will be made by an agent
we appoint. Initially, that agent will be Goldman, Sachs & Co.
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The 6.34% notes are not subject to optional redemption.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of the notes to be redeemed.
Unless we default in payment of the redemption price, interest will cease to
accrue on and after the redemption date on the notes or portions of the notes
called for redemption.
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption by such method as the trustee deems fair and
appropriate. We will not redeem in part notes in denominations of $1,000 or
less.
MATERIAL COVENANTS
The indenture provides that the following covenants will apply to us and to
our restricted subsidiaries. A "restricted subsidiary" is any subsidiary that is
not a "non-restricted subsidiary." We may designate a subsidiary as a
non-restricted subsidiary if our board of directors declares in good faith that
a subsidiary is not of material importance, either singularly, or together with
all other non-restricted subsidiaries, to the business of our company and our
consolidated subsidiaries taken as a whole. Non-restricted subsidiaries are not
subject to any of the covenants contained in the indenture. A "subsidiary" is an
entity that we directly or indirectly control, including partnerships in which
we or our subsidiaries own a greater than 50% interest.
The covenants applicable to the notes would not necessarily afford holders
protection in the event of a highly leveraged or other transaction involving us
or in the event of a material adverse change in our financial condition or
results of operation, and the notes do not contain any other provisions that are
designed to afford protection in the event of a highly leveraged transaction
involving us.
Limitations on Liens. We covenant that, so long as any notes remain
outstanding, neither we nor any of our restricted subsidiaries will issue,
assume or guarantee any secured debt or other agreement comparable to secured
debt unless these notes and, if we choose, other debt ranking equally to these
notes also is so secured on an equal basis. This restriction will not apply to
the following:
(1) liens on any assets of any corporation existing at the same time the
corporation becomes a restricted subsidiary provided that the lien
does not extend to any of our other property or that of any other
restricted subsidiaries;
(2) liens existing on assets acquired by us, to secure the purchase price
of assets, or to obtain a release of liens from any of our other
property, incurred no later than 18 months after the acquisition,
assumption, guarantee, or, in the case of real estate, completion of
construction and commencement of operations;
(3) liens securing indebtedness owing by any restricted subsidiary to us
or another restricted subsidiary;
(4) liens on any assets existing upon acquisition of a corporation through
merger or by acquisition of all or substantially all of the assets by
us or a restricted subsidiary;
(5) liens in favor of the U.S., a foreign country, or any political
subdivision to secure payments of debt incurred to finance the
purchase of assets;
(6) liens on our or any of our restricted subsidiaries' assets existing on
the date of the indenture, provided that those liens secure only those
obligations which they secure on the date of the indenture or any
extension, renewal or replacement of those liens;
(7) any extension, renewal or replacement (or successive extensions,
renewals or replacements) in whole or in part, of any lien referred to
in (1) through (6) above;
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(8) some statutory liens or other similar liens arising in the ordinary
course of our or any of our restricted subsidiaries' business, or some
liens arising out of governmental contracts;
(9) some pledges, deposits or liens made or arising under worker's
compensation or similar legislation or in some other circumstances;
(10) some liens in connection with legal proceedings, including some liens
arising out of judgments or awards;
(11) liens for some taxes or assessments, landlord's liens, mechanic's
liens and liens and charges incidental to the conduct of the business,
or the ownership of our or any of our restricted subsidiaries' assets
which were not incurred in connection with the borrowing of money and
which do not in our opinion, materially impair the use of the assets
in the operation of our business or that of a restricted subsidiary or
the value of the assets for its purposes; or
(12) any other liens not included above, which together with amounts
described in paragraph (1) of the next section do not exceed 10% of
our consolidated net tangible assets.
Limitation on Sale and Lease-Back Transactions. We and our restricted
subsidiaries will not sell and lease-back for a term greater than three years
under a capital lease any material real property or operating assets unless:
(1) we could incur secured debt on that property equal to the present value
of rentals under the lease without having to equally secure the notes;
or
(2) the sale proceeds equal or exceed the fair market value of the property
and the net proceeds are used within 180 days to acquire material real
property or operating assets or to purchase or redeem notes offered
hereby or long term debt, including capital leases, that are senior to
or rank on parity with these notes.
This restriction does not apply to sale and lease-back transactions of
material real property or operating assets acquired or constructed after 18
months prior to the date of the indenture as long as a commitment for the sale
and lease-back is made within 18 months of acquisition, in the case of operating
assets, and of completion of construction and commencement of operations, in the
case of material real property.
Merger and Consolidation. The indenture provides that we will not merge or
consolidate with any corporation, partnership or other entity and will not sell,
lease or convey all or substantially all of our assets to any entity, unless:
- we are the surviving entity, or the surviving or successor entity is a
corporation or partnership organized under the laws of the United States
or a State thereof or the District of Columbia and expressly assumes all
our obligations under the indenture and the notes; and
- immediately after the transaction, we or the surviving or successor
entity are not in default in the performance of the covenants and
conditions of the indenture.
Additional Subsidiary Guarantees. The indenture provides that we will not
permit any of our subsidiaries to become a guarantor with respect to any
indebtedness of our company unless that subsidiary simultaneously executes and
delivers a supplemental indenture pursuant to which it will become a guarantor
under the indenture. Notwithstanding the preceding sentence, any such guarantee
of the notes will provide by its terms that it will automatically and
unconditionally be released and discharged under the circumstances described
above under the caption "-- Subsidiary Guarantees."
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For the purposes of the proceeding paragraph, "indebtedness" means with
respect to any individual or entity:
(1) every obligation of the individual or entity for money borrowed;
(2) every obligation of the individual or entity evidenced by bonds,
debentures, notes or other similar instruments;
(3) every obligation of the individual or entity issued or assumed as the
deferred purchase price of property, every conditional sale obligation
and every obligation under any title retention agreement, in each case
if on terms permitting any portion of the purchase price to be paid
beyond one year from the date of purchase (but excluding trade accounts
payable arising in the ordinary course of business which are not
overdue by more than 90 days or which are being contested in good
faith);
(4) every obligation of the individual or entity issued or contracted for
as payment in consideration of the purchase by the individual or entity
or an affiliate of the individual or entity of all of the corporate
stock or rights to the corporate state or substantially all of the
assets of another individual or entity or a merger or consolidation to
which the individual or entity or an affiliate of the individual or
entity was a party;
(5) every obligation of the type referred to in paragraphs (1) through (4)
of other individuals or entities and all dividends of other individuals
or entities for the payment of which, in either case such individual or
entity is responsible or liable, directly or indirectly, as obligor,
guarantor or otherwise; and
(6) every obligation of the type referred to in paragraphs (1) through (5)
of other individuals or entities secured by any lien or any property or
asset of such other individuals or entities (whether or not such
obligation is assumed by such individual or entity).
Reports. The indenture requires us to provide the trustee with any
information, documents or reports required to be filed with the SEC pursuant to
Section 13 or 15(d) of the Exchange Act within 15 days after they are required
to be filed with the SEC.
EVENTS OF DEFAULT
Holders of notes have special rights if an event of default occurs and is
not cured, as described later in this subsection. An event of default occurs
when:
- we fail to pay the principal or any premium on a note on its due date;
- we fail to pay interest on a note within 30 days of its due date;
- we fail to deposit any sinking fund payment on its due date;
- we fail to comply with any other restrictive covenant described in this
prospectus or any other term of the indenture, and this failure continues
for 60 days after we receive written notice of it;
- we default in any of our other indebtedness in excess of $50,000,000, and
the default results in an acceleration of maturity; or
- we take specified actions relating to our bankruptcy, insolvency or
reorganization.
If an event of default on the notes of any series occurs and is continuing,
the trustee or the holders of at least 25% in principal amount of all of the
outstanding notes of that series may require us to immediately repay all of the
principal and interest due on the notes of that series. The holders of a
majority in principal amount of all of the notes of that series may rescind this
accelerated payment requirement, if the rescission would not conflict with any
judgment or decree by a court and if all existing events of default have been
cured or waived.
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If an event of default occurs and is continuing, the trustee may pursue any
remedy available to it to collect payment or to enforce the performance of any
provision of the outstanding notes of that series or the indenture.
The holders of a majority in principal amount of the outstanding notes of
that series may generally waive an existing default and its consequences.
MODIFICATION OF THE INDENTURE
The indenture may be amended without the consent of any holder of the
notes:
- to cure any ambiguity, defect or inconsistency;
- to permit a successor to assume our obligations under the indenture;
- to add additional covenants for the benefit of the holders;
- to add additional events of default;
- to add or change provisions necessary to facilitate the issuance of the
notes; or
- to entitle the notes to the benefit of security.
The indenture may be amended with the written consent of the holders of at
least 50% in principal amount of the notes of the series affected by the
amendment. Holders of at least 50% in principal amount of the notes of the
series affected by the amendment may waive our compliance with any provision of
the indenture or the notes by giving notice to the trustee.
However, no amendment or waiver that:
- changes the maturity of principal or any installment of principal or
interest;
- reduces the amount of principal or interest or premium payable on
redemption;
- reduces the amount of the notes whose holders must consent to an
amendment or waiver;
- modifies provisions related to rights of holders to redeem notes at their
option; or
- changes other rights of holders as specifically identified in the
indenture
will be effective against any holder of the series of notes affected by the
amendment or waiver without the holder's consent.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
We may, at our option and at any time, elect to have all of our obligations
discharged with respect to the outstanding notes and all obligations of the
guarantors discharged with respect to their subsidiary guarantees except for
certain obligations. This is known as "legal defeasance." We may not exercise
our legal defeasance option with respect to:
- the rights of holders of outstanding notes to receive payments in respect
of the principal of, premium, if any, or interest, if any, on those notes
when these payments are due from the trust referred to below;
- our obligations with respect to the notes concerning the issuance of
temporary notes, registration of notes, mutilated, destroyed, lost or
stolen notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
- the rights, powers, trusts, duties and immunities of the trustee; and
- the legal defeasance provisions of the indenture.
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In addition, we may, at our option and at any time, elect to have the
obligations of our company and the guarantors released with respect to certain
covenants that are specified in the indenture. This is known as "covenant
defeasance." If we exercise our covenant defeasance option, any failure to
comply with those covenants will not constitute a default or event of default
with respect to the notes. In the event covenant defeasance occurs, certain
events (not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under "Events of Default" will no longer constitute
an event of default with respect to the notes.
Legal defeasance or covenant defeasance may be effected only if, among
other things:
- we irrevocably deposit with the trustee cash or U.S. government
obligations as trust funds in an amount certified to be sufficient to pay
at maturity the principal of and interest on all outstanding notes;
- no default or event of default under the indenture shall have occurred
and be continuing either on the date of the deposit or at any time in the
period ending on the 121st day after the date of the deposit;
- in the case of legal defeasance, we deliver to the trustee an opinion of
counsel to the effect that the holders of the notes will not recognize
income, gain or loss for U.S. federal income tax purposes as a result of
the defeasance and that defeasance will not otherwise alter the holders'
U.S. federal income tax treatment of principal and interest payments on
the notes. The opinion must be based on a ruling of the Internal Revenue
Service or a change in U.S. federal income tax law occurring after the
date of the indenture, since that result would not occur under current
tax law;
- legal defeasance or covenant defeasance will not result in a breach or
violation of, or constitute a default under the indenture or any material
agreement or instrument to which we are a party or by which we are bound;
and
- we deliver to the trustee an officer's certificate and an opinion of
counsel, each stating that all conditions precedent relating to the legal
defeasance or the covenant defeasance have been complied with.
CONCERNING THE TRUSTEE
If the trustee becomes a creditor of our company or any subsidiary
guarantor, the indenture limits its right to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any claim as
security or otherwise. The trustee may acquire our obligations for its own
account. The trustee performs banking and other services for us, and is a lender
under some of our credit facilities. The trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate that conflict or resign.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. In the performance of its duties, the trustee is entitled to
indemnification for any act which would involve it in expense or liability and
will not be liable as a result of any action taken in connection with the
performance of its duties except for its own gross negligence or default. The
trustee is protected in acting upon any direction or document reasonably
believed by it to be genuine and to be signed by the proper party or parties or
upon the opinion or advice of counsel. The trustee may resign upon written
notice to us as provided in the indenture.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain U.S. federal income tax
considerations that may be relevant to the exchange of old notes for new notes
pursuant to the exchange offer and the ownership or
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disposition of new notes. This summary is based on U.S. federal tax laws in
effect on the date of this prospectus. All of these laws and authorities are
subject to change, and any change could be effective retroactively. No
assurances can be given that any change in these laws or authorities will not
affect the accuracy of the discussion described in this summary.
This summary deals only with holders that hold the old notes and new notes
as capital assets as defined in the U.S. federal tax laws. This summary does not
address tax considerations applicable to:
- investors who did not acquire an old note at the initial offering from
Goldman, Sachs & Co., Banc One Capital Markets, Inc., Banc of America
Securities LLC, Chase Securities Inc. or Salomon Smith Barney for the
original offering price of the old note or who do not acquire the new
note pursuant to the exchange offer;
- special classes of holders, such as dealers in securities or currencies,
banks, tax-exempt organizations, or life insurance companies; and
- persons that hold old notes or new notes as a hedge (or as a hedged item)
or as part of a straddle or conversion transaction.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR IN DETERMINING THE TAX TREATMENT OF
THE EXCHANGE OF OLD NOTES FOR NEW NOTES PURSUANT TO THE EXCHANGE OFFER AND OF
THE OWNERSHIP AND DISPOSITION OF NEW NOTES, INCLUDING THE APPLICATION TO YOUR
PARTICULAR CIRCUMSTANCES OF THE TAX CONSIDERATIONS DISCUSSED BELOW AND OF ANY
RELEVANT FOREIGN, STATE, LOCAL OR OTHER TAX LAWS.
As used herein, the term "U.S. Holder" means a holder of old notes who or
that is:
- a citizen or resident of the United States;
- a domestic corporation or partnership;
- an estate the income of which is subject to regular U.S. federal income
taxation regardless of its source; or
- a trust if a court within the United States is able to exercise primary
supervision over the administration of that trust and one or more U.S.
persons have the authority to control all substantial decisions of that
trust.
UNITED STATES TAXATION OF U.S. HOLDERS
The following discussion applies to you if you are a U.S. Holder.
Treatment of Exchange of Old Notes for New Notes. An exchange of old notes
for new notes will be considered for U.S. federal income tax purposes to be a
modification of the old notes. The tax consequences of such a modification
depend on whether the modification is considered to be significant. The exchange
of an old note for a new note pursuant to the exchange offer will not constitute
a significant modification of the old note for U.S. federal income tax purposes.
Therefore, you will treat the new note as a continuation of the old note. As a
result, you will have no U.S. federal income tax consequences from exchanging an
old note for a new note pursuant to the exchange offer. Your adjusted tax basis
and holding period in the new note will be the same as you had in the old note
immediately before the exchange.
Payments of Interest. You will include in your gross income as ordinary
income the stated interest payable on a new note at the time it is accrued or
received, in accordance with your method of accounting for U.S. federal income
tax purposes.
Disposition of the New Notes. When you sell, exchange, or otherwise
dispose of a new note, or when we retire the new note (collectively, a
"disposition") you generally will recognize capital gain or loss equal to the
difference between the amount you realize and your adjusted tax basis in the new
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note. However, to the extent such amount is attributable to accrued interest, it
will be treated as ordinary interest income. The capital gain or loss will be
long-term capital gain or loss if your holding period for the new note exceeds
one year at the time of the disposition.
UNITED STATES TAXATION OF NON-U.S. HOLDERS
The following discussion applies to you if you are not a U.S. Holder,
referred to below as a "Non-U.S. Holder."
Treatment of Exchange of Old Notes for New Notes. An exchange of an old
note for a new note pursuant to the exchange offer will not constitute a taxable
exchange of the old note for Non-U.S. Holders. See "U.S. Holders -- Treatment of
Exchange of Old Notes for New Notes."
Payments of Interest. In general, if you are a non-U.S. holder, payments
of interest you receive will not be subject to United States federal withholding
tax, provided that one of the following conditions applies:
- you do not actually or constructively own 10% or more of the total
combined voting power of all classes of our stock entitled to vote, you
are not a controlled foreign corporation that is related to us actually
or constructively through stock ownership and you, as beneficial owner of
the new note, provide us or our agent under penalties of perjury your
name and address and you certify that you are a Non-U.S. Holder;
- the interest you receive on the new note is effectively connected with
your conduct of a trade or business within the United States and you
comply with certain reporting requirements; or
- you are entitled to the benefits of an income tax treaty under which the
interest is exempt from United States withholding tax and you comply with
certain reporting requirements.
Payments of interest not exempt from the U.S. federal withholding tax as
described above will be subject to withholding tax at the rate of 30% (subject
to reduction under an applicable income tax treaty).
Disposition of the New Notes. As a Non-U.S. Holder you generally will not
be subject to U.S. federal income tax (and generally no tax will be withheld)
with respect to gain you realize on the disposition of a new note, unless one of
the following conditions applies:
- the gain is effectively connected with your U.S. trade or business;
- you are an individual who is present in the United States for 183 or more
days during the taxable year of the disposition and certain other
requirements are satisfied; or
- you are subject to certain provisions of U.S. federal income tax law
applicable to certain expatriates.
Effectively Connected Income. If interest and other payments you receive
with respect to the new notes (including proceeds from the disposition of the
new notes) are effectively connected with your conduct of a trade or business
within the United States (or you are otherwise subject to U.S. federal income
taxation on a net basis with respect to your ownership of the new notes), you
will generally be subject to other rules described above under "United States
Taxation of U.S. Holders" (subject to any modification provided under an
applicable income tax treaty). You may also be subject to the "branch profits
tax" if you are a corporation.
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BACKUP WITHHOLDING AND INFORMATION REPORTING
Certain non-corporate U.S. Holders may be subject to backup withholding at
a rate of 31% on payments of principal, premium and interest on, and the
proceeds of the disposition of, the new notes. In general, backup withholding
will be imposed only if you:
- fail to furnish your taxpayer identification number ("TIN"), which, for
an individual, would be your Social Security number;
- you furnish an incorrect TIN; or
- you have been notified by the IRS that you are subject to backup
withholding tax for failure to report interest or dividend payments.
In addition, if you are a U.S. Holder, payments of principal and interest will
generally be subject to information reporting. You should consult your tax
advisor regarding qualification of the payments for exemption from backup
withholding and the procedure for obtaining such an exemption, if applicable.
Backup withholding and information reporting generally will not apply to
interest payments made to you if you are a Non-U.S. Holder of a new note and you
provide the certification described under "United States Taxation of Non-U.S.
Holders -- Payments of Interest" or otherwise establish an exemption from backup
withholding. If you are a Non-U.S. Holder, payment of the proceeds of a
disposition of the new notes by or through a U.S. office of a broker generally
will be subject to backup withholding at a rate of 31% and information reporting
unless you certify that you are a Non-U.S. Holder under penalties of perjury or
otherwise establish an exemption. Payments of the proceeds of a disposition of
the new notes by or through a foreign office of a U.S. broker, a controlled
foreign corporation for U.S. federal income tax purposes or a foreign broker
with certain relationships to the United States generally will be subject to
information reporting, but not backup withholding.
The amount of any backup withholding will be allowed as a credit against
your U.S. federal income tax liability and may entitle you to a refund, provided
that you furnish the required information to the IRS.
RECENTLY ISSUED TREASURY REGULATIONS
The U.S. Treasury Department recently issued final Treasury regulations
governing information reporting and the certification procedures regarding
withholding and backup withholding on certain amounts paid to Non-U.S. Holders.
The new Treasury regulations are generally effective for payments made after
December 31, 2000. In addition, the new Treasury regulations would alter the
procedures for claiming the benefits of an income tax treaty and may change the
certification procedures relating to the receipt by intermediaries of payments
on behalf of a beneficial owner of a new note. With some exceptions, the new
regulations treat a payment to a foreign partnership as a payment directly to
the partners. Prospective investors should consult their tax advisors concerning
the effect, if any, of such new Treasury regulations on an investment in the new
notes.
PLAN OF DISTRIBUTION
Based on interpretations by the SEC described in no-action letters issued
to third parties in similar transactions, we believe that the new notes issued
in the exchange offer in exchange for the old notes may be offered for resale,
resold and otherwise transferred by holders without compliance with the
registration and prospectus delivery provisions of the Securities Act, as long
as the new notes are acquired in the ordinary course of such holders' business
and the holders are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a distribution
of new notes. This position does not apply to any holder that is:
(1) an "affiliate" of ours within the meaning of Rule 406 under the
Securities Act;
(2) a broker-dealer who acquired notes directly from us; or
(3) a broker-dealer who acquired notes as a result of market-making or
other trading activities.
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Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of those notes. This prospectus, as it may be amended
or supplemented from time to time, may be used by a broker-dealer in connection
with resales of new notes received in exchange for old notes that had been
acquired as a result of market-making or other trading activities. We have
agreed that, for a period of 180 days after the expiration date of the exchange
offer, we will make this prospectus, as it may be amended or supplemented,
available to any broker-dealer for use in connection with any such resale.
We will not receive any proceeds from any sales of notes by broker-dealers.
New notes received by broker-dealers for their own account pursuant to the
exchange offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on those notes or a combination of those methods, at market prices
prevailing at the time of resale, at prices related to prevailing market prices
or at negotiated prices. These resales may be made directly to purchasers or to
or through brokers or dealers who may receive compensation in the form of
commissions or concessions from the selling broker-dealer or the purchasers of
the new notes. Any broker-dealer that resells registered notes that it received
for its own account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of those notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of those notes and any commission or concessions received by any
participating broker or dealer may be deemed to be underwriting compensation
under the Securities Act. The letter of transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
LEGAL MATTERS
The validity of the new notes and the guarantees will be passed upon for
Kroger by Paul Heldman, Esq., Senior Vice President, Secretary and General
Counsel of Kroger. As of August 31, 1999, Mr. Heldman owned approximately 88,236
shares of Kroger common stock and had options to acquire an additional 409,166
shares.
EXPERTS
The financial statements incorporated in this prospectus by reference to
Kroger's Annual Report on Form 10-K for the year ended January 2, 1999 and to
the Current Report on Form 8-K dated August 20, 1999 have been so incorporated
in reliance on the reports (which contain an explanatory paragraph that
describes a change in Kroger's application of the LIFO method of accounting for
store inventories) of PricewaterhouseCoopers LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The financial statements incorporated in this prospectus by reference to
Kroger's Current Report on Form 8-K dated May 10, 1999 have been so incorporated
in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The supplemental consolidated financial statements incorporated in this
prospectus by reference to the Current Report on Form 8-K dated May 28, 1999,
have been so incorporated in reliance on the report (which contains an
explanatory paragraph that describes a change in Kroger's application of the
LIFO method of accounting for store inventories and an explanatory paragraph
that describes the retroactive effect given to the merger of Kroger and Fred
Meyer, Inc., which has been accounted for as a pooling of interests) of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of Fred Meyer, Inc. as of January 30,
1999 and January 31, 1998 and for the fiscal years ended January 30, 1999,
January 31, 1998 and February 1, 1997,
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incorporated in this prospectus by reference to the Fred Meyer, Inc. Form 10-K,
for the fiscal year ended January 30, 1999 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report included in that
Form 10-K.
FORWARD-LOOKING STATEMENTS
This prospectus contains, or incorporates by reference, certain statements
that may be deemed "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Securities Exchange Act of
1934. All statements, other than statements of historical facts, that address
activities, events or developments that we intend, expect, project, believe or
anticipate will or may occur in the future are forward-looking statements. These
statements are based on certain assumptions and assessments made by our
management in light of its experience and its perception of historical trends,
current conditions, expected future developments and other factors it believes
to be appropriate. The forward-looking statements included in this prospectus
are also subject to a number of material risks and uncertainties, including but
not limited to economic, competitive, governmental and technological factors
affecting our operations, markets, products, services and prices, and other
factors discussed in our filings under the Securities Act and the Exchange Act.
Prospective investors are cautioned that these forward-looking statements are
not guarantees of future performance and that actual results, developments and
business decisions may differ from those envisaged by these forward-looking
statements.
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LIST OF SUBSIDIARY GUARANTORS
<TABLE>
<CAPTION>
NAME OF GUARANTOR JURISDICTION OF ORGANIZATION
----------------- ----------------------------
<S> <C>
Alpha Beta Company.......................................... California
Bay Area Warehouse Stores, Inc.............................. California
Bell Markets, Inc........................................... California
Cala Co..................................................... Delaware
Cala Foods, Inc............................................. California
CB&S Advertising Agency, Inc................................ Oregon
City Market, Inc............................................ Colorado
Compare, Inc................................................ Delaware
Crawford Stores, Inc........................................ California
Dillon Companies, Inc....................................... Kansas
Dillon Real Estate Co., Inc................................. Kansas
Distribution Trucking Company............................... Oregon
Drug Distributors, Inc...................................... Indiana
FM Holding Corporation...................................... Delaware
FM, Inc..................................................... Utah
FM Retail Services, Inc..................................... Washington
Food 4 Less GM, Inc......................................... California
Food 4 Less Holdings, Inc................................... Delaware
Food 4 Less Merchandising, Inc.............................. California
Food 4 Less of California, Inc.............................. California
Food 4 Less of Southern California, Inc..................... Delaware
Fred Meyer, Inc............................................. Delaware
Fred Meyer Jewelers, Inc.................................... Delaware
Fred Meyer of Alaska, Inc................................... Alaska
Fred Meyer of California, Inc............................... California
Fred Meyer Stores, Inc...................................... Delaware
Grand Central, Inc.......................................... Utah
Henpil, Inc................................................. Texas
Hughes Markets, Inc......................................... California
Hughes Realty, Inc.......................................... California
Inter-American Foods, Inc................................... Ohio
Jackson Ice Cream Co., Inc.................................. Kansas
JH Properties, Inc.......................................... Washington
Junior Food Stores of West Florida, Inc..................... Florida
J.V. Distributing, Inc...................................... Michigan
KRGP Inc.................................................... Ohio
KRLP Inc.................................................... Ohio
The Kroger Co. of Michigan.................................. Michigan
Kroger Dedicated Logistics Co............................... Ohio
</TABLE>
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<TABLE>
<CAPTION>
NAME OF GUARANTOR JURISDICTION OF ORGANIZATION
----------------- ----------------------------
<S> <C>
Kroger Limited Partnership I................................ Ohio
Kroger Limited Partnership II............................... Ohio
KU Acquisition Corporation.................................. Washington
Kwik Shop, Inc.............................................. Kansas
Merksamer Jewelers, Inc..................................... California
Mini Mart, Inc.............................................. Wyoming
Peyton's-Southeastern, Inc.................................. Tennessee
QFC Sub, Inc................................................ Washington
Quality Food Centers, Inc................................... Washington
Quality Food Holdings, Inc.................................. Delaware
Quality Food, Inc........................................... Delaware
Quik Stop Markets, Inc...................................... California
Ralphs Grocery Company...................................... Delaware
Richie's Inc................................................ Texas
Rocket Newco, Inc........................................... Texas
Roundup Co.................................................. Washington
Saint Lawrence Holding Company.............................. Delaware
Second Story, Inc........................................... Washington
Smith's Beverage of Wyoming, Inc............................ Wyoming
Smith's Food & Drug Centers, Inc............................ Delaware
Smitty's Equipment Leasing, Inc............................. Delaware
Smitty's Super Valu, Inc.................................... Delaware
Smitty's Supermarkets, Inc.................................. Delaware
THGP Co., Inc............................................... Pennsylvania
THLP Co., Inc............................................... Pennsylvania
Topvalco, Inc............................................... Ohio
Treasure Valley Land Company, L.C........................... Idaho
Turkey Hill, L.P............................................ Pennsylvania
Vine Court Assurance Incorporated........................... Vermont
Wells Aircraft, Inc......................................... Kansas
Western Property Investment Group, Inc...................... California
Wydiv, Inc.................................................. Texas
</TABLE>
37
